REC Limited
NSE:RECLTD
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REC Limited
Earnings Call Analysis
Q2-2025 Analysis
REC Limited
In the first half of FY 2025, the company reported its highest-ever half-year profit of INR 7,448 crores, a year-on-year increase of 11% from INR 6,734 crores. The total income stood at INR 26,633 crores, up 18% from the previous year. Net interest income increased impressively by 25% to INR 9,723 crores, signaling strong operational performance and effective loan management.
The loan book reached INR 546,000 crores, marking a 15% year-on-year increase. This growth signifies the company's effective market strategies and expansion, with impressive disbursement rates particularly in the renewable energy sector, which saw a 93% increase compared to the previous year.
The company has demonstrated resilience in asset quality, with net credit impaired assets improving to 0.88%, down from 0.96% year-on-year. The provision coverage ratio stands robust at 65.12%, indicating strong risk management practices and proactive measures to maintain financial health.
Looking ahead, the management has projected a continued increase in assets under management (AUM) at a growth rate between 15% to 20% over the next three to four years. On average, they expect to sustain about 17% growth, possibly reaching over INR 10 lakh crore in AUM by 2030 if conditions remain favorable.
The company aims for a significant market presence in both coal-based and renewable energy sectors, targeting a 20% market share in the coal-based power plant business and a similar share in the renewable energy sector, potentially exceeding INR 3 lakh crore by 2030. The management emphasized a commitment to project financing and infrastructure development.
The company has maintained a strong history of rewarding its shareholders, declaring a total dividend payout of INR 7.5 per share for the year, which represents a 75% return on the face value of INR 10. This showcases the company’s commitment to maximizing shareholder value amidst ongoing growth.
The management expressed confidence in maintaining a net interest margin above 3.6% for the year, with an expected range of 3.5% to 3.75%. The firm attributes this stability to effective cost management and a robust funding strategy, despite the current interest rate environment.
As the renewable energy sector continues to evolve, the management anticipates heightened competition, especially in the financing of renewable projects. However, they believe that their ability to offer longer loan tenures will provide a competitive edge over traditional banks, which typically offer shorter financing periods.
The company plans to increase its disbursement to approximately INR 1.90 lakh crore in the current fiscal year, expecting another INR 1 lakh crore in the second half. This structured financial planning aims to mitigate risk while capitalizing on growth opportunities in key sectors.
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Ladies and gentlemen, good day, and welcome to the REC Limited Q2 FY '25 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Shweta Daptardar from Elara Securities Private Limited. Thank you, and over to you, ma'am.
Thank you, Steve. Good morning, everyone. On behalf of Elara Securities, we welcome you all to Q2 FY '25 Earnings Conference Call of REC Limited. From the esteemed management today, we have with us Mr. Vivek Kumar Dewangan, IAS, Chairman and Managing Director; Mr. Vijay Kumar Singh, Director of Projects; Mr. Harsh Baweja, Director of Finance; Mr. Mohananlal Kumabas, Executive Director of Finance; and other senior officials.
We express our gratitude towards the management of REC Limited to provide us the opportunity to host this conference call. Without further ado, I now hand over the call to Mr. Vijay Kumar Singh, Director of Projects, for his opening remarks, post which we can open the floor for Q&A. Thank you, and over to you, sir.
Good morning, everyone. I'm Vijay Kumar Singh,, Director, Project. So we have a very brief presentation for our Q2 results, half yearly results, we would like to make that quick presentation. And thereafter, our CMD will be giving overall overview of the sector. So please allow us to make this quick presentation to you. Over to my colleague for making the presentation, please.
Good morning, everyone. We'll take you ahead for the investor presentation. We believe investors got an excess of the investor presentation on our website. will take you ahead with this presentation. We have divided this presentation into 5 areas, which is REC overview, operational performance, asset quality, borrowing profile and the financial highlights. Let's take REC overview first. We see that REC has a journey of more than 5 decades where we started our journey from 1969 to develop our infrastructure in rural areas. And therein, we have grown ahead in labs and bounds.
And in the latest year 2024, we have been appointed as national program in managing agency for PM [Foreign Language]. We also did a made a yen bond issuance of JPY 61.1 billion. And recently in September 2024, we did a USD bond issuance of $500 million, which were raised at the most competitive rates. REC has multiple key strengths the first being Maharatna Company and a strategic player in the Indian power infrastructure and logistics sector.
We have a diversified asset base with robust access to diversified funding sources, we occupy a strategic position in the growth and development of the power sector and a major player in renewable energy segment and creation of India's green energy corridor. We have a healthy asset quality with adequate provisioning coverage ratio. We have very strong fundamentals and profitable business with stable margins, leading to strong profitability. We have highest domestic created rating of AAA, which is awarded by all the 4 major rating agencies in India.
