REC rallies 9% on highest-ever quarterly profit in Q2; PFC surges 7%

Shares of REC Ltd hit a new high of Rs 307.35, as they rallied 9 per cent on the BSE in Thursday’s intra-day trade after the company posted its highest-ever quarterly profit at Rs 3,773 crore during the second quarter of the financial year 2023-24 (Q2FY24). The profit was up 28 per cent over corresponding period in financial year 2022-23.

The stock of state-owned power sector financing company surpassed its previous high of Rs 299.10 touched on October 16. Meanwhile, shares of Power Finance Corporation (PFC) too hit a new high of Rs 259.25, surpassing its earlier high of Rs 258.15 touched on October 16.

REC in a public statement said the increase in profit was owing to the “improving asset quality, increase in lending rates and effective management of finance cost”.  

During Q2FY24, REC’s loan book grew by 20 per cent to Rs 4.74 trillion as against Rs 3.94 trillion as on September 30, 2022.  "Indicating the ample opportunity to support the future growth, the Capital Adequacy Ratio (CRAR) of the company stands at a comfortable 28.53% as on 30 September 2023," said the statement by REC.

REC is majorly held by PFC, post the completion of the acquisition transaction from Government of India (GoI) on March 28, 2019, with 52.63 per cent stake as on September 30, 2023. PFC is majorly owned by GoI, and post the transaction, REC became a subsidiary of PFC.

CARE Ratings expects REC’s strategic importance to GoI and its role in the development of the power sector to continue as earlier. The ratings on borrowing programme of REC factor in the ultimate sovereign ownership/economic interest, and hence, there is an expectation of continued strong support from GoI given its strategic importance. Going forward, continued sovereign ownership (indirectly through PFC) and support from GoI in maintaining comfortable capital structure and asset quality will remain the key rating sensitivities.

REC plays a pivotal role in financing power projects from both the state and private sector, thereby being instrumental in strengthening the power infrastructure of the country.

REC has been designated as the nodal agency by the Ministry of Power (MoP), GoI for implementing the Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), [formerly known as Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY)], now subsumed in Revamped Distribution Sector Scheme (RDSS), National Electricity Fund (NEF), Financial Restructuring Plan (FRP), Smart Grid task force, etc.

Furthermore, PFC and REC are advised by the MoP to extend their support to discoms for timely payment of their dues under the Late Payment Surcharge and Related Matters) Rules, 2022 (LPS Rules 2022). REC has disbursed around Rs 16,177 crore under LPS. The said loans are entirely guaranteed by the state government and are to be repaid by the discoms in one to four years, depending on the quantum of loan.