Regional Electric Company Stock Plummets 3% Following Disappointing Q4 Earnings, Broker Downgrades Contribute to Decline Amid Asset Quality Improvements

REC Ltd Shares Extend Losses After Reporting Mixed Q4 FY26 Performance

REC Ltd shares declined in Wednesday's session, extending losses for a second straight day after the company reported a mixed Q4 FY26 performance. The stock was trading at Rs 363.65 in the afternoon, down 3.23 percent. REC shares have lost 15.5 percent in one year, compared with a 0.3 percent dip in the Nifty 50.

The sharp reaction comes after REC reported a 20.6 percent year-on-year fall in net profit, marking its steepest drop in six years. The company also reported a 19.4 percent decline in operating profit for the January-March quarter. Profitability was hit by higher provisioning, elevated operating expenses and subdued loan growth. Sequentially, net profit declined 16.8 percent.

Brokerages turned cautious on the stock following the earnings miss. DAM Capital downgraded REC to 'Neutral' from 'Buy' and cut its target price to Rs 400. Phillip Securities also downgraded the stock to 'Neutral', lowering its target to Rs 420 from Rs 440.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Among brokerages that retained a constructive stance, Motilal Oswal maintained a 'Buy' rating with a target price of Rs 440. It cited attractive valuations at around 1x FY27 estimated price-to-adjusted book value. However, the brokerage flagged weak loan growth and margin pressures as key monitorables going ahead.

Macquarie also maintained an 'Outperform' rating with a Rs 455 target, even as it flagged pressure on earnings.

The earnings miss was largely driven by a sharp increase in credit costs, which came in at 39 basis points due to higher provisioning, including an increase in stage 1 provision coverage. Margins also narrowed to 3.5 percent from 4.4 percent a year ago, reflecting pressure on profitability.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Operationally, loan growth remained muted at around 3 percent year-on-year, weighed down by prepayments and resolutions, while disbursements stayed soft during the quarter.

However, asset quality saw a sharp improvement, with gross NPAs declining to 0.24 percent and net NPAs to 0.12 percent, aided by reductions in stressed assets, including write-offs and resolution gains such as the Sinnar Thermal account.