RECLTD - Fundamental Analysis: Financial Health & Valuation

Last Updated Time : 20 Dec 25, 11:16 pm

Fundamental Rating: 4.2

📊 Financials: REC Ltd has delivered stable profitability with quarterly PAT of ₹4,426 Cr (vs ₹4,451 Cr). EPS at ₹65.1 is strong, supported by robust ROE of 21.5%. ROCE at 9.92% is modest but acceptable given the lending model. Debt-to-equity ratio of 6.24 reflects high leverage, typical for NBFCs, but manageable under regulatory oversight.

💹 Valuation: Current P/E of 5.24 is significantly below industry PE of 21.2, suggesting undervaluation. Book value ₹314 vs CMP ₹339 implies a fair P/B multiple (~1.08x). PEG ratio of 0.32 highlights attractive growth relative to valuation. Intrinsic value appears higher than CMP, offering margin of safety.

🏦 Business Model: REC Ltd operates as a government-backed NBFC financing power sector projects. Competitive advantage lies in sovereign support, strong asset base, and consistent cash flows from long-term lending. Risks include sectoral concentration and exposure to stressed power assets.

📈 Entry Zone: Technically, support lies near ₹330–₹340 (close to CMP). RSI at 32.2 indicates oversold territory, suggesting potential rebound. Entry is favorable at current levels with accumulation on dips.

📌 Long-term Holding: Strong fundamentals, high dividend yield (5.28%), and undervaluation make REC Ltd attractive for long-term holding. Government backing and consistent profitability add to stability, though sector risks should be monitored.

Positive

• 📈 Strong EPS of ₹65.1 supports earnings visibility.
• 💰 Attractive dividend yield of 5.28% provides steady income.
• 📊 Healthy ROE of 21.5% indicates efficient shareholder returns.
• 🏦 Government backing ensures stability and lowers systemic risk.

Limitation

• ⚠️ High debt-to-equity ratio (6.24) reflects leveraged balance sheet.
• 📉 ROCE at 9.92% is modest compared to peers.
• 💸 Sectoral concentration in power projects increases exposure risk.

Company Negative News

• 📉 Decline in FII holdings (-1.19%) signals reduced foreign investor confidence.

Company Positive News

• 📈 Increase in DII holdings (+0.35%) shows domestic institutional support.

Industry

• ⚡ Power financing sector trades at industry PE of 21.2, highlighting REC Ltd’s undervaluation.
• 📊 Industry outlook tied to infrastructure growth and government energy initiatives.

Conclusion

⚖️ REC Ltd is fundamentally strong, undervalued, and offers high dividend yield. Entry is favorable near current levels (₹330–₹340). Long-term holding is justified given government backing and consistent profitability, though sector risks should be monitored.

Would you like me to extend this with a peer benchmarking overlay against other power financiers like PFC and IREDA to highlight relative valuation and efficiency?