Dec 01, 2016 06:06 PM IST IST | Source: Moneycontrol.com
Buy Repco Home Finance; target of Rs 673: Centrum
Centrum is bullish on Repco Home Finance has recommended buy rating on the stock with a target price of Rs 673 in its research report dated November 29, 2016.
Centrum's research report on Repco Home Finance
Repco Home Finance Ltd (RHFL) reported good operational numbers in Q2FY17. However, asset quality weakened marginally breaking the sequential trend of NPA recoveries in Q2. While net interest income (NII) grew 22% YoY backed by 24% loan growth, the net profit grew at a slower pace of 17% on the back of higher provisioning. The gross non-performing assets (NPAs) increased 15bps QoQ to 2.37% (up 57bps YoY). Over FY16-18E, we except steady loan growth of 23% CAGR to Rs 11,678 crore, largely driven by healthy demand in self-employed class (currently at 59.7%).
While RHFL continued to report good set of numbers, the stock has corrected 20% post the government’s announcement of currency demonetization and 31% since our Q1 update. This was mainly on the back of rising concerns relating to the high contribution of the self-employed class (60% of total book) to the total book and loan against property (LAP) loans at +20% of loans. The company is expected to face NPA pressure for a quarter or two due to larger exposure to the self-employed class. However, as the liquidity improves and smaller businesses get rolling, we expect the recoveries to pick up again. Further, the company is expected to benefit in the long run, from the possible decline in property prices. Considering the future growth prospects of RHFL, we remain positive on the stock from a long term perspective and recommend Buy with a target price of Rs 673, valuing the stock at 3.5x its FY18E ABV.
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