Repco Home Finance Limited - All round improvement - 1QFY14 Results Review - Antique

Key highlights of Repco Home Finance's strong Q1FY14 performance include 1) Disbursements at 1.8x Q1FY14 levels driving loan book growth of 29% YoY, 2) NII growth at 58% YoY, driven by ~90bps annual improvement in margins as IPO proceeds were deployed and, 3) sharp improvement in asset quality as GNPAs and NNPAs declined 40bps on a YoY basis. Although provisions at INR98mn were elevated, some of it would be written back towards the end of FY14 as asset quality shows seasonal improvement. Strong loan book growth, improving margins and asset quality resulted in earnings uptick of 57% YoY.

Presence in niche markets and scope for deeper geographic penetration will ensure loan book CAGR of 30% over FY13-16E. Margins will likely sustain ~4% given its relative pricing power on the asset side and well positioned liability profile - NHB funding provides stability at lower costs while ratings upgrade could arrest spike in borrowing costs. While asset quality performance is contingent on the external environment, lower LTVs and stringent risk appraisal processes will ensure low credit costs. Earnings CAGR at 29.9% over FY13-16E will drive average RoAs at 2.6%. Given its healthy capital position (tier 1 at 25%), RoEs will improve gradually as it levers its balance sheet. Maintain BUY with P/B based price target of INR288 per share. Elevated interest rate regime and concentrated exposure to state of Tamil Nadu are the key risks.

Well poised to navigate the environment, maintain BUY

Presence in under-served markets, pricing power on the asset side, liability support from NHB and stringent cost control as well as credit appraisal processes will ensure earnings CAGR of 29.9% over FY13-16E. Repco is well poised to navigate the current environment and remains one of our top pick in the NBFC space. Maintain BUY.

Source : Equity Bulls

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