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Rural Electrification Corp: Prepayment pulls down income growth - Views on News from Equitymaster
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  • Jan 27, 2017 - Rural Electrification Corp: Prepayment pulls down income growth

Rural Electrification Corp: Prepayment pulls down income growth
Jan 27, 2017

Rural Electrification Corporation (REC) declared its results for the second quarter of financial year 2016-17 (2QFY17). The institution has reported a 1.2% YoY fall in net interest income and 8.2% YoY rise in net profits.

Performance summary
  • Loan sanctions grew by a modest 16% YoY in 2QFY17 and a still better 35% YoY in 1HFY17.
  • However, loan disbursements have been at a much slower pace, rising 11% YoY and 17% YoY in 2QFY17 and 1HFY17, respectively. Growth in loan assets was almost flat at 1% YoY at the end of September 2016 quarter as a result of prepayment from discoms to the tune of Rs 300.5 billion under the UDAY scheme.

    Credit growth remains muted
    (Rs m) 1HFY16 1HFY17 Change
    Sanctions 370,800 500,450 35.0%
    Disbursements 221,120 259,080 17.2%
    D / S 60% 52%
    Advances 1,946,480 1,966,520 1.0%
    Sanctions Breakup
    Generation 48% 58%
    Transmission & Distribution 51% 36%
    Short Term Loans 1% 6%
  • Net interest income grew by 0.9% YoY in 2QFY16 on a faster fall in interest costs during the quarter. For 1HFY17, net interest income was up by 0.5% YoY.
  • Net interest margins (NIMs) remained almost flat at 4.8%. For 1HFY17, NIMs reduced by 0.3% YoY.
  • Other income surged four folds and three folds in 2QFY17 and 1HFY17 respectively.
  • Gross NPA to advances ratio increased to 2.45% in 2QFY17 from 1.1% in 2QFY16 on account of increased slippages due to extension of date of commencement (CoD) of projects.
  • Provisioning surged by 118% YoY and 90% YoY in 2QFY17 and 1HFY17, respectively.
  • Backed by a steep rise in other income earned, REC has managed to report an 8.2% rise in net profits in 2QFY17. For 1HFY17, the net profit grew by 2.4% YoY.
  • Capital adequacy ratio (CAR) stands at a healthy 21% as on 30th September 2016.
  • The company has allotted bonus shares in the ratio of 1:1 as on 30th September 2016.

    Standalone Financial Performance Snapshot
    Rs (m) 2QFY16 2QFY17 Change 1HFY16 1HFY17 Change
    Interest Income 58,271 57,559 -1.2% 114,680 116,454 1.5%
    Interest expended 35,166 34,255 -2.6% 68,230 69,788 2.3%
    Net Interest Income 23,104 23,304 0.9% 46,451 46,666 0.5%
    Net interest margin 4.85% 4.84% 4.96% 4.69%
    Other Income 977 3,527 261.1% 1,663 5,139 209.0%
    Operating expense 836 1,150 37.6% 1,661 2,031 22.3%
    Provisions and contingencies 558 1,214 117.7% 2,523 4,780 89.5%
    Profit before tax 22,688 24,467 7.8% 43,930 44,994 2.4%
    Extraordinary items 0 0 0 0
    Tax 6,496 6,954 7.1% 12,952 13,273 2.5%
    Effective tax rate 28.6% 28.4% 29.5% 29.5%
    Profit after tax/ (loss) 16,192 17,513 8.2% 30,978 31,721 2.4%
    Net profit margin (%) 27.8% 30.4% 27.0% 27.2%
    No. of shares (m) 1,975
    Book value per share (Rs)* 160.9
    P/BV (x) 0.9
    * (Book value as on 30th Sep, 2016)
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