Buy Rural Electrification Corporation; target of Rs 238: Edelweiss

Edelweiss' research report on Rural Electrification Corporation

Rural Electrification Corporation’s (REC) Q4FY17 PAT, at INR13.2bn (up 14% YoY), came marginally lower than estimate on higher credit cost (as provision coverage jumped >500bps QoQ to > 33%). As the company has been following RBI’s norms from FY15, there was no unpleasant asset quality surprise in Q4FY17, unlike peers.

Outlook

While we were sceptical on UDAY’s implementation, progress so far has been encouraging, on growth as well as NIMs fronts. We expect the stock to trade at 1.1x FY19E P/BV for RoE of 16-17% and dividend yield of 3%. Maintain ‘BUY’.