13 February 2015

3QFY15 Results Update | Sector: Financials

Rural Electrification
BSE SENSEX
29,095
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val,INRm/Vol 000
Free float (%)

S&P CNX
8,806
RECL IN Healthy

CMP: INR327 TP: INR360 (+10%)

987.5
322.5/5.2
383/181
-1/4/30
813/2703
34.4

Financials & Valuation (INR b)

Y/E MAR 2015E 2016E 2017E
NII
83.4
94.2 106.4
PPP
83.9
94.9 107.4
PAT
56.4
64.8
73.1
EPS (INR)
57.9
66.5
75.0
EPS Gr.
18.5
14.8
12.8
BV/Sh
248.7 299.9 357.8
RoAA (%)
3.6
3.5
3.4
RoE (%)
25.6
24.2
22.8
Payout
23.2
23.2
23.2
Valuation
P/E (x)
5.6
4.9
4.4
P/BV (x)
1.3
1.1
0.9
Div. Yield
3.5
4.0
4.5

Buy

loan growth, stable asset quality; trades at 0.9x PBV

RECLs 3QFY15 PAT grew 12.4% YoY and down 8% QoQ to INR13.8b, In line
with our estimate of INR14b. While the operating profit was in line with
estimate, higher provisions of INR1.9b (v/s est. of INR1.5b) led to 2% below
estimate PAT.
Loan growth was 18.6% YoY (4.0% QoQ) to INR1.69t, led by T&D segment,
which grew +20% YoY and 5% QoQ. During the quarter, loans to private sector
grew 31% YoY and stands at INR293.6b 17.4% of overall loan book.
Asset quality stable: Asset quality was stable QoQ, with GNPAs and NNPAs
remaining flat at 0.79%/0.65%. RECL has made provisions of INR1.96b towards
disclosed +INR95b restructured assets, while RBI has given exemption on T&D
projects till Mar-17. RECL has made provisions In line with RBI requirements to
provide 2.75% provisions on generation projects.
Margins stable at +5%: Yield on loans declined marginally to 12.42% (up 10bp
YoY and down 14bp QoQ) accompanied with lower borrowing cost of 8.64%
(flat YoY and down 12bp QoQ), RECL reported steady margins of 5.07%.
Valuation and view: Amid the underlying stress in power segment, RECL
managed to generate steady earnings CAGR of +20% over FY09-14. While
RBIs recent move to grant regulatory forbiddance to banks for infrastructure
lending can exert pressure on profitability over the long term, near term
growth and profitability is likely to remain healthy led by a) outstanding
sanctions of INR186b (+27% of outstanding loan book), b) massive demandsupply mismatch and c) fragile health of SEBs (enables pricing power).
Moreover, with a stable government at the center, infrastructure bottlenecks
are expected to be eliminated, which will be positive for growth and asset
quality. RECL trades at 0.9x FY17E P/B (below its LPA of 1.2x). Acceleration in
reforms could be a catalyst for re-rating. Maintain Buy.

Sunesh Khanna (Sunesh.Khanna@MotilalOswal.com); +91 22 3982 5521

Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
Investors are advised to refer through disclosures made at the end of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Rural Electrification Corporation

Exhibit 1: Quarterly performance v/s our estimates and reasons for deviation (INR m)
Y/E March
Interest Income
Interest Expense
Net interest Income
Other Operating Inc.
Other Income
Total Net Income
Operating Expenses
Operating Profit
Other Provisions
Profit before Tax
Tax Provisions
Net Profit

3QFY15A
51,445
30,449
20,997
608
390
21,995
512
21,482
1,907
19,575
5,777

3QFY15E
50,361
29,207
21,153
500
300
21,953
665
21,288
1,500
19,788
5,642

Var (%)
2
4
-1
22

13,798

14,147

-2

0
-23
1
27
-1
2

Comments

Margins stable at +5%

Higher than expected fee income

Opex under control

Higher provisions due to restructured assets
Tax Rate at 29.5% v/s est. of 89.5%
Higher than expected provisions, led to 2% below est.
PAT
Source: MOSL, Company

Loan growth remains healthy at +18.7% YoY

Loan growth was 18.7% YoY (4.2% QoQ) to INR1.69t, led by T&D segment which
grew +20% YoY and 5% QoQ. Loan to private sector grew +31% YoY and +4%
QoQ to INR293.6b; share of private sector now stands at 17.4% (flat QoQ and
410bp YoY).
Sanctions for the quarter stood at INR186.3b grew 34% YoY and 56% QoQ;
whereas disbursements stood at INR96.9b grew 6% YoY and down 3% QoQ.

