REC limited company analysis

 

Industry profile  :  NBFC or non banking Finance Company is playing key role in economy like India. as per definition they are companies providing certain banking services. As per RBI Definition

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.

In India, they are regulated under RBI within the framework of the [[Reserve Bank of India Act, 1934]] (Chapter III-B) and the directions issued by it. there are major restrictions on NBFC about Collecting deposits and doing business. There are 8 major types of NBFCs in india.

  1. Asset finance company. The company doing business in financing of physical assets supporting productive or economic work. In simple word they are companies financing for tractor, Vehicle for agriculture lathe machines, cranes, generator sets, earth moving and material handling equipment, moving on own power and general purpose industrial machines.
  2. Investment company : The company like mutual Fund, Holding companies in some cases or Private equity Company.
  3. Loan Company : The company having buisness of giving loans but other than Asset finance company. Like Personal Loan, Housing Finance companies.
  4. Infrastructure Finance Companies : Companies Financing Infrastructure. Again, RBI kept Strict regulations on them. Infrastructure finance companies deploys a minimum of three-fourths of their total assets in infrastructure loans. The net owned funds are more than 300 crores and a minimum crediting rating of ‘A’ and the Capital to Risk-Weighted Assets Ratio is 15%. Best example is IDFC, though now they are owned one bank, but basically they are one Infrastructure finance company. Another are India Infrastructure finance Company limited ( IIFCL), Infrastructure Finance corporation of India (IFCI) and Power Finance Corporation (PFC )
  5. Infrastructure Debt Fund Non Banking Finance Company aka IDF – NBFC : If you are unaware about it then yes they exist. India Infra Fund is best example managed by IDFC. IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through Multiple-Currency bonds of minimum 5-year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.
  6. NBFC FACTORS : One another large type of NBFC in India. Factoring is type of working capital financing. SBI Factor and Canara factor are some examples.
  7. Gold Loan NBFC : You cant ignore this type in India. Over the years, gold loan NBFCs witnessed an upsurge in Indian financial market, owing mainly to the recent period of appreciation in gold price and consequent increase in the demand for gold loan by all sections of society, especially the poor and middle class to make ends meet. Though there are many NBFCs offering gold loans in India, about 95 per cent of the gold loan business is handled by three Kerala based companies, viz., Muthoot Finance, Manapuram Finance and Muthoot Fincorp. Growth of gold loan NBFCs eventuating from various factors including Asset Under Management (AUM), number of branches, and also the number of customers etc.
  8. Residuary Non Banking Finance Company : All famous for Sahara case as it is a company and has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner and not being Investment, Asset Financing, Loan Company. So you can do so many business. Nowadays There are not many of them and maybe restricted to exist, they were main accuse in many Frauds.

Company Profile  :  Rural Electrification Corporation Limited is a public Infrastructure Finance Company in India’s power sector. The company finances and promotes rural electrification projects across India and finances Central/ State Sector Power Utilities, State Electricity Boards, Rural Electric Cooperatives, NGOs and Private Power Developers as sole lender, Co lender, consortium. It also provides consultancy, project monitoring and financial/ technical appraisal support for projects, also in the role of nodal agency for Government of India schemes or projects. It engages in ascertaining financial requirements of power utilities in the country in the T&D sector along with appraising T&D schemes for financing.

REC also offers loan products for financing Renewable Energy projects. The company has tied up a line of credit for €100M (approximately ₹6000M) with KfW under Indo-German Development Cooperation for financing renewable energy power projects at concessional rates of interest. Eligible projects include solar, wind, small hydro, biomass power, and cogeneration power & hybrid projects.

Shareholding Pattern  : 58.86% held by Govt of India as promoter. 3.65% held by Mutual Funds. 0.55% held by Financial Institutions. 3.30% held by Insurance companies. 24.39% held by Foreign investors. Remaining around 9.25% held by public.

Financials and ratio  : 

 201- - 112011 - 122012 - 132013 - 142014 - 152015 - 162016 - 17
Revenue8,495.2610,456.5213,598.6717,120.8020,388.0523,756.2824,095.35
Net Profit2,569.932,817.033,817.624,683.705,259.875,627.666,245.76
NPM30.25%26.94%28.07%27.35%25.79%23.68%25.92%
EPS26.0328.5338.6647.4353.2756.9931.63
Dividend per Share7.507.508.259.5010.7017.109.65
Dividend Payout28.8126.2821.3320.0220.083022.13
Book Value129.51149.32176.76209.32251.73289.81168.74
ROE20.0919.1021.8722.6621.1619.6618.74
ROCE3.473.083.513.563.343.333.38
ROA2.972.592.923.062.872.722.98
Debt to Equity4.815.365.355.455.315.074.49
Asset turnover9.549.5010.3511.1311.0411.4511.16

Future Prospectus  :  For growth, Electricity is very important. Rural India is one large potential for infrastructure development and for that Company like REC is very important. As a stock, the company is very attractive with attractive ROE, Dividend yield.

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About Ashutosh Tilak

Tracking Indian Capital Market since 2010. Finance Student, On this blog I am writing about finance and Investing. You can contact me analystashu@gmail.com or @androidashu & @InsideFinanc on twitter