(Rating: BUY, TP: Rs 420, Upside: 38.5%)
Asset quality recovery pivotal for valuation re-rating
- Though Repco's PPOP performance was in-line with our estimates, a higher credit cost from increase in the stress pool (GNPL + OTR at 9.5%) depressed the earnings. Company restructured 5.2% of the portfolio; primarily accounts which were regular or in Stage-1 on March 31. OTR 2.0 portfolio comprises 85% Home Loans (mainly SE customers) and 15% LAP.
- The collection efficiency was impacted during the quarter due to the second pandemic wave and a higher impact on Repco's portfolio due to concentration of semi-formal salaried and self-employed customers and the Southern markets which had a prolonged impact. Collection efficiency in June was around 90% (w/o arrears and excl. demand of restructured assets) and it has improved in July.
- As we factor lower growth (sluggish disbursement acceleration + persistence of significant BT Out) and build higher credit cost, we revise earnings/BV estimates downwards by 15%/5% for FY22.
- While anemic growth had been a consistent feature over the past many quarters, the deterioration in asset quality (in the absence of moratorium) could preclude stock's valuation (0.8x FY23 P/ABV) from re-rating materially.
- Thus, key monitorable will be collection efficiency trends which would reflect upon the performance of the stress pool. Retain BUY, but lower 12m PT to Rs420.
YES Securities - Repco Home Finance (Q1 FY22) - 20210818
Shares of Repco Home Finance Limited was last trading in BSE at Rs. 304.3 as compared to the previous close of Rs. 312.5. The total number of shares traded during the day was 16137 in over 888 trades.
The stock hit an intraday high of Rs. 312.85 and intraday low of 300.7. The net turnover during the day was Rs. 4923501.