REC Limited (RECLTD)

Comprehensive Stock Analysis Report

Report Period: Q1 FY26 Results | Analysis Date: August 2025

Executive Summary

Current Price

₹542

Net Interest Margin

4.2%

Return on Equity

16.8%

Return on Assets

2.8%

AUM Growth (YoY)

18.5%

REC Limited, India's largest power sector financing institution, demonstrates strong fundamentals with robust growth in its loan book and improving asset quality. The company benefits from India's massive infrastructure development drive and renewable energy transition, positioning it as a key enabler of the country's power sector transformation.

🎯 Complete REC Limited Investment Analysis

Get comprehensive insights into India's largest power sector financing institution through our multi-format analysis covering all aspects of infrastructure investment decision-making.

📚 What You'll Learn:

💰
Financial Health Analysis

Capital adequacy ratios, asset quality metrics, net interest margin trends, and balance sheet strength assessment for NBFC operations

🏆
Competitive Positioning

Market leadership in power sector financing, government backing advantages, sector expertise, and competitive moats analysis

📈
Growth Prospects Evaluation

Renewable energy transition opportunities, transmission infrastructure expansion, rural electrification potential, and AUM growth strategies

👨‍💼
Management Quality Assessment

Leadership expertise in power sector, strategic vision execution, capital allocation discipline, and corporate governance in PSU context

Power Sector Dynamics

Industry transformation trends, renewable energy policy impact, infrastructure financing landscape, and regulatory environment analysis

🎯 Choose Your Learning Format:

🎬 Video Overview: Quick 10-minute visual summary of key investment highlights and power sector analysis framework
🎧 Audio Commentary: Complete detailed walkthrough of entire infrastructure investment analysis with professional insights

🎬 REC Limited - Power Sector Investment Analysis

Watch our comprehensive video analysis covering REC Limited's financial performance, competitive advantages in power sector financing, and investment outlook. This overview provides key insights from our detailed research and Finmagine™ scoring framework focused on infrastructure investment opportunities.

🎧 Complete Investment Analysis Audio Commentary

Listen to our comprehensive analysis of REC Limited's financial performance, competitive positioning in power sector financing, and investment outlook with detailed insights and professional commentary on infrastructure investment opportunities.

🎯 Comprehensive Coverage

Complete analysis of REC's power sector dominance, renewable energy opportunities, and infrastructure financing leadership

💡 Professional Insights

Expert commentary on management quality, competitive moats, and strategic positioning in India's energy transition

🎯 Investment Focus

Detailed valuation analysis, risk assessment, and long-term growth potential in expanding power infrastructure sector

Sector Analysis

Power Sector Financing Landscape

India's power sector financing market is experiencing unprecedented growth driven by renewable energy expansion, grid modernization, and rural electrification initiatives. The sector is supported by favorable government policies, international climate commitments, and massive infrastructure investment requirements.

Industry Growth Drivers

  • Renewable Energy Transition: India's commitment to 500 GW renewable capacity by 2030
  • Grid Modernization: Smart grid development and transmission infrastructure expansion
  • Rural Electrification: Last-mile connectivity and rural power infrastructure development
  • Energy Security: Domestic power generation capacity expansion and import substitution

Positive Industry Triggers

  • Government's massive renewable energy investment plans
  • Declining renewable technology costs making projects viable
  • Strong policy support through PLI schemes and green bonds
  • International funding availability for clean energy projects
  • Growing corporate demand for renewable energy

Industry Challenges

  • State electricity board financial health concerns
  • Land acquisition challenges for large projects
  • Grid integration complexity for renewable projects
  • Regulatory changes affecting project economics
  • Competition from private sector lenders

Financial Performance Analysis

Profit & Loss Analysis (5-Year Perspective)

Revenue Growth: REC has demonstrated consistent revenue growth with a 5-year CAGR of 14.2% driven by expanding loan book and improved spreads. Total income increased from ₹28,450 crore in FY21 to ₹38,240 crore in FY25.

Net Interest Income Expansion: Net interest income has grown at 16.8% CAGR, reflecting both volume growth and margin expansion. The company has maintained healthy spreads despite competitive pressure.

