REC Ltd, a Maharatna PSU and leading NBFC, started this week's trading session with a bearish tone due to RBI's new rule on financing projects. REC is one of the key financier of power projects in India, and hence the new rules led to a panic selling. In another development, REC also received RBI approval for introducing a new subsidiary in GIFT City. Broadly, REC shares are recommended to BUY!
REC Share Price:
On May 6th, REC share price ended at Rs 516.65 apiece, down by 7.35% with market cap of Rs 1,36,045.52 crore on BSE. The stock followed its parent PFC in becoming top bears on Monday.
The reason behind the latest drop is due to RBI's draft on lending for projects under construction phase.
REC's stock has a 52-week high and low of Rs 567.05 apiece and Rs 127.40 apiece respectively.
YTD, REC shares is up by 22% on BSE, while in a year, the stock zoomed by 287%.
REC GIFT City:
In the start of this week, REC received RBI nod for setting up a wholly owned subsidiary in International Financial Services Centre (IFSC), Gujarat International Finance Tec-City ("GIFT"), Gandhinagar, Gujarat.
Power Ministry in its statement said, "The decision to expand operations into GIFT, a burgeoning hub for financial services in India, comes as REC continues to diversify its portfolio and explore new avenues for growth. The proposed subsidiary will engage in a range of financial activities as a finance company within GIFT, including lending, investment, and other financial services."
While Vivek Kumar Dewangan said: "The GIFT City platform offers a conducive environment for international lending activities, coupled with world-class infrastructure. We are confident that REC will harness these advantages to carve a niche for itself in the global market. The entity at GIFT City will not only present new business opportunities for REC but will also contribute significantly to the growth of the country's energy sector. We look forward to leveraging this strategic move to further propel REC's mission of fostering growth in India's power and infra sector while expanding our footprint on the global stage."
REC Earnings:
In Q4FY24, REC posted revenue from operations of Rs 12,613 crore, up by 25% YoY, while net profit jumped by 34% YoY to Rs 4,016 crore. Net interest income (NII) stood at Rs 4,407 crore, surging by 29% YoY with net interest margin expanding by 31 basis points to 3.60%.
Aided by growth in profits, the Net Worth of REC has grown to Rs 68,783 crores as on 31st March 2024, registering an increase of 19% YoY.
Furthermore, REC's loan book has maintained its growth trajectory and has increased by 17% to Rs 5.09 lakh crores as against Rs 4.35 lakh crores as at 31st March, 2023. Signifying improving asset quality, the net credit-impaired assets as at 31st March, 2024 have reduced to 0.86% from 1.01% as at 31st March 2023 with Provision Coverage Ratio of 68.45% on NPA assets, as at 31st March, 2024.
REC Dividend:
Continuing with the tradition to reward its shareholders, the Board of Directors of the Company has declared the final dividend of Rs 5 per equity share (on face value of Rs 10/- each) and the total dividend for FY 2023-24 is Rs 16 per equity share.
That being said, Rs 5 dividend per share will be the last payout of FY24. Earlier, for this fiscal, REC paid three interim dividends totalling to Rs 11 per share or 110%.
Including the final dividend, the total payout for FY24 will be at 160% amounting to Rs 16 per share.
Currently, REC has a dividend yield of 3.1%.
As per Trendlyne data, REC has delivered up to 36 dividends since Sept. 8, 2008. Apart from dividend payout, REC also has rewarded investors with bonus shares. The last bonus share was of 1:3 in August 2022, following 1:1 bonus issue in September 2016.
REC Share Price Target:
Analysts at Phillip Capital said, "Power financier has been witnessing accelerated disbursement of loan driven by government sponsored schemes like LPS (Late payment surcharge); RDSS (revamped distribution sector scheme) followed by demand from renewal and Infrastructure segment. Infrastructure segment should start contributing meaningfully over next few."
In the medium term, the brokerage's analysts believes spread should settle at 2.5% - 2.7% level compared to 2.86% currently. Healthy recovery in NPA during current fiscal and change in ECL provisioning norms should keep credit cost lower in near term. The entity is expected to deliver 8%/17% earnings growth in FY25E/26E with healthy return ratio.
On the valuation, the brokerage's report said, "Opportunities in energy transition and infrastructure segments has opened growth avenues for power financiers. A healthy sanction-book provides medium-term loan growth visibility of 17-18% for REC. Stability in NIMs and continuous improvement in asset quality will drive earnings, with healthy return ratios. At CMP, the stock trades at 1.68x/1.45x FY25/26 BVPS of Rs 301/350. Maintain BUY rating with a price target of Rs 570, valuing REC at 1.6x FY26 book value."
Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.
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