Buy Rural Electrification Corp: Motilal Oswal
The power sector is expected to see generation capacity addition of 120 GW during FY08-12 , including 80 GW targeted during Eleventh Five-Year Plan.
RESEARCH: MOTILAL OSWAL
RATING: BUY
CMP: RS 211
The power sector is expected to see generation capacity addition of 120 GW during FY08-12 , including 80 GW targeted during Eleventh Five-Year Plan. REC is dedicated to power-sector financing. It enjoys strong relationships with central and state government utilities, which account for 94% of its loan book. With over 78% of the total investment pipeline expected from government utilities, REC is to be a major beneficiary of the buoyancy in the power sector.
With cumulative sanctions of ~Rs 1.2 trillion over the past three years, REC���s loan pipeline remains strong. Being a government-promoted AAA-rated organisation, REC���s borrowing cost is the lowest among peers. Its reported spreads will remain high at 2.75%+ as it enjoys lower funding cost due to bonds under Sec 54EC of the Income Tax Act.
Going forward, the share of 54EC bonds is likely to come down which will increase the cost of funds. However, large upward resets in low-yielding loans should partly offset the pressure on spreads. REC is a long-term play on India���s power sector growth. The stock offers both earnings growth visibility and value.
RATING: BUY
CMP: RS 211
The power sector is expected to see generation capacity addition of 120 GW during FY08-12 , including 80 GW targeted during Eleventh Five-Year Plan. REC is dedicated to power-sector financing. It enjoys strong relationships with central and state government utilities, which account for 94% of its loan book. With over 78% of the total investment pipeline expected from government utilities, REC is to be a major beneficiary of the buoyancy in the power sector.
With cumulative sanctions of ~Rs 1.2 trillion over the past three years, REC���s loan pipeline remains strong. Being a government-promoted AAA-rated organisation, REC���s borrowing cost is the lowest among peers. Its reported spreads will remain high at 2.75%+ as it enjoys lower funding cost due to bonds under Sec 54EC of the Income Tax Act.
Going forward, the share of 54EC bonds is likely to come down which will increase the cost of funds. However, large upward resets in low-yielding loans should partly offset the pressure on spreads. REC is a long-term play on India���s power sector growth. The stock offers both earnings growth visibility and value.
Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
Bookmark or read stories offline -
Download ET Markets APP
Download ET Markets APP
ADVERTISEMENT
