RECLTD - REC LIMITED Share Price

Outlook by Management:

1. Growth Targets:

   • AUM Growth: Targeting 20% YoY growth, aiming to exceed Rs.10 lakh crore by 2030 (possibly by 2028"“29). Current AUM stands at Rs.497,465 crore (21% YoY growth as of Q3FY24).
   • Disbursements: Expecting Rs.150,000+ crore in FY24, with FY25 disbursement guidance above Rs.150,000 crore.

2. Financial Performance:

   • Profitability: PAT grew 24% YoY to Rs.10,003 crore (9M FY24). Net Interest Margin (NIM) at 3.52%, targeting sustained margins through cost optimization.
   • Asset Quality: Net NPA improved to 0.82% (vs. 0.96% in Q2). Resolved 3 stressed assets in Q3; targeting resolution of remaining 16 by 2025.

3. Sectoral Focus:

   • Renewables: Key priority, with a target of Rs.3 lakh crore (30% of AUM) by 2030. Leading implementation of PM Suryodaya Yojana (40 GW rooftop solar by 2026).
   • Non-Power Infrastructure: Expanding into roads, metros, ports, and airports, emphasizing projects with assured cash flows and payment security.

4. Key Initiatives:

   • Rooftop Solar: Financing RESCO-model projects via CPSEs; potential disbursement of Rs.15,000"“20,000 crore in FY25.
   • RDSS Scheme: Driving distribution reforms to reduce AT&C losses (down to ~15%).

5. Risk Management:

   • No new NPAs in last 8 quarters. Strict due diligence for infrastructure projects, leveraging government guarantees for DISCOM loans.
   • Compliant with RBI exposure norms (30% single-borrower limit).

6. Funding & Margins:

   • Capital adequacy at 28.21%; diversified borrowing mix (41% bonds, 21% forex loans).
   • Focus on reducing funding costs via ECB and 54EC bonds.

Major Highlights:

• Sanctions surged 69% YoY to Rs.325,941 crore (9M FY24).
• Renewables and infrastructure to drive future growth, with Rs.1.2 lakh crore LoC approved for CPSE solar subsidiaries.
• Strong government partnerships (e.g., RDSS, LPS schemes) ensuring stable cash flows.

What were the major questions asked and their answers?

Question 1: How will REC manage NPA risks while diversifying into non-power infrastructure sectors?
REC emphasized cautious diversification, targeting state-guaranteed projects (e.g., metro, expressways) and strengthening manpower/expertise. Due diligence ensures cash flow-backed projects with payment security. No new NPAs added in the last 8 quarters, and resolution of stressed assets (e.g., Dans Energy, Meenakshi) is prioritized.

Question 2: Can REC achieve Rs 12"“13 lakh crore AUM by 2030 instead of the Rs 10 lakh crore target?
REC expressed confidence in surpassing the Rs 10 lakh crore AUM target by 2028"“29, citing strong growth (20% YoY), renewable energy MOUs (Rs 2.86 lakh crore signed), and diversification into infrastructure. Disbursements are expected to accelerate with sanctioned projects in renewables, thermal power, and distribution reforms.

Question 3: What is REC's Q3 performance vs. Q2, and what is the dividend policy?
Q3 PAT rose to Rs 3,269 crore (vs. Rs 3,100 crore in Q2 after adjusting for one-time reversals). Return on assets is ~2.8%. Dividend policy aligns with DIPAM guidelines: 30% of PAT or 5% of net worth (whichever is higher). Interim and final dividends will be declared.

Question 4: What is the RBPF line item, and how does it relate to the LPS scheme?
RBPF (Revolving Bill Payment Facility) is a short-term loan for current dues (post-June 2022) under the LPS scheme. LPS addresses legacy dues, while RBPF ensures timely payments for ongoing power purchases. RBPF is revolver-style, repayable within a year, with no overlap in tenor or purpose with LPS.

Question 5: What were recoveries from resolved NPAs like Meenakshi Energy and Dans Energy?
Dans Energy: 113% recovery (Rs 415 crore vs. Rs 367 crore exposure). Meenakshi Energy: 30% recovery (Rs 213 crore vs. Rs 710 crore exposure, 80% provisioned). Classic Global: 86% recovery. TRN Energy, Bhadreshwar, and Lanco Amarkantak resolutions are targeted by FY24.

Question 6: How will RBI's draft guidelines on NBFC exposure norms impact REC?
REC stated compliance with exposure limits (30% for single borrower, 50% for group). Government-guaranteed loans are excluded from exposure calculations. Current portfolio aligns with RBI norms, and no adjustments are needed.

Question 7: What is REC's FY25 loan growth outlook, and which segments will drive disbursements?
FY25 AUM is projected at Rs 6 lakh crore (~17% growth). Renewables (sanctioned Rs 1.75 lakh crore), thermal power, RDSS-linked distribution projects, and non-power infrastructure (roads, metros) will drive disbursements. Rooftop solar financing (RESCO model) may add Rs 15,000"“20,000 crore.

Question 8: How will REC fund the rooftop solar mission, and what is the revenue model?
REC will finance CPSEs implementing rooftop solar under the RESCO model (not retail). Target: 40 GW by 2026. Fees (0.4"“0.5% of project cost) and loans to vendors/aggregators (Rs 15,000"“20,000 crore) will contribute. Subsidy (20"“40%) is managed by MNRE, with state focus cities prioritized.

Question 9: How does REC ensure Discom loan safety (e.g., Tangedco's Rs 40,000 crore losses)?
Loans to Discoms are secured via state guarantees, ARR-backed cash flows, and RDSS reforms. Tamil Nadu's Tangedco receives annual state support (loss coverage), tariff hikes, and subsidy adherence. LPS/RBPF disbursements are government-guaranteed, minimizing risk.

Question 10: What explains Q3's lower headline profit despite improved asset quality?
Q3 included Rs 56 crore in ECL provisions (vs. Q2's Rs 670 crore reversal). Improved asset quality (Net NPA 0.82% vs. 0.96% in Q2) and resolutions led to write-backs. Higher reversals are expected in Q4 from large NPA resolutions (e.g., TRN Energy).