REC Ltd Q4 FY26: ₹59,584 Cr Revenue, ₹16,308 Cr Profit, 0.24% Gross Credit-Impaired Assets — A Maharatna Lender Trading at 5.9x Earnings While the Power Sector Drinks Debt Like Tea
1. At a Glance
REC Ltd has delivered a strange kind of financial thriller in Q4 FY26. On the surface, the quarter looks weak: consolidated revenue from operations fell to ₹14,563.82 crore in Q4 FY26 from ₹15,333.54 crore in Q4 FY25, and net profit dropped to ₹3,375.08 crore from ₹4,309.98 crore. That is not a small dip. It is the sort of number that makes casual investors check the chart first and the balance sheet later, which is usually how mistakes are born.
But REC is not a biscuit company where one bad quarter means distributors forgot to sell glucose. It is a government-backed infrastructure finance machine, and the real story is hidden in the loan book, provisions, asset quality, capital adequacy, dividend payout, and the proposed REC-PFC restructuring drama.
For FY26, consolidated revenue from operations increased to ₹59,584.16 crore from ₹56,366.55 crore in FY25. Consolidated net profit increased to ₹16,308.17 crore from ₹15,884.23 crore. EPS came in at ₹61.81 for FY26. At the current market price of ₹364, the recalculated P/E is roughly 5.89x. The reported P/E is close at 5.92x. For a lender with ROE around 20%, book value around ₹323, and dividend yield close to 5%, this valuation looks less like a premium financial stock and more like a public-sector machine that the market respects, but does not fully trust.
The distrust is not irrational. REC lends into power, distribution, renewables, infrastructure and logistics. These sectors are essential, capital-hungry, politically sensitive, and occasionally allergic to timely repayment. Power distribution in India has historically been a graveyard of good intentions and bad receivables. REC has survived because it is not just another lender; it is a policy institution sitting inside the state-backed power financing ecosystem.
The latest asset quality data is the cleanest part of the story. Gross credit-impaired assets dropped sharply to 0.24% as at March 2026 from 1.35% in March 2025. Net credit-impaired assets reduced to 0.12% from 0.38%. On paper, that is excellent. In lending, asset quality is the truth serum. Revenue can impress, profits can flatter, but bad loans eventually arrive wearing muddy shoes.
The balance sheet has grown into a monster: consolidated total assets reached ₹6,40,158 crore in March 2026, up from ₹6,14,502 crore in March 2025. Borrowings remain huge, as expected for a lender: consolidated borrowings plus debt securities and subordinated liabilities together form the core of the liability engine. Debt-to-equity remains high because that is the business model, not necessarily a scandal. For a finance company, leverage is oxygen. Too little and growth suffocates; too much and one credit cycle turns oxygen into smoke.
The Q4 decline in profit also needs context. FY26 profit still grew modestly. The company recommended a final dividend of ₹1.55 per share, taking total FY26 dividend to ₹18.55 per share. That is a shareholder-friendly payout, though not a substitute for quality earnings. Dividends are nice; sustainable spreads are nicer.
The bigger strategic question is simple: is REC merely a low P/E PSU lender with high leverage, or is it a structural financing arm of India’s power and energy transition story? The answer may be both, which is exactly why the stock is interesting and uncomfortable at the same time.
REC is financing power generation, transmission, distribution, renewables, infrastructure and logistics. It has also been a nodal agency for government schemes. That means its business is closely tied to public policy, sovereign support, energy capex, and the health of state power entities. This is not a clean private-sector compounder story. This is a government-backed financial institution carrying a national infrastructure brief on its shoulders. Some days that is a superpower. Some days it is a headache wearing a tie.
The FY26 numbers do not show explosive profit growth. They show scale, resilience, improving asset quality, high capital adequacy, strong dividend distribution, and one very important contradiction: the company is financially strong, but its business will always carry policy risk, borrower concentration risk, and sectoral risk.
So the detective question is not “Is REC cheap?” The numbers already suggest it is optically cheap. The better question is: cheap because the market is lazy, or cheap because the market remembers every power-sector cycle that ended with restructuring, waivers, and official optimism?
That is where the real investigation begins.
