Detailed report on Rural Elect Cor:
Rural Electrification Corporation Company Overview Rural Electrification Corporation (REC) is a Central Government owned entity engaged in financing of Central and State Government power utilities. It also does some amount of private sector power financing. It went public and since then the Government holding has come down to 66.8%, FIIs hold 20% and the balance is with the Indian public. Financial Performance REC had excellent results for Q1 FY13 with net profits up by 32% at Rs.880 crores. Net Interest Margin also saw a good improvement of 25% and now stand at 4.53. The cost of borrowing for REC was quite low at 8.1% since it raises about 80% of its borrowing from Tax free and Taxable bonds. The pace of disbursement was good with the Loan book going up by 25%. Asset Quality State Government PSU's form 84% of the Loan book of REC, the gross NPA was at the low of 0.46%. Despite wide spread worries about the repayment from State Governments, the payments were received with out any difficulty. Valuation and Recommendation We are positive on the stock not only because of the strong financials and good NIIMs but also because of the impending restructuring of State Electricity Boards will be a strong trigger for REC. It will improve the asset quality, the cash flow and enable REC to make further loans to this segment. The only risk to the stock is of any sudden defaults by State Electricity Board which may mar the Balance sheet quality. In terms of valuation, the stock trades at a low PE of 7 on FY12 earnings and 6.1 on FY13 earnings based on an EPS of Rs.35 for FY13. We recommend this share at the current market price of Rs.214 for a target of Rs.275. Disclaimer: The stock finds a place in the Proprietary Portfolio and those of clients. | 
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