Earnings Update - Repco home finance (REPCO IN) - Asset quality improves; margins expand - CSEC Research

Asset quality improves; margins expand

- RHFL's loan book grew steadily (16.2%YoY, 3.3%QoQ) to INR 89.4bn despite the impact of demonetization. Sanctions and Disbursements in 4QFY17 showed signs of improvement with a sequential growth of 54%/32% respectively post a soft 3Q impacted by demonetization. Management has guided to clock a growth of ~30%/20% in disbursement & overall AUM in FY18.

- Growth in loan book was led by non-salaried segment (19%YoY). Salaried segment witnessed growth at 12.3%YoY. Consequently, their share in overall portfolio stood at 60.2% and 39.8% respectively. Management intends to maintain the loan mix at the current levels.

- RHFL's, LAP segment grew at (18.6%YoY), while individual loans showed a growth of (15.7%YoY). Subsequently, the share of Home Loan & LAP and individual segment was noted at 79.8% and 20.2% respectively. Average ticket size for the loan book was noted at INR 1.4mn.

- NIM remained flat at 4.4% for FY17. However, improved sequentially by 50bps to 4.7% for 4QFY17 on the back of drop in cost of funds by 50bps to 8.7%. Yield on assets remained at 12.1%. Loan spread also improved by 50bps QoQ to 3.4%. Management has guided to maintain a minimum spread of ~3% and a NIM of ~4%.

Valuation: Repco has consistently grown its loan book at a steady pace and has maintained margins over the period at healthy levels. Its strong loan growth trajectory driven by government's push on affordable housing, improving cost ratios & asset quality paints a positive growth picture for company. We maintain BUY rating on the stock and arrive at target price at INR 878, assigning a PBV of 3.3x FY19E.

Risks: Slowdown in real estate sector, increase in slippages and regulatory changes might have an adverse impact on profitability.

Shares of REPCO HOME FINANCE LTD. was last trading in BSE at Rs.790.9 as compared to the previous close of Rs. 784.2. The total number of shares traded during the day was 48515 in over 653 trades.

The stock hit an intraday high of Rs. 799.9 and intraday low of 772.15. The net turnover during the day was Rs. 38264896.

Source : Equity Bulls

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