CMP Rs215, Target Price Rs303, Upside 41.1%
Rural Electrification Corporation (REC) with core focus on developing power infrastructure in rural areas has diversified its loan portfolio to include power and power related financing projects. With ~16% market share in power financing business, we expect the company to be a key beneficiary of the capex plan as envisaged in the current Five Year plan. REC has witnessed sturdy ~26% CAGR in sanctions over FY05-09; a large amount of these would materialize with improving economic environment. This in-turn would translate into 24% CAGR in net profit and 25% CAGR in balance sheet over FY09-11E. Asset quality has been contained at near zero levels. While the recent equity infusion is likely to dilute RoE in FY11, we expect it to improve thereafter. Recommend subscribe in the ongoing FPO.