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Disbursements remained muted while sanctions declined:
Disbursement remained muted, up 5.6% YoY, 3.6% QoQ at s63.4 bn, while sanctions continued
to decline, down 18.6 % YoY, 18.2% QoQ at s88.1 bn .However, total loan book
stood strong, up 25% YoY & 5.9% QoQ at s949.6 bn. Out of total disbursements in
Q3FY12, 43% went towards generation while 39% was accounted by T&D sector. The share
of state undertakings in the total loans stood at 82% vs 86% at the end of Q3FY11.Exposure
towards private sectors has been steadily increasing and stood at 12% at the end of Q3FY12.
NII growth was strong despite reversal of interest income:
NII for the quarter stood at s10 bn, up 18.5% YoY,5.8% QoQ. We believe the NII growth has
been strong considering the company had to reverse interest income to the tune of s241 mn
during the quarter. For 9MFY12 as well, NII growth remained healthy up 22% at s28.6 bn.
NIM Pressure due to reversal of interest income:
The yield on loans were down 21 bps YoY and 6 bps QoQ to 11.44%. The cost of funds went
up by 41 bps YoY & 11 bps QoQ to 8.4%. The drop in yield, coupled with rise in cost of
funds, resulted in contraction in spread by 20 bps YoY & 17 bps Q0Q to 3.04%. The company
had to reverse interest income of R220 mn as one of the project was classified as non
performing. This led to NIM falling by 24 bps YoY & 13 bps QoQ to 4.34%.
Net profit growth boosted on the back of forex gain:
REC reported a forex gain of s866 mn during the quarter, due to change in accounting policy
in forex translation difference. PAT was up 16% YoY & 23% QoQ. Excluding forex gain the
bottom-line would have remained flat YoY. Employee cost went up sharply during the quarter
due to one time provisioning of s400 mn being base line incentive paid for ( FY10 & FY11 in
arrears), however fall in other expenditure helped it neutralizing to some extent.
Asset quality deteriorates due to a large project defaulting :
Gross NPAs level went up to 0.52% compared to 0.03% in Q3FY11 and 0.3% in Q2FY12. In
absolute terms the Gross NPAs went up by s2,230 mn QoQ . One of the major gas based
power project was classified as NPAs during the quarter and hence was the worsening asset
quality. The company made a provision of s241 mn towards the project. The Net NPAs level
stood at 0.45% compared to 0.25% in Q2FY12.
Outlook and Valuation:
REC, like other financial institutions lending to the power sector, shares the risk of weakening
financial conditions of the state utilities companies. However, we believe with improving fuel
supply power producers will be able meet the interest cost and incremental slippages would be
lower. At the CMP of s202 the stock is trading at 1.1x P/BV FY13E of s189.We maintain our
positive stand and BUY on the stock with 12-month Target Price of `270.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Disbursements remained muted while sanctions declined:
Disbursement remained muted, up 5.6% YoY, 3.6% QoQ at s63.4 bn, while sanctions continued
to decline, down 18.6 % YoY, 18.2% QoQ at s88.1 bn .However, total loan book
stood strong, up 25% YoY & 5.9% QoQ at s949.6 bn. Out of total disbursements in
Q3FY12, 43% went towards generation while 39% was accounted by T&D sector. The share
of state undertakings in the total loans stood at 82% vs 86% at the end of Q3FY11.Exposure
towards private sectors has been steadily increasing and stood at 12% at the end of Q3FY12.
NII growth was strong despite reversal of interest income:
NII for the quarter stood at s10 bn, up 18.5% YoY,5.8% QoQ. We believe the NII growth has
been strong considering the company had to reverse interest income to the tune of s241 mn
during the quarter. For 9MFY12 as well, NII growth remained healthy up 22% at s28.6 bn.
NIM Pressure due to reversal of interest income:
The yield on loans were down 21 bps YoY and 6 bps QoQ to 11.44%. The cost of funds went
up by 41 bps YoY & 11 bps QoQ to 8.4%. The drop in yield, coupled with rise in cost of
funds, resulted in contraction in spread by 20 bps YoY & 17 bps Q0Q to 3.04%. The company
had to reverse interest income of R220 mn as one of the project was classified as non
performing. This led to NIM falling by 24 bps YoY & 13 bps QoQ to 4.34%.
Net profit growth boosted on the back of forex gain:
REC reported a forex gain of s866 mn during the quarter, due to change in accounting policy
in forex translation difference. PAT was up 16% YoY & 23% QoQ. Excluding forex gain the
bottom-line would have remained flat YoY. Employee cost went up sharply during the quarter
due to one time provisioning of s400 mn being base line incentive paid for ( FY10 & FY11 in
arrears), however fall in other expenditure helped it neutralizing to some extent.
Asset quality deteriorates due to a large project defaulting :
Gross NPAs level went up to 0.52% compared to 0.03% in Q3FY11 and 0.3% in Q2FY12. In
absolute terms the Gross NPAs went up by s2,230 mn QoQ . One of the major gas based
power project was classified as NPAs during the quarter and hence was the worsening asset
quality. The company made a provision of s241 mn towards the project. The Net NPAs level
stood at 0.45% compared to 0.25% in Q2FY12.
Outlook and Valuation:
REC, like other financial institutions lending to the power sector, shares the risk of weakening
financial conditions of the state utilities companies. However, we believe with improving fuel
supply power producers will be able meet the interest cost and incremental slippages would be
lower. At the CMP of s202 the stock is trading at 1.1x P/BV FY13E of s189.We maintain our
positive stand and BUY on the stock with 12-month Target Price of `270.
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