Beaten-down stocks Part 9: REC at current levels may reward patience

Analysts remain positive, citing a steady decline in bad loans and an uptick in new loan sanctions as key drivers of future growth

Public-sector power project financier REC has emerged as a key focus in the present market scenario. Its stock has fallen 32.2 per cent over the past year. Yet it offers a mix of relatively low valuations, consistent earnings in recent quarters, and a return on net worth of 21.5 per cent. This combination provides investors with downside protection in a weak market while also leaving room for gains once sentiment improves.

 

India’s equity market as a whole has weakened after two consecutive years of strong double-digit growth. The benchmark BSE Sensex slipped 4.8 per cent in the 12 months to September 2025, its weakest annual showing in more than a decade. This compares with a 28.1 per cent rise in the year to September 2024 and a 14.6 per cent increase in the preceding year. Consequently, the index has now posted negative returns in three of the past six years ended September.

 

 

The recent decline has, however, lowered valuations from the record peaks of 2024. Several blue-chip counters are now trading at more attractive levels, offering opportunities for long-term investors. Even so, caution is warranted as valuations in the broader market remain above long-term averages, making careful stock selection critical. 

 

Why buy REC? 

• Sharp price correction: The stock is down 32.7 per cent over the past year, sharply underperforming benchmark indices as concerns over growth and earnings slowdown weigh on sentiment.
• Mixed Q1FY26 performance: Gross interest income rose 12.7 per cent year-on-year — its slowest pace in two years — but net profit jumped 29.1 per cent year-on-year, aided by lower provisioning for bad loans.
• Improving asset quality: Analysts at Elara Capital remain positive, citing a steady decline in bad loans and an uptick in new loan sanctions as key drivers of future growth.
• Attractive valuations: At a trailing P/E of 5.8x and P/BV of 1.3x, REC trades at among the lowest multiples in the non-bank lending space, offering value comfort.

 

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