Rural Elect Corp

The Commercial Paper situation is continuously getting better, with over 19,000 cr. issued today. Salient highlights:

  • 10,000 cr. went to NBFCs, though REC was a big chunk. Still, fairly good showing for the financial world.
    With PFC -REC merger, it would be easier to raise capital.

Disclosure invested

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How to conclude from this?

  1. Will REC still provide generous dividend?

  2. After acquiring REC stake will PFC be able to provide dividend. Note: Last year it has paid lesser dividend

  3. Which is going to be better pick - REC’s Book Value is increasing, it’s showing higher EPS. Will it continue to pay the similar dividend?

Very much Possible of continuing the dividends.

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 !

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REC December quarter profit jumps 16% to Rs 1,275 crore

But still it has not declared dividend. Normally in Feb month it declares dividend.

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Hi @sainkar
There is a board meeting on 28th Feb to consider the dividend.

Edit

Dividend of Rs 11 per share declared

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Came across this article on details with acquisition by PFC - Centre’s disinvestment boost: PFC to buy REC .

The integration process doesn’t seem to be complete till now.

Government sold it’s stakes to PFC. Merger possibly in 2020.

Disc: Booked my position at 150. Will look to reenter around 90-100 if it comes. The stock keeps on ranging between 80-170 levels from past few years.

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Good results by REC. Co has also declared an interm div of Rs 11 per share. Co also improved it’s impairment coverage to now 50%+

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REC posts 66% jump in net profit at Rs 2,197 cr in September quarter

Has anyone received dividend for Q2 yet ?

Dividend will be credited on 3rd Dec

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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.

Latest result can be found here.

Best regards,
AJ
Disclosure: Invested. Been building position from mid 2020 and continue to add. Views are biased.

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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.

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A few factoids to add here:

  • That 90% of the book (to state and central government entities) has not seen any credit loss in the history of the company.
  • In the last 20 years the company has never reported a full year RoE of less than 13% (currently reporting RoE in excess of 20%)
  • EPS and BVPS has also compounded at a healthy rate
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One can look at this chart

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As per this article REC can look at offshore cheaper funding which will improve its bottom line / overall financial performance.

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.

AJ
Disclosure: Invested and views are biased.

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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 :smiley:

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While valuation band has always been 4x-7x PE, its now at 2.7xPE. With RoE of 18-20%+ and EPS/BVPS CAGR of 15%+ - should it atleast trade at 5x?

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