Why REC Limited’s Q2 FY26 Results Signal Strong Growth and Balance Sheet Stability
About REC Limited: REC is India’s premier infrastructure finance institution under the Ministry of Power, providing funding for generation, transmission, distribution, and renewable energy projects. Over the years, it has transformed into a diversified infra lender with a superior asset quality record and robust return ratios.
REC’s Q2 FY26 results reaffirm its leadership in power and infra financing. The company achieved record profitability, stable net interest margins, and impressive asset quality improvement, despite high prepayments from state utilities.
Q2 FY26 Performance Snapshot
| Metric | Q2 FY26 | YoY Change |
|---|---|---|
| PAT | ₹8,877 Cr | ↑ 19% |
| Total Income | ₹29,828 Cr | ↑ 12% |
| NII | ₹10,608 Cr | ↑ 15% |
| Loan Book | ₹5.82 Lakh Cr | ↑ 7% |
| Gross NPA | 1.06% | Improved |
| Net NPA | 0.24% | Down 52 bps |
The management reiterated its target of achieving ₹10 lakh crore loan book by FY30, driven by renewable, infra, and logistics investments. Prepayments from major state projects like Kaleshwaram reduced interest income temporarily but improved liquidity ratios substantially.
Peer Comparison (Power Finance Sector)
| Metric | REC Ltd | PFC | IREDA | HUDCO |
|---|---|---|---|---|
| CMP (₹) | 625 | 415 | 155 | 225 |
| P/E (x) | 6.8 | 5.9 | 11.2 | 7.5 |
| ROE (%) | 19.3 | 17.5 | 14.2 | 13.8 |
| Dividend Yield (%) | 4.2 | 3.9 | 1.1 | 2.8 |
Compared with peers, REC maintains the best-in-class NPA ratio and a stronger ROE profile. Its loan diversification toward renewables and infra logistics positions it as a growth-centric PSU lender, similar to a development finance institution.
Valuation Metrics Overview
| Metric | Current | Historical Range | Comment |
|---|---|---|---|
| P/E | 6.8x | 5.5–8.5x | Trading below fair value; attractive entry levels |
| P/BV | 1.5x | 1.2–1.8x | Valuations remain reasonable |
| ROE | 19.3% | 15–20% | Strong capital efficiency |
| Dividend Yield | 4.2% | 3.5–5.0% | Steady income cushion |
Analysts expect FY26–28 loan growth at 11–12% CAGR, supported by policy push toward renewables and infrastructure. The company’s strong capital adequacy (23.7%) and low NPA profile make it one of the best-positioned PSU finance plays in India.
Investment Horizon Verdict
Short Term (1–3 months): Consolidation likely near ₹600; dividend yield provides floor support.
Medium Term (3–9 months): Attractive risk-reward; potential upside of 10–15% on rerating as NPA ratios remain benign.
Long Term (9+ months): High-conviction structural PSU compounder aligned with India’s infra and renewables growth story.
Investor Takeaway
Indian-Share-Tips.com Nifty Expert Gulshan Khera, CFP®, who is also a SEBI Regd Investment Adviser, notes that REC’s stable profitability, attractive dividend yield, and balance sheet strength make it a dependable investment choice for long-term investors. The stock’s valuation comfort adds further conviction to hold or accumulate gradually.
Read more insights at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
Related Queries on REC Limited
- Will REC sustain high profitability as power demand grows?
- How does REC compare with PFC and IREDA in FY26?
- What is REC’s long-term growth potential under the renewables push?
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.