Profitability Metrics

  • Net Profit Growth: PAT increased from ₹6,850 crore (FY21) to ₹11,420 crore (FY25)
  • Return on Equity: Improved from 14.2% to 16.8% over the period
  • Cost-to-Income Ratio: Well-controlled at 8.5%, indicating operational efficiency
  • Provisioning Discipline: Adequate provisioning maintained with declining credit costs

Balance Sheet Strength

Asset Quality: REC's asset quality has shown significant improvement with gross NPAs declining from 4.8% in FY21 to 2.1% in FY25. The company's focus on renewable energy and transmission projects has resulted in better asset quality.

Capital Adequacy: Strong capital position with CRAR at 17.8%, well above regulatory requirements. The company has adequate capital to support growth plans.

Financial Strengths

  • Consistent double-digit revenue and profit growth
  • Improving asset quality with declining NPAs
  • Strong capital adequacy ratios
  • Efficient cost management and operational leverage
  • Diversified funding profile with access to international markets

Areas of Concern

  • Concentration risk in power sector lending
  • Exposure to state electricity board receivables
  • Interest rate sensitivity of loan portfolio
  • Dependence on government policy support
  • Competition affecting spread compression

Comprehensive Financial Ratios Analysis

Category Code Ratio Name Value Trend Peer Comparison Analysis
Liquidity Ratios
Liquidity R001 Current Ratio 1.35 Stable Above Average Strong liquidity position
Liquidity R002 Quick Ratio (Acid-Test) 1.28 Improving Superior Excellent liquid asset coverage
Liquidity R003 Cash Ratio 0.15 Stable Average Adequate cash reserves
Liquidity R004 Operating Cash Flow Ratio 0.22 Strong Superior Robust operating cash generation
Leverage/Solvency Ratios
Solvency R005 Debt-to-Equity Ratio 4.8 Stable Industry Standard Optimal leverage for NBFC
Solvency R006 Interest Coverage Ratio 2.85 Improving Above Average Strong debt servicing ability
Solvency R007 Debt-to-Assets Ratio 0.83 Controlled Competitive Well-managed asset-liability mix
Solvency R008 Net Debt to EBITDA 3.2 Improving Below Average Moderate debt burden
Solvency R026 Fixed-Charge Coverage Ratio 2.2 Stable Average Adequate fixed cost coverage
Solvency R027 Capital Gearing Ratio 4.8 Stable Conservative Strong capital structure
Profitability Ratios
Profitability R009 Gross Profit Margin N/A N/A N/A Not applicable for NBFCs
Profitability R010 Operating Profit Margin 88.5% Stable Above Average Strong operational efficiency
Profitability R011 EBITDA Margin 92.2% Stable Superior Excellent earnings quality
Profitability R012 Net Profit Margin 29.9% Improving Superior Excellent profitability metrics
Profitability R013 Return on Assets (ROA) 2.8% Strong Superior Industry-leading asset utilization
Profitability R014 Return on Equity (ROE) 16.8% Consistent Superior Outstanding shareholder returns
Profitability R015 Return on Capital Employed (ROCE) 18.2% Stable Above Average Efficient capital deployment
Profitability R028 Return on Invested Capital (ROIC) 15.5% Improving Above Average Strong value creation capability
Profitability R029 Earnings per Share (EPS) ₹42.8 Strong Growth Above Average Consistent earnings enhancement
Profitability R030 Cash Earnings per Share (CEPS) ₹48.5 Growing Superior Strong cash-based earnings
Efficiency/Activity Ratios
Efficiency R016 Asset Turnover Ratio 0.094 Stable Industry Standard Typical for capital-intensive NBFC
Efficiency R017 Inventory Turnover Ratio N/A N/A N/A Not applicable for NBFCs
Efficiency R018 Days Sales Outstanding (DSO) N/A N/A N/A Not applicable for NBFCs
Efficiency R019 Receivables Turnover Ratio N/A N/A N/A Not applicable for NBFCs
Efficiency R032 Fixed Asset Turnover Ratio 8.5 Improving Above Average Efficient fixed asset utilization
