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REC reported a soft 2QFY27 in terms of growth, margins, and profitability. Loanbook growth remained modest at 6% yoy/5% qoq to Rs6.17trn, despite stronger disbursements of Rs564bn. NIM in 1H moderated to 3.22% (vs 3.34% in 1QFY27) amid competitive pricing and funding-cost pressures. Asset quality remained robust, with GS3/NS3 at 0.22%/0.11% and no new NPAs for 19 quarters. REC remains confident of 10-12% FY27 loan growth, supported by >Rs2.1trn disbursements, lower prepayments, a Rs2.56trn committed pipeline, and opportunities across RE, transmission, thermal, and infrastructure, though competitive intensity should keep margins around current levels. Credit costs should largely reflect ~1% ECL on incremental loans. The proposed PFC-REC merger awaits Cabinet approval after receiving RBI/stock-exchange NOCs, with potential funding, capital, and operating synergies. Reflecting weaker growth/margins, we cut FY27-29E EPS by 3-6%. We reiterate BUY while cutting Sep-27E TP by ~16% to Rs370 (from Rs440), implying 0.9x FY28E PBV. Attractive valuations and robust asset quality support our view, while growth recovery, margins, and merger execution remain key monitorables

Margins soften; credit costs normalize amid strong asset quality In 1HFY27, REC reported a spread/NIM of 2.38%/3.22%, with margins moderating amid competitive pricing and higher funding costs. Credit cost remained contained, with ~1% ECL provisioning on incremental loans, while 1H ROE moderated to 16.89%. Asset quality continued to strengthen, aided by the absence of new slippages for 19 quarters and a sharp reduction in Stage-2 assets to Rs32bn from ~Rs124bn in 1QFY27; GS3/NS3 declined to a new low of 0.22%/0.11%, with only two stressed accounts of Rs13.8bn and ~51% PCR

Management expects growth revival on strong pipeline visibility

Management remains confident of achieving 10-12% loan-book growth in FY27 and >Rs2.1trn disbursements, aided by sharply lower prepayments (~Rs190bn in 1H vs ~Rs1trn in FY26) and strong pipeline visibility. The committed/sanctioned pipeline stands at ~Rs2.56trn, with ~Rs650-700bn already documented and closer to disbursement, supporting a stronger 2H; management also targets another ~Rs1.7-2.0trn of sanctions. Growth should be led by distribution, transmission, RE, and infrastructure, while thermal provides further upside, including the recently won ~Rs270bn NTPC Meja project, likely to be shared with PFC; storage/data centers provide additional optionality. While competition and funding costs remain margin headwinds, management sees limited downside to yields and aims to sustain NIM around ~3.2%. Asset quality should remain benign, with no new NPAs for 19 quarters, sharply lower Stage-2 assets, and credit cost largely reflecting ~1% ECL on incremental loans

Adjust estimates; reiterate BUY with a revised TP of Rs370

Factoring in the quarterly performance and outlook, we cut our FY27-29E EPS by 3-6%, largely reflecting softer growth/margins. We maintain BUY with a revised Sep-27E TP of Rs370 (Rs440 earlier), implying 0.9x FY28E PBV. Our view is supported by attractive valuations and robust asset quality, while growth and margins remain key monitorables.

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