Invest in Repco Home IPO for 15-18 months: Anand Rathi
Anand Rathi Retail Research has come out with its report on Repco Home Finance IPO issue. According to the research firm, one can subscribe to the issue with an investment view of 15-18 months.
March 13, 2013 / 18:40 IST
Anand Rathi Retail Research has come out with its report on Repco Home Finance IPO issue. According to the research firm, one can subscribe to the issue with an investment view of 15-18 months.
A professionally managed housing finance company headquartered in Chennai, Tamil Nadu. It was promoted by The Repatriates Co-operative Finance and Development Bank Limited ("Repco Bank Limited"), a Government of India owned enterprise, in April 2000, to tap the growth potential in the housing finance industry.They are registered as a housing finance company with the NHB, the housing finance regulator of India. Primarily engaged in the business of financing (i) the construction and/or purchase of residential and commercial properties including repairs and renovations ("Individual Home Loans"); and (ii) loans against properties ("Loans Against Property").As of December 31, 2012, they had 73 branches and 19 satellite centres located in Tamil Nadu, Karnataka, Andhra Pradesh, Kerala, Maharashtra, Odisha, West Bengal, Gujarat and the Union Territory of Puducherry. Further, as of December 31, 2012, 77 of the branches and satellite centres were located in tier 2 cities and tier 3 cities, and at the peripheries of tier 1 cities, based on the belief that they are underserved by larger HFCs and banks.Low cost operations: The Company has been able to operate branches in tier 2 and tier 3 cities in a commercially viable manner. Each of the branches generally consists of three or four employees who possess local knowledge and a good understanding of customer needs. Further, centralised model of credit appraisal helps reduces the administrative costs. Cost to income ratio was 16.55%, 15.20%, 12.64% for Fiscal 2012, 2011, 2010, respectively one of the lowest in the segment.Industry scenario: Increasing availability of housing finance along with low interest rates in the past, have given significant fillip to house purchases. This is driven by factors like good branch and agency network of lenders, increasing acceptability of loans by customers, etc. As per CRISIL estimates, finance penetration in urban areas stood at 39% in Fiscal 2012, and is projected to increase to 40.8% in Fiscal 2013, and to 43.5% in Fiscal 2017. In comparison, housing finance penetration in rural areas is estimated to have stood at only 8.2% in Fiscal 2012 and is expected to increase to 8.3% in Fiscal 2013 and to 8.9% by Fiscal 2017. The lower penetration of housing finance in rural regions is primarily due to absence of adequate branches by lenders because of higher cost of operations, absence of large salaried class, and challenges in valuing collateral in rural areas. The finance penetration in rural areas is expected to remain low, unless private financiers shift focus to these markets and establish a good branch network. Rural, in this parlance, refers to places with a population of less than 10,000 as per the Census of India 2001, many of which are areas considered peripheries of large cities or even tier-3/tier-4 towns.Recommendations: According to CRISIL estimates over next 5 years, housing finance disbursements are projected to grow at a CAGR of 16% to reach Rs. 426,900crs by FY2017, also with Rs. 6,000crs funding by the government in the recent budget for the rural development will help these small ticket size companies. The company currently has the lowest cost to income ratio which is very positive as it directly caters to the customers without any selling agents in between, but going forward if any agents are introduced as it is in expansion phase in various geographies then this may impact the cost to income ratio for the company. On valuations front the company has maintained an average ROE of 30% for last 8 years with ROA of 3.71% in the same period. Going forward it may be difficult to maintain such high levels of ROA & ROE. These numbers may look very optimistic but sustaining of these numbers looks difficult as it is in expansion phase, but we believe that ROA @3% and ROE @ 25% looks feasible in next 2-3 years horizon. So one can SUBSCRIBE to the issue with an investment view of 15-18 months.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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