REC is a power sector lender and finances all segments of domestic power infrastructure (generation, distribution and transmission), and renewable energy projects

This stock gave 41.6% returns in the past year; know why analysts are bullish on this stock REC has a healthy sanction pipeline, and the management has guided for Rs.1 lakh crore of disbursements in the second half of 2024-25. It will focus on the reform-driven power distribution sector, aiming for 15-20% loan book growth over 3-4 years and plans to double AUM by 2030. Should you invest in this NBFC stock?

The government-owned NBFC reported a decent performance in the September 2024 quarter and registered PAT growth of 5.9% year-on-year. The performance was led by provision write-backs and a decline in operating expenditure. Moreover, the NII was healthy and grew at 23% year-on-year, supported by strong loan growth and margin improvement.

REC is a power sector lender and finances all segments of domestic power infrastructure (generation, distribution and transmission), and renewable energy projects. It has diversified its loan portfolio towards infrastructure and logistics sectors. The company’s product portfolio includes loans (long, medium and shortterm), debt refinancing, revolving bills payment facility and financing of equipment manufacturing.

It is a beneficiary of the buoyant prospects of India’s energy sector, which is expected to create robust growth in its loan book. Reports from Motilal Oswal and Nomura released in October highlight the long-term growth prospects of the power sector. The Nomura report expects power demand to remain strong led by new drivers (such as rising trends of electrification, upticks in data centre capacities, rising EV adoption and green hydrogen) in addition to primary drivers (residential, industrial and commercial sectors). The Motilal Oswal report estimates an investment opportunity of Rs.40 lakh crore in the Indian power sector over the next decade and lists electrification of energy in residential and transportation segments, 5G, artificial intelligence, India’s rising real GDP and proactive regulatory support as the key tailwinds.

REC has a healthy sanction pipeline, and the management has guided for Rs.1 lakh crore of disbursements in the second half of 2024-25. It will focus on the reform-driven power distribution sector, aiming for 15-20% loan book growth over 3-4 years and plans to double AUM by 2030.

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The asset quality is steady with a sequential improvement in GS3 (potential risky assets) in the September quarter. Selective non-power segment financing, prudent risk management and ongoing resolution of stressed assets are some of the factors that are enhancing its asset quality. Three projects (Hiranmayi, Sinnar Thermal and KSK Mahanadi) are in advanced stages of resolution and the management expects write-backs of Rs.1,500 crore from such projects. REC also enjoys the highest domestic ratings from all four domestic rating agencies (CRISIL, ICRA, CARE, and India Ratings & Research).

The recent stock price correction amid speculations of likely financing to Vodafone Idea, the proposal that was rejected by REC, provides a buying opportunity. In the last one year, the stock has significantly outperformed the market benchmark with 41.6% returns compared to BSE Sensex with 17.5% returns.

Selection methodology: We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ during the past three months. The consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (1 for strong buy, 2 for buy, 3 for hold, 4 for sell, 5 for strong sell). An improvement in consensus analyst rating indicates that the analysts are getting bullish on the stock. Only stocks with more than five analysts covering them are considered. You can see similar consensus analyst rating changes during the past week in ETW 50 table.

This story originally appeared on: India Times - Author:Faqs of Insurances