REC - Low Valuations Provides Margin Of Safety: HDFC Securities
Rural Electrification Corporation, like its parent PFC, plays a major role in various power sector schemes of the GoI.
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HDFC Securities Retail Research
Rural Electrification Corporation Ltd., like its parent Power Finance CorporationLtd., plays a major role in various power sector schemes of the Government of India. It is the second-largest lender to the sector.
Recently, the company was conferred ‘Maharatna’ status by Government of India, the highest recognition for a public sector company. There are several growth opportunities for the sector lying ahead that will affect the business of the company significantly in the positive manner.
The power sector outlook for the long term seems bright. The large liquidity support, several proposed reforms and Government’s aggressive capex plan will keep the sector on a strong growth track.
In line with Government’s plan for renewable segment, REC has been constantly focusing on developing book size in this segment.
Power ministry has recently given approval to power finance companies to lend to infrastructure and logistic sectors. REC could lend up to 30% of the net worth to these newer sectors.
The financials of the company are also improving with sufficient capital adequacy level, diversified resource profile, declining NPS etc. The company has been paying consistent dividends and it is one of the highest dividend paying companies in the listed space. Further, low valuations provides margin of safety.
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