Buy REC; target of Rs 200: Axis Securities

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26 Aug, 2025 12:21

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Axis Securities's research report on RECRural Electrification Corporation(REC) disappointed in Q3FY16 by reporting below expected PAT at Rs 13.7 bn (down 1% YoY) on decrease in NIM, de-growth in sanctions, moderating disbursements and a sharp deterioration in asset quality. With 15% of loans extended to the private power segment, where asset quality continues to be a concern, and increase in provisions for its restructured book to 5% by FY18, we expect provisions to remain elevated going forward. Though disbursement growth (23% YoY) is been moderating, loan growth remains stable at 20% YoY on lower repayments (average maturity period of outstanding loans is ~5.7 years). We expect advances CAGR of 15% from FY15-18 and 100 bps decline in margin over FY18 on probable impact of implementation of UDAY scheme.REC is giving higher interim dividends (Rs 12 per share in FY16) and also likely to buy stake in government entities (as per media reports). This, we believe, will not only impact the leveraging ability but also return ratios. Though the quantum as well as timelines of loans, which would get converted into low yielding state bonds (UDAY scheme), is uncertain, we build in partial impact in our earnings for the same. Maintain BUY with TP of Rs 200 (0.7x FY17E ABV; upside of 16%) on the back drop of favorable valuation (0.7x FY16E ABV of Rs 251 and 0.6x FY17E ABV of Rs 268).For all recommendations, click here 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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