Buy REC; target Rs 225: Sunidhi Securities
Sunidhi Securities is bullish on Rural Electrification Corporation (REC) and has recommended buy rating on the stock with a price target of Rs 225 in its August 23, 2013 research report.
August 23, 2013 / 14:47 IST
Sunidhi Securities' report on Rural Electrification Corporation (REC)
"Rural Electrification Corporation (REC), equity capital stands at Rs 987.5 crore. With reserves of Rs 16, 542.4 crore, the book value of the share as at FY13 works out to Rs 177.5. REC has an asset base of Rs 1, 36, 534 crore (Rs 1, 08, 819 crore) YoY as at Q1FY14 and advances stood at Rs 1, 32, 915 crore as against borrowings of Rs 1, 11, 104 crore (YoY). REC's capital adequacy ratio stood at 17.71 percent at end-FY13, which provides sufficient buffer to the regulatory requirement of 15 percent. REC's high profitability is characterized by its reasonable interest spread and return on net worth of 3.62 percent and 23.85 percent at end-FY13 respectively.REC will make all efforts and harness all resources to capture optimal share of funding business of the estimated debt requirement of Rs 7.7 lakh crore for XII Five Year Plan. According to the Planning Commission’s estimates, REC is expected to fund around Rs 1.75 lakh crore worth of power projects in 12th plan (2012-17).This translates into a 22 percent growth annually over this period. Apart from high demand for credit, the company’s access to Section 54EC bonds and tax-free bonds for low-cost funding may help it maintain its margins. The loan book growth is expected to be strong in the long-term, given the huge investment opportunity in the transmission and distribution space where REC is the top financier. Given its ‘infrastructure financing status’ and the reducing exposure of banks to power sector loans, REC may gain market share in power sector advances from banks.REC enjoys advantages as a government enterprise via tax and other exemptions, access to low-cost funding and its ability to source foreign currency loans. It is also responsible for implementation of Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) scheme.The huge volume of business, REC’s expectation of steady cost of funds, its extension of mobilizing traditional sources of fund at low cost through capital gain/other taxable bonds and banks/ECB routes and the huge investment lined up in the power sector give strong visibility to the revenue & profitability in the coming years. At the CMP of Rs 179 the share is trading at P/E of 3.8x and P/ABV of 0.9x on FY14E and a P/E of 3.2x and P/ABV of 0.8x on FY15E.We recommend BUY with a target price of Rs 225 in the medium-to-long term," says Sunidhi Securities research report.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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