On Tuesday, Motilal Oswal Securities initiated coverage on REC Ltd (RECL:IN), a public sector power and infrastructure asset finance company, with a Buy rating and a price target of INR630.00. The firm highlighted REC's significant presence across the power value chain, with a substantial portion of its exposure in distribution and generation sectors.
As of June 2024, REC's loan distribution was heavily weighted towards the public sector, with approximately 41% in distribution and 28% in power generation. Private sector loans comprised only around 11% of its portfolio. The company has been actively increasing its financing of renewable energy and infrastructure/logistics projects, which has resulted in a greater share of these segments in its sanction mix.
The analyst from Motilal Oswal Securities noted that REC is well-positioned to benefit from the current power upcycle, driven by investments in power generation and transmission. This environment is expected to sustain REC's loan growth in the coming years.
Additionally, the analysis of REC's asset quality suggests a positive outlook. The trends observed are similar to those of Power Finance Corporation (PFC), with both companies likely to continue resolving their stressed assets. This resolution process is anticipated to contribute to significantly lower credit costs over the next two to three years, as per the firm's projections.
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