NOTE FOR INVESTMENT OPERATION COMMITTEE

MD & CEO CFO CRO CIO

APPROVAL NOTE FOR PURCHASE OF EQUITY SHARE: -

About Company: - PFC was established in 1986 by GoI as an institution dedicated to funding and developing the
power sector in India. Until 1996, it lent exclusively to public sector entities. Since then, it has expanded its customer
profile to include private sector power utilities and projects. PFC aims to promote balanced and integrated
development of the power sector by providing finance to low-cost, efficient, and reliable projects. In March 2019,
PFC completed the acquisition of GoI's 52.6% stake in REC for Rs 14,500 crore. CRISIL believes both PFC and REC will
remain strategically important to the government, which would provide them support, if required. They will
continue to play their respective policy roles and will remain the nodal agencies for implementing power sector
policies. Further, they are expected to operate all functions independently as they do currently.

Investment Rational: -
 In FY21 company’s performance has improved in comparison to last few years in all the aspects.
 Company’s asset quality is improving with improvement in PCR, GNPA as on Mar 21 are at 4.84% from
7.24% in Mar 19, similarly PCR has been improved to 64.59% as on Mar21 from 47.66% in Mar 19.
 Company has adequate CAR ratio with Tier-I at 16.31 and Total CAR at 19.72% with sizeable networth of
Rs. 43,426Cr.
 REC carries a AAA-rating and with the government and PFC support, it is likely to maintain that.
 The stock remains attractively valued at 0.6x FY22E P/BV even accounting for worst-case private asset
quality outcomes. A dividend yield of 7%- plus lends comfort, given REC’s dividend sustainability stems
from ‘risk-free’ public asset financing and remains robust despite kitchen sinking private asset outcomes.
Going forward, we expect the resolution cycle and steady core profits lead to its upward re-rating. We
value the stock at 0.8x FY22E P/BV to arrive at TP of INR200.

Sector Outlook: - we believe, given: i) surplus liquidity, ii) improving power demand/generation and iii) significant
government capex plans, REC remains wellplaced to continue on its path of strengthening and growing business
operations. The estimates for Gross Non-Performing Assets (GNPAs) of banks and NBFC is expected to be higher
but that is dependent on the economy revival and companies have done adequate provisioning for the same .

Outlook & Valuation: - The stock is currently trading at 0.6X on FY22E book value, implying inexpensive valuations.
We assign 0.8x multiple to FY22 book value to arrive at TP of Rs 200. We remain positive on the stock.

Financial performance and detail valuation attached as annexure I

Compliance check is attached as annexure II

We propose to invest in equity share of REC Ltd.

Submitted for your approval, please

Research Analyst Equity Dealer

Research Analyst
14th June 2021.

Annexure – I

Name of the Company REC LTD

REC Limited operates as a financial firm. The Company

provides loan assistance to various state and central power
utilities, private sector project developers, and state
Business Details
governments for investments in power generation,
transmission, distribution, and other system improvement
schemes.

Share Price Details Dividend Details

Market Cap (Rs Crore) 31875 FY20 11
52W High 167.8 FY19 11
52W Low 91.8 FY18 9.15
Current Market Price 161.4 Share Face Value Rs.   Q1933 10
Beta 0.98 Approved Investment: Yes

Financials Indicator:-

Particulars (in Cr) FY19 FY20 FY21 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21
Capital Ratios
Tier-I 14.44% 13.17% 12.66% 13.17% 13.39% 14.86% 15.78% 16.31%
Tier-II 3.33% 2.89% 2.25% 2.89% 3.52% 3.49% 3.49% 3.41%
Total CAR 17.77% 16.06% 14.91% 16.06% 16.91% 18.35% 19.27% 19.72%

Business
Advances 281210 322425 377418 3,22,425 3,30,788 3,48,951 3,57,067 3,77,418
% Growth 17% 15% 17% 3% 3% 5% 2% 6%
Asset Mix
Generation 43.4% 43.3% 41.1% 43.3% 43.2% 42.0% 41.5% 41.1%
Renewable Energy 4.6% 5.0% 4.4% 5.0% 4.9% 4.9% 4.6% 4.4%
Transmission 18.5% 18.5% 16.2% 18.5% 18.1% 17.5% 17.2% 16.2%
Distribution 32.8% 33.0% 38.2% 33.0% 33.5% 35.5% 36.7% 38.2%
T&D 51.3% 51.5% 54.4% 51.5% 51.7% 53.0% 53.9% 54.4%
Others 0.8% 0.3% 0.1% 0.3% 0.3% 0.2% 0.1% 0.1%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

P & L Figures
 Total Income 9,700 10,832 13,921 2,834.9 3,229.1 3,379.5 3,601.1 3,711.7
Total Expense 838 2,959 746 1,598.2 553.4 (187.2) 61.0 318.3
Operating profit 8,862 7,873 13,176 123.7 267.6 356.7 354.0 339.3
Provisions 240 890 2,420 538.5 198.6 793.4 730.0 697.6
PAT 6,285 4,886 8,362 435.7 1,839.0 2,190.2 2,262.9 2,069.6
Ratio's
GNPA (%) 7.26% 6.59% 4.84% 6.59% 6.11% 5.22% 5.10% 4.84%
NNPA (%) 3.94% 3.43% 1.77% 3.32% 2.9% 2.04% 1.95% 1.71%
PCR (%) 47.7% 49.6% 64.6% 49.6% 52.9% 60.9% 61.9% 64.6%
NIM (%) 4% 3.74% 3.93% 3.30% 3.68% 4.19% 4.05% 3.79%
RoE (%) 17.10% 14.1% 22.1% 5% 20% 23% 22% 19%
Debt/Equity Ratio 7.0x 8.0x 7.4x 8.0x 8.0x 7.4x 7.3x 7.4x
BVPS 173.69 177.61 219.88 177.61 189.29 203.85 211.40 219.89

Annexure – II

Compliance Table:-

COMPLIANCE TABLE: REC LTD Date: 10-Jun-21

Existing
Shareholders Fund as on the last day 2,436.80   Exposure  
MV of Portfolio As on Last Working Day 736.16 Cr. BV 0
Small Cap with MCap up to 10000Cr 28.18 Cr. MV 0
Medium Cap with MCap >10000Cr up to 30K Cr. 47.71 Cr. Shares 0.000
Large Cap >30000Cr 660.27 Cr.    
Book Value of Portfolio As on Last Working Day 629.68   Check 0
Compliance Checks
Paramete Complianc
Criteria r   Actual e
1. Market Cap 2000 Cr 31875 YES
2. 100% of Average 3M Traded Volume 55 Lacs 14.71 YES
3. Absolute Exposure Limit 50 Cr 25 YES
4. Exposure Limit as 10% of Market Value of
Portfolio 73.62 Cr 25 YES
5. Mcap Limit        
Small Cap 73.6 Cr 28.18 YES
Small & Medium Cap 220.8 Cr 75.9 YES
Large Cap 441.7 Cr 685.3 YES
6. Equity Portfolio up to 30% of Shareholders
Fund 699.1 Cr 654.7 YES
7. Is the stock in Equity Universe       Yes
8. Average 30 Day Volumes 50 K 5020 YES
9. Average 30 Day Value 5 Lacs 8064 YES
10. Net Worth 100 Cr 43764 YES
11. IPO Size 200 Cr   NA
of
12. Per Investee Company Limit 10% Capital 0.08% YES
13. Approved Investment       Yes