Buy REC; target of Rs 210: Motilal Oswal

Motilal Oswal is bullish on Rural Electrification Corporation (REC) and has recommended buy rating on the stock with a target of Rs 210 in its July 30, 2012 research report.

“Rural Electrification Corporation (RECL) reported PAT growth of 32.5% YoY and 15% QoQ for 1QFY13. PAT was 12% higher than our estimate, led by strong NII growth, other income and no provisioning in 1QFY13.”

“Healthy loan growth (24% YoY; 5% QoQ) coupled with 27bp QoQ margin expansion led to positive surprise on NII (6% above estimate). NII grew 28% YoY and 14% QoQ to INR11.6b. Loan growth remained healthy, driven by the T&D segment (+4% QoQ and 26% YoY) and short-term loans. During the quarter, short-term loans constituted 30% of incremental loans. Spreads improved 21bp QoQ, led by higher yield (+17bp QoQ) on loans (incrementally higher share of shortterm loans in disbursements) and 4bp decline in cost of funds on account of higher funds raised in the form of ECBs and tax free bonds during 4QFY12. Post two quarters of decline, sanctions grew 3% YoY and 116% QoQ, mainly in the T&D segment. Disbursements grew 25% YoY (down 30% QoQ) to INR68.6b. Disbursement growth was strong across segments. Asset quality remained stable QoQ, with GNPAs at 0.46% and NNPAs at 0.4% at the end of 1QFY13. There were no provisions made during the quarter.”

“We expect earnings CAGR of ~20%, with average RoA of ~3% over FY12-14. While margin compression and higher provisioning expenses impacted RoA in FY12, we expect margins to stabilize at current levels. The stock trades at 1.1x FY13E BV of INR170 and 0.9x FY14E BV of INR194. Maintain Buy,” says Motilal Oswal research report.  

Institutional holding more than 40% in Indian cos

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