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RURAL ELECTRIFICATION CORPORATION: Key takeaways
Loan growth at 20%. REC will likely deliver about 20% loan growth. REC has reported
about 28% loan growth over last three years on the back of a low base and large
investments in T&D segment of the power sector. Competition from banks, lower
investments in T&D segments will temper the growth traction in the medium term. The
company expects business in T&D sector to pickup with a lag.
Limited pressure on margins. REC is confident of maintaining its margins by passing on
the rise in lending rates to its customers. The share of capital gain bonds has been steadily
declining; a better off-take for these bonds in 9MFY11 is a positive sign. The company
has about US$1 bn of which about US$200 mn is currently unhedged; the management
has highlighted that the company has a policy of hedging its forex loans, they are waiting
at an opportune time in the near future to hedge the same.
NPLs remain low. REC currently has negligible NPLs. Strong collections from state utilities
despite the latter’s poor financials remain a residual risk. An escrow mechanism,
conscious efforts by State Government and inevitable demand of power will mean that
there may not be any absolute losses for REC. In the private sector, fuel risk is remains a
key risk for asset quality performance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RURAL ELECTRIFICATION CORPORATION: Key takeaways
Loan growth at 20%. REC will likely deliver about 20% loan growth. REC has reported
about 28% loan growth over last three years on the back of a low base and large
investments in T&D segment of the power sector. Competition from banks, lower
investments in T&D segments will temper the growth traction in the medium term. The
company expects business in T&D sector to pickup with a lag.
Limited pressure on margins. REC is confident of maintaining its margins by passing on
the rise in lending rates to its customers. The share of capital gain bonds has been steadily
declining; a better off-take for these bonds in 9MFY11 is a positive sign. The company
has about US$1 bn of which about US$200 mn is currently unhedged; the management
has highlighted that the company has a policy of hedging its forex loans, they are waiting
at an opportune time in the near future to hedge the same.
NPLs remain low. REC currently has negligible NPLs. Strong collections from state utilities
despite the latter’s poor financials remain a residual risk. An escrow mechanism,
conscious efforts by State Government and inevitable demand of power will mean that
there may not be any absolute losses for REC. In the private sector, fuel risk is remains a
key risk for asset quality performance.
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