Firstcall: REC has signed MoU with TSGENCO for funding of INR240000m, Buy

1. CMP 280.80
Target Price 315.00
ISIN: INE020B01018
JULY 2nd
, 2015
RURAL ELECTRIFICATION CORPORATION LTD
Result Update (PARENT BASIS): Q4 FY15
BUYBUYBUYBUY
Index Details
Stock Data
Sector Finance(NBFC)
BSE Code 532955
Face Value 10.00
52wk. High / Low (Rs.) 383.35/234.00
Volume (2wk. Avg. Q.) 120000
Market Cap (Rs. in mn.) 277278.77
Annual Estimated Results (A*: Actual / E*: Estimated)
YEARS FY15A FY16E FY17E
Net Sales 202295.30 229605.17 256698.58
EBITDA 192784.10 216376.99 240338.76
Net Profit 52598.70 57553.47 62237.09
EPS 53.27 58.28 63.03
P/E 5.27 4.82 4.46
Shareholding Pattern (%)
1 Year Comparative Graph
RURAL ELECTRIFICATION CORPORATION LTD BSE SENSEX
SYNOPSIS
Rural Electrification Corporation Ltd (REC) is one of
the leading public financial institutions in the country,
funding almost all needs of entire Power
Infrastructure space.
In Q4 FY15, the company’s Net sales ramps up by
20.05% y-o-y of Rs. 53334.00 million against Rs.
44425.10 million in the corresponding quarter of the
previous year.
Net profit of the company stood at Rs. 10965.00
million for the 4th quarter of FY 2015 as against Rs.
11917.00 million for the 4th quarter of FY 2014.
The company has reported an EBITDA of Rs. 47534.90
million, an increased by 11.27% against Rs. 42720.90
million over corresponding quarter of previous year.
Profit before tax (PBT) of the company increased by
0.69% y-o-y and stood at Rs. 16590.40 million in Q4
FY15 compared to Rs. 16477.00 million in Q4 FY14.
The company has declared a Final Dividend at the rate
of Rs. 2.70/- per share on face value of Rs. 10.00/-
each for the Financial Year 2014-15.
REC signed a MoU with, Telanagana State Generation
Corporation (TSGENCO) for a funding of Rs.240000.00
million.
Net Sales grew by 19% to Rs 202295.30 million for the
end of FY15 from Rs 170179.80 million for the end of
FY14.
Net sales and PAT of the company are expected to
grow at a CAGR of 17% and 13% over 2014 to 2017E
respectively.
PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND
Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)
REC Ltd 280.80 277278.77 53.27 5.27 1.12 107.00
Power Finance Co. Ltd 256.65 338788.40 45.14 5.69 1.02 91.00
IDFC Ltd 150.35 239627.80 10.58 14.21 1.62 26.00
Reliance Capital Ltd 364.15 91996.20 29.96 12.15 0.74 90.00

2. Analysis & Recommendation - ‘BUY’
In 4th quarter of FY15, the company’s total income (including other income) registered 19.62% up y-o-y to Rs.
53707.60 million from Rs. 44900.00 million in 4th quarter of FY14. During Q4 FY15, net profit of the company
stood at Rs. 10965.00 million against Rs. 11917.00 million over corresponding quarter of previous year.
Operating profit or EBIDTA of the company ramps up by 11.27% from Rs. 42720.90 million in Q4 FY14 to Rs.
47534.90 million in Q4 FY15. In the same quarter, Profit before tax (PBT) of the company increased by 0.69% y-
o-y and stood at Rs. 16590.40 million compared to Rs. 16477.00 million in corresponding quarter of previous
year.
The company strives to sustain and maintain consistent growth rate and surge ahead to attain still greater
heights of performance to match the expectations of all its stakeholders. We expect that the company surplus
scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. Over
2014-2017E, we expect the company to post a CAGR of 17% in its top-line and 13% in its bottom-line
respectively. Hence, we recommend ‘BUY’ for ‘Rural Electrification Corporation Ltd “with a target price of
Rs. 315.00 on the stock.
QUARTERLY HIGHLIGHTS (PARENT BASIS)
Results updates- Q4 FY15,
Rural Electrification Corporation Limited provides loan assistance to SEBs/State Power Utilities for investments
in rural electrification schemes through its Corporate Office located at New Delhi. The company work towards
fulfilling power sector borrowers requirements and has reported its financial results for the quarter ended 31st
March, 2015.
The company’s Net sales registered 20.05% increase y-o-y of Rs. 53334.00 million for the 4th quarter of the
financial year 2015 as against Rs. 44425.10 million in the corresponding quarter of the previous year. In Q4
FY15, the company’s net profit stood at Rs. 10965.00 million against Rs. 11917.00 million in the corresponding
quarter of the previous year. The company has reported an EBITDA of Rs. 47534.90 million and increased by
11.27% against Rs. 42720.90 million over corresponding quarter of previous year. EPS of Rs. 11.10 for the 4th
quarter as against an EPS of Rs. 12.07 in the corresponding quarter of the previous year.
Rs. In million Mar-15 Mar-14 % Change
Net Sales 53334.00 44425.10 20.05
PAT 10965.00 11917.00 (7.99)
EPS 11.10 12.07 (7.99)
EBITDA 47534.90 42720.90 11.27

