Shares of REC Ltd received a significant boost recently when leading foreign brokerage CLSA upgraded the PSU stock to a ‘high-conviction outperform’ rating. This upgrade was attributed to REC’s exceptional loan growth, impressive return on equity, and high dividend yield, setting it apart in the market. Despite the stock’s promising outlook, CLSA revised its target price for REC from Rs 590 to Rs 525 due to anticipated growth adjustments.
Following the announcement, REC’s stock surged by 5.47 per cent, reaching Rs 380 on the Bombay Stock Exchange. However, the stock has faced a challenging year, down by 25 per cent in 2025 so far. Despite these fluctuations, REC’s loan growth has remained strong, with growth rates ranging from 15-21 per cent over the past 5-7 quarters.
Unlocking Potential Growth
One of the key highlights of CLSA’s analysis is the revelation that 55 per cent of REC’s sanctions remain undisbursed, signaling significant growth opportunities. This untapped potential primarily lies within the generation, renewable energy, and infrastructure sectors. By capitalizing on these pending sanctions, REC could achieve double-digit to mid-teen loan growth in the upcoming fiscal years of 2026-2027.
Moreover, REC’s asset quality has remained stable, with minimal slippage in the past 2-3 years. The company’s strategic focus on project approvals and agreements has contributed to its robust asset quality during the current capex cycle. With gross NPAs reduced to 2 per cent in December 2024, REC has effectively managed its bad assets, showcasing resilience and adaptability in the face of economic challenges.
Expert Endorsement and Strategic Insights
In light of these developments, CLSA emphasized REC’s superior loan growth, return on equity, and dividend yield compared to its industry peers. The brokerage highlighted REC’s prudent management practices, including a cautious approach to asset quality and a preference for financing government-backed projects. Notably, REC’s diversified portfolio and limited exposure to merchant power projects have bolstered confidence in its asset quality.
Furthermore, CLSA commended REC’s leadership team, noting the presence of high-caliber professionals with a proven track record. The management’s strategic decision-making and operational efficiency have contributed to REC’s steady performance and financial stability. CLSA’s positive outlook on REC is reinforced by the company’s consistent delivery on loan growth expectations, ROE, and dividend yield, setting it apart as a reliable investment choice in the market.
In conclusion, while CLSA revised its earnings estimates for FY25 and adjusted its growth forecast for REC, the brokerage remains optimistic about the company’s long-term prospects. Despite potential risks such as delays in project approvals and financing guidelines, REC’s strong fundamentals and resilient performance position it favorably for future growth. As investors navigate the dynamic landscape of the stock market, REC emerges as a compelling opportunity for those seeking sustainable returns and stability in their investment portfolios.
