Why Are Brokerages Bullish on REC Ltd After Its Strong Q2FY26 Performance?
REC Ltd has impressed major brokerages with another quarter of resilient performance. Both Morgan Stanley and CLSA have reaffirmed bullish outlooks on the stock after it reported a healthy rise in profits and stable margins in Q2FY26. Morgan Stanley maintained an Overweight rating with a target price of ₹515, while CLSA kept REC in its High Conviction Outperform list with a target price of ₹500.
Morgan Stanley noted that REC’s Q2FY26 PAT rose 10% year-on-year, beating estimates by 5%, driven by higher fee income and lower operating costs. The company’s NIM expanded to 3.73% (up 4 bps YoY), while pre-provision operating profit (PPOP) exceeded forecasts by 3%. The brokerage added that credit costs came in at just ₹1.35 billion against an estimate of ₹3.97 billion — a key positive surprise for investors.
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CLSA’s note was equally optimistic, highlighting REC’s consistent earnings quality and disciplined growth. The brokerage said that Q2FY26 PAT of ₹44.2 billion was 5% higher than its forecast, supported by higher other income and efficient cost control. AUM growth was up 7% YoY, though slightly impacted by one-off adjustments and the company’s strategic focus on renewable-based projects under the RBPF scheme.
REC’s asset quality remains among the strongest in the sector, with gross stage-3 loans stable at 1.1%. CLSA emphasized that spreads have narrowed by 10 bps QoQ, reflecting a more conservative lending approach amid sectoral headwinds. However, both brokerages expect the company’s profitability to remain resilient, supported by efficient funding and steady loan demand in the energy and infrastructure segments.
| Brokerage | Rating | Target Price (₹) | Key Takeaways |
|---|---|---|---|
| Morgan Stanley | Overweight | 515 | PAT beat driven by higher fee income and lower costs |
| CLSA | High Conviction Outperform | 500 | Stable asset quality; earnings resilience amid headwinds |
REC’s loan book continues to be diversified across conventional and renewable energy sectors, with disbursements rising 18% YoY. Morgan Stanley highlighted the potential for re-rating as the company shifts toward cleaner energy financing, while CLSA expects moderate AUM growth of 7–9% over FY26–FY28 with stable RoE above 20%.
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Overall, both brokerages believe REC’s fundamentals remain robust and the company is well-positioned to benefit from India’s clean energy transition. Its focus on high-quality borrowers, improved funding efficiency, and strong credit discipline make it a preferred pick within PSU financials.
Investor Takeaway
Indian-Share-Tips.com Nifty Expert Gulshan Khera, CFP®, who is also a SEBI Regd Investment Adviser, believes REC Ltd’s consistent performance and clean balance sheet justify its premium valuation. Long-term investors may consider gradual accumulation, given the company’s stable returns and growing focus on renewable project lending.
Explore more power-sector and PSU financial insights at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
Related Queries on REC Ltd
- Why Did Morgan Stanley Raise the Target on REC Ltd to ₹515?
- How Does REC Maintain Its Strong Asset Quality Amid Sector Headwinds?
- What Is CLSA’s Long-Term View on REC’s Renewable Lending Strategy?
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
