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Repco Home Finance | 'On firm footing towards growth' | Maintain BUY - Share India Securities

Posted On: 2024-06-22 15:17:10 (Time Zone: IST)


CMP - Rs.526 | TP - Rs.700 | Upside - 33%

We interacted with the management of Repco Home Finance (REPCO) in Chennai. We find management more optimistic to boost growth as assets quality issues are largely stabilized. Newly formed sales team has turned more active on ground accelerating disbursements, while collection team is strongly focusing to reduce overdue loans. The company is expanding reach in non Tamil Nadu states thereby expanding customers base. We believe pick-up in growth to add significantly in the profitability in coming years given healthy NIM level (~5%) and likely nil provisioning.

Growth & overdue reduction are key priorities: Management said that boosting growth and overdue reduction are the top priorities of the company. The management is confident that organisational revamp with verticalisation of departments, enhancing distribution network and investments to boost digital infra to drive growth. It guided for ~Rs36 bn of disbursements and AUM of Rs150 bn for FY25E and Rs200 bn by FY27E. We estimated 14% AUM CAGR over FY24-26E (vs 3.7% over FY21-24).

GNPA targets <2.0% by FY27E: The company targets to bring down GSII to 7-9% range (vs 11.5% in FY24) with renewed focus on overdue 1+ DPD book collection by the recovery team. It also strengthen the underwriting standard by focusing on credit score, turning aggressive on rejection rate and digitizing the underwriting process (it target to reduce TAT to 7-8 days from 11-15 days. With GSIII PCR at 65%, we believe REPCO to record negligible credit cost over the next two years thereby boosting the profitability. We estimate GSIII/NSIII to reduce to 2.8%/1.4% by FY26E led by strong recovery and contained slippages.

Valuation: REPCO is well placed to deliver double digit AUM growth (CAGR at 14% over FY24-26E) backed by business model up-gradation, tech transformation and enhancing distribution network. Pick-up in incremental growth along with the ability to generate healthy NIM (~5.0%) and benign credit cost to transform into upward earnings trajectory with RoA at 3.0% over FY25-26E. Given REPCO's ability to generate ~250 bps excess return over CoE, we raised our target valuation multiple to 1.2x (vs 1.1x earlier) with revised target price of Rs700 on FY26E BVPS.

Shares of Repco Home Finance Limited was last trading in BSE at Rs. 515.05 as compared to the previous close of Rs. 526.65. The total number of shares traded during the day was 6664 in over 608 trades.

The stock hit an intraday high of Rs. 532.35 and intraday low of 514.00. The net turnover during the day was Rs. 3471586.00.


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