3. Break up of Expenditure:
Latest Updates
• Rural Electrification Corporation Limited (REC) signed the Memorandum of Understanding (MoU) with
Ministry of Power, GoI for setting out various Financial and Physical Targets for FY 2015-16.
• REC signed a MoU with, Telanagana State Generation Corporation (TSGENCO) for a funding of Rs.24000
Crores. The proposed projects of 6,280 MW include 800 MW at Kothagudem Thermal Power Station, 1080
MW at Bhadradri in Manugur of Khammam District and 4400 MW at Damaracherla in Nalgonda District.
• The company has reported that the Project Specific Special Purpose Vehicles (SPVs) has incorporated, as
wholly owned subsidiary Companies of REC Transmission Projects Company Limited (RECTPCL), a Wholly
Owned Subsidiary Company of RECL.
• The Loan Asset Book of the company as on 31st March, 2015 has increased to Rs. 1796470.00 mn and the
outstanding borrowing is Rs. 1510240.00 mn. Net worth of the company has increased to Rs.248570.00 mn.
• The company has recommended final dividend of Rs. 2.70/- per share, in addition to the interim dividend of
Rs. 8.00 per share of Rs. 10.00/- each for the FY 2014-15.
Consolidated results for the Year ended March 31, 2015;
• The Group has posted a net profit after taxes, Minority interest and Share of Profit/(Loss) of Associates of Rs.
53444.20 million for the year ended March 31, 2015 as compared to Rs. 47412.50 million for the year ended
March 31, 2014.
• Total Income has increased from Rs. 172289.40 million for the year ended March 31, 2014 to Rs. 205498.60
million for the year ended March 31, 2015.
Break up of Expenditure
Rs. In millions
Q4 FY15 Q4 FY14 Chng %
Employee Benefits Exp 383.30 196.80 95%
Dep & Amortization Exp 14.70 10.40 41%
Other Expenses 1058.60 509.10 108%
Allowance against
Restructured loan
955.9 1474.60 -35%
Allowance for bad & doubtful
debts
1217.70 0.00 -

4. COMPANY PROFILE
Rural Electrification Corporation Limited (REC), a NAVRATNA Central Public Sector Enterprise under Ministry of
Power, was incorporated on July 25, 1969 under the Companies Act 1956. REC a listed Public Sector Enterprise
Government of India with a net worth of Rs. 248570.00 million as on 31st March, 2015. Its main objective is to
finance and promote rural electrification projects all over the country. It provides financial assistance to State
Electricity Boards, State Government Departments and Rural Electric Cooperatives for rural electrification
projects as are sponsored by them. The company named as “Best Employer India 2013” and conferred with “The
AON Hewitt Voice of Employees Award Public Sector Enterprises India 2013”
REC provides loan assistance to SEBs/State Power Utilities for investments in rural electrification schemes
through its Corporate Office located at New Delhi and 20 field units (Project Offices), which are located in most of
the States. Rec, shall work towards fulfilling power sector borrowers requirements and by mobilizing funds from
various sources at lowest possible cost and strive to improve customers satisfaction on continual basis. The
Project Offices in the States coordinate the programmes of REC’s financing with the concerned SEBs/State Power
Utilities and facilitate in formulation of schemes, loan sanction and disbursement and implementation of
schemes by the concerned SEBs/State Power Utilities.
Projects
Generation-Conventional
Generation-Renewable
Transmission & Distribution
International Co-operation & development
SCHEMES FINANCED BY REC
CATEGORY
• Project Intensive Electrification: P:IE
To cover intensive load development for providing connections to rural consumers in already electrified
areas
• Project Pumpsets: SPA:PE
Aims at energisation of pump sets
• Project system Improvement: P:SI
To strengthen and improve the transmission, sub transmission and distribution system in the designated
area & also lines for power evacuation.

