RELHF’s loan book grew by 26% YoY to INR 156.4bn (lower than CSEC’s estimate of 47%). However, the book declined by 4.5% sequentially. Growth in AUM came predominantly from Construction finance and individual loans segments which grew by 25% and 21% YoY respectively. The management expects its AUM to grow by 45% CAGR over FY19-21E. Self employed segment, being the niche area for the company, continued to constitute 75% of Home loan disbursements in 1QFY19. Adding to the de-growth in loan book, the company also saw a 30bps (QoQ) dip in yields on the overall book. Fall in yields were higher in LAP and affordable housing segments which shrunk by 120bps and 50bps QoQ respectively. In the current scenario of rising bond yields, RELHF’s cost of funds increased by 20bps (YoY/QoQ), as 42% of the borrowings are in the form of NCDs. As a result, NIMs fell by 60bps YoY to 3.2% (-70bps QoQ). Going forward, the management expects NIMs to remain in the range of 3.5-3.9%. Asset quality remained intact, with the reported GNPAs at a healthy 0.8% (same levels as FY18) and NNPA at 0.63%. PCR (GS-3) stood at 23% up from 19% in 1QFY18. With focus on small ticket lending, and strict policy measures (w.r.t credit appraisal) in place, the management expects NPAs to remain at current levels.
Robust loan book growth, coupled with improving cost efficiency, and well maintained asset quality should act as an catalyst to spur the earnings growth of the company. The stock is currently trading at 1.4X P/ABV and 6X P/E of FY20E. We maintain our BUY rating on Reliance Home Finance with a revised target price of INR 91, owing to the pressures on interest front, assigning a P/ABV of 1.9X.[“Source-moneycontrol”]