RECLTDNSEQ4 FY2021June 4, 2021

REC Limited

9,150words

122turns

11analyst exchanges

6executives

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Management on call

Kunal Shah

ICICI SECURITIES LIMITED

Sanjay Malhotra

CHAIRMAN AND MANAGING

S.K. Gupta

DIRECTOR (TECHNICAL) – REC LIMITED

Ajoy Choudhury

DIRECTOR (FINANCE) – REC LIMITED

R. Lakshmanan

EXECUTIVE DIRECTOR – REC LIMITED

J.S. Amitabh

EXECUTIVE DIRECTOR &

Key numbers — 40 extracted

1.5 lakh Crore

ou would all perhaps be aware that the sanctions last year we had record sanctions of more than 1.5 lakh Crores which is a 40% rise over the corresponding period last year, the full year. Similarly disburse

40%

ware that the sanctions last year we had record sanctions of more than 1.5 lakh Crores which is a 40% rise over the corresponding period last year, the full year. Similarly disbursements at almost

93000 Crore

rise over the corresponding period last year, the full year. Similarly disbursements at almost 93000 Crores are up 23%, interest income is up 17% at almost 35000 Crores, 34684 Crores to be precise and tot

23%

sponding period last year, the full year. Similarly disbursements at almost 93000 Crores are up 23%, interest income is up 17% at almost 35000 Crores, 34684 Crores to be precise and total expenditu

17%

the full year. Similarly disbursements at almost 93000 Crores are up 23%, interest income is up 17% at almost 35000 Crores, 34684 Crores to be precise and total expenditure on the other hand has

35000 Crore

Similarly disbursements at almost 93000 Crores are up 23%, interest income is up 17% at almost 35000 Crores, 34684 Crores to be precise and total expenditure on the other hand has increased only by 8%, fi

34684 Crore

isbursements at almost 93000 Crores are up 23%, interest income is up 17% at almost 35000 Crores, 34684 Crores to be precise and total expenditure on the other hand has increased only by 8%, finance cost onl

Crores, 34684 Crores to be precise and total expenditure on the other hand has increased only by 8%, finance cost only by 13%, as a result of which the profit before tax is the highest ever for REC

13%

be precise and total expenditure on the other hand has increased only by 8%, finance cost only by 13%, as a result of which the profit before tax is the highest ever for REC at about 10756 Crores up

10756 Crore

cost only by 13%, as a result of which the profit before tax is the highest ever for REC at about 10756 Crores up 54% last year and PAT is also a record for REC at 8362 Crores which is 71% more. Our loan boo

54%

, as a result of which the profit before tax is the highest ever for REC at about 10756 Crores up 54% last year and PAT is also a record for REC at 8362 Crores which is 71% more. Our loan book theref

8362 Crore

e highest ever for REC at about 10756 Crores up 54% last year and PAT is also a record for REC at 8362 Crores which is 71% more. Our loan book therefore has grown by 17% and is now about 3.77 lakh Crores.

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Guidance — 20 items

Sanjay Malhotra

opening

“We are quite hopeful even about the next year you would have seen in the in the last year the electricity sector has been quite resilient despite the economy shrinking by more than 7% per annum and demand the consumption for electricity went down only by about 1% and this year now we are seeing a growth in the demand for electricity so that is something which is a positive for the electricity sector.”

Sanjay Malhotra

opening

“The third push is also as you are all we are coming from the energy transition with ambitious target of Government of India or 175 gigawatt next year FY2022 and then moving forward 450 gigawatt of renewable energy.”

Sanjay Malhotra

opening

“We are in touch with various agencies, various state governments and their organizations for projects related to lift irrigation, and others and especially the hydro mechanical components and associated civil works in these projects and that is a new business segment which is opening up for the likes of REC and we are hopeful that the next year again this company the current year we should be able to maintain and in fact exceed the profit levels.”

Sanjay Malhotra

opening

“We expect it to be a better year than the last year.”

Sanjay Malhotra

“They will be able to get a grants, most of the schemes do a lot it is not that the schemes do not allow it, but then it is easier for them to handle two layers with coordinate with one agency rather than two one for grant and the other for the loan component.”

