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| REC: Growing financial power |
| Ujjval Jauhari & Priya Kansara / Mumbai May 20, 2010, 00:44 IST |
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 The huge growth in loan disbursals is expected to continue this financial year.
Rural Electrification Corporation (REC) reported a better financial performance than its larger and closest peer, Power Finance Corporation (PFC), in both Q4FY10 and the full year 2009-10. The power sector-focused public sector lender maintained the high growth trend in net interest income (NII), which jumped 42 per cent vis-à-vis PFC’s 28 per cent in FY10.
Net profit growth was also strong at 59 per cent vs PFC’s 19.5 per cent. Disbursements jumped 24 per cent for FY10, while net interest margins improved 34 basis points to 4.3 per cent.
For Q4FY10, REC witnessed a 41 per cent jump in NII vis-à-vis PFC’s 9.6 per cent in Q4FY10. However, net profit growth to Rs 561 crore was lower at 44.6 per cent compared to PFC’s 53 per cent as other income declined 26 per cent and operating expenditure doubled.
The company is witnessing huge growth in disbursements and loan, which is expected to continue in FY11 with 30 per cent growth. Faster activity in transmission and distribution sector will only add to this. REC is increasingly focusing on generation projects, thanks to the capex expansion binge, especially by the private sector. The share of power generation projects in total loan book has been increasing year after year, from six per cent in 2005 to almost 40 per cent in FY10.
Going ahead, REC’s high net interest margins are expected to be at least maintained, as the Rs 2,600 crore raised by the company in Q4FY10 through a follow-on public offer will help curtail any rise in interest cost from banks. But, non-performing loans, which are at near zero levels, may inch up due to execution delays on account of the higher share of the private sector in future projects, though the company is conservative and prudent in providing loans.
REC has been recently included in the MSCI India index by US-based MSCI, which is used as a benchmark globally. At Rs 260, the stock trades at 2.1 times and 1.8 times price to estimated book value for FY11 and FY12 respectively, which looks on the higher side when compared to even some of the larger public sector banks. Analysts advise to buy the stock on declines.
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