Buy Rural Electrification Corp; target of Rs 550: Motilal Oswal

Motilal Oswal's research report on Rural Electrification Corp

Rural Electrification Corp (RECL)’s 3QFY25 PAT grew ~23% YoY to INR40.3b. NII grew ~20% YoY to ~INR51.3b. Other income rose ~260% YoY to~INR2b. Opex rose ~78% YoY/~63% QoQ to ~INR3.1b and the cost-to-income ratio was ~5% (PQ: 3.1% and PY: ~4.7%). The sequential jump in opex was mainly due to higher CSR expenses. PPoP rose ~20% YoY to INR50.2b in 3QFY25. Yields (calc.) rose ~3bp QoQ to ~10.01%, while CoB increased ~4bp QoQ to ~7.32%, resulting in a largely stable spread QoQ at ~2.7%.

Outlook

We estimate RoA/RoE of 2.6%/20% and a dividend yield of ~5.6% in FY27. Reiterate BUY with a TP of INR550 (premised on a target multiple of 1.4x Sep’26E P/ABV).