The whole energy sector is having a rebound . REC definitely is looking good on the CHARTS . I will be buying it for Long term , as it continues to pay good dividends . the Buy level for me will be above 230 . Short Term target : 239 , 259 .
Disc : Not Invested
UPDATE:
Bonus ratio 1:1 (Record Date: 29th Sep 2016)
Final Dividend Declared: 51%
And Concall Today at 2:30PM
Although all of the other parameters look very good, NPAs seems to be rising
Gross NPA -> FY14 - 0.33%, FY15 - 0.74%, FY16 - 2.11% and Q1’17 - 2.55%
In the recent concall, management mentioned that these NPAs being technical NPAs and not necessarily problem.
Those who are tracking this company, what is your understanding on this and how problematic this is?
DISC: small portion of portfolio.
REC AGM is on 21 Sep in Delhi. Any queries which others may want to raise
please post.
Post UDAY saw uptick in demand for power, issues of discoms being addressed: REC
"Ujwal DISCOM Assurance Yojana (UDAY) is addressing all the issues relating to the distribution companies (DISCOMs) and the distribution. REC has been playing a major role there", PV Ramesh, Chairman and Managing Director at Rural Electrification Corporation (REC) told CNBC-TV18.
The government is likely to take up amendments to the mega power policy soon and back of that lot of the power stocks have been busy.
REC has been a major beneficiary of these decisions by the government said Chairman and Managing Director PV Ramesh in an interview to CNBC-TV18. According to him, the power sector currently is experiencing a transform across the value chain.
“Ujwal DISCOM Assurance Yojana (UDAY) is addressing all the issues relating to the distribution companies (discoms) and the distribution. REC has been playing a major role there”, he said.
The demand for power has been consistently increasing at a CAGR of 7 percent per annum, he said and with UDAY intervention it will pick up further.
Below is the verbatim transcript of the interview.
Sonia: What is your own expectation from the new power policy that is expected very soon? What are the top two-three things that needs to be addressed at the moment?
A: I am not privy to the policies and the decisions of the government. REC is a beneficiary of such decisions. As we speak today, the power sector is going through a major transformation across the value chain. You have seen what is happening in the renewable sector. There is a major initiative of UDAY, which is addressing all the issues relating to the discoms and the distributions which had traditionally been a major bottleneck and REC has been playing a major role there.
Deen Dayal Upadhyaya Gram Jyoti Yojana for which again REC is a coordinating agency, is pushing ahead with rural electrification. We have already completed 12,705 villages’ electrification since the programme started by Honourable Prime Minister year and a half ago, we have less than 5,000 villages to go. So I think the power sector is experiencing a transformational movement.
Latha: I just wanted to know if lately have you noticed any improvement in PPAs, any increase in power buying?
A: We have surplus power in this country today, 310 gigawatts. The peak demand is still at 160 gigawatts. Major investments are being made in modernising the transmission and distribution systems.
The demand is growing on a compounded annual growth rate (CAGR) of around 7 percent per annum. This will certainly pick up with the UDAY interventions. This is a continuous process but what you see is the profitability of the state discoms, we see that the power sector demand has gone up in several states after the UDAY has been introduced. The profitability is improving, the ATMC losses are reducing.
Latha: We do not get that from the bankers. Can you give us some numbers in terms of ATMC losses decline and we have not heard tariff increases, what was expected after UDAY was that every year we will see tariff increases, we haven’t. Can you tell us which discoms have turned profitable?
A: Let me explain this bit more clearly. The increase in tariffs is the determined by the regulatory commissions. Every state government which has come on board with UDAY which is virtually every state has filed for increase in tariffs as a revision of tariffs. Bihar has already done, Chattisgarh was increased by 12 percent last year, 20 percent this year and the similar is happening across and then there has been a tariff increase. Chattisgarh is one clear example, ATMC losses have gone down demonstrably, the cost of power has gone down demonstrably in states specifically like Jharkhand, Bihar, Rajasthan, Madhya Pradesh. Andhra, Karnataka, Maharashtra, Gujarat have always been doing better. There is a progress and Haryana has demonstrated – one of the discoms this quarter has demonstrated a clear profitability which has been traditionally loss-making. This does not happen overnight.
Sonia: Your disbursements had fallen quite a bit in the quarter gone by and you are sitting on a base of around Rs 12,000 crore, what could the disbursements be going ahead and what is the update as far as asset quality is concerned?
A: Let me say two things and I am not sure how you got this figure. Both our sanctions and disbursements have been growing consistently around 15 percent. We expect it to go to 20 percent. We are expecting a disbursement to be averaging around Rs 55,000-60,000 crore by the time we close our books this year. We still have another three days to go. This figure of Rs 12,000 crore is certainly not on the books.