We have the international ratings of BAA3 and BBB-, from Moody's and Fitch, respectively, which are at par with the sovereign rating of India. We are the nodal agencies for all the major flagship schemes of India, the major being RDSs, Savadia, DDUGJY, the latest being rooftop solar, et cetera. We have a highly qualified and experienced management team with sector expertise. We are a government trusted arm, wherein we are assisting in GOI in multiple schemes being RDSs, Sabhagya, Late Payment Surcharge Scheme, consumer service ratings of DISCOMs on operational matters, integrated ratings of DISCOMs on financial matters, DDUGJY, NEF, rooftop solar programs, we have been accorded to coveted Maharatna status in FY 2023, which is the best among all the ratings assigned to the center public sector undertaking in India.
We are amongst the top 14 PSUs, which have been accorded to Markets in India out of a total 100 rated entities in India. Apart from [indiscernible], the ratings are Navratna, [indiscernible], REC holds the highest rating of Maharatna. This Maharatna status gives us various business advantages, wherein we get greater operational and financial autonomy. It allows us strategic investments by incorporating JVs, subsidiaries and M&A activities in India and abroad. We have access to accelerated growth and support government's vision for the power sector. If you come to Slide #8, you see that we have folded into intrastate sector for nations explorated [indiscernible], wherein we can -- we have diversified our loan portfolio with a mandate of up to 33% loans in the infrastructure sector and logistics sector. In these sectors, we have sanctioned various projects in metro, ports, water base, airport, oil refinery, road and highways, IT infra fiber optics, steel infra and health sector.
If we come on the Slide #9 of the PPT, we have given the shareholder outlook. If you see the shareholding pattern of REC as at 30th September 2024, we are medially owned by Power Finance Corporation to hold 52.63% in REC while the foreign portfolio investors and FIIs hold 21.23% in REC. The insurance companies hold 3.93%, individual HUF NI hold 10.78% in REC, the mutual funds and AIFs hold 9.48%. The corporates, banks and finance institutions hold 1.71% and others hold 0.24%.
The top 10 shareholders as of September 30, 2024, are also given the slide, wherein PFC hold 52.[ 60 ]%; Government of Singapore at 1.56%; SBFC Trustees, 1.47%; LIC, 1.35%; Nippon Life, 1.28%; Tata AIG, 0.77%; NPS trust of Aditya Birla Life Pension Fund, 0.77%; SBI-PSU Fund, 0.71%; SBI Life Insurance Company Limited, 0.67%; Vanguard Total International Stock Index Fund at 0.66%. So these are the top 10 shareholders of REC as at 30th September 2024. And FPIs have always been reposed faith in REC, and they have consistently hold more than 20% in REC stock since IPO in 2008.
We have been a strong history of high dividend paying in REC. And in the same context, we have declared the second interim dividend of INR 4 per share in Q2 FY '25. This is in addition to the first interim dividend of INR 3.5 per share, which was declared in first quarter, making a total dividend payout of INR 7.5, which is 75% per share on the face value of INR 10. The earnings per share of REC for the half year is INR 28.2, that is an annualized basis of 56.56%, and the book value per share is at INR 276.82 as at 30th September 2024.
We have received various about and accolades in our long history, the latest being that we have been awarded the plaque under financial services sector, other than banking and insurance category at the ICAI awards that Institute of Chartered Accountants of India Awards for excellence in financial reporting for FY '22, '23. Apart from that, we have received various awards in various areas for renewable financing, risk management, green bond sustainable finance and corporate governance, et cetera.
We come to the operational performance of REC for this quarter and half year ended 2025. In the first half of FY '25, we have sanctioned total projects worth INR [ 1,088,991 ] crores, wherein we have sanctioned the highest category of loans in renewable including La Vitro of INR 60,391 crores, making the total sanction of 32% out of the total kit. So we have captured -- we are still in the same trajectory of outpassing the last year sanctions. In the quarter 2 of this year, we have sanctioned projects of INR 76,200 crores wherein renewable sanctions stand at INR [ 20,730 ] crores.
The disbursements during the half year stands at INR 90,955 crores, wherein the renewable disbursement stand at INR 11,297 crores, making the total disbursements of 12% out of the total portfolio. The disbursement centers in second quarter was INR 47,303 crores. And out of that, the renewables were INR 5,946 crores. This signifies an increase of 20% in the disbursements from the last half year of FY '24 in the current year, FY '25. And there's an increase in the renewable including large hydro of 93% in the disbursement in the current half year of FY '25.
Our loan book during the half year has increased by a robust rate of nearly 15% Y-on-Y and our loan book as of 30th September 2024 stands at INR [ 5,46,117 ] crores, out of which state sector stands at 88% of the total book at INR 480,818 crores, and the private sector stands at 12% of INR 65,299 crores. The renewable stands at 9%. It has grown -- it has grown continuously from September 2023 at INR 29,833 crores to INR 47,820 crores as at 30th September 2024. Now renewable book stands at 9% of our total loan book. The generation book is at INR 150,937 crores. The transmission book is at INR 48,592 crores. The distribution book is at INR 219,990 crores. The infrastructure and logistics sectors in the core area is at INR 16,504 crores, and [indiscernible] infrastructure logistics sector, electromagnetic components at INR 49,308 crores.
The STL and MTL stand at INR 12,966 crores. So that is the total book of INR 546,[ 217 ] crores. We have pan-India presence across all the states in India, wherein we have lending across 28 states of INR [ 480,118 ] crores and private book of INR 65,299 crores, making the total loan book of INR [ 546,117 ] crores.