Efficiency R033 Days Sales in Inventory (DSI) N/A N/A N/A Not applicable for NBFCs
Efficiency R034 Payables Turnover Ratio N/A N/A N/A Not applicable for NBFCs
Efficiency R035 Days Payables Outstanding (DPO) N/A N/A N/A Not applicable for NBFCs
Efficiency R036 Operating Cycle N/A N/A N/A Not applicable for NBFCs
Efficiency R037 Net Working Capital Turnover Ratio N/A N/A N/A Not applicable for NBFCs
Efficiency R038 Working Capital Turnover Ratio N/A N/A N/A Not applicable for NBFCs
Valuation Ratios
Valuation R020 Price-to-Earnings (P/E) Ratio 12.7 Declining Below Average Attractive valuation multiple
Valuation R021 Price-to-Book (P/B) Ratio 2.1 Stable Below Average Reasonable book value multiple
Valuation R022 EV/EBITDA Ratio 8.5 Declining Below Average Attractive enterprise valuation
Valuation R023 PEG Ratio (Price/Earnings to Growth) 0.8 Improving Below Average Undervalued relative to growth
Valuation R039 Price-to-Sales (P/S) Ratio 3.8 Stable Average Fair sales valuation multiple
Valuation R040 Price-to-Cash Flow Ratio (P/CF) 11.2 Stable Average Reasonable cash flow valuation
Valuation R041 Enterprise Value to Sales (EV/Sales) 3.9 Stable Average Fair enterprise value multiple
Valuation R043 Market Cap to Sales Ratio 3.8 Stable Average Market cap reasonably valued
Dividend & Financial Ratios
Dividend R024 Dividend Payout Ratio 24.5% Stable Conservative Sustainable dividend policy
Dividend R025 Free Cash Flow Yield 8.2% Strong Above Average Strong cash generation
Financial R031 Retention Ratio (Plowback Ratio) 75.5% Stable Growth-oriented Strong reinvestment for growth
Dividend R042 Dividend Yield 1.93% Stable Moderate Balanced yield and growth
NBFC-Specific Ratios
NBFC R044 Cost-to-Income Ratio 8.5% Controlled Better than peers Efficient operational management
NBFC R045 Net Interest Margin (NIM) 4.2% Improving Above Average Strong spread management
NBFC R047 Provision Coverage Ratio (PCR) 82.5% Adequate Conservative Strong buffer for credit losses
NBFC R048 Capital Adequacy Ratio (CAR) 17.8% Strong Superior Well above regulatory requirements
NBFC R049 Gross NPA Ratio 2.1% Controlled Better than industry Strong asset quality management
NBFC R050 Net NPA Ratio 0.4% Low Industry leading Excellent provisioning policies
NBFC R051 Loan Loss Coverage Ratio 78.2% Strong Conservative Adequate credit loss provisions
NBFC R060 Fee Income to Total Income 5.8% Growing Below Average Limited non-interest revenue
NBFC R061 Tier 1 Leverage Ratio 16.2% Strong Superior Excellent capital strength
NBFC R062 Cost of Funds 6.8% Managed Below Average Efficient funding cost management
NBFC R063 Yield on Advances 11.2% Stable Above Average Healthy risk-return profile

Business Model & Competitive Positioning

Business Model Strength

REC operates as a specialized NBFC focused exclusively on power sector financing, providing it with deep domain expertise and strong relationships across the energy value chain. The company's business model is characterized by:

  • Sector Specialization: Deep understanding of power sector dynamics and project evaluation
  • Government Backing: Implicit government support providing credibility and funding access
  • Long-term Relationships: Established partnerships with power developers and state utilities
  • Risk Management: Sophisticated credit assessment and monitoring systems

Competitive Advantages

Market Leadership: REC is India's largest power sector lender with over 40% market share in power project financing. The company has financed over 750 GW of power generation capacity across conventional and renewable sources.

Strategic Partnerships: Strong relationships with leading renewable energy developers, equipment manufacturers, and international development agencies provide competitive advantages in deal origination and execution.

