ADD on Repco Home Finance - Earnings ahead on lower provisions - HDFC Securities

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities

REPCO's 2Q earnings were ahead of estimates, led by lower-than-expected provisions. The company, like most lenders, saw a sharp improvement in collection efficiency and a sequential rebound in disbursals. We have revised our estimates upwards, as we factor in lower (vs. our earlier estimates) provisions and slightly faster loan growth. The company continues to remain comfortable in terms of funding and liquidity (CRAR- 26.8% and available undrawn lines at ~17% of AUM), and these drive our ADD rating (target price of Rs 282).

Asset quality and collections: GS III was optically flattish at ~4%. REPCO, like most lenders, reported a sharp rise in collection efficiency to ~93% in September, and a further rise to ~94% in October (excluding overdues). The management indicated that, including overdues, collection efficiency would be more than 100%. Further, borrowers with an outstanding of ~Rs 7.6bn (6.3% of AUM) had not paid since the start of the year, of whom borrowers with an outstanding of ~Rs 3.9bn (3.2% of AUM) were within GS III. The management expects to restructure ~Rs 2-3bn worth of loans and expects GNPAs to remain rangebound in FY21E. Our estimates are rather conservative, and we project GNPAs to reach 5.6% in FY21E.

Growth: While AUM growth expectedly slowed further to 5.2/0.9% YoY/QoQ, disbursals and sanctions saw an uptick, reaching 67/76% of pre- COVID-19 levels respectively. The management guided for disbursals of Rs 7-8bn in 3QFY21 and ~Rs 9bn in 4QFY21, implying growth of ~14% YoY and~50% YoY respectively. Further, it guided for an AUM growth of ~8-10% in FY21E (vs. ~5% earlier). We build an AUM growth of ~4.8% in FY21E and ~6.8% over FY21-23E.

Non-tax provisions dipped 67.4% QoQ, and Stage III coverage slightly increased QoQ (+16bps), while Stage I & II coverage was flat at ~2%. The company did not make incremental COVID-19 related provisions, and the total stock of such provisions stood at Rs 550mn (45bps of AUM). We have reduced our LLP estimates to ~0.5% over FY21-23E.

Shares of REPCO HOME FINANCE LTD. was last trading in BSE at Rs.246 as compared to the previous close of Rs. 246.15. The total number of shares traded during the day was 35348 in over 1561 trades.

The stock hit an intraday high of Rs. 265 and intraday low of 237. The net turnover during the day was Rs. 8717665.

Source : Equity Bulls

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