Rural Elect Corp

Is REC heading to rerating of PE?

Historically REC has majorly traded between an PE of 3 to 5

It has historically touched PE of 9.5 only once in 2014.

However after IREDA IPO it seems Power Finance companies will see an incremented PE. On higher end of IPO price (Rs. 32) IREDA seemed expensive at PE of 8.45 (REC was trading at PE of 7.1 at same time) and IREDA looked expensive.

With IREDA looking to settle between price of 60 to 65, it will be trading at PE of 15 to 17.

REC is into similar business as IREDA (Margins in renewable financing would not be too different from a mix of Non Renewable, Renewable & Infra project funding). Currently REC is trading at PE of 8.1 as of date, there cannot be a 100% difference in PE for 2 PSU’s in similar business. In short to Mid term, there can only be 2 scenarios playing up:

1. REC will chase PE of IREDA and may end up trading anywhere between PE of 10 to 14 and IREDA settling to a PE of 14-16
2. IREDA to correct to levels of 45 to have a PE of 10 and REC staying at a PE of 7.5 to 8.

What do others tracking Power financing sector think of?

Disclosure: Holding REC from levels of ~80.