An overview of REC

 

    Rural Electrification Corporation Limited (REC Ltd.) is a subsidiary of Power Finance Corporation. It is promoted by the Ministry of Power. The main role of REC is to finance projects in the power sector. The company offers short-term and long-term loans for power generation and distribution projects. The global electricity demand has grown at a rate of 6% in the last financial year and the demand is increasing day to day. 

The company has a good dividend yield of 9.7%. The return on equity of the company is 21.1%, which is a positive point for the company. It plays a key role in financing India's power sector. It has a dominant position in the market and strategically it is important to the Government of India. As it is involved only in financing the power sector, it might be a risk factor for the company. 

(source: recindia.nic.in/annual-reports)

The promoter holding is 52.63%. The FII's are reducing their investment in this company slowly. In March 2020 they had 26.99%, in March 2021 they had 26.75 and in March 2022 they had 24.27% only. If FII continues to offload the shares we must be cautious. 

Financials

	Total Assets	Total Revenue	Total Expenses	PAT
FY 2022	4,10,412.61	39,132.49	26,805.55	10,045.92
FY 2021	4,00,233.19	35,387.89	24,654.31	8,361.78
FY 2020	3,46,487.59	29,765.21	22,845.84	4,886.16
FY 2019	2,97,717.30	25,309.72	17,240.66	5,763.72
FY 2018	2,41,669.19	22,454.62	16,583.20	4,419.89

	Dividend Per Share
FY 2022	₹ 15.30
FY 2021	₹ 12.71
FY 2020	₹ 11.00
FY 2019	₹ 11.00
FY 2018	₹ 9.15

(source: recindia.nic.in/annual-reports)

The asset value of the company is increasing and there is also a growth in revenue. The expenses of the company are increasing with the increase in revenue. With a slight increase in expenses, the company is able to generate more revenue but still, the company must try to reduce it’s expenses. There is continuous growth in profit after tax which is a good sign. Even during the COVID-19 pandemic, the company has rewarded it’s shareholders with a good dividends. 

   

 

   

Technicals

(chart from www.tradingview.com)

The trading volume has increased over the past few months, there is high buying pressure. This is a positive sign as it can move the stock price up.

(chart from www.tradingview.com)

When the 50-Day Moving Average crosses (50 DMA) the 200-Day Moving Average (200 DMA) and moves up it is a bullish sign and it is called a golden crossover. In REC the golden crossover happened in the last week of August 2022 and the price is still in an uptrend.

(chart from www.tradingview.com)

The price is having an upward momentum within a channel. Unless the price breaks down the channel and falls one can stay invested.

(chart from www.tradingview.com)

Currently, the stock price is in a supply zone, once the breakout happens there will be an upward rally. This zone will be a resistance level and one must trade cautiously. 

    Overall the company is backed by the Government of India and it is performing well. The profit is increasing constantly and the company is rewarding it's shareholders by paying dividends frequently. One can stay invested in the company with a long-term view. An investor can expect a good amount of returns through dividends and capital gain. 

On average the return from the fixed deposits is 6%, from AAA-rated bond it is 7-8% and the dividend yield of REC Ltd, is 9.7%. The risk may be slightly higher when compared to bonds or FD but this is also a safe bet. One can start investing in dips and stay invested unless the trend changes or there is heavy selling in the market. Recently there was a dip and now the price is increasing, use this opportunity, open an account with Zerodha and start investing.

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