Buy Repco Home Finance; target of Rs 375: YES Securities

YES Securities' research report on Repco Home Finance

Repco’s Q3 FY21 operating performance was ahead of our expectations with 9‐12% beat in NII, PPOP and PAT. This was largely driven by NPLs/w‐off accounts recoveries/resolution and consequent income (~Rs100mn) which was reflected in NII line. Reported NIM jumped to 5%+ in Q3 FY21, which otherwise would have improved to a smaller extent based only on funding cost decline. The reported borrowing cost came‐off on the back of re‐pricing of bank loans and increased share of low‐cost NHB borrowings over the past two quarters. Portfolio Yields for Repco remain relatively firm, despite the company having reduced rates by 70‐75 bps since April 2020, due to higher quantum of BT Out and semi‐annual repricing mechanism.

Outlook

We broadly maintain earnings/ABV estimates, as downward revision in growth and credit cost nullify each other. Strong asset quality performance should raise street’s confidence in the management and on the various initiatives taken for mitigating risks over the past couple of years. Stock trades at 0.8x FY23 P/ABV for 2.2‐2.3% RoA delivery and an estimated 15% ABV compounding.

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