5. • SI: Meters, Transformers, Conductors, capacitors etc. (Bulk loan)
Used For procurement and installation of meters, transformers and capacitors etc.
• Short Term Loan
To provide finance to the Power Utilities and State Governments to meet their working capital requirement
for different purposes, such as purchase of fuel for power plant, purchase of power, purchase of material and
minor equipment, system and network maintenance including transformer repairs, etc.
• Debt Refinancing
The Scheme aims to facilitate reduction of the cost of borrowings of State Power Utilities/highly rated private
power utilities by repaying their high cost term loans raised from other Banks/Financial Institutions for
eligible projects/schemes.
• Financing Equipment manufacturers
To provide Short term Loan/Medium term loan to the manufacturers of Power/Electrical material for power
project.
• RE Cooperatives
Development of rural electric cooperative societies
• Generation
To provide term loan to State/ Central Sector/ Private Sector Companies for Generation projects covering all
types of schemes/categories irrespective of nature, size and source of generation.
Subsidiary Companies
Raichur Sholapur Transmission Co. Ltd.
REC Power Distribution Co. Ltd.
REC Transmission Projects Co. Ltd
Vizag Transmission Ltd.
Nellore Transmission Ltd.
Unchahar Transmission Ltd.
Kudgi Transmission Ltd.

6. FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)
Balance Sheet as at March31, 2014 -2017E 2014A 2015A 2016E 2017E
I. EQUITY AND LIABILITIES:
A) Shareholders’ Funds:
a) Share Capital 9874.60 9874.60 9874.60 9874.60
b) Reserves and Surplus 196820.00 238695.70 284047.88 335176.50
Sub-Total Net worth 206694.60 248570.30 293922.48 345051.10
B) Non-Current Liabilities:
a) Long-term borrowings 1101623.00 1311683.20 1500565.58 1695639.11
b) Deferred Tax Liabilities [Net] 1736.90 1073.20 794.17 627.39
c) Other Long Term Liabilities 235.20 361.60 477.31 596.64
d) Long Term Provisions 4422.40 10070.90 11279.41 12407.35
Sub-Total Long term liabilities 1108017.50 1323188.90 1513116.47 1709270.49
C) Current Liabilities:
a) Short-term borrowings 25400.00 7340.00 4404.00 2862.60
b) Other Current Liabilities 185837.30 248114.00 302699.08 357184.91
c) Short Term Provisions 2579.60 4537.10 5807.49 7085.14
Sub-Total Current Liabilities 213816.90 259991.10 312910.57 367132.65
TOTAL EQUITY AND LIABILITIES (A + B + C) 1528529.00 1831750.30 2119949.52 2421454.24
II. ASSETS:
D) Non-Current Assets:
a) Fixed Assets 818.30 813.20 891.27 962.57
b) other non-current assets 321.20 771.30 1095.25 1445.72
c) Non Current Investments 16606.30 11748.10 12100.54 12705.57
d) Long Term Loans and Advances 1358989.70 1642137.80 1905540.16 2181843.48
Sub-Total Non-Current Assets 1376735.50 1655470.40 1919627.22 2196957.35
E) Current Assets:
a) Current Investments 471.60 4386.60 6053.51 8172.24
b) Cash and Bank Balances 11929.40 5229.00 4287.78 4502.17
c) Short Term Loans and Advances 3815.80 11002.40 14083.07 17603.84
d) Other Current Assets 135576.70 155661.90 175897.95 194218.65
Sub-Total Current Assets 151793.50 176279.90 200322.31 224496.89
TOTAL ASSETS (D + E) 1528529.00 1831750.30 2119949.52 2421454.24

