Tough for PFC to provide dividends as most of the money will be utilized and debt will be raised to fund the acquisition of GOI Stake. Though it may pass on the dividends it will get from REC to the shareholders.
Of course , it will be REC. And which is why you can see the price actions in both the names. Though , investors in REC will not have any gains from acquisition by PFC as Cash won’t come in the subsidiary. It will go all to the Government.
Disc: Invested in REC recently for short to medium term and looking to add more on some declines !
Hi All - thought of inviting your attention towards REC(considered a dull and boring company by a lot of smarter investors considering the valuations at which this one is trading).
With an EPS of about Rs. 42, price to earnings of barely 4, the dividend yield well in excess of bank fixed deposits and book value per share well above the current market price, does anyone understand the risk that the investors are perceiving?
Based on my review of the financial statement, noted that most of its lending(~90%) to public sector entities which are backed by Central/ State government - I believe the chances of delinquency in these accounts are minimal. See the disclosure of loans from the financial statement below for better understanding:
The company has a AAA credit rating which helps raise funds at relatively low cost and looking into the dividend - they payout about 25-50% of net profits and about 20-25% of actual operating cash flow(excluding financing activities) as dividend(the dividend payout has been in the range of Rs. 2.2K Crores annually against actual cash generation of about about 8.5K Crore during 2019-20(profit of 4.8K Crore) and about 12K Crore during 2020-21(profit of 8.3K Crore)), which means about 70% of the cash generated is going back as growth capital.
Additionally, I believe the country has a fairly long way to go on public infrastructure front which gives a fairly good visibility on the long term survival and relevance. Above all the loan assets are at a staggering 3.6L Crore which defaults it as a systemically important organization. Thoughts are welcome.
I am tracking and am invested in REC since May 2016 when it touched multi year low since then have given excellent dividends year after year with slow and steady capital appreciation.ROI including dividends comes to around 18% + on annual basis wonder if at all change to another compounder is needed at all. Repeat a safe compounder.
Thanks for the response @Saket_Yadav. I’m not really able understand the reason for the current valuation.
The companies book value per share is Rs.243 and deliver a dividend yield of nearly 10%!
Have a look at the share holding: Govt Hold 52%, FII’s hold nearly 25% and HDFC mutual fund hold in excess of 8%. Retail holding(actual free float) is about 7.5% - I believe the FII’s and HDFC mutual fund would have done minimum due diligence before entering into this.
Stock is currently trading at a PE of 2.53!(i’m not joking - you can check the numbers here.)
I believe the share will come out of its shell at some point in time and till that time, i will happily continue to buy into this.
Looks like a great dividend stock and virtually risk-free as it finances mostly state-backed power projects i.e. most of its lending (around 90%) is sovereign guaranteed, will never default. However, its low PE and Book value does not necessarily mean that it will go up in the near future. Historically, it has always traded for low valuations for some reason. So to me this looks like a stock I would buy in my retirement years where my investment is safe and I don’t need to keep checking in and I get ~10% annual dividends