Investment Pick For Diwali 2024 : REC Ltd For Target Rs. 776 By Nirmal Bang Ltd
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* REC, a GOI entity, finances projects of conventional power generation (28% mix), renewable (8% mix), transmission (9% mix), distribution (41% mix) & roads, railways, airports (14% mix).
* Power sector will add 360GW capacity during FY24-30 compared to existing 453GW as of Sep’24. As per RBI, total requirement for green financing over FY23-30 aggregates to Rs. 85.6 Lac Cr translating to annual requirement of Rs. 10.7 Lac Cr.
* REC has an AUM of Rs. 5.3 Lac Cr as on Q1FY25 and has guided for achieving Rs. 6 Lac Cr by March 2025 translating to growth of 17% for FY25E.
* REC has guided for reaching AUM of Rs. 10 Lac Cr by FY28 or 29 by which time renewable projects will comprise 30% of its AUM i.e. Rs. 3 Lac Cr from just 8% of AUM or Rs. 43k Cr today.
* After having cleaned up its books over FY13-23, NNPAs have declined to just 0.8% now.
* During the previous power upcycle, REC traded at an average one year forward P/B multiple of 2.0x during the 2 year period 2009- 11. Thus we value REC at 2.0x Sep 2026 BVPS and arrive at a target of Rs. 776.
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