Strong business growth; valuations attractive – BUY
REC’s Q4FY13 PAT at Rs 9.6bn (up 26% YoY) came in lower than our/ consensus estimates, but largely on account of standard asset provisions of Rs 1.06bn. NII was marginally lower despite strong disbursement and loan book growth. Asset quality was stable and business growth strong with loan book/disbursements/sanctions up 26%/ 56%/ 41% YoY in FY14. Valuations at 1.1x FY14 BV are cheap given ROEs of 24% and receding concerns on SEB exposure. Maintain BUY with a TP of Rs 300.
Business growth strong: REC sanctioned/disbursed loans of Rs 183bn/Rs 144bn in Q4FY13, taking its total sanctions/disbursements in FY14 to Rs 795bn/Rs 393bn (up 56%/41% YoY). Loans grew 26% YoY, SEB exposure 23% YoY and exposure to private developers 55% YoY (now 13% of total advances). We expect REC’s loan book to grow by 19% CAGR over FY13-FY15.
NIMs contract 29bps QoQ to 4.7%: The yield on advances declined by 60bps QoQ to 11.55% which, in our view, could be on account of disbursements made towards the end of the quarter. Cost of funds declined by 34bps QoQ as the incremental cost of borrowings stood at just 5.7% in Q4FY13 (due to access to tax-free bonds). We expect calc. NIMs to remain in the 4.5-4.7% range (as against 4.6% in FY13).
Asset quality stable: GNPLs/NNPLs remained stable QoQ at Rs 4.9bn/Rs 4bn (0.4%/0.3% of book). While the asset quality was stable, REC made provisions of Rs 1.1bn in Q4FY13 (which translates into provisions of ~8bps). We note that PFC also has already started making standard asset provisions and expect REC to continue with standard asset provisions of 8bps in FY14/FY15.
Risk-reward favourable: Valuations (5x FY14 EPS/1.1x FY14 BV) are attractive given strong ROEs (~24%) and likely earnings growth of ~20% over FY13-FY15. We restate our BUY rating and remain positive on the stock. SEB restructuring and steps taken by the government to improve fuel availability would be the key stock catalysts.
��
-->
REC’s Q4FY13 PAT at Rs 9.6bn (up 26% YoY) came in lower than our/ consensus estimates, but largely on account of standard asset provisions of Rs 1.06bn. NII was marginally lower despite strong disbursement and loan book growth. Asset quality was stable and business growth strong with loan book/disbursements/sanctions up 26%/ 56%/ 41% YoY in FY14. Valuations at 1.1x FY14 BV are cheap given ROEs of 24% and receding concerns on SEB exposure. Maintain BUY with a TP of Rs 300.
Business growth strong: REC sanctioned/disbursed loans of Rs 183bn/Rs 144bn in Q4FY13, taking its total sanctions/disbursements in FY14 to Rs 795bn/Rs 393bn (up 56%/41% YoY). Loans grew 26% YoY, SEB exposure 23% YoY and exposure to private developers 55% YoY (now 13% of total advances). We expect REC’s loan book to grow by 19% CAGR over FY13-FY15.
NIMs contract 29bps QoQ to 4.7%: The yield on advances declined by 60bps QoQ to 11.55% which, in our view, could be on account of disbursements made towards the end of the quarter. Cost of funds declined by 34bps QoQ as the incremental cost of borrowings stood at just 5.7% in Q4FY13 (due to access to tax-free bonds). We expect calc. NIMs to remain in the 4.5-4.7% range (as against 4.6% in FY13).
Asset quality stable: GNPLs/NNPLs remained stable QoQ at Rs 4.9bn/Rs 4bn (0.4%/0.3% of book). While the asset quality was stable, REC made provisions of Rs 1.1bn in Q4FY13 (which translates into provisions of ~8bps). We note that PFC also has already started making standard asset provisions and expect REC to continue with standard asset provisions of 8bps in FY14/FY15.
Risk-reward favourable: Valuations (5x FY14 EPS/1.1x FY14 BV) are attractive given strong ROEs (~24%) and likely earnings growth of ~20% over FY13-FY15. We restate our BUY rating and remain positive on the stock. SEB restructuring and steps taken by the government to improve fuel availability would be the key stock catalysts.
No comments:
Post a Comment