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From REC Ltd, Mr. D. S. Ahluwalia, General Manager (F&A) and Mr. Daljeet
Singh Khatri, Chief Manager (Finance) shared their outlook on the company
Key highlights
n After a stupendous 27% CAGR in loan portfolio over FY09-11, the management has
now guided for a moderate growth of 20-22% over FY11-13. While sanctions continue
to remain strong, concerns over deterioration of the financial health of SEBs, higher
provisioning norms and rising interest rates are expected to drag profitability.
n The management stressed on the need for increasing private sector contribution,
especially in the distribution segment. REC's private sector exposure has increased
by over 400bps to 10% of total loan portfolio over FY09-11. REC to focus on generation
segment.
n With rising interest rates, the management guided for margin compression to the tune
of 25-50bps over the next 3-4 quarters. REC has a favorable ALM portfolio. Loans to
come up for reset after every 3-years; liabilities are however fixed in nature. The average
duration on asset side is at 6.5-7years against 4-5years in case of liabilities.
n About foray into banking business, the management stated that they are awaiting
further clarification from RBI over the same. However, they clearly stated that the banking
business would be carried out via a separate entity.
n On mounting SEB losses, the management clearly highlighted the need for tariff rate
hike in certain states. The implementation of feeder separation scheme is directed
towards a) reducing losses b) improving operational efficiencies c) better recovery
mechanism and d) fuel efficiency and linkages.
n Our view is that REC remains the best bet in the power financing space with unutilized
sanctions pipeline of over Rs1.3tn, healthy margin at 4%+, adequate capital (Tier I at
19%) and superior return ratios (RoE at ~22% with RoA of 2.2%+). The stock has
recently underperformed the index owing to concerns over mounting losses of SEBs.
However, GNPA at 0.2% as of end FY11 was at a multi-quarter low.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
From REC Ltd, Mr. D. S. Ahluwalia, General Manager (F&A) and Mr. Daljeet
Singh Khatri, Chief Manager (Finance) shared their outlook on the company
Key highlights
n After a stupendous 27% CAGR in loan portfolio over FY09-11, the management has
now guided for a moderate growth of 20-22% over FY11-13. While sanctions continue
to remain strong, concerns over deterioration of the financial health of SEBs, higher
provisioning norms and rising interest rates are expected to drag profitability.
n The management stressed on the need for increasing private sector contribution,
especially in the distribution segment. REC's private sector exposure has increased
by over 400bps to 10% of total loan portfolio over FY09-11. REC to focus on generation
segment.
n With rising interest rates, the management guided for margin compression to the tune
of 25-50bps over the next 3-4 quarters. REC has a favorable ALM portfolio. Loans to
come up for reset after every 3-years; liabilities are however fixed in nature. The average
duration on asset side is at 6.5-7years against 4-5years in case of liabilities.
n About foray into banking business, the management stated that they are awaiting
further clarification from RBI over the same. However, they clearly stated that the banking
business would be carried out via a separate entity.
n On mounting SEB losses, the management clearly highlighted the need for tariff rate
hike in certain states. The implementation of feeder separation scheme is directed
towards a) reducing losses b) improving operational efficiencies c) better recovery
mechanism and d) fuel efficiency and linkages.
n Our view is that REC remains the best bet in the power financing space with unutilized
sanctions pipeline of over Rs1.3tn, healthy margin at 4%+, adequate capital (Tier I at
19%) and superior return ratios (RoE at ~22% with RoA of 2.2%+). The stock has
recently underperformed the index owing to concerns over mounting losses of SEBs.
However, GNPA at 0.2% as of end FY11 was at a multi-quarter low.
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