DAM Capital bullish on REC as stress continues to come down

Brokerage firm DAM Capital has initiated coverage on REC Ltd (formerly Rural Electrification Corporation Ltd). The brokerage has given a ‘buy’ recommendation and a target price of Rs 175 per share. Also, the firm is bullish on enhanced growth as stress has continued to come down.

RBI has allowed PFC and REC to lend to infra and logistics sectors and incrementally these are the new levers for growth going ahead. The firm expects 55 percent of additional growth over the next few quarters from the segments.

Management doesn’t expect spreads to come down below 2.50 percent. So 2.50 percent is the benchmark for spreads and they don’t expect net interest margin to fall below 3.3 percent. So the steady state in terms of net interest margin guidance from the management is about 3.3 percent to 3.4 percent.

DAM Capital expects ROA of 2 percent to be protected and REC has given a percent average dividend yield over the last 14 years. According to the note, the profitability of REC is much better than weaker PSU banks.