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Recommendation: BUY | 12–18 Month Target Upside: 40–60%
Recent Highlights & Market Sentiment
REC Limited continues to draw strong investor interest after its Board approved a large ₹1.55 lakh crore fundraise in early June 2025. The fundraise aims to support the company’s ambitious growth targets, particularly in renewable energy and infrastructure segments. This follows its successful ₹1.45 lakh crore capital mobilisation last year, positioning REC among the most robustly capitalised lenders in the space.
In parallel, the company streamlined its transmission portfolio by striking off the Rajgarh III SPV, improving portfolio quality. The stock responded positively, rising around 2% on the news.
Financial Performance Snapshot – Q3 FY25
- Record Loan Disbursements: ₹54,000 crore disbursed in Q3, a 20% year-on-year increase.
- Assets Under Management (AUM): ₹5.66 lakh crore, reflecting 14% year-on-year growth.
- Net Profit: ₹4,290 crore, up 23% YoY, driven by higher disbursements and improved interest margins.
- Net Interest Margin (NIM): 3.64%, up 12 basis points YoY.
- Asset Quality: GNPA at 1.95%; NNPA at 0.74%. The company maintains strong provision buffers and has avoided new NPAs among its top borrowers.
Strategic Focus & Growth Drivers
Renewable Energy Expansion
REC is aggressively building its renewables portfolio, with ₹7,935 crore deployed in green projects during Q3, marking a 79% YoY jump. It has set a target of ₹3 trillion renewable energy loan book by 2030, which will account for approximately 30% of total AUM.
Diversification into Broader Infrastructure
The company is diversifying its lending into non-power infrastructure such as roads, metros, airports, and ports—beyond its traditional core of power generation and transmission financing.
Strong Capital Position & Funding Flexibility
REC maintains an AAA domestic credit rating and a highly diversified funding base across bonds, loans, external commercial borrowings, and commercial paper. Its large fundraise pipeline ensures sufficient firepower to support future growth without compromising balance sheet strength.
Valuation & Analyst Perspective
REC trades at very attractive valuation multiples: approximately 6.9× forward P/E and 1.5× forward P/B, making it one of the more reasonably valued companies in the sector.
Despite its strong fundamentals, the stock has lagged slightly in terms of rerating compared to its closest peer, PFC, providing additional room for upside.
Most brokerages and analysts remain bullish on REC, with price targets in the range of ₹600 to ₹680—representing an upside potential of 40–60% over the next 12 to 18 months.
Key Risks
- Rising Interest Expenses: Given REC’s large borrowings, fluctuations in funding costs could impact margins. The company’s diversified funding profile helps mitigate this risk.
- Asset Quality: Continued vigilance is required to ensure no material deterioration in loan book quality, particularly in the legacy stressed power sector.
- Execution Risk in New Areas: Successful diversification into roads, ports, and renewables depends on timely project execution.
- Sensitivity to Government Policies: As a public-sector entity, REC remains somewhat exposed to policy-driven changes in the power and infrastructure financing landscape.
Retail Investor Strategy
Entry Timing
REC’s current market levels (~₹410) present an attractive entry point. Investors could consider phased accumulation—buying a portion now and adding more on market dips or around quarterly results announcements.
Allocation Guidance
Given its strong growth outlook and stable asset quality, REC can be considered a core holding in an infrastructure or financials-oriented portfolio. Limit exposure to 8–10% of total equity portfolio to maintain diversification.
Monitoring Points
Investors should track REC’s quarterly loan disbursements, asset quality updates, progress toward renewable energy targets, and funding cost trends. Updates on diversification efforts into new infrastructure sectors will also be key.
Expected Returns
Base Case: 40–60% upside over the next 12–18 months driven by earnings growth and valuation rerating.
Upside Scenario: Faster-than-expected renewable loan book growth, continued margin expansion, and strong NIM performance could push returns beyond 60%.
Downside Scenario: Slower progress in diversification or deterioration in loan quality could limit gains to the lower end of the projected range.
Conclusion
REC Limited offers one of the most compelling risk-reward profiles in India’s power and infrastructure finance space today. With strong financial momentum, a growing renewable energy portfolio, a well-capitalised balance sheet, and attractive valuations, REC is well-positioned to outperform over the next 12–18 months.
Retail investors seeking exposure to India’s infrastructure growth and energy transition story should consider REC as a high-quality, well-managed option within their portfolios.