On Slide 17 of the presentation, we have given the top 10 major borrowers of REC, which are all in the state sectors, the top being Tamil Nadu Generation and distribution company, the Maharashtra State Electrical Distribution, Tamil Nadu Power Generation, Kaleshwaram Mitigation Projects, Utar Pradesj Power Corporation Limited, [indiscernible] State Power Generation Corporation, Andre Pradesh's South power distribution company, Telangana State Power Distribution Company, [indiscernible] Witron income Limited and the Jaipur [indiscernible] Limited. We have a well-diversified asset portfolio with top 10 borrowers accounting for nearly 36% of the outstanding loans. And none of the top 10 borrowers account for more than 7% of the total loan book, and there are no NPAs in the top 10 accounts ever.
If we come on the asset quality of IC, the asset quality has shown continuous improvement of -- wherein our gross NPA have reduced considerably from 3.42% in March '23, to 2.53% in September '24. Our net NPA also reduced continuously from 1.01% in March '23 to 0.88% in September '24. The provision coverage ratio stands healthy at 65.12% as at close of September 2024. On Page 20 of the presentation, we have given the sector-wise breakup of our ECL provisioning, that expected credit loss provisioning of our loan portfolio.
If you see out of the total loan outstanding of INR 546,117 crores, the total NPAs are at INR 13,824 crores where we have made a provisioning of INR 9,003 crores, signifying a provision capital ratio of INR 65.12 crores. Additionally, we have...
65.12%.
65.12% Additionally, we have a provisioning of INR 3,705 crores on Stage 1 and Stage 2 assets. That's the standard assets, implying a total provisioning of 0.70% also on the standard assets. The credit impaired assets of REC are at various stages of resolution, wherein almost 13 projects are under NCLT, worth of INR 12,296 crores, wherein we have made a provision of 67%.
And we are also pursuing 4 projects outside NCLT worth INR 1,528 crores with a provisioning of 50%. We now come to the borrowing profile of REC, wherein we have the highest long-term ratings from [ Tesla ] Car and India ratings of AAA and the domestic credit rating of BAA3 from Moody's, BBB- from Fitch ratings and BBB+ from Japan Credit Rating Agency, which are at par with Sovran rating of India. Of the total outstanding borrowings of REC on Slide 24, we have total outstanding borrowings of INR 475,832 crores as of 30th September 2024, wherein our external commercial borrowings are at INR 148,792 crores. Apart from that, we have access to various other areas as well of borrowing, which are institutional bonds, including subordinated bonds of INR [ 202,776 ] crores. We have loans -- we have taken loans from banks, bank institutions of INR 71,508 crores. We have excess to [ 54EC ] capital gain tax exemption bonds of INR 43,753 crores. REC is only amongst the 4 agencies in India who can issue such kind of bonds.
We have tax-free bonds of INR 8,999 crores, and we have borrowed a small amount of INR 4 crores from infrastructure bonds as well. So that is a total portfolio of INR 475,832 crores of our borrowings. During the current period of half year 2025, we have raised total quantum of INR 77,759 crores to fund our disbursements. And during the current quarter ended September '25, we have raised INR 30,928 crores. Out of this, INR 23,121 crores in half year have been raised from FCNRB loans and INR 18,105 crores can be played from foreign currency borrowings. We have also raised INR 29,378 crores from social bonds, INR 4,254 crores from capital gain bonds, and we have also taken loans from banks and the illustrations of INR 2,900 crores.
Now we come to the financial highlights of -- for the half year ended 2024. We have recorded the highest ever half yearly profit of INR 7,448 crores during the half year ended 30th September 2024. Our total income stands at INR 26,633 crores versus INR 22,571 crores, which signifies an increase of 18% Y-on-Y.
The net interest income stands at INR 9,723 crores versus INR 7,763 crores, that also signifies an increase of 25% Y-o-Y. The net profit for the half year stands at INR 7,448 crores, which is an increase of 11% year-on-year from INR 6,734 crores in the corresponding half year last year. The loan book has reached INR 546,000 crores as at end of September 2024, which is an increase of 15% Y-on-Y. The asset quality has improved with net credit impaired assets at 0.88% against 0.96% year-on-year.
The net worth has also increased to INR 72,893 crores versus INR 63,117 crores, which is an increase of 15% year-on-year. We have a capital adequacy ratio of 25.31% including Tier 1 capital of 22.87% and Tier 2 ratio of 2.44%, which is well above the RBI requirement of 15%. During the half year ended 2024, the yield on loan assets stands at 10.08%. The cost of funds at 7.12%, implying an interest spread of 2.96% and a net interest margin of 3.64%. The return on net worth is at 21.03%. The interest coverage ratio of 1.57x and the debt equity ratio of 6.47x.