7. Annual Profit & Loss Statement for the period of 2014 to 2017E
Value(Rs.in.mn) FY14A FY15A FY16E FY17E
Description 12m 12m 12m 12m
Net Sales 170179.80 202295.30 229605.17 256698.58
Other Income 1028.20 1585.20 1696.16 1865.78
Total Income 171208.00 203880.50 231301.33 258564.36
Expenditure -5470.10 -11096.40 -14924.34 -18225.60
Operating Profit 165737.90 192784.10 216376.99 240338.76
Interest -100384.60 -118446.10 -133844.09 -150440.76
Gross profit 65353.30 74338.00 82532.90 89898.00
Depreciation -42.10 -67.60 -78.08 -89.79
Profit Before Tax 65311.20 74270.40 82454.82 89808.21
Tax -18474.20 -21671.70 -24901.36 -27571.12
Net Profit 46837.00 52598.70 57553.47 62237.09
Equity capital 9874.60 9874.60 9874.60 9874.60
Reserves 196820.00 238695.70 284047.88 335176.50
Face value 10.00 10.00 10.00 10.00
EPS 47.43 53.27 58.28 63.03
Quarterly Profit & Loss Statement for the period of 30th Sept 2014 to 30th June, 2015E
Value(Rs.in.mn) 30-Sep-14 31-Dec-14 31-Mar-15 30-Jun-15E
Description 3m 3m 3m 3m
Net sales 50237.10 52052.90 53334.00 55254.02
Other income 425.60 390.30 373.60 396.02
Total Income 50662.70 52443.20 53707.60 55650.04
Expenditure -744.00 -2403.10 -6172.70 -4475.58
Operating profit 49918.70 50040.10 47534.90 51174.46
Interest -29544.70 -30448.70 -30929.80 -32043.27
Gross profit 20374.00 19591.40 16605.10 19131.19
Depreciation -17.70 -16.50 -14.70 -23.81
Profit Before Tax 20356.30 19574.90 16590.40 19107.38
Tax -5348.80 -5776.60 -5625.40 -5961.50
Net Profit 15007.50 13798.30 10965.00 13145.88
Equity capital 9874.60 9874.60 9874.60 9874.60
Face value 10.00 10.00 10.00 10.00
EPS 15.20 13.97 11.10 13.31

8. Ratio Analysis
Particulars FY14A FY15A FY16E FY17E
EPS (Rs.) 47.43 53.27 58.28 63.03
EBITDA Margin (%) 97.39% 95.30% 94.24% 93.63%
PBT Margin (%) 38.38% 36.71% 35.91% 34.99%
PAT Margin (%) 27.52% 26.00% 25.07% 24.25%
P/E Ratio (x) 5.92 5.27 4.82 4.46
ROE (%) 22.66% 21.16% 19.58% 18.04%
ROCE (%) 12.43% 12.30% 12.03% 12.49%
Debt Equity Ratio 5.45 5.31 5.12 4.58
EV/EBITDA (x) 8.40 8.25 8.22 7.71
Book Value (Rs.) 209.32 251.73 297.66 349.43
P/BV 1.34 1.12 0.94 0.80
Charts

9. OUTLOOK AND CONCLUSION
At the current market price of Rs. 280.80.00, the stock P/E ratio is at 4.82 x FY16E and 4.46 x FY17E
respectively.
Earning per share (EPS) of the company for the earnings for FY16E and FY17E is seen at Rs.58.28 and
Rs.63.03 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 13% over 2014 to 2017E
respectively.
On the basis of EV/EBITDA, the stock trades at 8.22 x for FY16E and 7.71 x for FY17E.
Price to Book Value of the stock is expected to be at 0.94 x and 0.80 x respectively for FY16E and FY17E.
We recommend ‘BUY’ in this particular scrip with a target price of Rs.315.00 for Medium to Long term
investment.

