REC LtdQ2 FY23Finance

REC Ltd

Q2 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

N/A

Order

Yes

Capex

Yes

2 of 4 growth signals are positive.

Revenue guidance

Category 3

→REC Limited expects a conservative loan book growth of around 15% annually, with potential to grow even more due to huge opportunities. (Page 17)
→Disbursements are projected to reach approximately Rs. 150,000 Crores in the current financial year, up from Rs. 97,000 Crores last year. (Page 11)
→The renewable energy segment, with Government of India targeting 500 GW non-fossil capacity by 2030, presents massive financing opportunities, with around Rs. 15 Lakhs Crores funding requirement expected by 2030 in energy transition initiatives. REC aims to capture 20-30% of this business. (Page 11)
→Distribution sector expected to remain stable at 30-35% of total portfolio over next 10-15 years due to ongoing infrastructure upgrades. (Pages 9, 10)
→Private sector portfolio share expected to increase from current 10% to 30% in next 7 years driven by renewable energy projects. (Page 9)
→Incremental growth driven by expanding renewable energy, storage solutions, and green hydrogen financing opportunities.

Category 3

→REC Limited targets a loan book growth of around 15% annually on a conservative basis, with potential for higher growth given huge opportunities (Page 17).
→Disbursements have surged, with Rs.53,000 Crores done by Q1 FY2024 and a projection of Rs.1,50,000 Crores for the full year, indicating strong growth in lending activity (Page 11).
→The company aims to increase its Net Interest Margin (NIM) to around 3.5% by the end of the current year, up from 3.28%, supported by rate resets and improved spreads (Pages 13, 21).
→Spread is targeted at approximately 2.5%, balancing lower margins in renewables with better margins in infrastructure loans (Pages 20-21).
→Asset quality is a priority, with net NPAs targeted to reach zero by end-2025, supporting stable operating profits (Page 23).
→ROE has historically been 20-21% with management aiming to maintain this despite growth and capital base expansion (Page 22).

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→There is no explicit mention of new fundraising through debt or equity in the provided transcript.
→However, the company highlighted that it has managed to reduce its incremental cost of funds to around 6.85%, largely due to foreign currency borrowings and increased borrowing under 54EC bonds.
→The company expects steady loan book growth at around 15% per year, indicating ongoing financing activity.
→The emphasis is on transitioning loans from three-year rate resets to one-year resets, reflecting a focus on risk management rather than raising new capital.
→Discussions reflect strong disbursement targets (Rs. 1,50,000 Cr in current FY) and large lending exposure, but no direct mention of fresh fundraising via equity or debt issuance.

Yes

→As of Q1 FY2024, REC's disbursement stood at Rs. 53,000 Crores, with a target of Rs. 150,000 Crores for the full financial year.
→Significant pending loan book growth opportunities, targeting a conservative loan book growth of 15% going forward.
→Long-term outlook aims for a loan book size of Rs. 10 lakh Crores by FY2030, implying around 12% CAGR.
→Renewable energy and infrastructure sectors comprise large parts of order pipelines, with strong traction and increasing applications for financing.
→Large opportunities exist in energy transition initiatives worth Rs. 3-4 lakh Crores; REC targets 20-30% share.
→Bridge financing for states needing to clear renewable energy framework evaluations is planned, with a total outlay around Rs. 3 lakh Crores.
→Resolution plans underway for stressed assets amounts to about $1 billion, with 9 projects targeted for resolution in the current year.

Yes

→REC plans significant capex/capital investment in energy transition initiatives, targeting Rs. 15 lakh Crores funding requirement by 2030, capturing 20-30% of this business.
→Focus areas include renewable energy generation (solar, wind, hybrid, storage solutions), battery energy storage, pumped storage hydro, green hydrogen, and green ammonia projects.
→Large investments in upgrading and modernizing the distribution sector, which will maintain about 30-35% share in REC's loan portfolio over the next 10-15 years.
→Financing of green energy corridors for renewable energy evacuation is planned.
→Increasing non-power infrastructure and logistics sector financing from the current 1% to about 30% of the loan book by 2030.
→Collaboration with banks like SBI, Punjab National Bank, and others for large infrastructure projects including refining and steel sectors.
→Recruitment of about 125 new officials and 28 sector experts in non-power infrastructure sectors to support growth and project appraisal.

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