Buy REC Ltd - Motilal Oswal

REC 3QFY11: Stable spreads QoQ leads to higher PAT; disbursements muted but should pick up in 4QFY11; Buy

Reported NII grew 36% YoY and 9% QoQ. In 2QFY11, REC paid Rs346m as fees for funds raised through ECB, and adjusted for this NII grew 4% QoQ.

Reported spreads improved 20bp QoQ to 3.44% (on adjusted basis remained stable against our estimate of marginal decline) leading to higher profitability.

Sanctions and disbursements for 3QFY11 remained flat YoY at Rs106b and Rs60b. On sequential basis, disbursements were up 8%.

Disbursements in generation segment grew 20% YoY to Rs21.9b; T&D segment grew 10% to Rs25.2b whereas short term loans disbursed were lower at Rs13b.

Loan book growth moderated to 22% YoY and 4% QoQ to Rs757b. T&D segment constitutes 52% of loan book while generation segment constitutes 42%.

For FY11, management is guiding for disbursements of around Rs230b and targets loan book of Rs810b by FY11 and over Rs1t by FY12. We expect EPS growth of ~19% over FY11-13. Book value would be Rs148 and Rs170 for FY12 and FY13. RoA and RoE would be strong at ~3.4% and 22-23%.Stock trades at 1.5x FY13E BV. Buy with a target price of Rs340 (2x FY13E BV of Rs170).

Source : Equity Bulls

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