The stand-alone statement of profit and loss is also given on Slide 29, wherein we have given the quarterly and the half year presentation of the profit and loss. We have attained a profit after tax of INR 4,005 crore in the quarter ended 30 September 2024, against INR 3,773 crores and also the profit for the half year is at INR 7,448. The balance sheet position is also given on Slide 30, wherein we have given the item-wise distribution of the balance sheet position of assets and liabilities as of 30th September 2024. With this, we have concluded in the presentation. And CMDs have also joined, and now we can go ahead with the question-and-answer session
I welcome all the parents today in this con call who are present today. As you have noted that our revenue from operations and income is increasing at the rate of [ 17 ]% to 18% and our asset under management has grown by 15.2% on a half yearly basis. We'd like to give guidance that our assets under management is likely to increase in the next 3 to 4 years at the rate of -- it will vary from 15% to 20%, depending on particular quarter, it can go to [indiscernible], some quarter, it may go to 17%, some quarters, it may go to around [ 12 ]%. But on an average, we hope to maintain this 17% growth in our asset under management. But even if you take a conservative estimate, even if you grow at the rate of 15%, our asset under management would be double to about INR 10 lakh crore by the year 2030.
But if we are able to sustain this 17% growth perhaps we may reach doubling the asset under management by the year 2029 [indiscernible]. One more significant thing you might have observed that our stance to the renewable sector has increased by about 21% in the first half of the year. We have taken project was INR [ 60 ],391 crores in the first half, and disbursements have also gone up by 93% with respect to renewable energy sector.
Going forward, as Ministery of Power has outlined the requirement of 80 gigawatt capacity of coal-based capacity in the next 6 to 7 years by the year 2032. We are targeting a 20% market share in this coal-based power plant business also.
And distribution sector will remain our key focus area because revamp distribution sectors came is being implemented. And thereafter, also since countries distribution network is quite old, [ 35 ] to 50 years old. So the continuous upgradation of distribution infrastructure will still be required. And with the increase in share of renewable energy in the total overall generation profile. The requirement of this solution, the evacuation through energy corridor will be still there. And we are targeting a [ 20 ]% market share in the renewable energy business. which may be -- definitely be more than INR 3 lakh crore by the year 2030. With this, now we are open for questions.
[Operator Instructions]
The first question is from the line of Shreya Shivani from CLSA.
Congratulations on a good set of numbers. Two questions. First is on the liability funding side. So your cost of fund has inched up. Can you give some outlook for what's -- how it's going to be in the future? And which bonds I'm assuming one of those -- which bonds are the one which has caused the spike and how much price hike have we done for borrowers? And which segment renewable, et cetera, which segment did we hike the prices. Second question is on some of these media articles had these news items about lending to some of these groups like say, [indiscernible] was mentioned a couple of weeks back in the media articles, can you help us understand given [indiscernible] is owned by JMPA, Will our loan have a government guarantee over there from an explicit government guarantee as a collateral over there?
And also, there was a news article about lending to company called Azure in the renewable sector. I wanted to understand the thought process behind lending to that company, given that there have been whistleblowers issues with them. The CEO changed within 2 years -- 2 months or so stuff like that has happened in the past. And yes, those are my 2 questions.
Let me respond to those questions. The cost of fund is likely to come down by the year -- by Q4, as you might observe that Reserve Bank of India although they are holding this rate, but this likelihood that the rates may come down in Q4. And we kept a diversified portfolio of our borrowing. You might have observed that our FCNR loan and this excellent commercial borrowing has increased about 31% of our total borrowing. That is there, our cost of fund is much less than 7% actually. And our 54EC bond is the cheapest source of fund available that gives us [ 5 ]%.
Going forward, we don't -- we are not planning to increase. We are not planning to increase the burden on the borrowers because our cost of fund will be able to contain. With regard to your queries about lending to non-[indiscernible] logistic sector. Let's me clarify that we are -- our hands are full with our core sectors, proposal convention generation, transmission, distribution and with a renewed focus on energy tension from the renewable energy segment and entire green project. We have a huge pipeline of projects from these -- our core competence in the area.
So we are not focusing on non-infrastructure lost at this stage. And as I had already indicated that we -- with regard to renewable energy projects, we have recently signed MOUs worth INR [ 112 ],000 crores when we had participated in RE-Invest Summit in [indiscernible]. And last year, we had signed MOEs worth INR 285,000 crores. So we have a huge pipeline of projects on the numeral sectors and conversion generation, transmission and distribution also, we have a huge pipeline of projects. We'll be selective in financing nonpoint logistics -- only where the asset quality is good, revenue cash flows are ensured, only those sectors will be able to focus. With regard to [indiscernible] port, you might have used that, that has already been approved by the Cabinet Committee of Economic Affairs. Governmental India has already approved.
This is being taken by the NPA. And -- but the execution will take time actually for [indiscernible] Port. This execution will commence from the year 2027 only,. By that time, it's likely cash flows would become clearer, that point of time we'll take your call. But we do feel that there is absolutely no concern with regard to funding [indiscernible] Port. I'll request or predict to a Azure and the sect feature for [indiscernible] Port.
[indiscernible], just to add what CMD has just now informed is that we are in close discussions with them. They have confirmed that the entire equity will come upfront. You might be aware, there are 2 promoters. JMP is one and Mobi Maritime Board is another promoter with 26% stake. Both of them will put 100% equity upfront. Now upfront equity inclusion and that [ 200 ]% definitely gives us a lot of comfort in terms of project development and subsequently as well.
