REC Signs MoU With PFC For FY24 & FY25
REC signs MoU with PFC committing stronger revenues for FY24 and FY25.
CMD Vivek Kumar Dewangan shares insights and business outlook.
CMD Vivek Kumar Dewangan shares insights and business outlook.
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NewsTranscript
00:00 I am Raghav Makhil and today we are going to talk with the management of a company which
00:04 has seen staggering returns over the past few months and especially on the back of the
00:10 tremendous momentum that has been caught on as far as the renewable energy space is concerned.
00:15 And I am not talking about the power sector per se, I am actually talking about those
00:19 who finance the sector.
00:21 Well, I am in conversation with Mr. Vivek Kumar Devangan.
00:25 He is the CMD of REC Limited.
00:27 Mr. Devangan, good morning and thanks for joining in.
00:30 Well, Mr. Devangan, I am going to start the conversation by talking about your MOU signed
00:37 by the parent company PFC.
00:39 Can you tell us a little more about that in terms of targets going forward?
00:43 We have recently signed a memorandum of understanding with our only company that is Power Finance
00:51 Corporation Limited.
00:53 We have set a target of revenue from operation to the tune of about 46,000 crores in the
00:59 current financial year and a target of about 56,000 crores for the next financial year.
01:05 Right.
01:06 So, I want to also talk a little more about revenues.
01:10 In the first quarter, we saw projects worth 90,000 crores being sanctioned with disbursements
01:18 of a little less than 35,000 crores coming through.
01:21 Sir, is that the run rate that we can expect going forward in the next few quarters or
01:26 can this be an improvement in the number considering the significant amount of flow that we are
01:32 seeing of late in terms of the flurry?
01:35 Yeah, this year we took a conscious decision that when we were checking the pattern, normally
01:44 the sanction and disbursement in Q1 and Q2 were much lower as compared to Q3 and Q4 figures.
01:51 Right.
01:52 So, we took a conscious decision to improve our performance in Q1 itself.
01:57 For example, last year, entire financial year, our total sanction stood around 97,000 crores
02:03 and disbursement were, total sanction was about 2,68,000 crores and disbursement was
02:10 to the tune of 97,000 crores.
02:13 In Q1 itself, we achieved disbursement of 34,000 crores and as we are talking, our disbursement
02:20 as on 14th of September, stand around 64,400 crores.
02:26 We hope to maintain this momentum and in the current financial year, our total sanction
02:33 is going to increase to about 4 lakh crores because we already sanctioned about 1,80,000
02:39 crores until first week of September.
02:42 The remaining about six months and about for 20 days, we will be able to sanction another
02:49 2,22,000 crores and our disbursement will also touch the level of about 1,50,000 crores
02:56 in the current financial year.
02:57 Right.
02:58 So, a lot of your funding demand is coming essentially from the renewable energy space
03:03 now.
03:04 But that said, it's also getting a little bit competitive when it comes to the offered
03:09 interest rates out there.
03:10 So, I want to take this and keep this against the net interest margins picture as well because
03:15 last year, our net interest margins were a little over 4% which has fallen off and now
03:20 it's around the range of around 3.5%.
03:22 So, is that the targeted net interest margin?
03:26 And so, can you also give us an idea about the kind of demand and offered rates as far
03:33 as your new projects are concerned?
03:35 Let me tell you about the global energy transition that is taking place and Honorable Prime Minister
03:43 of India has made a pledge that India will target to achieve a total installed capacity
03:49 of 500 gigawatts from non-fossil fuel sources.
03:53 As of today, the non-fossil fuel-based installed capacity is about 177 gigawatts.
04:00 In the remaining seven years, about 323 gigawatts of non-fossil fuel-based installed capacity
04:06 will be set up in India.
04:08 That will entail requirement for associated storage system because renewable energy is
04:13 intermittent in nature.
04:14 It will also require a storage solution like pump-based storage, hydro project, battery
04:19 energy storage project and commercially viable hydrogen fuel cell also.
04:26 Then we'll also require the evacuation of renewable energy that will come through green
04:31 energy corridor.
04:33 This all, an estimate has been made that for all this ecosystem, a total investment of
04:40 to the tune of 15 lakh to 20 lakh crore would be required in the next seven years.
04:46 So, we are targeting about 20% of this business potential in the energy transition related
04:53 initiative in India.
04:54 We are targeting to increase our loan book for renewable energy portfolio to about 3
04:59 lakh crore, which stands at around 30,000 crore.
05:02 That will see a tenfold increase in our renewable energy portfolio.
05:09 With regard to the margins and spread, right now our current yield is about 9.82% and cost
05:18 of fund is around 7.23%.
05:21 The spread is about 2.59% and net interest margin is about 3.28%.
05:27 But going forward, we have recently raised our interest rate by 45 BPS.
05:33 We do hope that we'll be able to increase our spread also and also will improve our
05:40 net interest margin to the tune of about 3.5%.
05:43 Right.
05:44 So, about a few weeks ago, we had a conversation with you about NPAs.
05:49 You said that you have not had any new NPAs in the last six quarters and you are expecting
05:54 a lot of resolution in terms of NPAs going forward with respect to your older NPAs.
05:59 My question really is, when can we expect these resolutions to come through?
06:03 I believe there was a statement and you can please correct me if I'm wrong that you expect
06:07 zero NPAs by the end of a certain period.
06:11 So when would that be?
06:13 Yeah.
06:14 When a committee was constituted here by the then cabinet secretary in the year 2018, we
06:23 had a total of 36 stays asset.
06:27 And as we are talking about 17 stays assets have already been resolved.
06:32 We also got some writebacks and nine stays assets are likely to resolve in the current
06:37 financial year.
06:38 The remaining 10 stays assets we are targeting to resolve by next year as we are targeting
06:43 to become net zero NPA company by the end of 2025.
06:48 Okay.
06:49 All right.
06:51 So also want to talk to you about the non-power side of your loan book.
06:57 Now the government has gone ahead and given you access that about a third of your loan
07:01 book can be from infrastructure and logistics.
07:03 So where does that portfolio stand now with respect to your overall loan book and what
07:08 can that be by the end of this financial year?
07:11 Yeah, as you rightly pointed out that one third of our loan book could be from non-power
07:17 infrastructure and logistics.
07:19 That dispensation was given by government of India to us in last year only.
07:24 The last year itself, we had sanctioned total project of 2,68,000 crore.
07:29 Out of that 85,000 crore pertain to this infrastructure and logistics.
07:34 Roughly about 32% we had sanctioned.
07:38 In the current financial year also, we are targeting that as I told you that our total
07:42 sanction would stand at around 4 lakh crore.
07:45 So we are targeting that our sanction for non-power infrastructure and logistics will
07:50 be to the tune of about 1,20,000 to 1,30,000 crore in the current financial year.
07:56 All right.
07:57 So well, Mr. Devangan, that is all that I have for you right now.
08:00 Thank you so much for your time.
08:01 Well, that's the CMD of REC telling us about the plans of REC going forward, the very ambitious
08:08 targets for the government and how REC will play a part in there and well, the kind of
08:13 projections that they have from the company and well, we know that the stock has done
08:17 very, very well.
08:18 In fact, 56% in the last three months, that's the kind of return is given investors.
08:24 And well, it's going to be quite a journey as well, even as we unlock further as far
08:29 as India's renewable energy projects is concerned.
08:32 Well, but that is all that we have for now.
08:34 Thank you very much.
08:35 Stay tuned to BQ Prime.
08:36 Thank you.
08:44 [BLANK_AUDIO]