2. Introduction
REC Ltd is a Central Public Sector Undertaking under the Ministry of Power. It finances projects across the power sector value chain: generation, transmission, distribution, renewable energy, and related infrastructure. It has also entered infrastructure and logistics lending, including metro, roads, highways, ports, waterways, and steel infrastructure developers.
The company’s business model is simple in language and complex in execution. REC raises money through bonds, term loans, external commercial borrowings, capital gain bonds, tax-free bonds and other instruments. It then lends to power and infrastructure borrowers. The spread between borrowing cost and lending yield becomes the engine of profitability.
But the real moat is not only financial. REC benefits from sovereign linkage, policy relevance, and its role as a nodal agency for government schemes. That gives it access, credibility and relatively competitive funding. It is the kind of institution that exists because India’s power sector cannot be financed by ordinary lenders alone.
In FY26, the company reported consolidated revenue from operations of ₹59,584.16 crore and net profit of ₹16,308.17 crore. Book value stood around ₹323 per share, while FY26 EPS was ₹61.81. The stock trades at roughly 1.10x book value and about 5.9x earnings.
Those numbers are not expensive. In fact, they are low enough to raise suspicion. High ROE, low P/E, high dividend yield and improving asset quality usually do not come together unless the market is worried about something.
And there are things to worry about.
REC’s debt is large. Its borrowers include state power entities and infrastructure projects. Its loan book is concentrated in sectors where economics and politics often travel in the same car. The company is also part of the proposed REC-PFC restructuring narrative, after the Union Budget proposed restructuring of PFC and REC, and the board approved an in-principle merger with PFC in February 2026.
That merger proposal is a major event. REC is already promoted by Power Finance Corporation, which holds 52.63%. If the restructuring progresses, the combined entity could become a much larger state-backed power and infrastructure financier. Scale may improve. Policy alignment may improve. But investors will have to study the structure, swap terms, governance implications, and capital allocation logic whenever the detailed scheme is made available.
The latest quarter also brings governance footnotes. The company disclosed that the financial results were approved by the Board on the recommendation of an Audit Committee constituted without independent directors required under the Companies Act and SEBI regulations, because appointment of independent directors is done by the Government of India. Exchanges had levied fines earlier for board composition non-compliance. This is not an earnings issue, but it is a governance issue. In PSU land, sometimes the company can be operationally strong while governance paperwork waits for a ministry file to move from one desk to another.
Should investors ignore that? No.
Should they panic? Also no.
The job is to separate accounting reality, policy support, valuation comfort and governance friction. REC’s FY26 report card gives enough material for all four.
3. Business Model – WTF Do They Even Do?
REC is basically a specialised lender for India’s power and infrastructure ambitions.
It gives loans for generation projects, including conventional and renewable power plants. It finances transmission projects that move electricity from generating stations to consuming regions. It funds distribution projects, where power reaches households, factories and shops. It also provides short-term and medium-term loans for working capital needs such as fuel purchase, power purchase, materials, equipment, maintenance and repair.
Recently, REC has also expanded into infrastructure and logistics lending. This includes metros, roads, highways, ports, waterways and steel infrastructure. In simple terms, whenever India wants more electricity, better grids, renewable capacity, or infrastructure corridors, someone has to write the cheque. REC is one of the institutions that writes it.
The company raises funds from the market and lends onward. Its borrowing mix includes corporate bonds, foreign currency borrowings, term loans, capital gain bonds, tax-free bonds, commercial papers and FCNR loans. In the 9M FY26 presentation, outstanding borrowings stood at ₹4,98,829 crore as of December 31, 2025, with bonds forming the largest piece and more than 99% of foreign currency borrowings hedged.
That hedging point matters. Foreign borrowings can look cheap until the rupee decides to audition for a horror film. REC has indicated a high level of hedging, which reduces currency risk, though hedging also comes with cost.
The business earns money from interest income, fees, commissions and related operating income. But at heart, this is a spread business. Borrow at one rate, lend at another, manage credit risk, keep capital adequacy strong, avoid asset-quality disasters, and collect repayments. Very glamorous, in the same way a transformer is glamorous: nobody notices it until it explodes.
The company’s strategic relevance is huge because India’s power sector requires massive investment across renewables, transmission, distribution, storage, thermal balancing, hydro, nuclear and grid systems. REC’s investor presentation showed sanctions of ₹3,33,354 crore in 9M FY26 and disbursements of ₹1,65,458 crore. Distribution dominated disbursements, while renewable energy remained a key growth theme.
