Pursuing its main objective of financing and promoting rural electrification projects across India, Rural Electrification Corporation (REC) provides assistance to state electricity boards/state power utilities and private entities. Formed in 1969, REC plays a unique role in implementing government plans. It’s 81.8 per cent government-owned, with a cash reserve of Rs 2,400 crore (as of March 2008).
Being the nodal agency for implementing the Rajiv Gandhi Gramin Vidyut Yojna (RGGVY), it charges a 1 per cent service charge on loan disbursements. This assures REC an income over 3 years on an expected disbursal of Rs 33,000 crore with minimal risks.
Moreover, REC also enjoys a handsome interest spread of 3-3.5 per cent. Currently, it is seeking an approval to raise Rs 25,000 crore for disbursing Rs 22,000 crore in FY10, if that happens then its disbursement in FY10 would go up by 28 per cent, compared to FY09.
That the company is alive to all situations, no matter how small, comes across in its dealings regarding non-performing assets (NPAs). REC has worked towards bringing down its NPAs from 1.87 per cent in FY07 to about 0.40 per cent as on December 31, 2008.
Another factor favouring the company is that about 90 per cent of its lending goes to PSUs or government departments with Escrow cover in place in most cases. This helps REC in being comfortable in continuing its disbursement policy even in stressed times when all other lenders become cautious.
For FY09 the company posted a net profit of Rs 1,288 crore, up by 49 per cent compared to FY08. With almost guaranteed cash flow for the future, the current PE of 10 (up by over 50% over its one-year median PE of 6.62) can be considered low for such a company.