REC Q2 FY27: consolidated PAT falls 21% YoY to ₹3,478 Cr as margins compress sharply

REC Limited's consolidated net profit fell 21.2% YoY to ₹3,477.73 Cr for Q2 FY27 (quarter ended September 30, 2026), down from ₹4,414.93 Cr a year ago, and 17.1% lower sequentially from ₹4,192.76 Cr in Q1 FY27. Standalone PAT was ₹3,391.18 Cr, down 23.4% YoY — the lone subsidiary, REC Power Development and Consultancy Ltd, contributed just ₹96.82 Cr of the group total. Consolidated revenue from operations was roughly flat YoY at ₹15,000.40 Cr (-1.0%) though up 3.9% sequentially. There is no prior concall commentary or formal guidance on record for REC — management does not issue formal quarterly guidance — and no published Q2 FY27 brokerage consensus could be identified; vsStreet and vsGuidance are both unknown on the available evidence. Consolidated net profit margin compressed to 23.17% of total income from 29.12% a year ago and 28.98% in Q1 FY27 (per REC's own Regulation 52(4) disclosure, Annexure A); REC's own disclosed 'Operating Margin' (net operating profit before tax/revenue from operations) fell even more sharply, to 29.21% from 36.56% YoY. Three items explain most of the move. Finance costs rose 4.3% YoY to ₹9,522.05 Cr even as revenue barely moved, squeezing the spread. Credit provisioning swung hard: Q1 FY27 carried a ₹962.52 Cr (standalone) impairment write-back, while Q2 booked a normal ₹374.52 Cr charge instead — a swing of roughly ₹1,337 Cr that alone explains most of the 17% sequential profit decline, and neither quarter flags this as an 'Exceptional Item' in the filing. Corporate Social Responsibility expense jumped to ₹186.32 Cr from ₹17.16 Cr a year ago (+₹169 Cr), a lumpy provisioning item tied to unspent-CSR obligations per the cash-flow note. Backing out just that CSR swing (at the quarter's ~20.8% effective tax rate) lifts adjusted consolidated PAT growth to roughly -18% YoY from -21.2% reported — still a decline, since the finance-cost and provisioning pressure is not a one-off in the same sense. Foreign-exchange translation losses on overseas borrowings added ₹262.94 Cr of drag, up from ₹79.45 Cr a year ago but down sharply from ₹911.29 Cr in Q1. Management's press release does not address the quarterly profit decline directly; it frames the half-year print instead — H1 FY27 PAT of ₹7,541 Cr (annualised EPS ₹57.27) — alongside balance-sheet growth: AUM up ₹26,537 Cr in the quarter to a ₹6.17 lakh Cr loan book (+5% sequentially), the renewable-energy book up 27% YoY to ₹86,660 Cr, net worth up 14% YoY to ₹94,325 Cr, and asset quality improving to 0.11% net NPA (Stage-II assets down 80% YoY) with CRAR at 24.04%. These balance-sheet metrics are genuinely strong and don't conflict with the P&L numbers, but they sit alongside — not instead of — the quarterly profit and margin compression. The quarter also carried REC's pending Scheme of Merger into Power Finance Corporation (PFC): the company received RBI's no-objection certificate on October 15, 2026 and BSE/NSE no-objection on October 19, 2026, with shareholder, creditor and NCLT approvals still pending. Separately, REC closed its trading window from September 29 pending results, sold two small subsidiaries for ₹18.82 Cr and divested a transmission SPV (Nawada Durgapur) during the quarter, and was fined ₹10.77 lakh for board-composition lapses — none of these are financially material to the P&L. The board declared a second interim dividend of ₹3.50/share (record date October 30, 2026), on top of the ₹4.25/share first interim already paid for FY27. Going into Q3, the key markers are whether finance-cost growth keeps outpacing revenue, whether credit provisioning (already near-trough with net NPA at 0.11%) swings again, and how the PFC merger process — now past the regulatory no-objection stage — progresses toward shareholder and NCLT approval.