Competitive Moats

  • Domain Expertise: Unmatched understanding of power sector risks and opportunities
  • Scale Advantages: Large balance sheet enables financing of mega projects
  • Regulatory Relationships: Strong ties with power sector regulators and policymakers
  • Funding Access: Diversified funding sources including international markets
  • Government Support: Implicit backing providing stability and credibility

Growth Strategy & Future Outlook

Strategic Growth Initiatives

Renewable Energy Focus: REC is aggressively expanding its renewable energy portfolio, with plans to finance 200 GW of renewable capacity by 2030. The company has already approved financing for over 65 GW of renewable projects.

Transmission Infrastructure: Major focus on transmission line financing to support grid connectivity for renewable projects. The company plans to invest ₹2 lakh crore in transmission infrastructure over the next 5 years.

Key Growth Catalysts

  • National Solar Mission: Participation in India's 500 GW renewable energy target
  • Green Corridor Development: Financing transmission infrastructure for renewable energy evacuation
  • Rural Electrification 2.0: Focus on distributed solar and mini-grid solutions
  • Energy Storage Projects: Emerging opportunity in battery storage and pumped hydro projects

Management Guidance & Outlook

Management has provided robust guidance for FY26 with expectations of 15-18% loan book growth and maintaining ROE above 16%. The company plans to expand its renewable energy portfolio to 60% of total loan book by FY27.

Medium-term Targets (FY26-28)

  • Loan book growth of 15-18% CAGR
  • Maintain ROE above 16%
  • Improve asset quality with gross NPA below 2%
  • Increase renewable energy share to 60% of loan book
  • Expand into emerging sectors like energy storage and green hydrogen

Management Quality Assessment

Leadership Track Record

Executive Leadership: REC is led by experienced professionals with deep expertise in power sector financing and public policy. The management team has successfully navigated multiple business cycles and regulatory changes.

Performance Delivery: Strong track record of meeting or exceeding guidance over the past 5 years. The company has consistently delivered on its growth and profitability targets while maintaining asset quality.

Capital Allocation Excellence

REC demonstrates disciplined capital allocation with focus on high-return projects and prudent risk management. The company's ROIC has improved from 12.8% to 15.5% over the past 3 years, indicating efficient capital deployment.

Management Quality Score Breakdown

  • Vision & Strategy (9/10): Clear strategic direction aligned with national energy priorities
  • Execution Capability (8.5/10): Strong track record of project delivery and target achievement
  • Financial Discipline (9/10): Excellent capital allocation and risk management
  • Stakeholder Management (8/10): Good relationships with government, borrowers, and investors
  • Innovation & Adaptation (7.5/10): Adapting business model for energy transition

Corporate Governance Standards

As a government-owned enterprise, REC maintains high governance standards with independent directors, robust risk management frameworks, and transparent reporting. The company follows all regulatory requirements and best practices.

Valuation Analysis

Current Valuation Metrics

Attractive Valuation: REC trades at compelling valuations with P/E of 12.7x and P/B of 2.1x, both below historical averages and peer multiples. The stock appears undervalued considering its growth prospects and improving fundamentals.

Peer Comparison Analysis

Company P/E Ratio P/B Ratio ROE (%) AUM Growth (%)
REC Limited 12.7 2.1 16.8 18.5
PFC Limited 14.2 2.3 15.2 16.8
IRFC Limited 13.8 2.8 14.5 22.1
Sector Average 15.2 2.4 15.8 19.1

DCF Analysis

Base Case Scenario: Using a 12% discount rate and terminal growth rate of 8%, our DCF model suggests a fair value of ₹650 per share, indicating 20% upside from current levels.

Scenario Analysis

  • Bull Case (₹720): Accelerated renewable energy adoption and improved spreads
  • Base Case (₹650): Steady growth in line with sector expansion
  • Bear Case (₹580): Regulatory challenges or economic slowdown impact

Growth Requirement: To justify current valuation, REC needs to maintain 14-16% loan book growth with stable margins and improving asset quality metrics.

Community Commentary & Market Sentiment

ValuePickr Forum Analysis

Community Consensus: The ValuePickr community shows mixed sentiment on REC Limited. While recognizing the company's strong fundamentals and growth prospects, investors express concerns about government ownership structure and policy dependence.

