REC 2022-23 Annual Report Analysis

Thu, 17 Aug

REC has announced its results for the year ended March 2023. Let us have a look at the detailed performance review of the company during the year 2022-23.

REC Income Statement Analysis

• Interest income during the year fell 0.2% on a year-on-year (YoY) basis.
• Interest expenses were up by 7.7% YoY during the same period.
• Operating expenses declined by 63.9% YoY during the year.
• The company's net interest income (NII) decreased by 10.2% YoY during the fiscal. Consequently, net interest margins (NIM) witnessed a decline and stood at 3.4% in FY23 as against 4.3% in FY22.
• Other income declined by 36.3% YoY during the year.
• Net profit for the year increased by 10.2% YoY.
• Net profit margins during the year increased to 28.2% in FY23 from 25.5% in FY22.

REC Income Statement – 2022-23

No. of Mths Year Ending		12 Mar-22*	12 Mar-23*	% Change
Interest Income	Rs m	392,818	392,081	-0.2%
Other Income	Rs m	702	447	-36.3%
Interest Expense	Rs m	220,539	237,457	7.7%
Net Interest Income	Rs m	172,280	154,624	-10.2%
Operating Expense	Rs m	48,375	17,442	-63.9%
Pre-provision Operating Profit	Rs m	124,606	137,629	10.5%
Provisions & Contingencies	Rs m	46	33	-28.0%
Profit before tax	Rs m	124,423	137,388	10.4%
Tax	Rs m	23,948	26,841	12.1%
Profit after tax	Rs m	100,357	110,546	10.2%
Minority Interest	Rs m	0	0	0.0%
Net Interest Margin	%	4.3	3.4
Net profit margin	%	25.5	28.2

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REC Balance Sheet Analysis

• The company's deposits during FY23 stood at Rs 0 m as compared to Rs 0 m in FY22, thereby witnessing an increase of 0.0%.
• Advances for the year stood at Rs 4,220.8 bn as compared to Rs 3,719.3 bn during FY22, a rise of 13.5%.
• Cost of deposits for REC rose 0.0% and stood at 0.0%, while yield on advances rose to 0.0%.
• The lender's investments rose to Rs 304.9 bn during the year from Rs 299.0 bn in FY22.
• Borrowing stood at Rs 191.2 bn, a growth of 69.6% as compared to previous year.
• Overall, the total assets and liabilities for FY23 stood at Rs 4,642.6 bn as against Rs 4,108.2 bn during FY22, thereby witnessing a rise of 13.0%.

REC Balance Sheet – as on March 2023

No. of Mths Year Ending		12 Mar-22*	12 Mar-23*	% Change
Networth	Rs m	513,141	576,797	12.4%
Advances	Rs m	3,719,305	4,220,839	13.5%
Deposits	Rs m	0	0	0.0%
Yield on advances	%	0.0	0.0
Cost of Deposits	%	0.0	0.0
Investments	Rs m	299,039	304,871	2.0%
Borrowings	Rs m	112,767	191,227	69.6%
Total Assets	Rs m	4,108,181	4,642,563	13.0%

Current Valuations for REC

• The trailing twelve-month earnings per share (EPS) of the company stands at Rs 42.0, an improvement from the EPS of Rs 50.8 recorded last year.
• The price to earnings (P/E) ratio, at the current price of Rs 235.9, stands at 2.5 times its trailing twelve months earnings.
• The price to adjusted book value (P/ABV) ratio at current price levels stands at 1.1 times, while the price to income ratio stands at 0.7 times.