10. INDUSTRY OVERVIEW
India has a diversified financial sector, which is undergoing rapid expansion. The sector comprises commercial
banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and
other smaller financial entities. The financial sector in India is predominantly a banking sector with commercial
banks accounting for more than 60 per cent of the total assets held by the financial system.
India's services sector has always served the country’s economy well, accounting for about 57 per cent of the
gross domestic product (GDP). In this regard, the financial services sector has been an important contributor.
The Government of India has introduced reforms to liberalise, regulate and enhance this industry. At present,
India is undoubtedly one of the world's most vibrant capital markets. Challenges remain, but the future of the
sector looks good. The advent of technology has also aided the growth of the industry. About 75 per cent of the
insurance policies sold by 2020 would, in one way or another, be influenced by digital channels during the pre-
purchase, purchase or renewal stages, as per a report by Boston Consulting Group (BCG) and Google India.
Market Size
The size of banking assets in India reached US$ 1.8 trillion in FY14 and is expected to touch US$ 28.5 trillion by
FY25. The Association of Mutual Funds in India (AMFI) data show that assets of the mutual fund industry have hit
an all-time high of about Rs 12 trillion (US$ 189.83 billion). Equity funds had inflows of Rs 52170.00 mn (US$
825.49 million), taking total inflows on a year-to-date basis to Rs 610890.00 mn (US$ 9.66 billion). Income funds
and liquid funds account for the largest proportion of AUM, with Income funds accounting for Rs 5.22 trillion
(US$ 82.59 billion) and equity funds accounting for Rs 3.06 trillion (US$ 48.41 billion).
Investments/Developments
• India has moved a step closer to having a Singapore- or Dubai-like financial hub, with the Securities and
Exchange Board of India (SEBI) approving a framework for international financial centres (IFCs)
• Maharashtra’s plans to promote Mumbai as a global financial centre have received further encouragement as
Wall Street firm JPMorgan Chase & Co. and the Japanese government arm Japan External Trade Organization
(Jetro) agreed to partner with the state government to hold road shows to attract financial services
companies to Mumbai.
• Bandhan Financial Services Pvt. Ltd has raised Rs 16000.00 mn (US$ 252.97 million) from two international
institutional investors to help convert its microfinance business into a full service bank.
• JP Morgan Asset Management (UK) Ltd, JP Morgan Investment Management Inc and JP Morgan Chase Bank
NA, have acquired a 4.11 per cent stake in Mahindra & Mahindra Financial Services Ltd for Rs 1137.50 mn
(US$ 17.98 million).

11. Government Initiatives
Several measures have been outlined in the Union Budget 2014-15 that aim at reviving and accelerating
investment which, inter alia, include fiscal consolidation with emphasis on expenditure reforms and continuation
of fiscal reforms with rationalization of tax structure; fillip to industry and infrastructure, fiscal incentives and
concrete measures for transport, power, and other urban and rural infrastructure; measures for promotion of
foreign direct investment (FDI) in selected sectors, including defence manufacturing and insurance; and, steps to
augment low cost long-term foreign borrowings by Indian companies. Fiscal reforms have been bolstered further
by the recent deregulation of diesel prices. The launch of ‘Make in India’ global initiative is intended to invite
both domestic and foreign investors to invest in India. The aim of the programme is to project India as an
investment destination and develop, promote and market India as a leading manufacturing destination and as a
hub for design and information. The programme further aims to radically improve the Ease of Doing Business,
open FDI regime, improve the quality of infrastructure and make India a globally competitive manufacturing
destination.
Road Ahead
India is today one of the most vibrant global economies, on the back of robust banking and insurance sectors. The
country is projected to become the fifth largest banking sector globally by 2020, as per a joint report by KPMG-
CII. The report also expects bank credit to grow at a compound annual growth rate (CAGR) of 17 per cent in the
medium term leading to better credit penetration. Life Insurance Council, the industry body of life insurers in the
country also projects a CAGR of 12–15 per cent over the next few years for the financial services segment.
Also, the relaxation of foreign investment rules has received a positive response from the insurance sector, with
many companies announcing plans to increase their stakes in joint ventures with Indian companies. Over the
coming quarters there could be a series of joint venture deals between global insurance giants and local players.
Disclaimer:
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it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its affiliates shall not be
in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for
the recipients’ investment decision based on this document.

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