Think of Power, think of REC

REC Limited

Know the Company

REC Ltd (REC), formerly known as Rural Electrification Corporation Limited, is a ‘Maharatna’ company under the Ministry of Power, Government of India. It operates as a Non-Banking Finance Company (NBFC), Public Financial Institution (PFI), and Infrastructure Financing Company (IFC), with the Reserve Bank of India’s registration. REC is a subsidiary of Power Finance Corporation Limited (PFC), another key player in India’s power financing sector.

REC provides financial products such as term loans, working capital loans, and bridge loans to state electricity boards, private power producers, and other utilities. It provides funding across the entire power sector, including generation, transmission, distribution, renewable energy, and emerging technologies like electric vehicles, battery storage, and green hydrogen. Additionally, REC has diversified into non-power infrastructure areas like roads, airports, metro rail, and commercial infrastructure.

REC ensures efficient service delivery with its 22 state offices across India. Its subsidiary, RECPDCL, provides consultancy services, while REC Institute of Power Management & Training (RECIPMT) in Hyderabad offers specialized programs on power and renewable energy systems. REC plays a vital role in strengthening India’s power infrastructure, financing over 25% of the country’s installed power generation capacity and supporting both rural and urban electrification projects.

Strengths

REC Ltd plays a pivotal role in implementing key government initiatives in power related sectors. It has previously served as the nodal agency for programs like Pradhan Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGYA), Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), and National Electricity Fund (NEF), which boosted last-mile power distribution and achieved 100% village electrification. Currently, it leads the Revamped Distribution Sector Scheme (RDSS) to enhance DISCOMs’ operational efficiency. As the National Project Implementation Agency for the PM Surya Ghar Muft Bijli Yojana, REC furthers India’s transition toward green energy. 

REC holds top domestic credit ratings of “AAA” from CRISIL and ICRA, and international ratings of “Baa3” and “BBB-” from Moody’s and Fitch, matching India’s sovereign ratings. This top rating, along with the Government’s focus on the power infrastructure sector, provides immense growth opportunities for the Company.

The company has diversified into non-power infrastructure sectors, including roads, airports, metro rail, and commercial infrastructure. As of June 30, 2024, REC’s loan book stood at Rs 5.3 lakh crore, with 89% loans to the state power sector. The company aims to double its loan portfolio to Rs 10 lakh crore by 2030, with 30% allocated to renewable energy, up from the current 8%. Conventional power infrastructure will represent 60%, with 10% going to non-power infrastructure and logistics. It is also expanding internationally, planning a subsidiary in Gujarat’s GIFT City to finance offshore projects. 

REC achieved record-breaking sanctions of Rs 3.58 lakh crore and disbursements of Rs 1.61 lakh crore in FY 2023-24. For Q1 FY25, loans disbursed reached Rs 90,955 crore, reflecting a 20.1% YoY growth, with renewable energy loans surging 92.68% YoY to Rs 11,297 crore. In Q2 FY25, loan disbursements totaled Rs 47,303 crore, a 13.71% increase, while renewable energy loans grew by 37.35% YoY.

In September 2024, REC raised $500 million via green bonds and secured a $200 million green loan from Deutsche Bank to support renewable energy (RE) projects, aligning with its Green Finance Framework. It also signed an MoU with the Jawaharlal Nehru Port Authority (JNPA) to provide up to Rs 45,000 crore for infrastructure projects, including the Vadhavan port. REC’s strategic focus on sustainability and infrastructure development underscores its commitment to supporting India’s future growth.

Support from the Power Sector Reforms 

As of March 31, 2024, India’s installed power generation capacity reached 442 GW, with ambitious plans to expand renewable energy. This growth drives opportunities in the Transmission & Distribution (T&D) sector too. The government has introduced several schemes to enhance the financial and operational performance of Distribution Companies (Discoms), including Integrated Power Development Scheme (IPDS), the National Electricity Fund (NEF) and Programs like the Liquidity Infusion Scheme (LIS) and Late Payment Surcharge (LPS) Rules further support Discoms’ financial health. To improve efficiency and consumer satisfaction, the Ministry of Power has introduced key reforms, such as the Electricity Amendment Rules, Rights of Consumer Rules, and standardized subsidy procedures. These efforts aim to modernize the distribution sector and ensure reliable service delivery. REC plays a crucial role by financing a range of T&D projects focused on system upgrades, loss reduction, IT-enabled solutions, and customer-centric improvements. Through these initiatives, REC contributes significantly to the development and sustainability of the power sector, supporting India’s socio-economic progress.