But then we are in discussion in negotiating this loan with them. With regard to your query on Azure, yes, we are very, very careful, and we are watching the developments in Azure. What we have done in Azure is that we have picked up only the commission projects, the commission project which are definitive and definitive revenues, which have the projects have secured a very good rating, if I'm correct, it is A- rated project. So it is all towards refinancing of commission projects only and we are definitely not considering at this point of time, any project, greenfield project because we are still not very sure that for greenfield, the equity would come quite smoothly. But commission asset, the equities into the projects are complicated, they are up and running, and they have very good rating, and therefore, we did that per transaction.
Got it. Very useful. Can you help us understand in the commission project of Azure, what would be the EBITDA cover.
I don't have that particular number. But in terms of our debt service coverage ratio, it was close to 1.3. So lot of [indiscernible].
The next question is from the line of Manish Agarwalla from PhillipCapital.
So taking the similar discussion forward, what's your take on telecom sector is company open to provide loan assistance to likes of MTN or Voda, your views will be very useful, and I have a few more.
Yes. At this point of time, we feel that we are not going to finance telecom sector because our hands as already mentioned, our hands are full with conventional generation, transmission, distribution and with regard to renewable energy sector. Telecom sector, as of now, we are not considering to finance.
Okay, sir. That's helpful. Second question was on repayment rates. So this quarter, the repayment rates were slightly high. Is there any prepayments you are witnessing? Or are there some short-term loans which we disposed earlier which are coming back? If you can comment on that?
Actually RECs into a financing business. And you can well expect that some of the prepayments will always come in. During the quarter itself, we have a repayment of around INR 7,000 crores fees, which has impacted our loan book also. But that is a continuous feature, and it will keep on coming in the year and in the quarter of next quarter also.
So there's nothing called refinancing by other entities, correct?
No, it is nothing like something like that. It is just -- they have a cash service with the borrowing agency and they have prepaid the out to us.
SP1 Okay. And sir, finally on Lanco. So I understand the status quo is maintained, there is no money received. So if you can update on that? And also on the related point, so we have been -- our coverage on Stage 3 is coming down. So your take on that, why are we bringing down the coverage on Stage 3?
Lanco among contact is the NCLT has passed the orders, but there were some operational creditors. They have, as you said, about the distribution of this [indiscernible], that matter is pending. So that's why some amount has been kept. Once this matter is disposed out, the remaining amount would also get disbursed to all the lenders. Second question was ...
On coverage, Stage 3 coverage ratio.
Yes, state coverage. I'd like to clarify that [indiscernible] the utility.
No, no. That is [indiscernible]. I'll just replay what you said that as you know that most of the project which are coming in the renewable sector are coming from the private sector. So in our previous investor conferences, we have already mentioned that by the year 2030, our private sector share will increase to 30%. So it is going in line with that of what we have already said to our investors that with the new infrastructure projects as well as renew projects, the private sector share will keep on increasing. This time now, it has -- from 10%, it has increase to 12%.
No, no, sir. My question was if I may comment again. Your provision coverage on Stage 3 is declining and you are reversing the provisions. So my question was, why are we doing that?
Actually, there was some amount was received and against which we have reversed some ECL provisions. So that is why our NPA has changed. And as soon as we get the full amount, the full settlement is there, the gross NPA will also come down.
The next question is from the line of Alok Srivastav from UBS.
Sir, on the previous participant's question, could you mention which asset is this where this provision reversal has happened?
It is regarding the KSK Mahanadi project, which is under advanced stage of resolution, bids have already been received some amount out of the tier we have received, that the amount which we have received out of the tier amount, we have reversed ECL provision for that. that our management considers that the value as of now, which has been billed by the prospective investors is much more than what we have already made a provision under ECL. So whatever was the same or site, we have reversed to that extent. And for that, the money has already been received.
In fact, NCLT allowed distribution of the money lying in TRA to the lenders. That's how we got some receipt and the resolution of KSK Mahani is in advanced stage. We have got very good bids, and our recovery is going to be more than 100% with regard to KSK [indiscernible].
Sure, sir. And sir, we have been reading that on Herna project, DVC has emerged as the highest bidder. So Sir, what is our exposure there? And do we expect any write-back on that one?
Yes. Yes, we are expecting a recovery of more than 80% from the [indiscernible] asset. And we had made posting about 50%, 50%. So we'll get some write-backs. Our total write-back that we are expecting from 3 asset KSK Mahanadi, [indiscernible] and Sinnar project in Nasik, our total write-backs are expected to be about INR 1,500 crores.
Okay, sir. And sir, one more question I had about an Jetco which is also your biggest borrower there, this bifurcation is going on between the generation distribution and the renewable entity. So sir, is there enough clarity now that where the guarantees will sit and your exposures, are they all guaranteed over there. Is there any risk post the trifurcation that happens?
Thank you so much, Alok for asking this very pertinent question. The tier question of tangent has already happened. And the 3 companies become functional. And I'll request that project to say that our exposure is now well within the limit we have got suction pay for all the 3 utilities.