The risk is equally obvious. REC lends into sectors where repayment depends not only on project economics, but also on state utility health, regulatory approvals, tariffs, subsidies, political discipline and timely collections. This is not credit-card lending where the borrower either pays or gets blocked. In power finance, delays can become restructuring, restructuring can become policy intervention, and policy intervention can become a press release with many optimistic adjectives.
That is the business. Essential, profitable, leveraged, policy-linked, and not for lazy analysis.
4. Financials Overview
Particulars
Latest Quarter: Q4 FY26
Same Quarter Last Year: Q4 FY25
Previous Quarter: Q3 FY26
Revenue from Operations
₹14,563.82 cr
₹15,333.54 cr
₹15,051.08 cr
EBITDA / Financing Profit Proxy
₹4,414.54 cr PBT before exceptional items
₹5,489.89 cr PBT before exceptional items
₹5,154.71 cr PBT before exceptional items
PAT
₹3,375.08 cr
₹4,309.98 cr
₹4,052.44 cr
EPS
₹12.69
₹16.24
₹15.39
Q4 FY26 was visibly weaker year-on-year. Revenue from operations fell by about 5.0%, PAT fell by about 21.7%, and EPS moved from ₹16.24 to ₹12.69. The quarter was not a victory lap. It was more like a government lender saying, “Please judge me over the full year, not this one awkward family photo.”
For FY26, the picture improves. Revenue from operations rose from ₹56,366.55 crore in FY25 to ₹59,584.16 crore in FY26. Net profit rose from ₹15,884.23 crore to ₹16,308.17 crore. EPS rose from ₹60.20 to ₹61.81.
Growth was modest, not spectacular. But in a lender of this scale, modest profit growth combined with sharp asset-quality improvement is not irrelevant. The balance sheet did not shrink; total assets increased to ₹6,40,158 crore. Net worth increased to ₹85,054 crore on a consolidated basis.
Management’s earlier H1 FY26 commentary had highlighted strong sanctions, record disbursements, a committed order book, and confidence around loan book growth despite prepayments. By March 2026, the full-year profit growth was modest, but asset quality improved sharply. In that sense, management partly walked the talk on balance sheet quality and scale, but the Q4 profit drop means investors should not confuse confidence with a straight-line spreadsheet.
A question for readers: would you prefer a lender with explosive profit growth but rising NPAs, or a slower quarter with cleaner credit quality?
5. Valuation Discussion – Fair Value Range Only
Current price used: ₹364. FY26 consolidated EPS: ₹61.81. Consolidated book value per share is around ₹323.
Method 1: P/E Method
Recalculated P/E:
₹364 / ₹61.81 = 5.89x
Peer context from the available data:
Company
P/E
PAT 12M
ROE
Power Finance Corporation
6.14x
₹25,229.37 cr
21.01%
IRFC
19.71x
₹7,006.73 cr
12.77%
REC Ltd
5.92x
₹16,322.53 cr
19.97%
HUDCO
15.69x
₹2,780.80 cr
15.67%
IREDA
20.62x
₹1,882.38 cr
18.05%
A conservative public-sector lender band of 5.5x to 7.0x FY26 EPS gives:
5.5 × ₹61.81 = ₹340
7.0 × ₹61.81 = ₹433
So, the P/E method suggests a broad educational fair value range of about ₹340–₹433.
Method 2: EV to EBITDA Method
For banks and NBFCs, EV/EBITDA is not the cleanest valuation tool because debt is raw material, not just capital structure. Still, using the available enterprise value of ₹6,08,963 crore and the reported EV/EBITDA of 10.7x, we can reverse-imply the EBITDA base used by the market data:
₹6,08,963 crore / 10.7 = approximately ₹56,912 crore
If the market applies an EV/EBITDA band of 10x to 12x on this implied operating base, the valuation range remains roughly near the current enterprise-value framework. But for a finance company, this method should carry lower weight. EV includes debt, and debt is the company’s inventory. Using EV/EBITDA on a lender is like judging a restaurant by the weight of its gas cylinder.
Educational conclusion from this method: REC does not look aggressively valued on the reported EV/EBITDA figure, but this method should not be the lead valuation anchor.
