REC Q2 FY26: Powering India's ₹46 Trillion Energy Revolution with 21% Upside Potential 01.11.2025

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⚡ REC Q2 FY26 Results: Powering India’s Energy Ambitions Amid Prepayment Pressures

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🌅 1️⃣ Introduction — Stability Shines in a Challenging Quarter

Rural Electrification Corporation (REC), a backbone of India’s power financing ecosystem, delivered a steady Q2FY26 performance despite higher prepayments and modest loan growth.
With a 10% YoY rise in PAT to ₹44.3 billion and a stable asset quality (NNPA at 0.24%), REC continues to illuminate India’s infrastructure and renewable journey.

Yet, behind the calm numbers lies a story of resilience — of an institution adapting to policy shifts, refinancing pressures, and the race to achieve Net Zero NPA by FY26.

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💹 2️⃣ Key Financial Highlights — Resilience Meets Reform

• PAT: ₹44.3B, up ~10% YoY, backed by solid NII and other income.
• Net Interest Income (NII): ₹54.5B, up ~10% YoY.
• NIMs: Softened by ~10 bps to 3.64%, due to elevated repayments.
• Loan Book (AUM): ₹5.82T, up 7% YoY, flat sequentially.
• Opex: ₹2.2B (+12% YoY), keeping cost-to-income ratio steady at 2.5%.
• Gross Stage 3 / Net Stage 3: 1.05% / 0.25% — industry-best asset quality.
• RoE / RoA: 20.7% / 2.7%, maintaining high capital efficiency.
• Dividend Yield: ~5.6% — making REC one of the most income-attractive PSU stocks.

🔍 Sentiment Snapshot:
Investor mood remains positive-neutral — optimism driven by high yield, strong recoveries, and predictable earnings, tempered by short-term growth softness.

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🔋 3️⃣ Powering Through the Numbers — What’s Behind the Scene

⚙️ 3.1 Disbursements Rise, Loan Growth Muted

• Disbursements jumped 18% YoY to ₹560B in Q2FY26.
• However, loan book growth slowed to 7% YoY due to heavy prepayments (~₹490B in H1FY26) — including ₹114B from the Kaleshwaram Irrigation project.
• Management noted that excluding prepayments, loan growth would’ve been ~16% YoY, signaling strong underlying demand.

🌿 3.2 Renewable Momentum & Sector Confidence

• REC targets a ₹10 trillion loan book by FY30, with 30% exposure to renewables.
• Power demand is expected to soar amid data center expansion, clean energy investments, and state DISCOM reforms.
• The renewable sector (solar, wind, and battery storage) offers ₹21 trillion+ opportunity, positioning REC as a key growth catalyst.

💼 3.3 Asset Quality — The Brightest Spot

• Asset quality continues to improve:
  • NNPA: 0.24% (vs 0.38% QoQ)
  • PCR: Stable at 77%
• Management remains confident of achieving Net Zero NPA by FY26 — a rare feat among Indian lenders.
• Two stressed assets — Sinnar Thermal and Hiranmaye Power — are nearing resolution.

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🧭 4️⃣ Management Insights — Confidence Amid Change

• Expect loan growth of 11–12% in FY26, driven by strong disbursements and easing prepayments in H2.
• NIMs to stay in 3.5–3.75% range; spreads at ~2.75–3%.
• 80–85% of borrowings are fixed-rate; 99% of foreign debt hedged — offering insulation from rate and FX volatility.
• CRAR at 23.7%, reinforcing capital strength.
• REC expanding into ports, metros, logistics, and maritime infrastructure, diversifying beyond power financing.

💬 Quote from Management:
“We’re committed to becoming a net-zero NPA entity by FY26 and scaling our portfolio to ₹10 trillion by FY30, with renewables driving the next phase of growth.”

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🌏 5️⃣ Sector Outlook — India’s Energy Renaissance

India’s energy landscape is entering a multi-decade expansion cycle, with an estimated ₹46 trillion investment need over the next five years.
REC, as a 20–25% market-share leader, will finance one in every four bulbs lit in India.

Key growth verticals:

• 🔆 Renewable Energy: ₹21T investments (500GW capacity target)
• 🔥 Thermal Expansion: 80GW capacity (~₹5T)
• 💧 Hydro Projects: ₹1.16T
• ⚡ Transmission & Distribution: ₹13T
• 🪫 Battery & Pumped Storage: ₹2.8T combined opportunity

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💰 6️⃣ Valuation & Outlook — Buy the Power of Stability

• CMP: ₹386
• Target Price: ₹465 → Upside: +21%
• Valuation: 1.1x Sep’27E BVPS
• EPS FY27E: ₹70.6; RoE: 19.2%
• Dividend Yield FY28E: ~6.3%

⚖️ Analyst View:
REC’s valuations remain attractive at 1x FY27E P/ABV, supported by high RoE and stable margins.
The stock remains a Buy, offering a blend of income stability and long-term growth.

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💡 7️⃣ Sentiment Analysis — Market Psychology Check

Sentiment Type	Signal	Interpretation
🔵 Institutional	Positive	High DII inflow; 15.9% holding
🟢 Retail	Optimistic	Dividend + stability narrative
🔴 FII	Neutral-Negative	Slight withdrawal due to global yield shifts
🟡 Analyst Consensus	Strong Buy	Target upgraded by major brokerages

Overall Sentiment Score (FinBERT Model): 0.74 — Moderately Positive
Reflects investor confidence in management execution and sector tailwinds.

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🚀 8️⃣ Conclusion — REC: Charging the Future

In an era of transition, REC stands as a beacon of reliability — balancing profitability with purpose.
From financing India’s green transition to resolving legacy NPAs, REC’s narrative is one of disciplined growth, digital transformation, and ESG alignment.

With improving recoveries, robust capital adequacy, and consistent dividend payouts, REC remains one of the most dependable PSU stories in India’s financial landscape.

🌠 Investor takeaway: REC isn’t just electrifying India’s villages — it’s powering the nation’s economic ambitions.

✅ Keyword Focus: REC Q2FY26 results, Rural Electrification Corporation analysis, REC share price forecast, power finance stock India, renewable energy investments
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• Chart: PAT vs Loan Growth (FY24–FY26)
• Infographic: REC’s ₹10T FY30 Roadmap
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