So what was happening that -- especially in the case of Tamil the generation company and the distribution company work together called Tenet. You might notice that in a state like UP, we have 5 DISCOMs. In Tamil Nadu, we had only 1 discount. And then that DISCOMs was also club with [indiscernible], Generation company. And therefore, we are experiencing a great difficulty in terms of our exposure limits. Now since this trifurcation has happened, the entire loan, in fact, earlier also, it was for a specific purpose, specific scheme for generation, transmission and distribution. So likewise, the loan separation has happened with respect to the scheme that we had sanctioned -- so now we have separate loan amount, which is in generation, transmission and distribution.
Whatever loan was guaranteed by the government continues to remain guaranteed by the government even after the [indiscernible]. Now the biggest relief that we have got is that we are no way close to the exposure limit for any of the utilities with respect to generation, transmission and distribution.
Okay. Got it, sir. So sir, here, there is a possibility that there could be a rating upgrade of some of these entities and you can have write-backs also at a later point? Because if I'm not wrong, [indiscernible] had a C- rating?
Overall rating, there will obviously be impact, and they'll be related again. All these 3 utilities will be related again. And you may note that distribution utility rating is dependent on the ranking being done by the Ministry of Power. I'm sure their rating will go up and similarly for Genco also. Some of the assets that they have recently paid to their lender, we were not the lender for those projects. We'll also improve the overall financials of the generation company. So our understanding is that all the 3 companies will have improved rating going forward.
Once the improved rating is there, once the improved rating is there, and you have rightly mentioned that, that will impact our ECL provision also that will also be, to some extent, reverse.
The next question is from the line of Suraj Das from Sundaram Asana.
Am I audible?
Yes, yes, Suraj. Go ahead.
Congratulations on a good set of result. Sir, on your Slide 20, where you gave your loan portfolio and ECL revision if I see the longer-term trained on that thing. Just wanted to understand 2 things. One, sir, on the private sector side, in the generation and renewables, your PCR coverage on Stage 1 and 2 is continuously coming down. So for example, in March '23, it was something like more than 100 basis points, which is now 60 basis points.
Similarly, on renewables is something like 230, 240 basis points. Now it has come down to 60 basis points. So just wanted to understand what is the rationale behind this is this? I mean -- and at the same time, you are growing the renewable book also. So is it because your ECL PD assumptions are lower because you don't have any significant delinquency over the past few years? Or is it a conscious choice?
Sir, can you please repeat the question? I'm not able to hear you perfectly, sir?
Yes. Sir, I'll repeat it. So if I see the Stage 1 and Stage 2 provision for the private sector in Generation and Renewables segment, it is now 60 and 62 basis points, respectively, this quarter.
This number, let us say, in March '23, 4, 5 quarters back, it was something like 100 and 230 basis points. So this number is continuously coming down. So just wanted to understand what is the rationale behind this because we are also growing the renewable book. And you are also reducing the Stage 1 and 2 provision on both the segments. So what is the rationale, sir?
So I think you might have seen that our renewable book is growing -- quarter-on-quarter, year-on-year basis. Now there are some projects which are under construction, have not achieved COD. There are projects which have achieved COD and there are some refinancing projects also, which we mentioned during the earlier answers. So during the construction phase, the provisioning remains high, which is close to 1% as per the ECL methodology. And once the project achieved the COD, the ECL provision comes down by 40 bps. So as the projects continue to achieve COD, this provisioning will also come down.
But then if there's addition of under construction project, there will be change in this part of -- so all will depend on the mix of the under construction and commission project, which will get reflected in overall provisioning in the renewable energy sector.
Number two, the PD of these all -- some of the projects of real sector have also been improved, so which has resulted in lesser ECL providing, sir.
Understood, sir. Very clear. And the second question, similarly on the infrastructure sector, both core and E&M, your provision on the Stage 1 and 2 is only 8 basis points. So should not it be higher sales because, I mean, at least 40, 50 basis points would be the initial provision to begin with or...
What happens that in case of infrastructure project, most of our funding is to the government sector.
No. I'm talking about the private prior sector.
And out of this, the Maxium Mar against the state government guarantee. So as per our ECL approved policy, the weightage of the PD and LGD is lesser than in case of the project is secured by the government guarantee. So that may be the reason what you are mentioning here in case of IRF, it is less.
Okay. Sure. So for private sector also, you have government guarantee. Is that what you were implying?
No, no, no. That is not the case, sir. Private sector is on the basis of the outstanding figure is [indiscernible].
So private sector is only close to INR 1,250 crores out of our total infrastructure and logistics lending. And there, of course, the provision will be higher. What you see is the average and just all of the lending in infrastructure and logistics, majority or I would say 90% of the loan that we have advanced in the state sector are guaranteed by the government, state government.
And therefore, their provisioning is much lower. What you see 0.08 is towards private and the state put together by government guarantee -- only private.
As regards to the private sector, it is absolutely on the ECL model for which we have the PD, which is done by our third parties in CECRA.
Sure, sir. Got it. And last question is, sir, if I see the first half, your disbursement has been something like INR 90,000 crores. What is the disbursement that you are expecting in the second half?
