01 — At a Glance
The State-Owned Lender Every Portfolio Manager Secretly Owns
- 52-Week High / Low₹450 / ₹324
- 9M FY26 Revenue₹44,781 Cr
- 9M FY26 PAT₹12,920 Cr
- 9M EPS (₹)₹49.07
- Annualised EPS (9M×4/3)₹65.42
- Book Value₹327.60
- Price to Book1.07x
- Dividend Yield5.31%
- Debt / Equity5.78x
- Outstanding Loan Book₹5,81,787 Cr
Auditor’s Opening Note: REC closed 9M FY26 with ₹44,781 crore total income (+10% YoY), ₹12,920 crore PAT (+13% YoY), 21.5% ROE, and a 5.31% dividend yield. The loan book crossed ₹5.8 lakh crore for the first time. And somehow, the stock is down 16.5% in a year because the government decided to merge the lender with its sibling. Indian capital markets: where good earnings meet great confusion.
02 — Introduction
How to Make Money Lending to Everyone Else’s Problem Projects
REC Limited. Established 1969. Maharatna status since 2022. Finances every corner of India’s power sector: conventional generation, renewable energy, transmission, distribution, and now infrastructure & logistics. If it plugs in or distributes electricity, REC probably has a loan outstanding against it.
It’s not a bank. It’s an NBFC. More precisely, it’s a government-owned NBFC that lends at razor-thin margins, sits on a loan book worth ₹5.8 lakh crore, maintains AAA ratings from every agency that matters, and has delivered ₹12,920 crore profit in just nine months of FY26. The stock trades at 5.2x P/E and yields 5.3% in dividends. This is what a boring, profitable, government-backed machine looks like.
Then, on February 1, 2026, Finance Minister Nirmala Sitharaman announced during Union Budget: “REC and PFC will be restructured. In the form of a merger.” The stock fell 4% that day. Within weeks, both boards approved the in-principle plan. The deal structure is still being figured out. Timeline is “to be confirmed.” And investors, naturally, started selling like the company just admitted to cooking the books.
Welcome to the article on REC Ltd — a company that prints cash, maintains fortress balance sheets, and is about to become part of India’s largest power-sector financing entity. If you think consolidation is good, your portfolio is already up 5%. If you think it’s terrible, your portfolio already tanked. Let’s look at what the data actually says.
Merger Context: PFC and REC boards met on Feb 6, 2026 and approved in-principle merger. Both entities will continue operating separately until merger is consummated post regulatory approvals. The merged entity will be the largest power sector financing entity in India with combined AUM exceeding ₹16 lakh crore.
03 — Business Model: Lend to Power. Repeat. Die Rich.
How a CPSE Became a Cash-Printing Machine
REC’s business is brutally simple. India needs power infrastructure. Building it requires enormous capital. REC steps in, lends money at ~10% yield (on loan assets), funds the loans at ~7.3% cost, and pockets the ~2.7% spread. On a ₹5.8 lakh crore loan book, that 2.7% spread translates to ₹15,677 crore net interest income. Subtract operating costs, taxes, and bam — ₹12,920 crore PAT. Repeat quarterly.
The genius: REC is a CPSE (Central Public Sector Enterprise). It has government backing. It can borrow at near-sovereign rates via bonds, commercial paper, and external borrowings. Its credit rating is AAA (Stable) from CARE, on par with India’s sovereign rating. So it borrows cheap and lends slightly less cheap. The spread is narrow. But the scale is immense. And the capital efficiency is extraordinary — 21.5% ROE on a loan book that grows ~10% annually.
Loan book composition (as of Dec 2025): Distribution 41%, Conventional Generation 26%, Infra & Logistics 10%, Renewable Energy 12%, Transmission 8%, Others 3%. Distribution is the bread-and-butter — state electricity boards always need money. Renewables are the growth play — India’s clean energy push is relentless. Infra & Logistics is the new bet since 2022 — roads, highways, metros, ports.
Distribution Share41%Loan Book
Gen Share26%Loan Book
Renewable Share12%Loan Book
9M Disbursements₹1,65,458 Cr+14% YoY
Nodal Agency Edge: REC is the nodal agency for multiple GoI schemes: SAUBHAGYA (electrification), DDUGJY (rural power), RDSS (distribution sector scheme), PM Surya Ghar (rooftop solar). This gives REC unprecedented visibility into demand pipelines and first-mover advantage on sanctioning large projects. It’s not a moat; it’s a monopoly wrapped in a CPSE.
💬 Would you rather own a 5.2x P/E PSU merger candidate, or avoid it until the fine print is released? Drop your take!
04 — Financials Overview
Q3 FY26: The Numbers That Make Bank Analysts Weep
Result type: Quarterly Results | Q3 FY26 EPS: ₹15.39 | 9M FY26 EPS: ₹49.07 | Annualised EPS (9M×4/3): ₹65.42
| Metric (₹ Cr) |
Q3 FY26
Dec 2025 |
Q3 FY25
Dec 2024 |
Q2 FY26
Sep 2025 |
YoY % |
QoQ % |
| Revenue | 15,018 | 14,272 | 15,153 | +5.2% | -0.9% |
| Net Interest Income | 5,068 | 4,930 | 5,059 | +2.8% | +0.2% |
| NIM % | 3.37% | 3.45% | 3.33% | -8 bps | +4 bps |
| PAT | 4,052 | 4,076 | 4,415 | -0.6% | -8.2% |
| EPS (₹) | 15.39 | 15.48 | 16.77 | -0.6% | -8.2% |
The Real Story Behind the Numbers: Q3 PAT looks flat YoY, but that’s because Q3 FY25 had favorable one-off taxation benefits. Strip those out, and REC’s underlying PAT growth is solid 7–8% YoY. The NIM compression (3.37% vs 3.45%) is the cost of tighter interest rate environment and higher cost of funds — both of which are macro challenges, not REC-specific. What matters: 9M FY26 profit is ₹12,920 crore, highest ever for the period. Loan book grew 10% YoY. Asset quality improved (net NPA down to 0.20% from 0.38% a year ago). The merger news is the only thing tanking the stock.
05 — Valuation: Fair Value Range
What’s the Right Price for a Merger-Bound CPSE?
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