Looking at the NPAs, we have the lowest among all the financial institutions not only in this sector but in any other sector, our NPAs are less than two percent. It is around 1.8 percent and we are making very consorted efforts to see that the stressed assets issue is addressed comprehensively. These are not ad hoc decisions that can be made overnight. All this adds to the resilience if you look at the market and see the performance of the REC. this is based on the fundamentals of the sector and the performance of the organisation.
Latha: We invited you to know about the mega power policy which we are expecting anytime now, what would you want in that policy?
A: We would like to see a comprehensive policy that would address some of the concerns that the several of the financial institutions have which relates to this NPAs and in the longer-term, the measures to pick up demand which is on the anvil and the PPAs would follow.
Latha: Is there anything on the anvil in 2017 first half? Is there any open PPA from any state?
A: There is a lot to look forward to. The states will have to take a call on PPAs. We are now in a different eco system where there is a surplus power in this country.
So the states have to take a call on this. That is the judgement which the states will make and we will certainly work with the states, with the utilities to see that they remain profitable and they provide – as the government wants 24/7 quality power to all citizens and all consumers.
Not much interest in this 5% div yld,PBV 1,PE 5.7 stock under a competent CMD & dynamic minister Piyush Goyal.Why??
87% exposure to state discoms who seldom default , most of pvt sector power plant commissioned.UDAY forcing sate govt to reform
Vivek ji,
How about PFC, a chance of bonus stripping and an interim dividend (to be announced on 10.8.17)
Amit
I recently entered into REC again from a long term perspective, I have been on and off with REC in the past. There seems to be no interest towards REC in the forum, is there any reason for this? My thoughts were in the lines of a stable organization with good dividend yield.
Well I am positive on REC and PFC both given the huge reformation that is needed in India and are currently on the minds of the government. I am invested in both since Jan 2015 and plan to continue to hold it for the next 3 years at least.
I am long REC given dead cheap valuations and high dividend yield. I have been reading a lot about UDAY scheme and the government’s intention to reduce transmission losses. So basically I expect a turnaround of discoms. With recent supply demand rationalisation I expect the sector to pick up in 3 years. The company has been vehement that credit quality is good and NPA is under control. For PFC I think they have a NPA issue. With the recent change in CMD I think it’s positive overall.
Invested in REC since last 2 years, sold 50 % shares after taking Bonus , holding 50 % shares as free holding for long term. This stock has Good fundamental, My view is one must have this stock in their portfolio for Long term to get good reward. .CMP / BV 0.96 , P/E 5.43 , .Dividend Yield: 5.67%. Promoter ( GOI) holding 58.86%.
Any views on PM’s Saubhagaya scheme? REC will be the nodal agency for operationalizing this Rs 16000 cr scheme
Generally nodal agencies only act as intermediary for transfer of money from central government to relevant agencies. Similar to what canara bank was nodal agency for interest subvention scheme. As such they don’t earn a penny out of this, only some operational costs increases.
This seems to be an apt example of a typical Benjamin Graham’s stock type of ’ relatively unpopular but large company’ . REC does seem a good buy in the current circumstances.
Without a shred of doubt, this stock is a strong SELL in the current circumstances. It is not a growth stock, with stagnated numbers, and rising NPA. It is a good stock, but to be had in the range of 80 to 115.
On what basis are you saying that the numbers are stagnant? Advances has become stagnant only in FY17, prior to that it has grown 10 times in 10 years. The latest stagnation is largely attributable to discom distress, which will work out positive in the long run. The same is the trend with book value. Further on the PL side, both top line and bottom line have been healthy. ROE is 20%. Even if we have growth concerns, we still see that P/B is 0.85, P/E is a 6x, cheap by any standards. Lastly you have a High dividend yield too. Its a matter of time that the stock corrects to intrinsic value. I am aware that NPA is high, but it’s bound to reduce as discoms get healthier. Disclosure invested at 176 Rs
The current health of the stock is already factored in the price. If one believes that is not the case, then he may remain invested.
Now, if we expect (hope) things to further improve, then it is the thing of the future, which may or may not unfold as expected.
Furthermore, when the bear markets start PSUs get hammered first.
NPA may get worse, its a strong possibility. Any growth in the near future will be negated till this NPA issue gets cleared.
Therefore, I think correction is now on the cards. If you look at the price action, you will see that REC has not been able to make a fresh high since 2010, at least not decisively. It will take sustained good numbers to breakout its 52W high.
If I were investing in REC, I would not be too enthused unless I get a great deal, that is entry between 80 and 100… and would sure sell the stock at around 200. Its fundamentals warrant such a stance.
If I wanted to chase growth, then there are very many other stocks, better than REC in every aspect.
A good primer on rural electrification
http://www.theshillongtimes.com/2017/10/10/the-saubhagya-scheme/
