Shares of Rural Electrification Corporation (REC) fell over 5% to ₹361.70 on Wednesday, extending losses for a second straight session after the company reported mixed March quarter results. The stock has corrected sharply from its peak, falling about 45% from its all-time high of ₹654. According to CNBC TV18, the reaction has been weighed down by a series of brokerage downgrades, with DAM Capital cutting its rating to 'Neutral' from 'Buy' and revising its price target to ₹400, while Phillip Securities also downgraded the stock to 'Neutral', lowering its target to ₹420 from ₹440. In contrast, Macquarie maintained an 'Outperform' rating with a price target of ₹455, despite flagging pressure on earnings. However, recent developments show renewed brokerage interest with Morgan Stanley maintaining an overweight rating and Emkay maintaining a buy rating with targets of ₹445 and ₹440 respectively, citing attractive valuations at 6x FY27 P/E despite the weak quarterly performance.
Shares of Rural Electrification Corporation (REC) fell over 4% to the day's low of ₹359 on the BSE on Wednesday after the company reported a 22% year-on-year decline in consolidated net profit to ₹3,375 crore for the January–March quarter of FY26. According to The Economic Times, revenue from operations declined 5% YoY to ₹14,564 crore during the quarter, from ₹15,334 crore in the corresponding quarter of the previous financial year. The company's profit dropped to ₹3,362 crore from ₹4,236 crore, down 20.6% year-on-year, missing estimates by 17-22%. Net Interest Income (NII) fell to ₹5,170 crore from ₹6,166 crore, a decline of 16.2% YoY, while impairments decreased to ₹572 crore from ₹780 crore, falling by 26.6% YoY. Despite the weak quarterly performance, Motilal Oswal maintained its 'Buy' rating on the stock, increasing its target price to ₹440 apiece, implying an upside potential of more than 17% from the stock's previous closing price of ₹375.80. However, the miss on profit was largely driven by a sharp rise in credit costs, which came in at 39 basis points against much lower expectations, primarily due to prudent provisioning.
The board of REC Limited has declared a final dividend of ₹1.55 per equity share for the financial year 2025-26, subject to approval of shareholders in the ensuing Annual General Meeting (AGM). This dividend declaration comes as insurance companies continue to attract investor attention on Wednesday, April 29, as a clutch of players report their March quarter earnings, with investors tracking profitability trends, underwriting performance and premium growth for cues on sector momentum. According to reports from CNBC TV18, investors are closely monitoring these results for insights into the insurance sector's performance and future outlook. The mixed performance across sectors highlights the varied challenges facing different financial services companies in the current market environment.
On the asset quality front, REC showed significant improvement with gross and net NPAs improving to 0.24% and 0.12%, respectively, aided by reductions in stressed assets, including write-offs and resolution gains such as the Sinnar Thermal account. However, profitability fell short of expectations due to higher provisioning, elevated operating expenses and subdued loan growth. Operating profit declined 19.4% year-on-year, while net profit dropped 20.6% and fell 16.8% sequentially. Margins narrowed to 3.5% from 4.4% a year ago. Loan growth remained muted at 3% year-on-year, with prepayments and resolutions weighing on overall assets under management and disbursements staying soft. The company's disbursements declined by 9% on a quarter-over-quarter basis, while accelerated prepayments and resolution of stress assets in Q4 led to muted growth in gross assets to ₹5.84 trillion.
Despite the near-term pressure, Street sentiment remains largely constructive, with 14 of the 15 analysts tracking the stock maintaining a 'Buy' rating and only one recommending 'Sell'. The stock was last trading at ₹361.70, down 3.75% on the day. This contrasts with the previous session's performance where shares fell over 4% to the day's low of ₹359. Recent brokerage analysis from Morgan Stanley and Emkay highlights healthy underlying asset quality trends and attractive valuations at 6x FY27 P/E, despite the weak quarterly performance. The company is expected to deliver 16-17% ROE, led by a slightly elevated cost of funding, with credit costs estimated to normalize at 25 basis points. Growth momentum is constrained due to slower disbursements and higher prepayments, but AUM is expected to gradually recover as thermal project execution picks up and renewable-led opportunities continue to scale up.