Margins stable +5% led by decline in cost of funds

Yield on loans declined marginally to 12.42% (up 10bp YoY and down 14bp QoQ)
accompanied by lower borrowing cost 8.64% (down 12bp QoQ), RECL reported
healthy margins of 5.07%.
Incremental borrowing cost declined 5bp YoY due to sharp decline in cost of
funds from bonds and banks.

Asset quality remains stable; provisions higher than expected

13 February 2015

Asset quality was stable QoQ with GNPAs and NNPAs remaining flat at 0.79%
and 0.65% at the end of 3QFY15. Provisions for the quarter were INR1.9b v/s
our est. of INR1.5b.
RECL has made provisions of INR1.96b towards disclosed +INR95b restructured
assets, while RBI has given exemption on T&D projects till Mar 2017. This is inline with RBI requirements to provide 2.75% provisions on generation projects.

Rural Electrification Corporation

Valuation and view

Amidst the underlying stress in the power segment, RECL has managed to
generate steady earnings CAGR of +20% over FY09-FY14. While RBIs recent
move to grant regulatory forbiddance to banks for infrastructure lending can
exert pressure on profitability over long term; Near term growth & profitability
is likely to remain healthy led by a) O/S sanction of INR1.2t (80% of o/s loan
book) b) massive demand supply mismatch & c) fragile health of SEBs (enables
pricing power). Moreover with the stable government at the center, Infra
bottle-necks are expected to be eliminated which will be positive for growth
and asset quality.
Key trigger for the stock (a) lag impact of various actions taken by government
like hike in tariff rates, automatic fuel pass through, coal mining projects
receiving forest clearances etc (b) Government focus given to infrastructure
(power in particular) and attempts to resolve the fuel linkages issues and timely
tariff hikes by SEBs.
RECL trades at 0.9x FY17 P/B (below its LPA of 1.2). Acceleration in reforms
could be a catalyst for re-rating. Maintain Buy with a target price of INR360.

Exhibit 2: We largely maintain our earnings estimates

INR b
NII
Other Income
Total Income
Op.Expenses
Operating Profits
Provisions
PBT
Tax
PAT
Margins (%)
RoA (%)
RoE (%)

FY15
80.5
3.7
84.1
2.7
81.4
4.3
77.1
21.6
55.5
5.0
3.5
25.2

Old Est.
FY16
92.0
4.4
96.4
3.2
93.2
5.1
88.1
24.7
63.4
4.9
3.4
23.8

FY17
109.2
5.3
114.5
3.8
110.7
6.2
104.5
29.3
75.3
4.8
3.4
23.6

FY15
83.4
3.0
86.4
2.5
83.9
6.1
77.8
21.8
56.0
5.2
3.6
25.4

Revised Est.
FY16
FY17
94.2
106.4
3.6
4.4
97.8
110.8
2.9
3.4
94.9
107.4
5.0
6.0
89.9
101.5
25.2
28.4
64.8
73.1
5.1
4.9
3.5
3.4
24.3
22.8

FY15
3.6

% Change
FY16
FY17
2.3
-2.5

2.7
-9.7
3.1

1.4
-10.5
1.8

-3.2
-10.5
-3.0

1.0
1.0
1.0

2.1
2.1
2.1

-2.9
-2.9
-2.9

Source: MOSL, Company

13 February 2015

Rural Electrification Corporation

Story in charts
Exhibit 3: Disbursement growth remains muted (%)

Loan Book (INR b)

24 24 25 26 25 24

24

YoY Gr (%)

