Rec has seen its Numbers Grow at a Steady clip in The Past Few Years, but will have to now Tackle Increased Competition
Being the nodal agency under the Government of India in charge of financing rural power projects in India, the challenge for Rural Electrification Corporation is always about managing the opportunity, rather than looking for it. Unsurprisingly, the company has been experiencing y-o-y growth of 15-20% on an average over the past decade.
For FY 2010-11, REC reported a growth in net profit by 28.4% to reach Rs.25.70 billion, which has catapulted it to rank 33 in the B&E Power 100 list from 38 last year. Revenue grew by 26.09% to reach Rs.81.09 billion. Strong return on equity with low cost of funding allowed REC to generate superior spreads, which is currently around 4.34% despite the zooming interest rates. REC was able to maintain this margin largely because of the fact that they had gone for international borrowing of $1.2 billion & also set domestic borrowings to the G-Sec benchmark. Cost of borrowing for last year on an incremental basis was around 7.25%; whereas overall cost of borrowing was around 7.62%. Furthermore, REC successfully brought NPAs down to 0.03% due to the escrow mechanism and managed margins of 4.3% despite high cost of funds. The major bad news this year was the resignation of CMD J. M. Phatak, who joined the company in June 2010. Phatak is accused of playing a role in the Adarsh society scam when he was Municipal Commissioner of Mumbai.
The role of REC comes only when all delays & clearances, particularly environmental clearances & securing of coal linkages issues are accounted for & finalized. Last year saw loan sanctions of Rs.664.21 billion (growth of 46.44% y-o-y) but disbursals were just Rs.245.19 billion, a growth of 16.03% y-o-y. REC is now focusing on creditworthy projects by turning their attention towards power generation projects rather than exclusively on the transmission & distribution sector When asked about the shift, H. D. Khunteta, CMD, REC told B&E, “It was a natural shift to all the parts of the power sector & the Ministry of Power has expanded the mandate for REC to include generation projects.” The power generation share in the outstanding loan book has almost doubled from 26% in 2007-08 to 48% in 2010-11 and the private sector is also playing a huge role.
For FY 2010-11, REC reported a growth in net profit by 28.4% to reach Rs.25.70 billion, which has catapulted it to rank 33 in the B&E Power 100 list from 38 last year. Revenue grew by 26.09% to reach Rs.81.09 billion. Strong return on equity with low cost of funding allowed REC to generate superior spreads, which is currently around 4.34% despite the zooming interest rates. REC was able to maintain this margin largely because of the fact that they had gone for international borrowing of $1.2 billion & also set domestic borrowings to the G-Sec benchmark. Cost of borrowing for last year on an incremental basis was around 7.25%; whereas overall cost of borrowing was around 7.62%. Furthermore, REC successfully brought NPAs down to 0.03% due to the escrow mechanism and managed margins of 4.3% despite high cost of funds. The major bad news this year was the resignation of CMD J. M. Phatak, who joined the company in June 2010. Phatak is accused of playing a role in the Adarsh society scam when he was Municipal Commissioner of Mumbai.
The role of REC comes only when all delays & clearances, particularly environmental clearances & securing of coal linkages issues are accounted for & finalized. Last year saw loan sanctions of Rs.664.21 billion (growth of 46.44% y-o-y) but disbursals were just Rs.245.19 billion, a growth of 16.03% y-o-y. REC is now focusing on creditworthy projects by turning their attention towards power generation projects rather than exclusively on the transmission & distribution sector When asked about the shift, H. D. Khunteta, CMD, REC told B&E, “It was a natural shift to all the parts of the power sector & the Ministry of Power has expanded the mandate for REC to include generation projects.” The power generation share in the outstanding loan book has almost doubled from 26% in 2007-08 to 48% in 2010-11 and the private sector is also playing a huge role.
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