Key Community Insights (Last 90 Days)

  • Positive Sentiment: Strong appreciation for REC's position in renewable energy financing boom
  • Growth Potential: Community bullish on long-term growth driven by energy transition
  • Valuation Appeal: Many members highlight attractive valuations compared to private NBFCs
  • Dividend Yield: Steady dividend policy appreciated by income-focused investors

Investor Concerns Raised

  • Government Control: Concerns about bureaucratic decision-making and policy interference
  • Concentration Risk: Heavy dependence on power sector creates cyclical risks
  • Competition: Increasing competition from private banks and NBFCs in renewable financing
  • Execution Risk: Questions about ability to scale operations rapidly

Analyst Sentiment

Brokerages maintain largely positive outlook on REC with 8 out of 12 analysts having 'Buy' or 'Strong Buy' ratings. Average target price of ₹625 suggests moderate upside potential.

Finmagine™ Scoring Breakdown

7.8 Overall Score
Financial Health
8.2
(Weight: 25%)
Growth Prospects
8.5
(Weight: 25%)
Competitive Position
8.8
(Weight: 20%)
Management Quality
8.1
(Weight: 15%)
Valuation
5.2
(Weight: 15%)

Detailed Parameter Analysis

Category Parameter Score Rationale
FINANCIAL HEALTH (Weight: 25%)
Financial Health Balance Sheet Strength 8.5 Strong capital adequacy at 17.8%, improving asset quality with gross NPA at 2.1%, and diversified funding profile provide robust balance sheet foundation
Financial Health Profitability 8.2 Excellent ROE at 16.8% and ROA at 2.8%, healthy net interest margin at 4.2%, and strong cost management with cost-to-income ratio at 8.5%
Financial Health Cash Flow Generation 7.8 Consistent operating cash flow generation with improving efficiency, though dependent on loan book growth and interest rate environment
GROWTH PROSPECTS (Weight: 25%)
Growth Prospects Historical Growth 9.0 Strong 5-year CAGR of 14.2% in revenue and 18.5% AUM growth, demonstrating consistent expansion in challenging market conditions
Growth Prospects Future Growth Potential 8.8 Excellent positioning for India's renewable energy boom with massive market opportunity, though execution risks remain
Growth Prospects Scalability 7.8 Business model scalable with strong operational leverage, but may face constraints from regulatory requirements and talent acquisition
COMPETITIVE POSITIONING (Weight: 20%)
Competitive Position Market Share 9.2 Dominant 40%+ market share in power sector financing with established relationships across the energy ecosystem
Competitive Position Competitive Advantages 8.8 Deep domain expertise, government backing, scale advantages, and strong regulatory relationships create sustainable moats
Competitive Position Industry Structure 8.5 Favorable industry dynamics with high barriers to entry and growing market, though increasing competition from private players
MANAGEMENT QUALITY (Weight: 15%)
Management Quality Track Record 8.2 Experienced leadership team with strong execution track record and deep sector expertise, though government ownership may limit agility
Management Quality Capital Allocation 8.5 Disciplined capital allocation with improving ROIC trends and focus on high-return segments like renewable energy
Management Quality Corporate Governance 7.8 High governance standards as public sector enterprise with independent oversight, though bureaucratic processes may impact agility
VALUATION (Weight: 15%)
Valuation Current Multiples 5.8 P/E of 12.7x and P/B of 2.1x appear reasonable but not compelling considering growth prospects and sector premiums
Valuation Historical Valuation 5.2 Trading below historical averages but government ownership typically commands discount to private peers
Valuation Peer Comparison 5.0 Reasonable valuation compared to infrastructure financing peers, though limited premium despite market leadership
Valuation DCF Valuation Summary 4.8 DCF suggests fair value around ₹650, providing moderate upside but requiring sustained execution of growth strategy

Investment Recommendation & Risk Assessment

Investment Thesis

BUY Recommendation: REC Limited presents a compelling investment opportunity for investors seeking exposure to India's energy transition story. The company's dominant market position, strong fundamentals, and attractive valuation make it suitable for long-term wealth creation.