12.4

12.6

12.2

1,067

1,120

1,186

1,274

1,329

1,385

1,425

1,486

1,552

1,624

1QFY13

1HFY13

9MFY13

FY13

1QFY14

1HFY14

9MFY14

FY14

1QFY15

1HFY15

T&D
Others
5 4 3 1 1

Source: MOSL, Company

Exhibit 7: Loan Mix: Share of Pvt. Increased by 190bp+ YoY

3QFY15

2QFY15

1QFY15

FY14

Source: MOSL, Company

Exhibit 8: +60% of inc. borrowings low cost bonds (%)

Private

82 82 84 84 83 83 82 83 82 80 81 80 79 79

66

61

61

62

61

59

62

57

58

60

58

62

63

15

19

19

19

20

20

19

22

22

22

21

20

19

FY13

1QFY14

1HFY14

9MFY14

FY14

1QFY15

1HFY15

9MFY15

9MFY15

16
1

1HFY15

17
1

1QFY15

18
3

FY14

16
3

9MFY14

17
4

1HFY14

16
5

1QFY14

15
4

4QFY13

15
6

9MFY13

14
5

1HFY13

14
6

1QFY13

13
7

FY12

12
9

9MFY12

12
7

1HFY12

11 12 11 11 12 12 13 13 13 16 14 15 17 17
7 6 6 5 5 5 5 5 5 5 4 4 4 4

9MFY13

FC Bor. & CP

1HFY13

Banks & FIs

1QFY13

Taxable bonds

FY12

54EC Bonds

9MFY12

Central PSUs

9MFY14

1HFY14

1QFY14

FY13

9MFY13

1HFY13

1QFY13

FY12

9MFY12

1HFY12

1QFY12

3QFY15

2QFY15

42 43 44 45 45 44 45 44 44 43 44 44 44 45 44 44

FY11

8.6 8.8 8.6

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

3QFY12

51 50 50 49 49 48 49 51 51 53 54 55 55 55 55 56

4.4 4.5 4.3 4.3 4.3 4.6 4.9 4.6 5.0 4.9 4.9 4.9 5.0 5.1 5.1

2QFY12

Generation
6 7 6 5

NIM

12.1

12.3

12.3

12.0

11.6

Cost of funds

12.1

11.9

11.5

11.4

11.4

11.4

11.0

Source: MOSL, Company

Exhibit 6: Loan mix remains fairly stable (%)

7.9 8.3 8.4 8.1 8.3 8.6 8.5 8.2 8.4 8.8 8.6 8.4

1QFY12

19

1,690

1,014

91
3QFY14

Exhibit 5: NIM remains healthy at +5%(%)

State

17

FY12

83
2QFY14

950

83
1QFY14

97

144
4QFY13

3QFY15

104
3QFY13

100

76
2QFY13

2QFY15

69
1QFY13

Source: MOSL, Company

Yield on loans

17

85

99
4QFY12

-31

1QFY15

63
3QFY12

-13

17

9MFY12

21

99

25

20

4QFY14

19

YoY Gr (%)

9MFY15

Disbursements (INR b)
64
46
25
25
21
8

Exhibit 4: Loan growth healthy at +18%

Source: MOSL, Company

13 February 2015

Source: MOSL, Company

Rural Electrification Corporation

Exhibit 9: Quarterly snapshot
FY13
Profit and Loss (INR m)
Interest Income
Interest Expenses
Net Interest Income
Operating Expenses
Employee
Others
Operating Profits
Provisions
PBT
Taxes
PAT
Asset Quality
GNPA
NNPA
Gross NPAs (%)
Net NPAs (%)
PCR (%)
Ratios (%)
Cost to Income
Provision to operating profit
Tax Rate
Margins Reported (Quarterly; %)
Yield on earning assets
Cost of Funds
Spreads
NIMs
Business Details (INR b)
Sanctions
Disbursements
Loans
Borrowings
Sanctions discipline wise (%)
Generation
Trans & Dist
Short term loans
Disbursements discipline wise (%)
Generation
Trans & Dist
Short term loans & Others
Loans discipline wise (%)
Generation
Trans & Dist
Short term loans and others
Loans borrower wise (%)
State
Central PSUs
Private
Borrowing mix (%)
Capital gains bonds
Taxable Bonds
Banks and Fis
Foreign

