Repco Home Finance Ltd. share price target

Background: Repco Home Finance Limited (RHFL) is a low to medium ticket size home loan financing company predominately based in tier II / III cities of southern India. Promoted by the State-owned Repco Bank Ltd in 2000, RHFL presently has 149 branches and 27 satellite centers of which ~87% are located in the southern market. Repco has shown robust growth in its loan book clocking 21% CAGR (FY13-FY19) and stood at ~116.2bn at the end 3QFY20. RHFL average loan per unit...

10 February 2020 PAT increased 25% YoY to INR697m (2% beat) in 3QFY20. While NII was largely in line with our estimate, higher opex (7% miss) was offset by lower provisioning (11% beat), leading to largely in-line PAT. Reported spreads improved 20bp QoQ/YoY to 3.3%, while the GNPL ratio was sequentially stable at 4.2%. Buy with a target price of INR390. Disbursements were down 11% YoY at INR6.6b due to a similar decline in both home loan and LAP disbursements. ~56% of the book (+6% YoY). Loan growth in Maharashtra (third largest state) also slowed down from 23% YoY in 2QFY20 to 17% YoY in 3QFY20. Reported spreads improved 20bp QoQ/YoY to 3.3%, driven by better yield and stable cost of funds. PCR increased by 100bp QoQ to 29%. While issues of sand mining and property registration in TN have been resolved, overall housing demand remains weak.

Sector: Housing Finance / Small Cap | Earnings Update 2QFY20 Background: Repco Home Finance Limited (RHFL) is a low to medium ticket size home loan financing company predominately based in tier II / III cities of southern India. Promoted by the State-owned Repco Bank Ltd in 2000, RHFL presently has 148 branches and 27 satellite centers of which ~87% are located in the southern market. Repco has shown robust growth in its loan book clocking 21% CAGR (FY13-FY19) and stood at INR ~114.9bn at the end 2QFY20. RHFL average loan per unit is at INR...

Inexplicably slow growth at REPCO, in the face of waning competition has disappointed for a while now. Availability of debt and ample CRAR (~25%) and liquidity are big positives, even though REPCO may not use this to grow much faster. At 1x FY21E ABV, our stance is mostly premised on inexpensive valuation. Slowing growth and stable asset quality in a qtr that usually sees seasonal improvement, disappointed. The tax cut boosted earnings. Maintain BUY with a TP of Rs 419 (1.5x Sept-21E ABV).

14 November 2019 REPCOs PAT was up 51% YoY at INR1.01b (37% beat), driven by low credit costs and a 1% tax rate (INR150m DTL reversal impact). Core PBT, however, grew 2% YoY to INR1.02b (4% beat). Disbursements were down 10% YoY at INR7b, driven by a decline in both home loan and LAP disbursements. Reported spreads were largely stable YoY at 3.1%, as the 30bp increase in cost of funds (to 8.5%) was offset by a similar rise in yields (to 11.6%). declined sequentially from 31% to 28%, leading to INR1m credit costs. The company wrote-off INR90m in the quarter (a mix of home loan and LAP). disbursements declined 7% YoY to INR13.7b, while spread was largely stable at 3%.

Background: Repco Home Finance Limited (RHFL) is a low to medium ticket size home loan financing company predominately based in tier II / III cities of southern India. Promoted by the State-owned Repco Bank Ltd in 2000, RHFL presently has 147 branches and 27 satellite centers of which ~87% are located in the southern market. Repco has shown robust growth in its loan book clocking 21% CAGR (FY13-FY19) and stood at INR ~113.42bn at the end 1QFY20. RHFL average loan per unit is at INR...

We downgrade the target multiple for REPCO (from 2x to 1.5x) in view of deteriorating macros. This is in spite of access to adequate funds (from the largest PSB and PVT Bank), signs of improvement in growth with receding competition. However, we believe that the ill-effects of worsening macros are likely to override these positives. Valuations at ~1.1x FY21E remain enticing. A significant pickup in growth can drive up the stock, while further slips on asset quality pose risks. In spite of an in line 1Q performance (higher but sub-par growth, seasonal NPA spike and higher LLPs) we reduce multiple to 1.5x (from 2x) for REPCO given deteriorating macros. Maintain BUY. Our TP is Rs 443.

Sector: Housing Finance / Small Cap | Earnings Update 4QFY19 Background: Repco Home Finance Limited (RHFL) is a low to medium ticket size home loan financing company predominately based in tier II / III cities of southern India. Promoted by the State-owned Repco Bank Ltd in 2000, RHFL presently has 144 branches and 26 satellite centers of which ~87% are located in the southern market. Repco has shown robust growth in its loan book clocking 21% CAGR (FY13-FY19) and stood at INR ~110.37bn at the end 4QFY19. RHFL average loan per unit is at INR...

Sluggish growth in TN and the avoidance of risky (big ticket) LAP will stunt REPCO's growth. Margins will also be constrained (yields and CoF should move in tandem). Recoveries in LAP may help asset quality improvement. REPCO's RoAE of ~16% justifies our target multiple of 2x, despite tepid growth. At its size, Repco should be growing faster, but sadly isn't. A slight uptick in growth, and improvement in asset quality (seasonal) made for a steady 4Q at Repco. With attractive valuations (1.36x FY21E), we maintain BUY with a TP of Rs 592 (2.0x Mar 21E ABV of Rs 296).

situation well, largely due to a high share of bank/NHB borrowings and less dependence on market borrowings. Its spreads have been largely intact, adjusting for the impact of the income reversal. However, the ground situation in TN is still bleak management is still guiding for only 9-10% YoY growth in TN. We largely maintain our estimates. Maintain Buy with TP of INR500 (1.5x...