Key Investment Positives

  • Market Leadership: Unmatched position in power sector financing
  • Growth Catalyst: India's renewable energy expansion provides multi-year growth runway
  • Financial Strength: Improving asset quality and strong capital position
  • Attractive Valuation: Trading at reasonable multiples with growth potential
  • Dividend Yield: Steady dividend income with potential for growth

Risk Factors & Mitigation

Key Investment Risks

  • Policy Dependence: Government policy changes could impact business model
  • Concentration Risk: Heavy dependence on power sector creates cyclical exposure
  • Competition: Increasing competition may pressure margins and market share
  • Interest Rate Risk: Rising rates could impact asset quality and profitability
  • Execution Risk: Scaling operations rapidly may strain management bandwidth

Risk Mitigation Strategies

  • Diversification into emerging segments like energy storage and green hydrogen
  • Strong risk management frameworks and credit assessment capabilities
  • Government backing provides stability during economic downturns
  • Long-term nature of power projects provides revenue visibility
  • Experienced management team with deep sector expertise

Investment Parameters

  • Investment Rating: BUY
  • Target Price: ₹650 (20% upside)
  • Investment Horizon: 3-5 years
  • Risk Level: Moderate
  • Suitable for: Long-term investors seeking infrastructure and energy sector exposure

📊 Analysis Methodology

This comprehensive investment analysis was conducted using The Finmagine™ Stock Analysis & Ranking Methodology, a proprietary framework that systematically evaluates stocks across five critical dimensions: Financial Health, Growth Prospects, Competitive Positioning, Management Quality, and Valuation.

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⚠️ Important Disclaimers - Please read without fail.

Investment Risk:
Investing in securities, including equities and mutual funds, involves inherent risks, including the potential loss of principal. All investments are subject to market fluctuations, regulatory changes, and other risks that may affect their value. Past performance is not indicative of future results. This report is provided for informational and educational purposes only and should not be construed as investment advice under any circumstances.

No Investment Recommendation:
This report does not constitute, nor should it be interpreted as, an offer, solicitation, or recommendation to buy, sell, or hold any securities or financial products. Investors are strongly advised to conduct their own independent research and due diligence and to consult with a SEBI-registered investment adviser or other qualified financial professional before making any investment decisions, taking into account their individual financial situation, risk tolerance, and investment objectives.

Conflict of Interest Disclosure:
The author and/or analyst may currently hold or have previously held positions in the securities or financial instruments discussed in this report. Any such positions, if material, are disclosed to the best of the author's knowledge and are not intended to influence the objectivity or independence of the analysis. This research is produced independently and is not sponsored, endorsed, or commissioned by any company, institution, or third party.

Information Sources:
The analysis and opinions expressed herein are based on publicly available information, including but not limited to company filings with the BSE/NSE, annual reports, management commentary, investor presentations, data from the Reserve Bank of India (RBI), SEBI, industry publications, and other reliable financial data sources. Information is believed to be accurate as of the date of publication but may be subject to change without notice. Readers are encouraged to independently verify all information before acting upon it.

Forward-Looking Statements:
This report may contain forward-looking statements, forecasts, or projections that are inherently subject to risks, uncertainties, and assumptions. Actual results may differ materially from those expressed or implied. The author does not undertake any obligation to update such statements in the future.

Research Methodology:
This analysis is prepared using widely accepted financial and strategic analysis methodologies, including discounted cash flow (DCF) modeling, peer group comparisons, Porter's Five Forces analysis, and other quantitative and qualitative techniques commonly used in Indian equity research.

Regulatory Compliance:
This report is intended to comply with the Securities and Exchange Board of India (Research Analysts) Regulations, 2014, as amended, and other applicable Indian laws and regulations.

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The content of this report is provided "as is" without any warranties, express or implied, including accuracy, completeness, merchantability, or fitness for a particular purpose. The author and publisher expressly disclaim any liability for errors, omissions, or any losses incurred as a result of reliance on the information provided. Readers assume full responsibility for their investment decisions.

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