13 February 2015

1Q

2Q

3Q

4Q

1Q

2Q

FY14
3Q

4Q

1Q

FY15
2Q

29,968
18,680
11,288
456
354
101
11,710
0
11,710
3,016
8,694

32,405
19,740
12,665
585
436
149
12,744
0
12,744
3,270
9,474

35,014
20,931
14,084
507
356
151
14,039
250
13,789
3,568
10,221

35,522
21,480
14,042
656
373
283
14,264
1,057
13,207
3,609
9,598

39,141
23,020
16,121
564
377
187
16,362
560
15,802
4,343
11,459

41,672
25,194
16,478
514
345
169
16,536
340
16,196
5,088
11,108

43,290
25,938
17,352
599
383
216
17,519
754
16,765
4,484
12,281

43,962
26,234
17,728
715
194
521
17,947
1,475
16,472
4,560
11,912

46,481
27,523
18,958
583
349
234
18,961
1,212
17,749
4,921
12,828

49,862
29,545
20,317
582
338
244
20,536
180
20,356
5,349
15,008

4,900
4,260
0.46
0.40
13.1

4,900
4,260
0.44
0.38
13.1

4,900
4,010
0.41
0.34
18.2

4,900
4,010
0.39
0.32
18.2

4,900
3,780
0.37
0.29
22.9

4,900
3,780
0.35
0.27
22.9

4,900
3,530
0.34
0.25
28.0

4,900 13,350 13,350 13,350

3,530 10,920 10,920 10,920
0.33
0.86
0.82
0.79
0.24
0.70
0.67
0.65
28.0
18.2
18.2
18.2

3.7
0.0
25.8

4.4
0.0
25.7

3.5
1.8
25.9

4.4
7.4
27.3

3.3
3.4
27.5

3.0
2.1
31.4

3.3
4.3
26.7

3.8
8.2
27.7

3.0
6.4
27.7

2.8
0.9
26.3

2.3
8.9
29.5

11.5
8.3
3.2
4.3

11.9
8.6
3.3
4.6

12.1
8.5
3.6
4.9

11.6
8.2
3.4
4.6

12.0
8.4
3.6
5.0

12.3
8.8
3.5
4.9

12.3
8.6
3.7
4.9

12.1
8.4
3.7
4.9

12.2
8.6
3.7
5.0

12.6
8.8
3.8
5.1

12.4
8.6
3.8
5.1

218
69
1,067
896

265
76
1,120
951

129
104
1,186
1,017

183
144
1,274
1,078

236
83
1,329
1,111

183
83
1,385
1,178

139
91
1,425
1,227

148
99
1,486
1,262

167
85
1,552
1,307

120
100
1,624
1,391

186
97
1,690
1,428

42
49
10

17
82
1

42
55
3

46
47
8

63
32
5

57
41
2

5
94
1

21
75
4

16
78
5

58
37
5

64
33
3

34
38
28

44
51
5

24
71
5

29
60
11

35
52
13

47
51
2

27
70
3

38
61
1

45
48
7

39
54
8

25
65
9

44
48
7

45
49
6

44
51
5

44
51
5

43
53
4

44
54
3

44
55
1

44
55
1

45
55
1

44
55
1

44
56
1

84
5
11

83
5
12

83
5
12

82
5
13

83
5
13

82
5
13

80
5
16

81
4
14

80
4
15

79
4
17

79
4
17

19
61
7
13

19
62
6
13

20
61
5
12

20
59
6
14

19
62
4
14

22
57
5
14

22
58
4
15

22
60
3
14

21
58
3
15

20
62
1
15

19
63
1
15

3Q

Variation %
QoQ
YoY

51,445 3.2
30,449 3.1
20,997 3.3
512
-12.0
269
-20.3
243
-0.5
21,482 4.6
1,907 961.3
19,575 -3.8
5,777
8.0
13,798 -8.1

