State-owned REC Ltd, a key player in India’s power sector financing, has revised its growth outlook for its Assets Under Management (AUM) during its earnings call on May 14, marking a cautious shift in strategy amid changing market conditions.

Growth Guidance Slashed to 11–13%

In a significant update, REC Ltd has lowered its AUM growth guidance to 11–13%, down from the previously projected 15–17%. This revision signals a more conservative approach by the management in the near term, possibly in response to market dynamics, sectoral headwinds, or evolving risk perceptions in lending activity.

This news triggered a negative reaction from investors, as REC shares fell 3.2% post-announcement, closing at ₹288.8. The stock has witnessed a steep correction from its 52-week high of ₹654, marking a decline of over 40%.

₹10 Lakh Crore Loan Book by 2030 in Focus

Despite this reduced guidance, the company is maintaining long-term optimism, with a clearly defined goal: achieving a ₹10 lakh crore loan book by FY30. To hit this mark, REC is targeting a consistent 12% annual loan book growth over the next few years.

This strategic pivot indicates a shift in focus towards quality over aggressive volume expansion. The management appears intent on maintaining healthy fundamentals even if it means moderating short-term growth expectations.

Stable Margins and Net Zero NPA Target

In its forward guidance, REC Ltd also confirmed its margin outlook, stating that Net Interest Margins (NIMs) are expected to remain in the 3.5% to 3.75% range. This is a positive takeaway amid uncertain economic conditions, showcasing the PSU’s focus on profitability and risk-adjusted returns.

A standout commitment from REC’s management is the target of achieving net zero Non-Performing Assets (NPAs) by FY2026. In a sector often marred by high default rates and delayed payments, this is a bold and reassuring goal. It further reflects the company's tight risk controls and recovery efficiency.

Strong Q4 Performance Despite Growth Revision

REC Ltd had earlier reported its Q4 FY25 results, which were solid in terms of profitability:

• Net profit rose 5.5% year-on-year to ₹4,236 crore.

• Net Interest Income (NII) increased sharply by 37.6% YoY to ₹5,877 crore, suggesting strong growth in interest-earning assets.

These results underscore that while growth estimates may be tapering, operational efficiency and core income generation remain strong.

Dividend Announcement Adds to Shareholder Value

The REC board announced a final dividend of ₹2.6 per share, bringing the total dividend payout for FY25 to ₹18 per share. This aligns with the government’s agenda to ensure healthy dividend payouts from Maharatna PSUs and maintains investor confidence despite recent stock volatility.

Renewables Push via BHEL Joint Venture

Looking to diversify its business portfolio and align with India’s clean energy goals, REC has approved the formation of a joint venture between its wholly-owned subsidiary and Bharat Heavy Electricals Ltd (BHEL). This JV will focus on:

• Renewable energy development

• Power infrastructure projects

• Broader infrastructure-related initiatives

This move is in sync with India’s commitment to green energy and could position REC strategically in emerging clean-tech financing spaces.

Stock Price Reaction and Valuation Concerns

While REC’s fundamentals are sound, the reduction in AUM guidance was perceived negatively by the market, as it reflects lower-than-expected disbursement growth going forward. At ₹288.8, the stock trades well below its highs, and the correction indicates investor unease.

However, long-term investors may still see value given:

• Strong dividend yield

• Consistent earnings

• Government backing and Maharatna status

• Increasing focus on green and sustainable financing

What This Means for Investors

From an investor’s standpoint, this development is a mixed bag:

• Positives: Healthy margins, strong earnings, clear long-term growth strategy, and expansion into renewable energy.

• Negatives: Slower short-term AUM growth, declining share price, and potentially cautious outlook on new disbursements.

Those with a long-term horizon may still find REC Ltd attractive given its diversification efforts, predictable income profile, and strong management guidance. However, short-term traders and momentum investors might need to brace for further volatility.

Conclusion

In conclusion, REC Ltd’s decision to revise its AUM growth forecast reflects a careful recalibration in a changing market landscape. Yet, its plans to achieve a ₹10 lakh crore loan book by 2030, maintain margins, and reach net zero NPAs by FY26 show that the company is committed to quality-driven, sustainable expansion. Add to this its move into green energy via BHEL JV, and REC seems poised to evolve with India’s energy transition journey.

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