Repco Home Finance - Q4 FY20 - BUY - YES Securities

(Target Rs275, Upside 98.0%)

Repco delivered a material beat of 6-7% on our NII/PPOP estimates in Q4 FY20, mainly driven by better spread/NIM. Annualized PPOP margin stood at 3.8%. Co. utilized strong operating performance to make additional provision of Rs400mn pertaining to likely Covid impact. Overall ECL cover rose to 1.8% of loan book (1.5% in Q3) and Stage-3 coverage increased to 36% (29% in Q3). Spread/NIM was at a multi-quarter high of 3.5%/4.7%, with reduction in funding cost. Banks comprise 75% of borrowings and cost of these funds declined 20 bps qoq. Full impact of MCLR reductions will come through in ensuing quarters. Incremental funding tie-up during April-July was at much cheaper cost. Repco has not sought moratorium from its lenders. Company has ~Rs3bn of cash/FDs, ~Rs20bn of undrawn sanctioned lines and additional funding tie-ups to meet upcoming liability repayments (~Rs12bn in coming 6m).

The usual correction in GNPL % during March was precluded by the outbreak of Covid. However, co. reported substantial improvement in Stage-2 % (2.3% v/s 12% as of FY19). Repco collected June EMIs (full) from 68% of its customers, and July has been trending better. Nearly all customers under June moratorium had also taken the first moratorium. The bounce rate stood <5% for non-moratorium customers in June, comparable to pre-Covid era. Repco expects that a normal collection efficiency of 95% on the whole portfolio could be achieved by Oct/Nov if Covid flattens out.

Repco is a deep value pick with valuation at 0.5x P/ABV and 2.6x P/E on FY22 basis. Apart from high PPOP margin, robust capitalization (Tier-1 26%/DER 6.1x) lend comfort. Negative surprises on NPLs would be contained by zero CF exposure, sustained de-risking of LAP book, improving collection trends and the sharp reduction in Stage-2 %

Shares of REPCO HOME FINANCE LTD. was last trading in BSE at Rs.145.65 as compared to the previous close of Rs. 138.75. The total number of shares traded during the day was 835 in over 14 trades.

The stock hit an intraday high of Rs. 145.65 and intraday low of 145.65. The net turnover during the day was Rs. 121617.

Source : Equity Bulls

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