17
16
18
-28
38
-53
20
29
19
27
16

0.0
0.0

172
209

55.9
-3.1
4.0
2.7

25
-2
14
13

Rural Electrification Corporation

Exhibit 10: Financials: Valuation metrics
62.12Rating

CMP

Mcap

EPS (INR)

P/E (x)

BV (INR)

P/BV (x)

RoA (%)

RoE (%)

(INR)

(USDb)

FY16 FY17 FY16 FY17

FY16

FY17

FY16

FY17

FY16

FY17

FY16 FY17

ICICIBC*

Buy

344

32.0

23.0 27.1 12.1

9.9

132

152

2.11

1.77

1.90

1.91

15.7

16.2

HDFCB

Buy

1,066

41.2

52.5 63.8 20.3

16.7

254

303

4.19

3.51

1.97

1.96

22.4

22.9

AXSB

Buy

KMB*

Neutral

YES

581

22.0

36.7 42.4 15.8

13.7

220

256

2.65

2.27

1.76

1.69

17.9

17.8

1,309

16.2

49.2 60.4 26.6

21.7

371

427

3.53

3.06

1.86

1.86

14.3

15.0

Buy

835

5.6

60.4 76.2 13.8

11.0

330

391

2.53

2.14

1.70

1.73

19.7

21.1

IIB

Buy

874

7.4

43.2 53.2 20.3

16.4

228

272

3.83

3.21

1.98

1.97

20.5

21.3

VYSB

Neutral

930

2.8

40.8 52.1 22.8

17.8

428

469

2.17

1.98

1.04

1.11

9.9

11.6

FB

Buy

140

1.9

12.9 15.1 10.9

9.3

100

112

1.40

1.26

1.19

1.16

13.6

14.3

JKBK

Neutral

111

0.9

13.6 18.1 8.1

6.1

137

151

0.81

0.73

0.81

0.95

10.4

12.6

SIB

Buy

27

0.6

3.7

7.2

5.7

29

33

0.92

0.81

0.78

0.86

13.3

15.2

130.5

18.1

15.1

2.96

2.57

SBIN (cons)*

Buy

307

36.9

29.9 37.2 9.9

7.9

232

263

1.27

1.12

0.80

0.86

13.2

14.8

PNB

Buy

168

4.9

27.8 37.5 6.0

4.5

233

266

0.72

0.63

0.78

0.91

12.6

15.0

BOI

Neutral

236

2.4

56.5 72.1 4.2

3.3

464

527

0.51

0.45

0.51

0.55

12.9

14.5

BOB

Neutral

183

1.3

25.2 30.5 7.3

6.0

186

209

0.98

0.87

0.72

0.75

14.3

15.4

UNBK

Buy

182

1.9

37.3 49.0 4.9

3.7

321

362

0.57

0.50

0.58

0.66

12.2

14.4

INBK

Buy

186

1.4

29.4 33.5 6.3

5.6

289

314

0.65

0.59

0.64

0.63

10.6

11.1

CRPBK

Neutral

64

0.2

16.5 21.9 3.9

2.9

141

158

0.46

0.41

0.54

0.64

12.3

14.7

ANDB

Buy

88

0.8

17.9 22.5 4.9

3.9

169

185

0.52

0.48

0.55

0.60

11.0

12.7

IDBI

Neutral

67

1.7

14.4 19.7 4.7

3.4

157

173

0.43

0.39

0.58

0.69

9.5

11.9

DBNK

Neutral

55

0.5

13.6 16.8 4.1

3.3

137

150

0.40

0.37

0.48

0.51

10.3

11.7

52.0

8.0

6.3

0.90

0.81

Private Aggregate

Public Aggregate

4.7

HDFC*

Buy

1,269

31.9

38

46

22.8

17.5

165

192

5.30

4.17

2.53

2.53

23.8

24.9

LICHF

Buy

470

3.8

32

39

14.5

12.0

197

229

2.39

2.06

1.41

1.42

17.6

18.4

DEWH

Buy

504

1.0

63

79

8.0

6.4

358

417

1.41

1.21

1.37

1.38

18.7

20.4

IHFL

Buy

612

3.6

64

79

9.5

7.7

215

246

2.84

2.49

4.23

4.29

32.4

34.3

IDFC

Neutral

173

4.4

13

14

