Buy REC; target of Rs 540: ICICI Securities

ICICI Securities's research report on REC

REC reported a healthy Q1 with its loan assets growing 3% QoQ despite a seasonally weak quarter. Calculated credit cost (annualised) was negative 43bps with the restructuring of the TRN Energy account, which led to an ECL reversal of INR 2.7bn. NIMs and spreads were higher in Q1 vs. FY25 levels. Overall, PAT came in at INR 44.5bn, up 5% QoQ and 29% YoY, translating into RoE of 22.6%. Going ahead, steady margins, healthy asset quality, stable growth outlook and resolution pipeline position REC on a strong footing to deliver RoE of >20% for FY26E/FY27E.

Outlook

With the stock trading at 1.2x / 1.0x FY26E/FY27E, we maintain BUY at an unchanged TP of INR 540, valuing the stock at 1.6x FY26E BV.