YES Securities' research report on Repco Home Finance
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 %
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