13.8

12.0

109

120

1.32

1.19

2.20

2.19

11.5

12.0

RECL

Buy

327

5.2

67

78

4.8

4.2

301

361

1.08

0.90

3.50

3.36

24.5

23.4

POWF

Buy

275

5.8

55

63

5.0

4.4

288

334

0.95

0.82

3.18

3.11

20.6

20.1

SHTF

Buy

1,259

4.6

78

92

16.2

13.7

494

573

2.55

2.20

2.27

2.44

16.3

17.7

MMFS

Neutral

262

2.4

17

21

15.2

12.2

113

129

2.31

2.03

2.56

2.76

16.1

17.7

BAF

Buy

4,185

3.4

219 267 19.1

15.7

1,137

1,360

3.68

3.08

2.94

2.88

21.0

21.4

66.1

14.6

12.5

2.70

2.35

NBFC Aggregate

*Multiples adj. for value of key ventures/Investments; For ICICI Bank and HDFC Ltd BV is adjusted for investments in subsidiaries

13 February 2015

Rural Electrification Corporation

Financials and valuations

Income Statement
Y/E March
Interest on Loans
Interest Exp and Other Charges
Net Financing Income
Change (%)
Other Operating Income
Other Income
Net Income
Change (%)
Employee Cost
Administrative Exp
Depreciation
Operating Income
Change (%)
Total Provisions
% to Operating Income
PBT
Tax (Incl Deferred tax)
Tax Rate (%)
PAT
Change (%)
PAT (Incl DTL)
Change (%)
Proposed Dividend
Balance Sheet
Y/E March
Capital
Reserves & Surplus
Net Worth
Borrowings
Change (%)
Total Liabilities
Investments
Change (%)
Loans
Change (%)
Net Fixed Assets
Net current assets
Total Assets
E: MOSL Estimates

13 February 2015

2010
64,309
39,112
25,197
42.5
1,189
1,578
27,964
38.4
1,171
278
22
26,494
38.9
2
0.0
26,492
6,478
24.5
20,014
57.5
20,019
41.9
6,032

2011
81,088
47,657
33,431
32.7
1,481
1,530
36,443
30.3
1,275
369
30
34,768
31.2
2
0.0
34,766
9,067
26.1
25,699
28.4
25,645
28.1
7,406

2012
102,640
64,314
38,327
14.6
1,597
853
40,777
11.9
1,710
582
33
38,452
10.6
523
1.4
37,930
9,758
25.7
28,171
9.6
28,199
10.0
7,406

2013
132,910
80,838
52,072
35.9
2,464
613
55,149
35.2
1,518
647
38
52,946
37.7
1,307
2.5
51,640
13,463
26.1
38,176
35.5
38,182
35.4
8,150

2014
168,064
100,385
67,679
30.0
2,116
1,028
70,823
28.4
1,299
1,051
42
68,431
29.2
3,120
4.6
65,311
18,474
28.3
46,837
22.7
48,265
26.4
9,380

2015E
199,542
116,192
83,350
23.2
1,799
1,234
86,382
22.0
1,299
1,103
80
83,900
22.6
6,067
7.2
77,833
21,404
27.5
56,429
20.5
57,207
18.5
11,286

(INR Million)
2016E
2017E
223,646
258,300
129,474
151,852
94,172
106,448
13.0
13.0
2,158
2,590
1,481
1,777
97,811
110,815
13.2
13.3
1,494
1,718
1,324
1,589
75
75
94,918
107,433
13.1
13.2
4,985
5,960
5.3
5.5
89,933
101,473
25,181
28,412
28.0
28.0
64,752
73,060
14.7
12.8
65,651
74,075
14.8
12.8
12,950
14,612

2010
9,875
100,855
110,730
559,482
24.5
670,212
9,099
-9.5
664,526
29.3
899
-4,312
670,212

