REC Shares Rise 6% As Management Clarifies On RBI Draft Guidelines

Shares of REC Ltd. witnessed a robust recovery on Wednesday, breaking free from a two-day decline streak following reassuring statements from the management in a conference call regarding the potential impact of the Reserve Bank of India's (RBI) draft guidelines on project financing.

The management's clarification conveyed that the draft guidelines by the RBI are not expected to adversely affect the company.

Post-clarification, On the Bombay Stock Exchange (BSE), REC shares climbed by 6.23% to reach Rs 538.65, while on the National Stock Exchange (NSE), the stock experienced a rise of 6.50%, reaching Rs 538.95.

Additionally, shares of Power Finance Corporation (PFC) climbed by 4.7%, while the Indian Renewable Energy Development Agency (IREDA) experienced a 1.5% increase in early trade.

During the conference call, REC's Managing Director, Vivek Kumar Dewangan, articulated that the RBI has solicited feedback on the draft guidelines, with a deadline set for June 15. He underscored REC's classification as a non-banking financial company (NBFC) adhering to the IND-AS standards, indicating that any impact would be absorbed through financial results.

Further elaborating, the management clarified that the majority of REC's loans benefit from state-government guarantees, rendering the RBI guidelines inapplicable to loans backed by government assurances.

Recently, REC reported a commendable 33.07% surge in its consolidated net profit for the fourth quarter ended March 31, 2024, reaching Rs 4,079.09 crore compared to the previous year's Rs 3,065.37 crore. Consolidated total income also witnessed a substantial uptick of 23.91%, amounting to Rs 12,706.66 crore against Rs 10,254.63 crore year-on-year (YoY).

For the fiscal year concluding on March 31, 2024, REC announced a notable 26.82% increase in its net profit, totaling Rs 14,019.21 crore compared to Rs 11,054.64 crore in the preceding year. Total income for the same period surged by 20.28%, reaching Rs 47,214.15 crore, as opposed to Rs 39,252.73 crore in the previous fiscal year.

In the wake of the RBI's emphasis on provisioning for project loans under construction, REC's MD outlined the phased impact on the company's Tier-I capital over a three-year timeline. Additionally, he emphasised a cap on single-project exposure, ensuring it does not exceed Rs 50,000 crore.

Dewangan acknowledged that certain cost implications for banks may trickle down to borrowers, particularly as banks do not adhere to the IND-AS format like REC does. He also noted the possibility of some banks withdrawing from the competitive landscape within the project financing segment.

Highlighting REC's ambitious aspirations, the management disclosed intentions to double its Asset Under Management (AUM) to $125 billion by 2030, potentially achieving this milestone even sooner, by 2029.

The market's positive response to REC's management clarification underscores investor confidence in the company's resilience amid regulatory developments, reaffirming REC's position as a key player in the financial landscape driving India's infrastructure growth.