Kishan Gupta

“And what with the guidance now going ahead for dividends?”

Sanjay Malhotra

“It will take time and there are you know coal projects which are coming up and will be needed.”

Sanjay Malhotra

“The costs of renewables today are comparable only peaked during the daytime round the clock still coal will be required so while the I mean that risk is there if there is a breakthrough in hydrogen or in battery storage or something that risk is always going to be there.”

Ajoy Choudhury

“There has only been one slippage during 2021 that is a small renewable project of 36 Crores only.”

Ajoy Choudhury

“That is why and going forward there are some of the projects which are under very advanced stage of resolutions and there we hope that about how much about 3000 Crores of assets will be resolved next year.”

Risks & concerns — 11 flagged

The other advantage is as I mentioned that by virtue of being the implementing arm we are able to understand the business of the utilities, the risk of the utilities and accordingly take security for the advances that we make to them.

— Sanjay Malhotra

Second question of course was on the yield side the yield of course you mentioned that on a YOY basis it has not fallen that much but on a quarter to quarter basis there is a sharp decline of around 55 basis point so apart from that interest on interest charge and of course the liquidities Discom scheme is there any other factor we should look at which would have led to such a fall in the yields quarter-to-quarter?

— Punit Srivastava

That is that is of course as you are saying there is a risk over there but there are countries which are opposing even the IEA on the phasing out of Poland and not remembering this country but quite a few countries I think Japan is there.

— Sanjay Malhotra

The costs of renewables today are comparable only peaked during the daytime round the clock still coal will be required so while the I mean that risk is there if there is a breakthrough in hydrogen or in battery storage or something that risk is always going to be there.

— Sanjay Malhotra

As you said, there are two projects which are at advanced stages of resolution, so during FY2020 or FY2022 how many projects do you see you know will get resolved or you could have a headwind provisioning write backs from here?

— Shripal Doshi

Just one last question I think in our last call we had indicated that there are some you know four projects wherein we have the PPAs stand but they were seeing some stress.

— Shripal Doshi

I do not know the name but then we had indicated that you know there are four private sectors Genco projects wherein they already have the PPA signed, and our exposure was close to 60 billion, so we were seeing stress building up in those accounts.

— Shripal Doshi

So that is why there are no signs of stress that we can see in our large projects.

— Sanjay Malhotra

Yes, Sir it is almost at roughly 370000 out of which 20000 Crores is kind of stress so 350000.

— Ajoy Choudhury

Now which of course because the rupee has appreciated that has come down to 500 Crores, so reserves so do you account these reserves in the Tier II calculations especially the forex reserves which is generally very volatile during the quarter and especially…?

— Punit Srivastava

Yes, we do consider is the impact of reserves in our networth.

— Sanjay Malhotra

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Q&A — 11 exchanges

Good afternoon Sir. You talked about your reducing rates compared to banks etc., so what sort of competitive advantage do you have compared to banks in your lending business?

Sanjay Malhotra

See the advantage that we have over banks is not so much in rates. We cannot beat them in rates, as you would be aware because of the banks raise their funds. Our competitive advantage basically lies in understanding the businesses especially the distribution companies very well. So it is over there and our liasoning with the state utilities especially because we are mostly in the state which is more than 90% of our portfolios in the state sector so our quantitative advantage is basically in understanding these businesses much better and being able to of course reduce our risks because we are

Good afternoon. Good afternoon. My first question is on the provisioning coverage. It has increased so if you can throw some light is this because you are seeing some more hit on any of the accounts or is it like because it would delay? What would be the reason for raising the provisioning coverage this quarter so much? Second question of course was on the yield side the yield of course you mentioned that on a YOY basis it has not fallen that much but on a quarter to quarter basis there is a sharp decline of around 55 basis point so apart from that interest on interest charge and of course the

Sanjay Malhotra

First question about provisioning major provisioning increase is basically because of you know the Tamil Nadu utilities. Their rating has gone down. Being an election year etc., we hope that their rating will further will improve in the coming years and so this should be only a kind of a one-time thing and the provisioning they it may even be reversed in the coming years to my mind that is the major reason; however I will request my Director Finance Ajoy Ji to supplement me as to what are the other areas where provisioning has gone up and also on your second question related to is to my mind t

Good afternoon Sir. My question for regarding slippage is this particular quarter I have noted that our absolute gross NPAs have increased slightly from December quarter from around 18221 Crores to 18257 Crores. I just heard Ajoy Sir also mentioning that we have had a couple of resolutions, Essar Transmission being one, so were there any majors’ slippages or these resolutions will only be reflected in numbers in the coming quarters just wanted to understand that?