2011
9,875
117,884
127,758
700,038
25.1
827,797
8,124
-10.7
821,321
23.6
881
-2,529
827,797

2012
9,875
137,474
147,349
900,565
28.6
1,047,913
7,580
-6.7
1,013,620
23.4
780
25,933
1,047,913

2013
9,875
166,168
176,043
1,077,910
19.7
1,253,953
6,610
-12.8
1,272,660
25.6
800
-26,117
1,253,953

2014
9,875
191,542
201,417
1,262,400
17.1
1,463,817
17,080
158.4
1,485,040
16.7
820
-39,124
1,463,817

2015E
9,875
235,658
245,532
1,490,713
18.1
1,736,245
17,080
0.0
1,733,387
16.7
902
-15,124
1,736,245

(INR Million)
2016E
2017E
9,875
9,875
286,286
343,412
296,161
353,286
1,714,878 2,050,174
15.0
19.6
2,011,039 2,403,460
17,080
17,080
0.0
0.0
1,994,044 2,383,923
15.0
19.6
992
1,091
-1,077
1,365
2,011,039 2,403,460

Rural Electrification Corporation

Financials and valuations

Ratios
Y/E March
Spreads Analysis (%)
Avg. Yield - on Financing Portfolio
Avg Cost of Funds
Interest Spread
Net Interest Margin

2010

2011

2012

2013

2014

2015E

2016E

2017E

10.9
7.7
3.2
4.3

10.9
7.6
3.3
4.5

11.2
7.9
3.3
4.2

11.6
8.0
3.6
4.6

12.2
8.3
3.9
4.9

12.4
8.4
4.1
5.2

12.0
8.0
4.0
5.1

11.8
8.0
3.8
4.9

Profitability Ratios (%)

RoE
RoA

22.0
3.4

21.5
3.4

20.5
3.0

23.6
3.3

25.6
3.6

25.6
3.6

24.2
3.5

22.8
3.4

Efficiency Ratios (%)

Int. Expended/Int.Earned
Op. Exps./Net Income
Empl. Cost/Op. Exps.

60.8
5.3
79.6

58.8
4.6
76.1

62.7
5.7
73.5

60.8
4.0
68.9

59.7
3.4
54.3

58.2
2.9
52.3

57.9
3.0
51.6

58.8
3.1
50.8

Asset-Liability Profile (%)

Loans/Borrowings Ratio
Debt/Equity Ratio

118.8
5.1

117.3
5.5

112.6
6.1

118.1
6.1

117.6
6.3

116.3
6.1

116.3
5.8

116.3
5.8

112.1
34.7
2.9
26.8
20.8
12.2
20.3
23.4

129.4
15.4
2.5
35.2
31.2
9.3
26.0
28.1

6.5

7.5

149.2
15.3
2.2
38.9
10.6
8.4
28.6
10.0
11.4
7.5
2.3

178.3
19.5
1.8
53.6
37.7
6.1
38.7
35.4
8.4
8.3
2.5

204.0
14.4
1.6
47.4
-11.5
6.9
48.9
26.4
6.7
9.5
2.9

248.7
21.9
1.3
57.1
20.5
5.7
57.9
18.5
5.6
11.4
3.5

299.9
20.6
1.1
65.6
14.7
5.0
66.5
14.8
4.9
13.1
4.0

357.8
19.3
0.9
74.0
12.8
4.4
75.0
12.8
4.4
14.8
4.5

Valuations
Book Value (INR)
BV Growth (%)
Price-BV (x)
OPS (INR)
OPS Growth (%)
Price-OP (x)
EPS (INR)
EPS Growth (%)
Price-Earnings (x)
Dividend
Dividend Yield (%)
E: MOSL Estimates

13 February 2015

Rural Electrification Corporation

Corporate profile: Rural Electrification Corporation

Company description

Exhibit 1: Exhibit 8: Sensex rebased

Rural Electrification Corporation is a Government

of India undertaking (owns: 65.64%) established
with an objective to finance and promote rural
electrification project all over the country. The
company also provides financial assistance to SEBs,
State Government Departments and Rural Electric
Cooperatives for rural electrification projects. REC
also provides loan assistance for investments in
rural electrification schemes. RECs outstanding
loan book as of 3QFY15 is INR1,689.7b and a net
worth of INR240b

Exhibit 11: Shareholding pattern (%)

400

Rural Elec.Corp.

