Buy Rural Electrification; target of Rs 145: Geojit

Geojit's research report on Rural Electrification

Rural Electrification Corporation Ltd. (RECL) is a public sector non-banking finance company (NBFC). The company primarily caters to the funding requirements of generation and T&D projects, especially in rural areas. Net interest income (NII) decreased by 7.4% YoY mainly due to 52 bps YoY decline in net interest margin (NIM) to 3.8% in Q3FY18. Asset quality deteriorated significantly as Gross/Net non-performing asset (NPA) ratio increased by 45/37 bps QoQ to 3.0%/2.0% in Q3FY18.

Outlook

Hence, we revise our target price downwards to Rs 145 and rollover our valuation to FY20E. We reduce our target multiple to 0.8x on FY20E ABV (earlier 1.0x on FY19E ABV) to capture uncertainties around private restructured assets. However, we upgrade our rating to BUY from Hold given the recent fall in stock price (↓24% in last six months) which factor most of the negatives.