Buy REC; target of Rs 360: Motilal Oswal

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26 Aug, 2025 12:21

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Motilal Oswal's report on Rural Electrification Corporation (REC)

"RECL’s 2QFY15 PAT grew 35% YoY and 17% QoQ to INR15b, 9% above our estimate of INR13.8b. While the operating profit was in line with estimate, lower provisions of INR180m (v/s est. of INR1.1b) led to above estimate PAT. Loan growth was 17.3% YoY (4.6% QoQ) to INR1.62t, led by T&D segment, which grew +20% YoY and 5% QoQ. During the quarter, loans to private sector grew 53% YoY and stands at INR282.8b — 17.4% of overall loan book."

"Amid the underlying stress in power segment, RECL managed to generate steady earnings CAGR of +20% over FY09-14. While RBI’s recent move to grant regulatory forbiddance to banks for infrastructure lending can exert pressure on profitability over the long term, near term growth and profitability is likely to remain healthy led by a) outstanding sanctions of INR1.2t (80% of outstanding loan book), b) massive demand-supply mismatch and c) fragile health of SEBs (enables pricing power). Moreover, with a stable government at the center, infrastructure bottlenecks are expected to be eliminated, which will be positive for growth and asset quality. RECL trades at 1x FY16E P/B (below its LPA of 1.3x). Acceleration in reforms could be a catalyst for re-rating. Maintain Buy with a target price of Rs 360", says Motilal Oswal research report.

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