Loan book
- Margin compression is real, company expects 3.5% NIM as a sustainable one. REC did not passed enough rate hike to offset raise on CoB. Drop in spread can be marginally offset by increase in equity component, which helps in sustaining NIM(Personally I believe, there will be some more compression, NIM will settle around 3.25% and spread around 2.5%)
- Lending in renewables are highly competitive and has spread of only 2% and Infra will be around 3%
- This 9M REC made a sanction of 1.92 lakh crores of sanction, against a disbursement of 59K crores. This helps REC in growing their AUM by at least 10% yearly
- In this Fiscal FY23 REC anticipates a disbursement of 85-90K crores and 1-1.2 lakh crores in next fiscal FY24
- With 10% rundown in loan book due to repayment and current sanction level, AUM growth of 10% is achievable. With some visibility over AUM growth and investment in PAMC, increase in dividend pay out is highly unlikely
Infra lending
- This quarter REC disbursed 1000 crore in infra projects. In FY23 9M, REC sanctioned around 24k crores of Infra loans. REC has max cap such that infra loans cannot be more than 33% of disbursement per year and also at overall loan book level
- Currently REC looking for only infra loans where there is state govt guaranteed. After time period of 2-3 years where REC will build its expertise in lending to infra and then they will lend to other infra projects on merit basis.
Asset Quality
- In this 9 month period, not even a single account moved to NPA bucket.
- There is a 70% provision on all NPA accounts. This is more than sufficient since all the recent Resolution happened there is some form of write backs happening.
- Adani sanction is 13000 crores and currently disbursed 8000 crores. All the loans are backed by PPA
- Repayment risk from state govt power companies is temporarily offset by the STL support.
PAMC
- Company recently acquired a project which is under resolution where they will be developing/running the power project via a JV, since the competitor quote is way below fair value(Assessed by REC). They will operationalize the project and look for potential suiter in future.
- REC proposes this model to govt and in future we can expect some of the projects acquired via this route
Disc: Invested
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