Cholamandalam Securities’ research report on Repco Home Finance
RHFL’s loan book grew at moderate rate (10.3%YoY, 3.9%QoQ) to INR 99bn on the back of higher disbursements (27.7% YoY, 29.2% QoQ). In 4QFY18, Sanctions grew by 32.2% YoY (19.4% QoQ) which poses healthy loan growth trajectory for coming quarters. The management expects loan book to grow by ~20% in FY19E (15% growth in TN and 20-25% growth in ex-TN regions) and disbursements by 35-36% in FY19E. Growth in loan book was led by salaried segment (18.8%YoY). Non-salaried segment witnessed a moderate growth of 4.6% YoY. Consequently, their share in overall portfolio stood at 42.9% and 57.1% respectively. Management intends to maintain the loan mix at the current levels. RHFL’s, Individual loans grew by 12.5% YoY (4.2% QoQ), while LAP segment demonstrated sluggish growth (1.5% YoY, 2.2% QoQ). Subsequently, the share of Individual Home Loan & LAP segment was noted at 81.4% and 18.6% respectively. Average ticket size for the loan book continued to be at INR 1.4mn. Reported NIM grew by 10bps YoY (20bps QoQ) and stood at 4.8% for 4QFY18, owing to reduction in cost of funds by 70bps YoY (-30bps QoQ) to 8.0% in 4QFY18. Yield on assets remained flat (QoQ) at 11.5%, despite increase in share of salaried segment in loan book, as RHFL’s yields in this segment are higher than peers (10.72% in FY18), due to relatively (to banks) smaller ticket sized loans given to employees in informal sector. Loan spread remained flat (although up 20bps QoQ) and stood at 3.4%. Management has guided to maintain a minimum spread of ~3% and a NIM in the range of ~4-5%, in FY19E. Asset quality worsened with the reported GNPA rising to 2.87% (27bps YoY), Although on a sequential basis, GNPA ratio fell by 83bps and in absolute numbers GNPA dropped by 19.6% to INR 2.8bn, due to recoveries from SARFAESI initiations. PCR stood at 55.5% (up by 830bps YoY). The management aims to improve PCR to ~70% by FY19E and owing to this provision in the coming quarters will see an upsurge. The management also expects to take the GNPA levels back to 2% (their average levels till FY17) by FY19E owing to speedy recoveries through SARFAESI route.
Repco has consistently grown its loan book at a steady pace and has maintained margins over the period at healthy levels. We expect loan growth to pick up going ahead, driven by government’s push on affordable housing, and with improvements in cost ratios aiding on the profitability front, we maintain BUY rating on the stock and arrive at target price at INR 684, assigning a P/BV of 2.2x FY20E.
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