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Earnings in line; minor weakness in AUM growth due to higher rundown

Improvement in asset quality; reported NIM stable QoQ

* RECL’s 3QFY25 PAT grew ~23% YoY to INR40.3b. NII grew ~20% YoY to ~INR51.3b. Other income rose ~260% YoY to~INR2b.

* Opex rose ~78% YoY/~63% QoQ to ~INR3.1b and the cost-income ratio stood at ~5% (PQ: 3.1% and PY: ~4.7%). The sequential jump in opex was primarily due to higher CSR expenses during the quarter. PPoP grew ~20% YoY to INR50.2b.

* Yields (calc.) rose ~3bp QoQ to ~10.01% while CoB increased ~4bp QoQ to ~7.32%, resulting in spreads remaining largely stable QoQ at ~2.7%.

* GS3 improved ~60bp QoQ to ~1.95% while NS3 improved ~15bp QoQ to ~0.75%. PCR on Stage 3 declined ~3pp QoQ to ~62%. Improvement in asset quality was driven by the complete resolution of Lanco Amarkantak.

* Provision write-backs stood at INR890m. This translated into annualized credit costs of -2bp (PY: 1bp and PQ: -3bp).

* REC declared its third interim dividend of ~INR4.3/share.

Disbursement grows ~18% YoY; healthy sanction pipeline

* AUM stood at INR5.66t and grew 14% YoY/4% QoQ. Disbursements grew ~18% YoY to INR547b. The share of renewable and infrastructure in the disbursement mix was ~12% and ~6%, respectively.

* Sanctions stood at ~INR848b. The share of renewable in the sanction mix was ~24% and the share of infrastructure in the sanction mix was ~26%.

Improvement in asset quality; GS3 improves ~60bp QoQ

* GS3 improved ~60bp QoQ to ~1.95% while NS3 improved ~15bp QoQ to ~0.75%. PCR on Stage 3 declined ~325bp QoQ to ~62%. Improvement in asset quality was driven by the complete resolution of Lanco Amarkantak

* The company has ~14 projects that are classified as NPA. Resolutions in ~13 NPA projects (PCR: 68%) are being pursued under NCLT, while the remaining ~1 NPA project (PCR: 50%) outside NCLT.

* CRAR stood at ~25.3% as of Dec’24.

Valuation and view

RECL reported a decent quarter, marked by healthy disbursement growth, though AUM expansion saw a slight slowdown due to higher repayments during the quarter. Asset quality continues to improve, supported by the resolution of stressed assets, while NIMs remained largely stable sequentially. The key monitorables are: 1) management’s outlook on loan growth, 2) progress in the resolutions of assets that are in advanced stages, 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 on 07th Feb’25.

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