Sanjay Malhotra

I will request Ajoy Ji only to answer. I think it is the question they are getting reflected in the accounts, but I will request him to handle this. In 2021 we had two upgrades as I said the Essar Power and TRN Energy totally 2500 Crores and one resolution of Facor Power that of 500 Crores. There has only been one slippage during 2021 that is a small renewable project of 36 Crores only. That is why and going forward there are some of the projects which are under very advanced stage of resolutions and there we hope that about how much about 3000 Crores of assets will be resolved next year. One

Good afternoon. Thank you for giving me the opportunity. Just wanted some project wise update so as you said that you know Essar Power Transformation and FACOR Power have been resolved what about Hiranmaye Energy versus Ind Bharat Utkal and R.K.M PowerGen because I think these projects were also at advanced stages when we got the resolution but I think they were also another advantage so what is the update there?

Sanjay Malhotra

So you have mentioned I think you mentioned R.K.M, so R.K.M restructuring plan has been implemented on 29.12.2020 and 60.7% is sustainable debt. Rest has been converted into debt instruments and account has been upgraded to standard category. Second you have mentioned about Hiranmaye. Hiranmaye we had restructured it. We have given some time till March 31, 2021, for the borrower to agree to certain conditions which he has not been able to do so especially know related to tariff. We believe there were elections in West Bengal, and so we are hopeful that this year we should be able to resolve Hi

Thank you Sir for giving me time. Just couple of questions from my side. Sir just wanted to have your outlook on growth both in terms of disbursement and loan book growth for this year? Is there any other new area which we are looking to lend as an extension to our power set exposure, if yes you can do some color on that? Also Sir there has been a media article on market basic dispatch the article talks about the savings for the power sector per se or recipes per se so can you highlight what is this new concept all about? What are the roles with REC or PFC will play in this?

Sanjay Malhotra

Outlook you see this year was an exceptional year because of the Atmanirbhar liquidity infusion scheme as I had mentioned in my earlier concall otherwise if you neglect that we should expect you know normal times 10% growth in disbursement so considering 2019- 2020 as the base one can easily expect a minimum of 10% growth over that. Coming to the areas I already touched upon them. Energy transition opens up you know areas in general, so we are giving it a renewed focus, renewables and associated transmission and other associated sectors we are opening up, we are we are trying to get business i

I just wanted to know what is the tenure of loans to this distribution companies in terms of number of years?

Sanjay Malhotra

The tenure varies from one year to 15 years. The average I think is about 7 years remaining periods remaining as on today is about between 6 and 7 years. The remaining tenure of loans is between 6 and 7 years Ajoy Ji is that correct. Normally in distribution company this normalcy of capex is known as capital expenditure is known for creating assets that is presently generally is 3 plus 10 years that is 3 year moratorium and 10 years is the difference and as you have said very correctly Sir for distribution company where we are lending a lot of this short-term and medium-term loan so the short-

Congrats on a great set of results. One, if there are no new NPAs this year will our profits grow compared to last year?

Sanjay Malhotra

Profits you see is a function of so many things and provisioning is only a small amount in any case. There are other variables like foreign exchange which we cannot consider, so this year has been, as you are aware this year we have had the highest ever profits. You see our return on networth is about 22%. It is the highest. It is very, very high. I do not think that the return on networth will remain the same and a lot depends on how interest rates move in the market, but broadly speaking I think the profits should remain in the same range perhaps. I would request my Director (Finance) also t

Sir, I had a couple of questions. Sir regarding the reduction in card rates and the liquidity scheme how far do you think that NIMs will be compressed or where do you think that NIM would stabilize going forward?

