REC stock for Rs 140 is excellent buy

BusinessREC stock for Rs 140 is excellent buy

The total installed capacity of power stations in India is currently at 350.16 Gigawatt (GW). Government of India wants to achieve 175 GW capacity in renewable energy by the year 2022, which includes 100 GW of solar power and 60 GW of wind power. It is also preparing a “rent a roof” policy for supporting its target of generating 40 GW of power through solar rooftop projects in the next few years. On the other hand, coal-based power generation capacity in India, which currently stands at around 191 GW, is expected to double in the next two decades. India could become the world’s first country to use LEDs for all lighting needs in the next couple of years, thereby saving Rs 40,000 crore (US$6.23 billion) on an annual basis. As per estimates, no new conventional generation capacities are required, but still, it is estimated that funds to the tune of Rs 10 lakh crore will be required for the generation capacity under construction. Further, there is a huge investment potential in the immediate future in transmission and distribution sectors, as demand is expected to rise on the back of farm sector growth and development in the rural economy. The distribution sector, which is the weakest link of the power sector value chain, is gradually picking up with the help of policy measures from the government like Saubhagaya, DDUGJY, IPDS, NEF, Uday and Ujala. With the increasing thrust on clean energy, renewable power projects would be one of the foremost growth drivers in coming times. The green energy corridor planned exclusively for such projects will also offer a significant business opportunity. Besides, there are big opportunities envisaged for financing in the areas of evacuation of power, renovation and modernisation of old thermal power plants and emerging areas like storage technology, e-mobility etc. Moreover, smart cities run on the robust framework of smart systems and their associated ancillary services are also expected to throw a whole gamut of new investment opportunities.

Rural Electrification Corporation Ltd or REC Ltd, as it is currently known as, is the best company in the government stable to propel the power sector forward. On the socio-economic front, after having achieved the historic landmark of reaching electricity to each village in the country during 2018-2019, REC continues to contribute to the responsibility of rural electrification through the Saubhagya scheme of Government of India. As a nodal agency, REC is assisting Government of India to achieve the mission of 100% household electrification. The renewable energy sector is poised for a quantum jump in the country and in view of the significant renewable energy potential and commitment made by the stakeholders, India will become one of the largest green energy producers in the world, surpassing several developed countries. With its long standing strategic positioning and expertise in the power sector, REC is well poised for the existing and emerging opportunities presented by the economic development emanating from leading governmental reforms and increase in the per capita electricity demand in the country. The company posted excellent Q4FY2019 numbers, with net sales at Rs 6,671 crore, up 18.46% from Rs 5,632 crore, while net profit stood at Rs 1,256 crore, up 50% from Rs 834 crore as of last fiscal for the same period. The state run REC is expecting over 10% growth in its revenue for the current fiscal at Rs 28,000 crore as against Rs 25,310 crore in the 2018-19 period, in view of the excellent performance scenario. The REC stock ruling at Rs 140 on the Indian bourses is an excellent buy, to give a 50% return in the next 18 months.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

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