Sensex - Rebased

May-14

Nov-14

350
300
250
200
150
Feb-14

Aug-14

Feb-15

Exhibit 12: Top holders

Dec-14

Sep-14

Dec-13

Promoter

65.6

65.6

66.8

DII

8.2

8.1

7.9

FII

20.1

19.9

19.4

Others

6.1

6.3

5.9

Holder Name

% Holding

LIC of India
DB International (Asia) Ltd
HDFC Standard Life Insurance Company Ltd

3.9
2.0
1.4

Note: FII Includes depository receipts

Exhibit 13: Top management

Exhibit 14: Directors

Name

Designation

Name

Name

Rajeev Sharma

CMD

Rajeev Sharma

P J Thakkar

P J Thakkar

Director (Tech)

Dr. S K Gupta*

A K Agarwal

A K Agarwal

Director (Finance)

B N Sharma

Vinod Behari

Executive Director
*Independent

Exhibit 15: Auditors

Name

Exhibit 16: MOSL forecast v/s consensus

Type

P K Chopra & Co

Statutory

Raj Har Gopal & Co

Statutory

Chandrasekaran Associates

Secretarial Audit

13 February 2015

EPS
(INR)
FY15
FY16
FY17

MOSL
forecast

Consensus
forecast

Variation
(%)

57.9
66.5
75.0

55.6
62.2
69.8

4.1
6.9
7.5

Disclosures

This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies) and/sector(s), if any, covered in the report and may be
Rural Electrification Corporation
distributed by it and/or its affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does
not constitute an offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not
for public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal
recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider
whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as
up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a
some companies covered by our Research Department. Our research professionals may provide input into our investment banking and other business selection processes. Investors should assume that MOSt and/or
its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this
material may educate investors on investments in such business. The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other
parties for the purpose of gathering, applying and interpreting information. Our research professionals are paid on the profitability of MOSt which may include earnings from investment banking and other business.
MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders,
and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary
trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing
among other things, may give rise to real or potential conflicts of interest. MOSt and its affiliated company(ies), their directors and employees and their relatives may; (a) from time to time, have a long or short position
in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation
or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with
respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations
made by the analyst(s) are completely independent of the views of the affiliates of MOSt even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report
Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as
such, may not match with a report on a company's fundamental analysis. In addition MOST has different business segments / Divisions with independent research separated by Chinese walls catering to different set
of customers having various objectives, risk profiles, investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or
employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of
its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is
based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSts interpretation of the data, information and/or opinions
provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or
summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to
update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way
responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time,
any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on
this report or for any necessary explanation of its contents.
Most and its associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant banking or brokerage services, may have received any
compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months.
Most and its associates have not received any compensation or other benefits from the subject company or third party in connection with the research report.
Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the date of publication of the research in the securities
mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the
report.
Motilal Oswal Securities Limited is under the process of seeking registration under SEBI (Research Analyst) Regulations, 2014.
There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be
directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation
of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues
Disclosure of Interest Statement
Analyst ownership of the stock
Served as an officer, director or employee

RURAL ELECTRIFICATION CORPORATION

No
No

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law,
regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.

For U.S.

Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In
addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the
United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or
intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the
"Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning
agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this
chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL,
and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore

Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors
Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to
accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Anosh Koppikar
Kadambari Balachandran
Email : anosh.Koppikar@motilaloswal.com
Email : kadambari.balachandran@motilaloswal.com
Contact : (+65)68189232
Contact : (+65) 68189233 / 65249115
Office Address : 21 (Suite 31),16 Collyer Quay,Singapore 04931

Motilal Oswal Securities Ltd

13 February 2015

Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com

10