India is committed to achieving ambitious energy transition goals set at COP26, targeting 500 GW of renewable energy and 50% of its energy from renewables by 2030, along with net-zero emissions by 2070. To promote clean energy, the government introduced the Production Linked Incentive (PLI) Scheme with a Rs 24,000 crore budget to boost domestic manufacturing of high-efficiency solar PV modules. This effort raised India’s PV module capacity to 38 GW in 2023, with plans to exceed 110 GW by 2026. The roadmap to 2030 includes adding 16 GW of pumped storage and 42 GW of Battery Energy Storage System (BESS) capacity. Renewable Purchase Obligation (RPO) targets for DISCOMs will increase from 29.91% in FY25 to 43.33% by FY2030. Additionally, Green Energy Corridors are being developed to strengthen intra-state transmission for renewable energy, supported by financial assistance for power evacuation infrastructure in 10 key states.

Business Strategy 

REC is strategically aligned with the government’s focus on energy security and the transition to sustainable sources. While continuing to finance the power sector’s needs across generation, transmission, and distribution, REC’s primary focus is on supporting renewable energy projects. These include financing solar, wind, hybrid, and large hydro projects, as well as electric vehicles (EVs) and their charging infrastructure. REC also funds the manufacturing of clean technology equipment, solar parks, Pumped Hydro projects, Battery Energy Storage Systems (BESS), Green Hydrogen, smart metering, and solar pump-sets. 

REC plays a pivotal role in government initiatives, such as the newly approved Pradhan Mantri Surya Ghar Muft Bijli Yojana, which allocates Rs 75,021 crore to install rooftop solar systems and provide free electricity (up to 300 units) to one crore households. REC has been designated as the National Program Implementation Agency for this scheme. 

With rising electricity demand driven by economic growth and rural electrification, REC is navigating a shift toward green energy. The government has modernized the power sector by adding 1,94,394 MW of capacity over the past nine years and targets 500 GW of non-fossil-based capacity by 2030. 

REC also provides financing for diverse power projects, including renewable, thermal, and hydro generation, as well as pollution control measures, supercritical thermal plants, and transmission infrastructure. Its contributions to flagship schemes have helped strengthen the distribution network, ensuring reliable electricity access nationwide. In addition to the power sector, REC anticipates significant growth in non-power infrastructure and logistics, recently added to its portfolio. The company aims to maintain the momentum of its loan book while prioritizing asset quality. 

Outlook

Amid global challenges, the Indian economy remains resilient, driven by strong domestic demand and robust macroeconomic fundamentals. In FY 2023-24, India emerged as the world’s fastest-growing major economy, becoming the fifth largest with a GDP of $4 trillion, according to the IMF. Government reforms, technological advancements, and a thriving entrepreneurial landscape have further boosted business growth and economic stability. With continued reforms to attract foreign direct investments (FDI) and promote start-ups, India is on track to become the third-largest economy by 2030. Electricity generation, transmission, and distribution capacity must expand ahead of demand to avoid shortages. Meeting future economic growth requires sufficient power infrastructure. 

The power sector saw significant growth in FY 2023-24, with strong performance from stakeholders and public sector enterprises (PSUs), attracting market support. Demand is expected to remain high in FY 2024-25, ensuring a positive outlook for both thermal and renewable energy sectors. The Central Electricity Authority (CEA) projects India’s installed capacity to reach 900 GW by 2030, comprising 284 GW of thermal, 20 GW of nuclear, and 596 GW of renewable energy (including hydro). Peak demand is expected to rise from 240 GW to 366 GW by 2032. To meet this demand, the government has outlined capacity additions between 2023-32, ensuring uninterrupted power supply to support India’s growth trajectory. All these efforts pave the way for sustained growth opportunity and a bright future for the Company, going forward. 

Risks and Concerns 

Competition from other banks and financial institutions in power, infrastructure and logistics sector may require lending at competitive rates resulting in flat margins. The financial and operational health of distribution utilities remains a concern, especially as most state-owned power distribution enterprises are infamous for delayed payments.

Sector: Financial Services

Market Price: Rs. 539.15 as on today

FV: Rs 10/-

Stock Name: REC Ltd

BSE Code: 532955, NSE Code: RECLTD

Market Cap.: ₹143840 Crore

Segment: Financing - Power sector

Incorporation: 1969

Headquarters: New Delhi, India