Rural Electrification Corporation (REC) announced it’s fourth quarter results today. The results were really good, specially if you compare it to it’s peer PFC who posted a flat quarter. For Q4 FY11, net sales were up 19% at 2,188 crore versus 1,834 crore YoY and net profits were up 25% at 700 crore versus 561 crore YoY. For full year FY11, net sales went up 26% at 8,108 crore versus 6,430 crore YoY and net profits were up 28.5% at 2,570 crore versus 2,000 crore YoY.

REC posted an EPS of 26.18 for the year ended FY11. This means that the stock is trading at a P/E of 8.71 as per the stock price of 202. The valuations are very cheap for the stock to not move up sharply. I believe it can show sharp pull backs in future when markets go back to recovery mode.

The management has confirmed in an interview today that REC is supposed to see a 25% growth in loan book in FY12 and thus FY12 is looking promising for the company. We can atleast see a growth of 15%+ in bottomline as the management has confirmed that they are seeing no pressure from rate interest hikes. So taking all that into consideration I think REC must post an EPS of over 30 for FY12 which brings one year forward P/E of less than 7. I can see this stock running upto atleast 300, which is 10x FY12 estimated earnings.

REC has a target price of 300.

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1. Buy Rural Electrification Corporation (REC)
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