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Multi Baggers

Ventura Securities

5.30 AM Jan 1st 1970

REC

BSE ID : 532955     NSE ID : RECLTD

RECOMMENDED PRICE 315.20

PEAK FROM RECO 284.50 -9.74%

CURRENT PRICE 450.80 Resource id #18

We initiate coverage with a BUY recommendation on Rural Electrification Corporation Limited with a target price of Rs 683.

Rural Electrification Corporation

Rural Electrification Corporation Limited (REC), a NAVRATNA Central Public Sector Undertaking, was incorporated in 1969 and had an asset base of Rs 1,52,853 crore as on 31.03.14. Its main objective is to finance and promote rural electrification projects all over the country. It provides financial assistance to State Electricity Boards, State Government Departments and Rural Electric Cooperatives.

The government is considering to divest 5 percent (of its 65.64 percent stake) by means of a follow on public offer (FPO). The recent softening of the market price of Rural Electrification Corporation Limited (REC) provides an attractive opportunity to not only buy the stock from the secondary market but also to participate in the FPO which is scheduled for the third week of January.

We initiate coverage with a BUY recommendation on Rural Electrification Corporation Limited with a target price of Rs 683 (Adj. P/BV of 1.8x) on the FY17E Book value. Our target price implies an upside of 116 percent from the CMP over a period of 18 - 21 months. At the CMP of Rs 315, it is trading at 1.3x FY15, 1.1x FY16 and 0.9x FY17 of its Adj. P/BV.

There is low market awareness of the fact that REC is among the top 25 leading financial institutions and compared to many of its peers has far superior fundamentals, strong balance sheet, leading position in the power sector with strong domain expertise and compelling valuations.

Compared to all the top 25 listed lending institutions REC

1. Ranks among the top in terms of ROE (baring HDFC Bank)
2. Ranks No. 1 in terms of ROA
3. Having enviably low NPLs
4. Compelling valuations (being available at FY17 0.9x Adj. P/BV)

Even in the mayhem of the financial meltdown the stress case 1 year forward Adj. P/BV was around 1.5x (with a mean Adj. P/BV of 2.5x since listing). Considering this, the current valuation of ~1.0x FY17 Adj. P/BV makes the stock a very attractive pick in the domain.

Rural Electrification Corporation Limited, India's leading NBFC which finances and promotes rural electrification projects, has demonstrated strong bottom line growth in the recent quarters supported by significant growth in the lending business. Given REC's excellent track record, stringent and well managed loan approval process coupled with a positive outlook for the power sector, we expect REC's growth momentum to accelerate over the coming years.

For full details, Click on the attachment.

This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their articles. Neither Ventura Securities Limited nor any of the contributors accepts any liability arising out of the above information/articles. Reproduction in whole or in part without written permission is prohibited. This report is for private circulation.

REC_VenturaSec_Multibagger.pdf

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