Per Share Data/Valuations

No. of Mths Year Ending		12 Mar-22*	12 Mar-23*
Income per share (Unadj.)	Rs	198.9	148.9
Earnings per share (Unadj.)	Rs	50.8	42.0
Diluted earnings per share	Rs	38.1	42.0
Avg P/E ratio	Rs	2.1	2.5
Avg P/ABV ratio	Rs	0.5	1.1
Avg Market Cap	Rs	211,302	277,377
Dividends per share (Unadj.)	Rs	15.30	12.60

Ratio Analysis for REC

• Efficiency Ratios

  Credit/Deposit Ratio: The company's credit/deposit ratio improved and stood at 422,083,910.0x during FY23, from 371,930,540.0x during FY22. The credit/deposit ratio tells us how much money a company has raised in the form of deposits and has deployed as loans.

  Debt to Equity Ratio: The company's debt to equity ratio increased and stood at 0.33x during FY23, from 0.22x during FY22. The debt to equity ratio of a company tells us how much debt a company uses relative to its equity.

• Liquidity Ratios

  Capital Adequacy Ratio (CAR): REC's capital adequacy ratio (CAR) was at 25.8% as on 31 March 2023 as compared to 23.6% a year ago. This ratio helps measure the financial strength of the company or any finance company to meet their obligations using their assets and capital.

  A company that has a good CAR has enough capital to absorb potential losses. Thus, it has less risk of becoming insolvent and losing depositor's money.

  Provision Coverage Ratio (PCR): Apart from CAR, you also need to take a look at the company's PCR and LCR ratios. Provisioning coverage ratio (PCR) is the percentage of funds that a company sets aside for covering losses due to bad debts.

  So a high PCR ratio means asset quality issues are under control and the company is not vulnerable.

  Liquidity Coverage Ratio (LCR): The LCR is designed to ensure that companies hold a sufficient reserve of high-quality liquid assets to allow them to survive a period of significant liquidity stress lasting 30 calendar days.

• Profitability Ratios

  Return on Equity (ROE): The return on equity (ROE) ratio for the company deteriorated and stood at 19.2% during FY23, from 19.6% during FY22. The ROE measures the ability of a firm to generate profits from its shareholders capital in the company.

  Return on Assets (ROA): The return on asset (ROA) ratio of the company deteriorated and stood at 2.38% during FY23, from 2.44% during FY22. The ROA measures how efficiently the company uses its assets to generate earnings.

  Return on Capital Employed (ROCE): The ROCE for the company improved and stood at 9.11% during FY23, from 9.10% during FY22. The ROCE measures the ability of a company to generate profits from its total capital (shareholder capital plus debt capital) employed in the company.

• NPA Ratios

  Gross NPA Ratio: The gross NPA ratio is the ratio of a company's gross NPAs to gross advances. REC's gross NPA ratio stood at 3.4% as of 31 March 2023 compared to 4.5% in the same period a year ago.

  A high gross NPA ratio is a bad thing as it indicates how much of a company's loans are in danger of not being repaid.

  Net NPA Ratio: In simple language, net NPAs are simply the total non-performing assets minus the provision left aside. It gives you the exact value of NPAs after the company has made provisions.

  The net NPA ratio of REC was 1.0% in financial year 2023. This compared with 1.5% a year ago.

Key Ratio Analysis

No. of Mths Year Ending		12 Mar-22*	12 Mar-23*
Credit/Deposit Ratio	x	371,930,540.0	422,083,910.0
Debt to Equity Ratio	x	0.2	0.3
Loans / Deposits	x	0.0	0.0
Capital Adequacy Ratio	%	23.6	25.8
Return on Equity	%	19.6	19.2
Return on Assets	%	2.4	2.4
Return on Capital Employed	%	9.1	9.1
% of Gross NPAs	%	4.5	3.4
% of Net NPAs	%	1.5	1.0
Yield on Advances	x	0.0	0.0
Yield on Investments	x	0.0	0.0

To see how REC has performed over the last 5 years, please visit here.

REC Share Price Performance

Over the last one year, REC share price has moved up from Rs 105.5 to Rs 235.9, registering a gain of Rs 130.4 or around 123.6%.

Overall, the S&P BSE SENSEX is up 8.9% over the year.

(To know more, you can check out historical annual results for REC here and quarterly results for REC here)