REC Eyes Rs 40,000 Crore Net Profit In Next Five Fiscals
The company's target to be a zero net non performing asset company is going to help drive the profit growth. It expects Rs 1,500-2,000 crore in write backs in FY25
REC Ltd., a public sector undertaking under the Ministry of Power, expects net profit to surpass the Rs 40,000-crore mark in the next three to four years based on the projection of 25% net profit compounded annual growth rate guidance, according to Chairman and Managing Director Vivek Dewangan.
Over the past five years, the non-banking finance company that primarily finances power projects has already observed a compound annual growth rate of 19.3% in its net profits. REC ended the financial year 2024 with a net profit of Rs 14,145 crore.
FY24 Performance (YoY Growth)
While the company did see a significant improvement in total income and net profit, one of the key highlights of the year was the Rs 13,584 crore provision write-backs, of which Rs 710 crore were made in the fourth quarter on the back of two asset resolutions underway.
In simpler terms, the non-banking finance company had set aside money they expected to lose on certain assets. The write-backs signify a turnaround, where the company anticipates recovering most or all of the funds from those assets.
A provision creates an expense, while its write-back has the opposite effect: it increases the company's profit.
The power financing company also saw a significant improvement in its asset quality. The company's gross non-performing assets fell from 3.6% a year ago to 2.5% in the financial year 2024.
Gross non-performing assets represent the total value of all loans on a bank's books that have been classified as non-performing—loans that borrowers haven't repaid and are at risk of default.
Furthermore, the company's net non-performing assets decreased from 1% to 0.9%.
What Will Drive REC?
Target To Be A Zero NPA Company
According to the management, REC plans to be a zero non-performing asset company by fiscal 2025.
Currently, the company has made 100% provisioning for seven projects, CEO Devangan said. In addition, the company is currently bidding on a few more operating projects, such as the KSK Mahanadi and Sinnar projects in Maharashtra, and anticipates their resolution this year.
In the last eight quarters, the company hasn't added any fresh NPAs, Devangan said. He expects to maintain this track record in the coming quarters as well, he told NDTV Profit.
The total value of the projects to be resolved is Rs 13,800 crore, and according to him, REC Ltd. expects to have write-backs worth Rs 1,500–2,000 crore in fiscal year 2025.
Shift In Pipeline
REC would have clocked an annual loan growth of 19%, compared to the reported 17%, had it not been for the Rs 8,000–9,000 crore in prepayments, according to Elara Capital. The brokerage also noted that the sanction pipeline seems to be geared towards core power financing projects, namely, renewable generation and transmission.
According to Devangan, REC Ltd.'s current renewables portfolio stands at Rs 35,000 crore, which the company targets to grow to Rs 3 lakh crore by 2030.
According to Elara Capital, the government-led rooftop solar loan project offers a Rs 30,000 crore funding opportunity. Furthermore, the high-ticket infrastructure projects offer more visibility. The brokerage estimates an 18% loan compounded annual growth rate for the company during FY24–26.