Yes. This year -- last year, you might have noticed that our total disbursement was INR [ 1,61,000 ] crores. This year, our disbursement may go up to INR 1,90,000 crores. Another INR 1 lakh crore disbursement will happen in H2.
The next question is from the line of Shreepal Doshi from Equirus.
Congratulations on a decent quarter. So my first question was on sanction pipeline. So what is the cumulative sanction plan in the renewable energy and in the infrastructure project segment?
Let me first cover this renewable sector. Last year, our total sanction was INR 136,000 crores. And this year, we have sanctioned more than INR [ 60 ],000 crores. Another projects of more than INR 80,000 crores is there, which we'll be considering for sanction in the H2. With regard to infrastructure logistics, as I had clarified that we are going slow on infrastructure and logistics sector because our hands are full with cone generation, transmit and registration as well as the renewable sector.
We'll finance only those infrastructure logistics sector where revenue cash flows are assured, asset quality is good, entity is good. So last year, we had sanctioned in first year when -- the year 2022, '23, when government has allowed us to diversify into non-[indiscernible] infrastructure and logistics, that year, we are standing at INR 85,000 crores. But last year, it came down to INR 40,000 crores. And this year will be to the same at the rate of INR 40 crores to INR 50 crores in this current financial year.
Got it. Got it, sir. That's helpful. Sir, the other question was, last quarter, we had highlighted about this account in [indiscernible] Pradesh, which was seeing some issue. So as -- so is the cash flow now back to normalcy? Or have you seen any improvement there?
Yes. Not improvement has happened with regard to repayment coming from the [indiscernible] utilities. In fact, their distribution companies, their overdues have come to -- they have become...
they have made some good amount of payments in the month of October itself. So things are coming on track.
And by November or by December, all this will become all the deals will start getting paid.
Okay. Okay. So we'll see complete normalcy for that account or even on provisioning side by December?
Ladies and gentlemen, sorry to interrupt, the management line has been disconnected. [Operator Instructions] Ladies and gentlemen, thank you for patiently holding. The management line has been connected.
So I was just asking that since that account has started repaying. And by December, you expect complete repayment for the news. So will we see the reversal on the provision side as well for this account by December?
Naturally, there will be reversal of more than INR 100 crores.
Got it, sir. And then just one last question, which was like on the growth side. So while repayment rates are a little higher. So despite that, our growth guidance on loan book side will remain in the range of 15% to 17% or there could be some downside as well because of the higher repayment?
No, it is -- now in Q3, Q4, it is going to be about 17%. 17%, it may go up to 20% also.
The next question is from the line of [indiscernible] from UTI Mutual Funds.
So my question is on the market share comment that you made. So could you help us understand the current market size and how the split right now between [indiscernible] banks and bonds. And follow-up to that is, do you expect the competitive intensity for the sector go up given the healthy asset qualities and also the structural -- structure and power sector value chain that we see the structural trends that you've seen in the other value chain. That's my question.
Yes. The question for the market share, let first answer that. In power sector condition generation, transmission, distribution, as you might have noticed that out of our loan with most operates in this [indiscernible] distribution, only 9% is there in the renewable sector. And infrastructure logistics, about 11%. About 80% is [indiscernible] transmission and distribution and the nation sector. The market share of PPS is about 20%, remaining 60% is by the other financial institutions.
The same market share will be able to hold on to the renewable energy space also. That's what the total debt requirement for achieving 500 gigawatt of installed capacity from nonprocessed. We already achieved 200 gigwatt, another 300 gigawatt capacity will come. Readable energy installation of 300 gigawatt additional aside, which will be installed, roughly INR 15 lakh crore will be required, then associated transmission line in the form of green energy corridor and extra solution also required. The total requirement would be about INR 15 [ lakh ] crore, INR 20 lakh crores actually. So we are targeting [indiscernible] of that, INR 15 lakh crore -- [indiscernible] as we are making conservative estimates at least INR 3 lakh crores will come from our renewable energy portfolio, but it will go up if the [indiscernible] takes faster and it might go up to more than 20% also. But many of 20% will be able to capture renewable and health sector business.
With regard to power sector overall, you might have seen that power demand has been increasing at the rate of 8% to 9% from the last 2 years. And this trend is going to continue as India is trying to become a developed country by year [ 2047 ], next 23, 24 years. The power demand will keep increasing. As you might have noticed that per capita consumption of electricity, India is only 1/3 of the world average. When we are trying to become a developed country, per capita consumption and electricity is bound to grow and more than the world are like Development in the U.S.A. other countries, the per capita consumption is about 11 to 12x out the world average. But we have followed a sustainable path right our per capita emission of carbon dioxide is also 1/3 of the world average.
But we pursue to become developed country out per capita convention electricity is bound to grow, and it will be reaching about 4 to 5x over the world average. But per capita emission of carbon dioxide will not grow to that extent, and we'll be able to -- instead of 1/3 of the world average bet for us, we'll be able to come and believe on average only with regard to the emission of carbon dioxide. Any other questions, preeti?
Yes. My question was on the competitive intensity from banks or the debt market banks.
