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Key Takeaways
Asset quality takes center stage
Health of state utilities (~82% of the outstanding loan book) is an area of concern.
RECL now refrains from funding loss making SEBs such as TNEB and MPEB by
declining short-term loan proposals to state utilities.
The management is optimistic regarding policy action on this front, given the proposed
reforms announced by the Ministry of Power recently.
The management does not expect a spike in NPAs, though there is a possibility in
some accounts of delay in payments.
No restructuring proposal has been received yet, but RECL does not expect loss of
interest in case accounts get restructured.
Disbursement growth likely to remain healthy
The outstanding sanctions pipeline was INR1.75t. Consequently the management
expects disbursements growth to be 20% YoY.
However, RECL has turned cautious over funding gaps for state utilities through
short-term loan, which would have otherwise boosted company's growth.
Borrowing plan for FY12
Of the total INR280b-300b planned to be raised in FY12, RECL raised INR80b in
1QFY12. Of the balance, the company plans to raise
USD750m in 2QFY12, for which regulatory approvals are in place;
USD750m (second tranche) by March 2012, for which RECL will take RBI's
approval;
USD1b through FCCBs subject to RBI and Ministry of Finance approval.
Cost of foreign currency borrowing (on a fully hedged basis) is likely to be lower
by at least 200bp compared with the domestic cost of borrowing.
RECL to sustain margins at ~4.4%
Higher foreign currency borrowing at a lower rate augur well from margin perspective.
In 1QFY12 margins were steady at ~4.3%. The management guidance is to maintain
margins at ~4.4%.
Valuation and view
With a strong sanctions pipeline (INR1.75t), we expect loan growth to be healthy at
22% CAGR over FY11-13. However, in the current macro-economic environment
asset quality is a bigger concern against fears of slow growth.
The stock trades at P/E of 5x FY13E EPS and 1x FY13E BV. Maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Asset quality takes center stage
Health of state utilities (~82% of the outstanding loan book) is an area of concern.
RECL now refrains from funding loss making SEBs such as TNEB and MPEB by
declining short-term loan proposals to state utilities.
The management is optimistic regarding policy action on this front, given the proposed
reforms announced by the Ministry of Power recently.
The management does not expect a spike in NPAs, though there is a possibility in
some accounts of delay in payments.
No restructuring proposal has been received yet, but RECL does not expect loss of
interest in case accounts get restructured.
Disbursement growth likely to remain healthy
The outstanding sanctions pipeline was INR1.75t. Consequently the management
expects disbursements growth to be 20% YoY.
However, RECL has turned cautious over funding gaps for state utilities through
short-term loan, which would have otherwise boosted company's growth.
Borrowing plan for FY12
Of the total INR280b-300b planned to be raised in FY12, RECL raised INR80b in
1QFY12. Of the balance, the company plans to raise
USD750m in 2QFY12, for which regulatory approvals are in place;
USD750m (second tranche) by March 2012, for which RECL will take RBI's
approval;
USD1b through FCCBs subject to RBI and Ministry of Finance approval.
Cost of foreign currency borrowing (on a fully hedged basis) is likely to be lower
by at least 200bp compared with the domestic cost of borrowing.
RECL to sustain margins at ~4.4%
Higher foreign currency borrowing at a lower rate augur well from margin perspective.
In 1QFY12 margins were steady at ~4.3%. The management guidance is to maintain
margins at ~4.4%.
Valuation and view
With a strong sanctions pipeline (INR1.75t), we expect loan growth to be healthy at
22% CAGR over FY11-13. However, in the current macro-economic environment
asset quality is a bigger concern against fears of slow growth.
The stock trades at P/E of 5x FY13E EPS and 1x FY13E BV. Maintain Buy.
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