Power sector giants of India: Analysing the financial dynamics of REC and PFC

Company profiles

REC Ltd and PFC Ltd are power sector giants in India, but they occupy distinct spaces.

REC Ltd., a government-owned CPSU, plays a broader role, financing projects across the entire power value chain – from generation plants to distribution networks. PFC Ltd., conversely, is a non-banking financial institution, that primarily provides financial assistance to existing power sector projects. Essentially, REC lays the foundation for power creation and distribution, while PFC fuels its ongoing operations.

Products and Services 

REC Ltd is a powerhouse for India’s infrastructure financing, offering a diverse range of solutions for every stage of power projects. They provide dedicated loans for generation, transmission, and distribution projects, ensuring seamless electricity flow. Beyond long-term financing, REC also assists with short- and medium-term loans for immediate needs, and they extend their expertise to broader infrastructure projects, fostering India’s growth across various sectors.

PFC Ltd caters to a diverse range of financial needs within the power sector, offering both fund-based and non-fund-based products. Fund-based options support various stages of project development, from long-term loans for construction, equipment financing, and manufacturer support, to flexible refinancing solutions. For immediate needs, PFC also provides non-fund-based instruments like guarantees and letters of comfort, enhancing their clients’ financial capabilities. This comprehensive suite of solutions strengthens PFC’s position as a key financial partner in India’s energy sector.

Operational Metrics 

Loan Mix 

REC Ltd.’s loan book, a hefty Rs 4,740,000 crores, caters largely to the private sector 90% while carving out a 10% niche for public entities. Power distribution commands the largest share (44%), followed by power generation (29%), with transmission (10%) and renewables (6%) playing supporting roles. Notably, infrastructure and logistics get a 10% slice of the pie, showcasing REC’s diversified lending portfolio beyond the pure power sector.

Power Finance Corporation Ltd. (PFC), a financial behemoth supporting India’s power sector, boasts a colossal loan book of approximately Rs 4.5 lakh crore. This impressive portfolio leans heavily towards Government entities (83%), while private players account for the remaining 17%. PFC strategically channels its funding across the different stages of power generation, with a focus on Generation (54%) and Distribution (38%). Transmission receives a smaller but significant share (7%), while other ventures account for a marginal 1%. This finely balanced allocation reflects PFC’s commitment to powering India’s growth by building a robust and comprehensive power infrastructure.

Current Status 

REC serves as a crucial implementer of government schemes like DDUGJY and SAUBHAGYA, driving electrification initiatives across the country.

PFC, on the other hand, shines as a “Maharatna” public sector enterprise, enjoying increased financial and operational freedom to fuel larger infrastructure projects within the sector.

Asset Quality

REC Ltd.’s asset quality paints a mixed picture, showcasing both strengths and areas for improvement. On the positive side, Net Credit-impaired Assets stand at a low 0.96%, indicating effective resolution of stressed assets. Additionally, the absence of new NPAs in the past 7 quarters signals a stable credit portfolio. However, a cause for concern is the elevated Gross Non-Performing Assets (GNPAs) at 3.42%.

PFC Ltd.’s financial health appears stable, with Gross Credit-impaired Assets at 3.67% and Net Credit-impaired Assets at 1%. This suggests that a small portion of the bank’s loans are unlikely to be repaid, but the overall level of impairment is low. Additionally, GNPAs (Gross Non-Performing Assets) of 3.91% indicate that a slightly higher percentage of loans are overdue or in default, but NNPAs (Net Non-Performing Assets) of 1.07% show that after provisioning, the bank is confident in recovering a significant portion of these loans.

Loan Activity 

Comparing loan activity between REC Ltd. and PFC Ltd., we see REC approved a significantly higher amount of loan sanctions at Rs 1,04,366 crore compared to PFC’s Rs 70,500 crore. However, PFC Ltd. disbursed a larger portion of their sanctioned loans, releasing Rs 31,500 crore compared to REC’s Rs 41,598 crore.

Financial Highlights 

REC Ltd.’s financial highlights for the quarter were impressive. Quarterly revenue grew 17% year-over-year (YOY) to Rs 11,688 crore. Operating profit surged 40% YOY to Rs 12,180 crore, while profit after tax (PAT) climbed 39% YOY to Rs 3,790 crore.

PCF Ltd. reported an impressive quarterly performance across all key metrics. Quarterly revenue grew 15% year-over-year (YOY) to Rs 22,391 crore. Q-Financing Profit saw an even stronger increase of 31% YOY to Rs 8,629 crore, while Q-PAT climbed 27% YOY to Rs 6,628 crore.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.