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Informist, Thursday, Apr. 24, 2025

 

By Priyasmita Dutta

 

NEW DELHI – State-owned company REC Ltd. had a streak of robust performance in the final quarter of each fiscal for the last five years. However, in the Jan-Mar quarter of 2024-25 (Apr-Mar), the Navratna company is expected to post a profit of INR 40.24 billion, up only 0.2% on year, as per the average of estimates from five brokerages. Sequentially, the profit is seen 0.1% lower. The tepid profit estimates are owing to a likely industry-wide slowdown and also a high base effect from a massive write-back in Jan-Mar of FY24. 

 

In Jan-Mar of FY24, REC had a write-back of INR 7.12 billion, which bolstered its profits, resulting in a bottomline of INR 40.16 billion. At 1325 IST, shares of REC were up 0.2% at INR 441.45 on the National Stock Exchange. The company is yet to announce the date on which the board will finalise the financial results for the quarter under review and FY25.

 

It is to be mentioned that the flat growth in profit is based on fairly wide-ranging estimates, stretching from INR 35.15 billion by Motilal Oswal Financial Services Ltd. to INR 44.53 billion by Equirus Securities Pvt. Ltd. "Disbursements for power financiers could be subdued during the quarter due to slowdown in economic activity, which we expect to result in lower than expected loan growth for REC," Motilal Oswal Financial Services said in a pre-earnings report. 

 

As of Dec. 31, the company's loan book was up 14% on year at INR 5.66 trillion. The power financier is aiming to double its loan book to INR 10 trillion by 2030. Four out of five brokerages have said that the loan book would have grown 13-16% by the end of March, and only ICICI Securities Ltd. sees it rising 20% on year. Disbursements for the power sector financier are seen growing in the range of 14-16%, brokerages said. In the first nine months of the year, disbursements were up 19% at INR 1.46 trillion. 

 

The robust disbursements, along with efforts to keep borrowing costs down, have helped the public sector undertaking to post a healthy net interest income in the last few years. In Jan-Mar, the net interest income is seen at INR 52.09 billion, up over 16% on year, and 1.5% higher sequentially. In Oct-Dec, the net interest income was INR 44.88 billion.  

 

Diversification of borrowing instruments by REC has helped keep the net interest margin afloat. Equirus Securities said that the net interest margin is expected to see a "stable to improving trend" in Jan-Mar, while Motilal Oswal said that it will likely contract by around 5 basis points sequentially to 3.6%. REC's net interest margin at the end of the December quarter was flat sequentially at 3.66%, but 5 bps higher on year. In FY24, the net interest margin was 3.57%, up 19 bps from the previous year. 

 

On the asset front, another key item shaping its profits during the quarter, brokerages said provisioning needs to be monitored owing to potential stressed asset resolution. "There would be healthy provision reversal on account of the resolution of KSK Mahanadi," Equirus Securities said. But, Motilal Oswal said that part of the resolution would have already been factored in Oct-Dec. 

 

In the analyst call after the Oct-Dec financial results, former chairman and managing director Vivek Kumar Dewangan had said that reversal of provisioning of about INR 22 billion from four assets may or may not come in the final quarter, depending on when the resolution order is passed. "But by December 2025, all this reversal will happen," he said. Motilal Oswal, in its report, also said that provisioning by the PSU may be higher in Jan-Mar as certain distribution companies saw rating downgrades during the quarter. 

 

REC had written back bad loans worth INR 890.3 million during Oct-Dec. In line with the company's aim to achieve zero net new non-performing assets by the end of 2025, the net bad loans of the state-owned financier were 0.74% as of Dec. 31, against 0.88% a quarter ago, while gross non-performing assets were at 1.95% against 2.53%. REC's provision coverage ratio was 61.88% at December end.

 

Following are the Jan-Mar earnings estimates for REC Ltd. based on reports from five brokerage firms in descending order of the estimate of net profit:

 

Brokerage	Net Interest Income (INR million)	Net profit (INR million)
Equirus Securities Pvt Ltd	51,064	44,529
ICICI Securities Ltd	51,821	43,552
Elara Securities (India) Pvt Ltd	52,812	41,318
Sharekhan Ltd	52,710	36,660
Motilal Oswal Financial Services Ltd	52,061	35,146

 

End

 

Edited by Akul Nishant Akhoury

 

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