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]