What you are referring as OPM is PBT/Revenue, this is a wrong metric to track finance companies. You have to look for yield, cof, spread, NIM, Creditcost, RoE, RoA
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It took 40 days to hit 150. More to go. Power sector seems to be in a structural bull run. If this momentum can sustan the next level to look for would be about 165.
AJ
Disclosure: Invested and biased.
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Would this explain the recent run-up?
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Such reforms keep happening the sector at regular intervals - only the name of scheme changes (APDRP, Restructured APDRP etc) - States don’t even report elementary data as reported in this article:
timely rendition of financial and energy accounts, timely audit, and compliance with legal and regulatory requirements
Massive breakout seen in REC, the stock has already moved into uncharted territory. The valuation continues to be extremely attractive. Let’s see how much more heat is left in this journey.
AJ
Disclosure: Remain invested.
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- REC Ltd reported a 21% increase in consolidated net profit at Rs 2,968.05 crore for Q1 FY 2023-24.
- The company’s revenues rose to Rs 11,091.77 crore from Rs 9,506.06 crore in the same period last year.
- The board approved an interim dividend of Rs 3 per equity share for 2023-24, payable on or before August 24.
- REC is focusing on India’s energy transition and aims to have a 20% share in related projects, representing an investment of around Rs 15 lakh crore.
- They plan to increase their renewable energy portfolio to about Rs three lakh crore.
- REC has not added any new NPAs in the last six quarters and aims to become a net-zero NPA company in the next two years.
- The Net Credit-impaired assets have reduced to 0.97% with a Provision Coverage Ratio of 70.46% as of June 30, 2023.
- The net worth of the company has grown to Rs 60,886 crore as of June 30, 2023, a YoY increase of 16%.
- The loan book has increased by 17% to Rs 4.54 lakh crore compared to Rs 3.88 lakh crore as of June 30, 2022.
- The Capital Adequacy Ratio (CAR) of the company stands at a 27.60% as of June 30, 2023.
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I was listening to a couple of TV interview of the REC CMD.
Apart from Solar and Wind power projects, the company is currently looking at financing Hydro storage, Solar modules manufacturing, and Electric vehicle projects.
The company is betting big on Green Hydrogen, Green ammonia, and round-the-clock power projects, including renewables bundled with thermal, and ethanol manufacturing.
He also said that they are going to borrow Foreign Currency Borrowings which is available at cheaper interest rates for funding Green Energy transition and especially they can lend to the companies who have dollar revenues so that they can save in hedging cost. For this purpose, REC is in the process of setting up a subsidiary for the same in GIFT International Financial Services Centre, Gandhinagar.
While, REC & PFC duo could be a proxy play to the Green energy transition with a good Dividend yield.There may not be any OFS by Govt(Govt holding is at 51%). NPA- they are good and aiming to be a zero NPA company Though the stock is available at ridiculously low P/E, the possible risks are:
(1) Being PSU …Govt frequent policy changes may not augur well for the company
(2) Till now , they were funding Mainly PSU’s and Govt undertakings. But now they are funding to a lot of pvt undertakings which may increase NPA.
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Discl: Had entered at lower level last year and Remain invested for both REC & PFC for long term. It is not a buy or sell recommendation. Please do your own assessment before investing
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With Government of India, setting and pursuing the target of achieving 500 GW of renewable energy capacity by 2030, energy transition is expected to drive significant investment in the power sector.
 "Electricity, power, discoms")
Photo: Bloomberg
SI ReporterMumbai
3 min read Last Updated : Aug 17 2023 | 3:10 PM IST
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Shares of REC hit a new high at Rs 234.45, as they rallied 5 per cent on the BSE in Thursday’s intra-day trade on strong growth outlook. The stock of state-owned financial institution company has zoomed 46 per cent in past one month. In comparison, the S&P BSE Sensex, was down 0.5 per cent at 02:37 PM, and has slipped 2.4 per cent during the period.
Last Updated: Aug 18 2023 | 03:59 PM IST
A sharp surge in stock price of REC has helped the stock break into India’s top-100 most valuable companies chart in terms of market capitalisation. With Rs 61,735 crore market cap, REC stood at number 100th position in overall ranking, the BSE data shows. REC surpassed state-owned bank, Indian Overseas Bank, which has market cap of Rs 60,525 crore, data shows.
REC holds a strategic position, given REC’s role in financing power sector & implementing policies and flagship programs of the Government of India; the company continues to maintain a strong financial position, is well capitalised with high asset quality, to meet future business growth.
REC has a diversified asset portfolio with no single borrower with more than 10 per cent asset portfolio; and strong relationship and network with stakeholders in Central & State Government enables REC to access new strategic initiatives.
REC plays a key role in implementation of flagship Government of India schemes and financing India’s power sector; rising energy demand in a fast growing economy augurs well for future business growth.
The significant investments are required as per the generation capacity expansion planning report by The Central Electricity Authority of India (CEA). Installed generation capacity by end of financial year 2027 is projected to be 610 GW requiring investments of Rs 14.54 trillion. The Ministry of Power has permitted REC to lend to infrastructure & logistics sector also subject to certain limits. This opens up another large universe of financing avenues for REC.
REC in its FY23 annual report said that the power sector in India, is on course for a long period of high growth and transformation which is visible in the increasing deployment of clean renewables. With Government of India, setting and pursuing the target of achieving 500 GW of renewable energy capacity by 2030, energy transition is expected to drive significant investment in the sector.
The global trend towards Electric Vehicles (EVs) and its fast adoption in India is likely to see an increased demand for electricity. The National Smart Grid Mission, which aims to modernize the country’s power grid is expected to improve grid stability and reduce power losses. The government is also promoting the use of smart meters and digital technologies to improve the efficiency of the distribution network.
The government is promoting measures such as cost-reflective tariffs, improved collection efficiency, and reduction in AT&C losses to improve the financial health of distribution companies. As Indian economy continues to grow fast, with a growing population and the current low level of per-capita electricity consumption, the future outlook for investments in power sector is quite promising over the long term, REC said.
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Going by its historical valuations, it looks like the valuation is at its peak. Not sure how long this euphoria will continue. Now it is trading above its book value. While it is true that the NPAs may get resolved going forward, the current lending will sow the seeds for future NPAs. Also, the company is now going to venture into non power financing and I am not sure if they have the expertise to do so. I have started to pare down my holdings in this after holding for about 7 years
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Is REC heading to rerating of PE?
Historically REC has majorly traded between an PE of 3 to 5
It has historically touched PE of 9.5 only once in 2014.
However after IREDA IPO it seems Power Finance companies will see an incremented PE. On higher end of IPO price (Rs. 32) IREDA seemed expensive at PE of 8.45 (REC was trading at PE of 7.1 at same time) and IREDA looked expensive.
With IREDA looking to settle between price of 60 to 65, it will be trading at PE of 15 to 17.
REC is into similar business as IREDA (Margins in renewable financing would not be too different from a mix of Non Renewable, Renewable & Infra project funding). Currently REC is trading at PE of 8.1 as of date, there cannot be a 100% difference in PE for 2 PSU’s in similar business. In short to Mid term, there can only be 2 scenarios playing up:
- REC will chase PE of IREDA and may end up trading anywhere between PE of 10 to 14 and IREDA settling to a PE of 14-16
- IREDA to correct to levels of 45 to have a PE of 10 and REC staying at a PE of 7.5 to 8.
What do others tracking Power financing sector think of?
Disclosure: Holding REC from levels of ~80.
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