RECLTD Q4 FY25 earnings call.
A source-linked concall view: reported numbers, management language, guidance, commitments and risks that should carry forward.
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REC Limited delivered its highest-ever annual profit of INR 15,713 crore in FY25, up 12% YoY, driven by 27% growth in net interest income to ~INR 20,000 crore and improved NIM to 3.63%. Loan book reached INR 5.67 lakh crore (up 11% YoY), supported by record disbursements of INR 1.91 lakh crore (up 18% YoY) and robust sanctions of INR 3.37 lakh crore. Asset quality saw marked improvement with gross NPA halved to 1.35% and net NPA at 0.38%, as the company resolved INR 3,400 crore of stressed assets (KSK Mahanadi and Corporate Power) in Q4. The company targets ~12% AUM growth annually toward INR 10 lakh crore loan book by 2030, with FY26 disbursement guidance of INR 2-2.1 lakh crore. Key risks include elevated prepayment pressure (~INR 1 lakh crore annual repayments expected) potentially constraining AUM growth, private renewable asset quality concerns (Alaknanda, Teesta Urja requiring elevated provisioning), and ~50% of state sector loans lacking government guarantees.
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Guidance to track
- Management expects loan book growth of 11-13% (plus/minus 1-2%) for FY26, consistent with the trajectory toward INR 10 lakh crore by 2030. Prepayments of ~INR 1 lakh crore annually will offset disbursement growth.
- Expected disbursements of INR 200,000-210,000 crore for FY26, marginally higher than FY25's INR 191,000 crore record, driven by thermal generation, RDSS counterpart funding, and transmission projects.
- Net interest margin expected to remain in the 3.5%-3.75% range, with spread maintained at 2.75%-3.0%. Management will maintain competitive pricing while protecting margins through low-cost borrowing.
- Company targets to become net-zero NPA by end of FY26-27. Twelve projects worth ~INR 7,500 crore remain under resolution, with expected recovery of INR 800-1,000 crore in FY26 from IBC proceedings (Sinnar, Hiranmaye, Bhadreshwar, Global Metal).
Risks flagged
- Annual repayments of ~INR 1 lakh crore (including ~INR 24,000 crore from RBPF) offset disbursement growth. Banks may become more aggressive in refinancing REC's performing assets in a declining rate environment, potentially limiting growth to ~12% instead of higher levels.
- Stage 1 and 2 provisioning increased in private RE book (Alaknanda downgrade from B to C, Teesta Urja sector reclassification). While manageable, this signals emerging stress in private RE portfolio requiring enhanced monitoring.
- Only ~50% of state sector loans are backed by state government guarantees; remaining 37% are secured against asset hypothecation, creating exposure to DISCOM financial health independent of sovereign support.
- ~40-50 GW of awarded RE projects have pending PPAs with DISCOMs, though REC claims no direct exposure as it funds only after PPA signing. Delays could reduce future disbursement opportunities in the RE segment.
Key quotes
- Had the prepayment not been received, the growth in our loan book would have been close to 18% on a year-on-year basis.
- We are very confident that we will maintain the spread in the range of 2.75%-3%, and the NIM in the range of 3.5%-3.75% for the coming year.
- We are very, very particular about the quality of asset. And as I said, that we take up the project for funding only when the PPA is signed. Not alone PPA, but there are other critical factors like open access is also one of the major issues which causes financial stress.
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