Sanjay Malhotra

We would like our return on networth to be somewhere in the range of about 16%. So it is right now last to last year it was about 14%, this year, it is more than 20% so on an average it is about 17%. So that is where we would like it to be. So that is kind of guidance to us and why do we pay 16% is kind of the benchmark because in the power sector this is what is the benchmark at which the regulators are allowing for purposes of tariffs. So if you go by that yardstick and back calculate I think NIM should be about I am not sure, you can do your calculations. I am told you know about 3.2% or so

Sir just a small question on yields. The yield reduction that you mentioned will it be applicable for the incremental loans or entire loan book of REC?

Sanjay Malhotra

It will be applicable on the incremental loans and on the existing loans as and when the loans become due for reset, interest reset mostly which is three years as we mentioned just now, again they become eligible for alignment with the new rate cards plus we are trying to come up with a scheme for the existing loans or if they want to switch to a one-year reset, mostly I said it is three years, they want to switch to a one-year reset then we are giving some incentive to them of sharing the gains in reduction of on 50:50 basis for the period from the date of shift to one year from that date to

Thank you again for the opportunity. Sir I have a question on the government loan book you have like three categories of loans in the government loans category A, B and C and I believe like TANGEDCO was downgraded from B to C last quarter so can you just give that like portion of how much of the loans are in category A, B and C respectively?

Sanjay Malhotra

This category that you are referring to is basically the category of the rating. It is the credit rating on the utilities which we are doing for the state power sector utilities. The ratings A++, A+, A, B, C, so there are these categories. There are very few in A+, A++, mostly they are the ones, and we can share the details with you, if you want how much is on A++ offhand I will not remember mostly they will be in the range of B and C, mostly in B. So B and C how much they will be put together or mostly on C what is the number? We can share the figures with you. Offhand I will not be able to c

I would like to thank the entire management team of REC for patiently answering all the questions and giving the detailed explanation and all the best for future quarters and thanks for giving us the opportunity to host you. Thank you.

Sanjay Malhotra

Thank you ICICI for hosting us.

Speaking time

Sanjay Malhotra

Moderator

Ajoy Choudhury

Shripal Doshi

Punit Srivastava

R. Lakshmanan

Kishan Gupta

Anand Laddha

Saket

Vipul Shah

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Opening remarks

Kunal Shah

Thank you, Janis. This is Kunal Shah from ICICI Securities. Good afternoon everyone. Today we have with us Mr. Sanjay Malhotra, Chairman and Managing Director, Mr. S.K. Gupta, Director (Technical), Mr. Ajoy Choudhury, Director (Finance) and other senior officials of REC Limited to discuss their Q4 FY2021 and full year FY2021 earnings and to give us the update on the power sector development as well as the financing of opportunities and outlook. Now over to you Sir!

Sanjay Malhotra

Thank you and good afternoon to everyone. It is indeed a pleasure to be with all of you once again and to share with you our thoughts and especially the results of the last financial year. As you would all have gone through the last year has been insofar as REC is concerned a stupendous year. It has been the best year insofar as the profits and the revenues etc., are concerned. Let me first of all take you through the major highlights of the last financial year. You would all perhaps be aware that the sanctions last year we had record sanctions of more than 1.5 lakh Crores which is a 40% rise over the corresponding period last year, the full year. Similarly disbursements at almost 93000 Crores are up 23%, interest income is up 17% at almost 35000 Crores, 34684 Crores to be precise and total expenditure on the other hand has increased only by 8%, finance cost only by 13%, as a result of which the profit before tax is the highest ever for REC at about 10756 Crores up 54% last year and PA

Ajoy Choudhury

Thank you Sir. I think Sanjay Sir has covered almost entire gamut. Only one thing that I would like to say is that he touched upon it commissioning purpose ratio which we have improved quite significantly this year. We have an ECL method of providing for on our assets and the standard asset we have now got at par with the IRAC norm of the RBI, which is 0.4%. On stage three assets also we have significantly improved our positioning and two of the assets which have come to standard asset are Essar Power Transmission and TRN Energy totaling to 2520 Crores. So that is one of the highlights. Another thing he touched upon is the Atmanirbhar scheme where we disbursed this year around 40000 Crores. So that almost covers. Thank you. I think we can take questions now.

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