ValuePickr Forum

Rural Elect Corp

Has corrected ~30% from top. At cmp of 268, it is trading at 1.2 times the book value. ROE is impressive.

Return on Equity


NIM for june quarter was 4.99%.

Challenges -

govt. plans OFS for 5% stake sale (only abt 1% will be for retail) as per news flashes on cnbc.

banks are not req. to maintain SLR,CRR for long term infra loans. So that will be a challenge for rec in maintaining high NIMs. But for the existing (large) loan book, thats not a challenge

increase in Net NPAs to 0.7% (1090 cr) in Q1FY15 from 0.24% in Q4FY14.

I guess most of the challenges are priced in already. Motilal has a price target of 360/- (report from 12th Aug) . can be downloaded at -

Key issue for REC which is the case with other in the banking space as well is the restructured loans. The restructured book has grown very significantly in the last two years and current provisions may be inadequate if those restructured assets turns out to be bad. Banks and NBFCs are hiding lot of non performing assets into restructured assets and that is the reason RBI has increased the provision for restructured assets.

Government being the promoter of REC is the only factor that guarantees this will not be bankrupt if thing dont go well. Given that one can take a low percentage exposure on REC as it is consistent dividend player and there is still a lot of investment to be made in rural infrastructure which will only take off in a big way if the smart cities and rural growth push by the government comes to fruition.

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For the bolded part,I agree forPSU Banks and this reflects in there results and growth. But why do you say this for REC (a company that has consistently shown very good performance)?

Stock has shown more than 20% CAGR growth in profit for last 5 years and also dividend yield is more than 3% on current pricing
With government allowing it to borrow money through bonds for more than 1000 cr. this will get rerated in near future

looks to be a great investment

I hold stock and planning to buy more based on feedback of users

The company gives Rs 8 per share div in the month of Feb and Final div of Rs 2.75 in Sept. So in next 13 months, investor can get Rs 8 + Rs 8 + Rs 2.75 = 18.75 as a Div.

Another interesting announcement fm FM is to release 30% of PAT as Div by PSUs, which can increase the Div as well as yield at CMP of Rs 211 (Yield comes to 9%)

CPSEs asked to pay 30% dividend, issue bonus shares


Disc : Invested 5% of my portfolio at 215.


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CMP ~160.

I think this is a good opportunity to buy considering the following valuation facts:
P/E 2.82
P/B 0.54
Div. yield 6.73
Net margin 26%
ROE 23%
EPS growth (5 year average) 17%

I couldn’t understand why this is selling at such cheap price. Can someone help me out?

Its a high RoIC business. Its a seasonal stock, and cyclical. Get in at the lows and get out at the peaks, India is transforming into a big T&D needing country so its role as funder is high. Can look at it once the bear run is settling

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@JESWIN - This is an NBFC and hence the valuation could not be judged just by RoE and dividend yield or EPS growth for that matter. Generally all companies in financials sector have slightly higher dividend yield and RoE.

Now coming to the point…it is trading at P/B of 0.54x because of the asset quality concerns.

In banking business…c.10% funds are equity and rest is borrowed funds (90%)…if you now give 100% as loans and even if 5% are turning non-performing/defaults (NPA) then 50% of your funds are wiped out (since you need to pay bondholders/deposit holders)…

Currently all PSU banks and govt NBFC are trading below 1.00x BV because of this reason…they have wiped out entire equity by bad loans (to put things in perspective…PNB had 17,000 Cr. MCap and 9M 2015 loan slippages of 17,000 Cr. )…thanks to babus, political nexus and lathargic employees sipping highest level of salaries…!!!

Discl: Had subscibed REC in IPO around Rs. 100…exited last year after getting concerned about asset quality (although made 3.5x :slightly_smiling:…so was happy ending…


@vivek_mashrani Thank you for giving your opinion

Just think of these things

  1. Owner of this Business - Government - which changes every 5 years
  2. Minister In-charge may change every couple of years
    3.People who runs - Chairman & MD - will be changing also every couple of years before retirement.

So no real urge to drive these “GOVT” businesses except few exceptional managers here and there in some PSU. As Public changes their interests every 5 years to elect a GOVT, so these business performance cannot be predicted.


i think due to selling in psu bank’s …everyone having fear to touch this will take same time but surely rec will trade @ avg pe of last 10 years that is 6.3.
once psu banks stocks start attracting investor"s.
will dig deeper lets see…

dis …watching no position yet only nibbling in BOB


Stock formed a double bottom near 152 odd levels in Jun. And now just about to break out from the solid resistance zone of 193-197.

  1. India on road to a power surplus status first time since Independence.
  2. Huge govt. money set to come in the sector. Main beneficiaries likely to be REC and PFC.
  3. New RBI Governor (to be installed by Modi) much more likely to cut rates than outgoing Rajan. Shall give further air under the wings.
    What do other, beeter informed people opine?
    DISC: Just Tracking, building conviction as of now. But may nibble soon.

REC broke Near term resistance zone of 193-197 conclusively. And also close above the 200DMA. Technicals in place, fundamentals improving day-by-day. After a long correction, it looks all set for a long upward journey.
DISC: Initiated my investment today.

REC re-tested the 200 DMA today and bounced back from the psychological mark of 200, closing above the 200DMA. Looks all set to fly.
DISC: Increased exposure today.

REC has started moving. Maybe this is the trigger, or maybe charts are the trigger.

Looks like good times to come for PSU’s shareholders.

DISC: Invested.

Good pick n timing Devansh.

Power has one of the best performing minister Piyush Goyal who has sorted out long pending problems like coal shortage,gas shortage,discoms debts,clear focus,walked the talk over 2 years,old pvt sector promoters selling assets to pay interest,100% FDI in ARC n insolvency law passage,power demand to increase ,reforms in state power sector

one of the cheapest stock at BV of 308,3 PE ,dividend of 17 rs,lot of tailwinds


Weekly REC chart showing clear break of the Major DownTrend Line active since March 2015.

Cash rich REC all set to rise further with bonus issue declared!!

DISC: Invested

@devansh_god Thanks for your technical insight into REC. What kind of levels you see from the charts in medium term?

Disc : Small position… invested recently.

Can’t predict the future brother…(People on MMB boards are giving all types of targets from 250 to 500!!)… I’m no expert, so, I’ll refrain from suggesting any targets.

But the most probable direction is UP!! :wink:

DISC: Invested. May be biased. Pls. do your own research.