Motilal Oswal Sees Rural Electrification Corp Reaching Rs 440

Rural Electrification Corp Posts Disappointing 4Q Results, Outlook Remains Positive

Rural Electrification Corp (RECL) has reported a decline in its profit after tax (PAT) for the fourth quarter of fiscal year 2026 (4QFY26), which fell approximately 21% year-over-year (YoY) to INR33.6 billion. This represents a 23% miss from analysts' expectations. For the full fiscal year 2026 (FY26), PAT grew approximately 3% YoY to around INR163 billion.

Breaking down the quarterly results, net interest income (NII) declined by approximately 16% YoY to around INR51.7 billion, which was in line with expectations. Other income remained flat YoY at INR2.4 billion, with fee and commission income amounting to INR2.5 billion. This compares to INR3.9 billion in the previous quarter and INR2.2 billion in the same quarter of the previous year.

Outlook and Recommendations

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In light of the recent results, Motilal Oswal has revised its PAT estimates for fiscal year 2027 (FY27) and FY28 downward by approximately 9% and 11%, respectively. The research firm now models a compound annual growth rate (CAGR) of 12%, 11%, and 5% in disbursement, loans, and PAT over FY26-28E. For fiscal year 2028 (FY28E), RECL is expected to deliver a return on assets (RoA) of 2.4% and a return on equity (RoE) of 18%.

Despite the disappointing 4Q results, Motilal Oswal maintains a bullish outlook on RECL and reiterates a "BUY" recommendation with a target price of INR440. This valuation is premised on a book value per share (BVPS) of 1.1 times the estimated FY28E BVPS.