Repco Home Finance Ltd. share price target

We expect a lacklustre festive season for Auto OEMs to translate into slower disbursal growth for vehicle financiers. Given the steep rise in CoF (post IL&FS) and a large fixed rate book, NIM compression for asset financiers is imminent. Stable asset quality in certain segments may well be the only silver lining. We expect the HFCs in our coverage (LICHF and Repco) to report a mixed qtr. While business momentum will sustain, NIMs/spreads will come under pressure. Asset quality is a key monitorable, given LAP/CRE exposures for some players. 3QFY19 is expected to be predominantly good for banks. With system credit growth at 15% YoY (Dec-18), we expect large banks to register higher loan growth. Meanwhile, NIM tailwinds are expected to play out, driven by an increase in pricing power and lower slippages. As bond yields have fallen, treasury gains will accrue. On the asset quality front, stress accretion will reduce (except IL&FS;). Credit costs may remain high for corporate heavy banks and PCR will continue to improve. The change in guard at the RBI will impact liquidity and PSB reforms (e.g. PCA) and must be watched closely.

Maintain BUY with a TP of Rs 562 (2.0x Sept-20 ABV of Rs 281). Recovery continued into 2Q as expected. Provision reversals and lower G/NNPAs (down ~40bps QoQ each to 3.6/2% resp.) heralded improving asset quality. Revival in disbursal and sanction growth at ~10% each QoQ was promising. Consequently, the book grew ~11/3%. While PPOP remained flat QoQ at ~Rs 970mn, provision reversals drove PBT to ~Rs1bn (+9% QoQ). Declining yields (11.2%, -20bps) and flat CoF (8.2%) led to a 20bps fall in NIMs (4.4%).

Loan growth improving gradually with stable NPAs Loan growth in TN remains muted: The overall loan book grew 11.8% YoY to 10,075 crore as on 30 Jun'18, mainly driven by ~20% growth in the non-TN states, while the same in TN remained muted at 7%. Sanctions and disbursements grew at a healthy pace of 22.3% to 758 crore and by 28.4% to 704 crore. Disbursements growth in non-TN states stood at ~58% vs. that in TN at ~8%. Moreover, LAP book declined to 18.2% of the total with about 80% of disbursements are in the IHL segment. Going ahead, the growth is expected to be driven by non-TN states. The...

Maintain BUY with a TP of Rs 689 (2.5x Mar-20 ABV of Rs 276). Post a recovery in the previous quarter, REPCO posted yet another decent set of numbers. While asset quality deteriorated, it was a 1Q phenomenon and lacked the typical spike (GNPAs up 41% QoQ vs ~54% in FY18 and ~75% in FY17). The relatively subdued growth (+12% YoY) was also owing to the conscious decision of slowing down LAP growth (flat sequentially).

Repco Home Finance's Q1FY19 results have come slightly above our expectations. NII has grown by ~8% YoY led by loan growth of ~12%, but NIM declined by 10bps to 4.6% on the back of higher interest expenses( a shift in the borrowing profile). GNPA remained stable at 3.96% whereas, NNPA declined by 30bps on the back of increased provision coverage ratio on a YoY basis. While the loan growth is modest at 12%, sanctions and disbursements have grown by 22% and 28% respectively. The comparison has been done mostly on a YoY basis due to a shift in the company's accounting system to IND AS with Q1FY18 numbers available accordingly. Given that the company is going...

Maintain BUY with a TP of Rs 683 (2.5x Mar-20 ABV of Rs 273). REPCOs 4Q numbers beat estimates given the claw back in asset quality (GNPAs dipped ~20% QoQ). Though overall growth (+10% YoY) was sluggish, it was largely owing to (deliberately) tepid growth in LAP (up merely 2%). Credit costs dipped (60bps ann. vs. 83bps in 3Q) as REPCO wrote back provisions of Rs 28mn. NIMs too improved 20bps QoQ to 4.8% as yields remained flat and COF dipped 30bps.

REPCOs 4QFY18 PAT increased 10% YoY to INR566m (in-line). Modest loan growth, a tapering cost-to-income ratio and a sequential decrease in the GNPL ratio were the key highlights of the quarter. Sanctions increased 19% QoQ to INR9.2b, while disbursements rose 29% QoQ to INR8.5b. This was modestly below managements guidance of sanctions of 24 May 2018 INR10b in 4QFY18. Management indicated that the core market of Tamil Nadu (TN) still faces lingering effects of the sand mining ban, as TN loan book growth was a tepid 6% YoY. Consequently, loan growth was at 10.3% YoY (v/s 9.6% in 3QFY18), resulting in a loan book of INR98.6b. LAP book has remained steady at INR17-18b for the past seven quarters. Calculated spreads increased 25bp QoQ to 3.4%, driven by stable yields and a 25bp reduction in CoF. We believe cost of funds has bottomed out and this should have an impact on spreads, going forward.

Loan growth set to improve: After 4 consecutive quarters of decline in sanctions and disbursements post-demonetisation, the same grew at a robust pace of 70.3% YoY and 30.9%, respectively (although on a lower base). Loan book grew 9.6% to 9,490 crore as on 31 Dec'17 with 81.1% contribution from Individual Home Loans. This is expected to improve further in Q4 with disbursements aimed at ~ 1,000 crore. Also, the management has guided a growth of ~20% in FY19E. Overall growth in Tamil Nadu and Kerala is low currently, however the same is expected to improve going ahead. Further, RHFL plans to expand more in other...

Q3 was weak with PAT at Rs 485 mn (up 4.6% YoY) below our estimate (of Rs 587 mn). This was due to muted advances growth, margin compression and higher provisions on deterioration in asset quality.