Buy REC; target of Rs 600: Emkay Global Financial

Emkay Global Financial's research report on REC

REC reported a satisfactory quarter in terms of margins, credit cost, and asset quality, while growth in Q3 was a tad below expectations on account of higher repayment and resolution of NPAs; however, disbursement remained strong. Asset quality continues to improve on account of resolution in NPA assets which resulted in a negligible credit cost (approx -0.6%). The management expects total recovery and write-back of ~Rs22bn next year (from 4 projects resolved through the NCLT), including recovery of Rs3.5bn from the KSK Mahanadi project in Q3. The management has marginally moderated growth guidance to 15-17%, and expects this growth to be driven by strong disbursement led by RDSS and demand for loan in the RE (incl Hydro – targeting large-ticket projects), thermal, and non-power segments; it stated that it will maintain a healthy margin of ~3.7% despite the strong competition in some segments. Factoring in the Q3 performance and management commentary,

Outlook

We adjust our growth estimates downward which results in an EPS cut of ~1-6%. We maintain BUY on the stock with revised down (by ~7.7%) TP of Rs600 (earlier Rs650)