Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- REC Ltd (BOM:532955, Financial) reported a 24% increase in sanctions, reaching INR 1,12,791 crores in Q1 FY '25.
- Disbursements grew by 28%, totaling INR 43,652 crores for the quarter.
- The company's asset under management (AUM) saw a 17% growth, standing at INR 5,29,739 crores.
- Net interest income increased by 30%, reaching INR 4,713 crores.
- Gross NPA reduced by 7%, now at 2.61%, and net NPA decreased to 0.82%.
Negative Points
- The total borrowings outstanding increased by 15%, reaching INR 4,58,794 crores.
- Specific standard accounts saw some additions, impacting provisions negatively.
- The average cost of funds, although reduced, still stands at 7.05%, which could be a concern in a rising interest rate environment.
- There is a dependency on the resolution of stressed assets for write-backs, which may not be guaranteed.
- The company faces competition in the renewable energy sector, which could impact its market share and margins.
Q & A Highlights
Q: Congratulations on good performance. I had two questions. First is relating to provisions. So sir, our original expectation for current financial year was a reasonable amount of write-back probably similar to what we had seen last year for the full year. However, in 1Q, we have seen some bit of addition on specific standard accounts. So does that mean that we are changing our guidance or we will see more write-backs in the rest of the 9 months, if you could throw some color around this, that would be very useful. So that is my first question, and then I have 1 more.
A: Yes. Let me address this question. We had made a provision of about 70% in respect to our asset website, and we had a total of 16 stressed assets ahead at the beginning of this current financial year. Out of the 16 stressed assets, 7 are heading towards liquidation for which we already made 100% provisioning. Remaining are the operating asset, and we are in advanced stage of resolution of these stressed assets like in the thermal power plant at Nasik, then we had (inaudible) at KSK Mahanadi in Chhattisgarh. The bidding process has begun under NCLT process, and we hope to see a good response because number of -- the expression is that has received tremendous -- more than 20, 25 applications have been received in respect of each of these stressed assets. And they are very good quality bidders are there. We hope to have a very good resolution like for KSK Mahanadi, the trust and the iteration account itself is having INR 10,000 crores. So we hope to have a good resolution from this operating assets, and we hope to get a write-back of more than INR 2,000 crores in the current financial year. Yes, your point is correct that as per -- in the current year, Q1, we have made expected credit loss on account of some loans from Andhra Pradesh that became from special mention accounts 1 to a special mention account 2. But with the announcement in budget for support to the Andhra Pradesh initiative, we hope that this will also become the standard asset sooner than later.
Q: So sir, overall, would it be correct to assume that we will see more than INR 2,000 crores of write-back in the rest of the 9 months, so that for the full year, we have guidance -- we meet our guidance. I mean just operationally, this AP account, do you see it getting normalized in the next 1 to 2 quarters? Would that be a fair assessment?
A: Yes, 3 to 4 months -- maximum 3 to 4 months because whatever budget announcement has been made, that will start flowing to Andhra Pradesh and their financial position is likely to improve tremendously.
Q: Sir, the other question is relating to growth and specifically on thermal generation. So we've seen recently NTPC gave a very strong guidance around capacity addition and they've given a road map around it. Just wanted to get an update on the balance. So they've given an outlook on the 26 gigawatts. So just wanted to get an outlook on the balance, which was supposed to come from players like NLC and Damodar Valley and some of the state gencos, how is the plan progressing there? And any -- if you can give some update around that opportunity because that is where our lending opportunity will really emerge. So some update around that would be quite useful.
A: You're right, actually, that out of 94 gigawatt capacity, NTPC has targeted 26 gigawatt capacity, but out of 26-gigawatt capacity, 6 to 8 gigawatt capacity will come in the joint venture of NTPC and other organization. So NTPC joint venture projects, we have been financing. When they do it on a stand-alone basis, we are not financing because they have a cheaper source of financing available. So we are targeting about -- 74-gigawatt capacity we will be able to finance to joint venture companies of NTPC, Damodar Valley Corporation, with NLC -- state gencos. Most of the projects are coming in the state sector. And these are all brownfield projects, they are not greenfield projects because some of the old power plant which had retired, in place of that, they are bringing the new units in the existing plant actually. For that, balance of plants will then be able to utilize the existing facility with regard to the coal handling facility, ash handling capacity of the existing plant could be utilized. So we hope that out of 74-gigawatt capacity, which will come (inaudible) stage genco and joint venture of NTPC and NLC and Damodar Valley Corporation. We are targeting market share of 30% to 40%.
Q: Got it. Sir, one last clarification is on the disbursement expectation in the renewables, including hydro project, so we've had a good start compared to 1Q '24. Just for the full year, how this growth is likely, this momentum that you've seen in 1Q, if you could give some perspective on disbursement for the full year. So that would be very useful. Like what kind of growth we can see? Would it be in similar zone or lower? Because our sanction last year was quite strong in this space.
A: It will depend on the progress of the project -- the execution of the project actually. Most of the renewable energy projects normally get commissioned in time and the execution level is far. Those projects which we have sanctioned last year, the disbursement only to the tune of 10% of the project cost. If INR 100 was sanctioned last year, they had only INR 10, but current year, the (inaudible) will be about 40% to 50% of this project value. So out of INR 100, INR 40 to INR 50 would be disbursed this year in renewable energy project. Last year, our total disbursement for the entire year was INR 1,51,000 crores. This year, in Q1 itself, we have been able to touch INR 43,000 crores. We hope to cross INR 1,90,000 crores of disbursement in the current financial year, it may go up to INR 2 lakh crore also depends on project execution. Out of this, say, INR 1,90,000 crores or INR 2 lakh crore that we are targeting for this in the current financial year, the transmission and distribution sector will constitute about 40%, then renewable disbursement is going to increase substantially about 20%. We are targeting a minimum 20% will come from the renewable energy segment, then remaining will come from conventional generation and infrastructure logistics.
Q: I have two questions. The first is on the infra segment. So till last year, we had an idea of
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