Yes, competition from banks will be there, particularly renewable sector because a lot of financial institutions are there. But even then, we'll be able to hold on because the advantage with respect to REC is that we can give longer [ tenure ] loan. Our tenure of the loan can go up to 85% of the project life. So normally, the project life is about 20, 25 years and tenure of loan can go up to 18 to 20 years, while banks typically we loan for a tenure 10 to 12 years only. And that's -- we can take a larger expose in a single project 30% our Tier 1 capital is about INR 20,000 crores. We can see sold lending also we can do to the INR 20,000 crores. That is the inherent advantage which is there with REC as compared to other banks.
[Operator Instructions]
The next question is from the line of Sanket Chheda from DAM Capital.
Yes. Good quarter. Just to check on the recovery spent now [indiscernible], we already know and I think [indiscernible] be over and above -- that's first. And second, on [indiscernible]. While we say more than 50%, but at the end on a is can it be more than 70%, 80% the way we have seen this change in [indiscernible]. So yes.
100% -- 100%.
For KSK [indiscernible], let me first clarify. CLP has already allowed disbursement of the funds [indiscernible] account to all the lenders about INR 12,000 crores is only going to [indiscernible] already allowed us to distribute among the lenders. And the bid for [indiscernible],where the recovery is going to be more than 100% with regard to outstanding [indiscernible] claims 100%, more than 100% we are getting actually we're getting And [indiscernible] also similar, our exposure is INR [ 231 ] crores, and we had made provision of 80%. Admitted claim is INR 5,[ 262 ] crores -- sorry, total admitted claiming synergies [indiscernible].
Similar, we are expecting a recovery of around 55%, which is more than the ECL already provided. And as regards the trans concerned, we are expecting a recovery of around 82%, and we have made a provision of 50%. So more than the ECL provisioing will be [indiscernible].
As I have mentioned, the overall reversal that we are expecting more than INR 1,500 crores from these [ 3 ] things.
Okay. sir. And there was a less accretion in AUM this quarter. I understand it was due to higher repayment from LIS LPL than in the same quarter last year. But from here on, the accretion to AUM should be normalized, right? And while we guide for 15%, 20%, is 17%, 18% right number to go with as far as expectation is concerned?
Yes, Sanket this already replied. I mentioned that the rain you 15% to 20%. Some quarter, it will be 15%. Some quarters, it will be 17%. Some quarter it will be 20%. Average on an average, we are expecting that growth in AUM would be around 17% to 18%.
The next question is from the line of Nikhil Nigania from Bernstein.
Just one question. This is regarding the rooftop solar scheme, which RECs to be part of. I wanted to understand what is the role REC will play? And what is the loan security mechanism for these loans?
Nikhil, REC has been designated a given the task of National Program Implementation Agency. Our main job is to coordinate with the various stakeholders like consumers, distribution companies, vendors and the banks. We are not into retail financing. The retail financing for the rooftop solar is being earned by the public sector banks at the rate of [ 7 ]% interest rate, we are giving the loan. Our we are not targeting to finance this retail business out to solar. However, if some aggregators, vendors or PSUs are there who are going to implement this rooftop solar on large scale, there, we are going to finance those aggregated vendors.
The next question is from the line of [indiscernible] Jani from BNK Securities.
Just one on the margins, given assuming that the interest rates do not happen, interest rate cuts will not happen very soon. How confident are we of maintaining the current margin of about [ 3.6 ]%. Is there a range that we should kind of maintain over the rest of the year?
Yes, Jigar, let's me assure you that we'll be able to hold on the net interest margin of more than 3.6%.
[indiscernible].
Yes, the range is 3.5% to 3.75%, but it is definitely going to be more than 3.6% because we are getting more of coal-based thermal capacity addition that is going to happen there, our margins are quite good. And in fact, renewable also our margins more than 9.5% average interest rate, which is going to renew is 9.5%. While in respect of this conversion generation is more than 10.5%. We'll be able to hold on to our this net interest margin of more than 3.6%.
Right, sir. And just lastly on there was one special loan disbursement of about INR 8,000 crores this quarter. Could you just like what is that special loan?
Of course, some of the agencies actually need this special loan for a long-term tenure or not long term other medium term for 5 to 7 years. These loans are advanced to very few utilities for multiple purposes. Like Punjab, for example, is not a waning CapEx loan for very small scheme. They have taken a special, but that could be deployed for the CapEx purposes only. And we are taking only for 6, 7, 8 years. So such loans constitute especially loan for us.
So these are not short term, right, like [indiscernible].
Yes, these are not short term. These are relatively medium-term loans.
Ladies and gentlemen, that was the last question for today's conference call. I would now like to hand the conference over to the management for their closing comments.
I would like to thank all the participants for asking very part and questions. And hopefully, we have been able to address all the questions. And let me assure all of you that will be able to sustain the rate of medium 17% in the next 3 to 4 years to come. And our asset end management is definitely going to be more than INR 10 lakh crore. It is likely to be earlier than 2030. That's what I can assure you. Thank you so much, and happy Diwali to all of you.
Thank you. On behalf of Elara Securities Private Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.