Company Update : Rural Electrification Corp by Motilal Oswal Financial Services Ltd
Earnings in line; loan book flat QoQ
Asset quality stable; NIM (calc.) moderates ~15bp sequentially
* REC’s 2QFY26 PAT grew ~10% YoY to INR44.3b (in line). NII in 2QFY26 grew ~10% YoY to ~INR54.5b (in line). Other income stood at INR4.6b (PY: INR1.2b). This was primarily due to higher fee and commission income of INR4.7b (PQ: INR1.4b and PY: INR483m).
* Opex rose ~12% YoY to ~INR2.2b, and the cost-income ratio was stable at ~2.5% (PQ: 2.5% and PY: ~3.1%). PPoP grew ~16% YoY to INR56.9b (inline).
* Yields (calc.) declined ~5bp QoQ to ~9.95%, while CoB (calc.) was stable QoQ at ~7.2%, resulting in spreads (calc.) declining by ~5bp QoQ to ~2.75%.
* Reported NIM for 1HFY26 declined ~10bp to ~3.64% (1Q: 3.74%). NIM (calc.) declined ~15bp QoQ to 3.7% in 2QFY26.
* Standard asset (Stage 1 and 2) provisions were also largely stable QoQ at ~0.89%. Provisions stood at INR1.3b (inline). This translated into annualized credit costs of 2bp (PY: -11bp and PQ: -3bp).
* The loan book stood at INR5.82t and grew 6.5% YoY and was flat QoQ. While the disbursements grew ~18% YoY, the repayments were significantly elevated at ~40% (PQ: 29.5% and PY: ~23.4%). Disbursements grew ~18% YoY to INR560b. This was primarily because ~INR114b was recovered from Kaleshwaram Irrigation Project Corporation (which was in Stage 2).
* REC declared an interim dividend of ~INR4.6/share.
Asset quality stable; Stage 3 PCR steady at 77%
* GS3 and NS3 were stable QoQ at ~1.05% and 0.25%, respectively. PCR on Stage 3 was also stable QoQ at ~77%. Standard asset (Stages 1 and 2) provisions were also largely stable at 0.89%.
* The company has ~11 projects that are classified as NPA. Resolutions for 10 NPA projects (PCR: 77%) are being pursued under NCLT, and a resolution for 1 project (PCR: 20%) is being pursued outside NCLT.
* REC’s CRAR stood at ~23.7% as of Sep’25.
Valuation and view
* RECL reported a soft quarter, with the loan book remaining largely flat sequentially amid a higher rundown of the loan book. Even after accounting for the recovery from the Kaleshwaram Irrigation Project, the repayments were still relatively elevated compared to the last few quarters. Asset quality stayed stable, though NIM moderated on a sequential basis.
* Key monitorables: 1) management’s outlook on loan growth, 2) progress on assets that are in advanced stages of resolution, 3) the NIM trajectory, given the product mix and competitive intensity, and 4) the proportion of sanctions for infrastructure and private players. We will revisit our estimates after the earnings call.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
