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HDFC Securities is bullish on Repco Home Finance has recommended buy rating on the stock with a target price of Rs 562 in its research report dated November 17, 2018.
HDFC Securities' research report on Repco Home Finance
Recovery continued into 2Q as expected. Provision reversals and lower G/NNPAs (down ~40bps QoQ each to 3.6/2% resp.) heralded improving asset quality. Revival in disbursal and sanction growth at ~10% each QoQ was promising. Consequently, the book grew ~11/3%. While PPOP remained flat QoQ at ~Rs 970mn, provision reversals drove PBT to ~Rs1bn (+9% QoQ). Declining yields (11.2%, -20bps) and flat CoF (8.2%) led to a 20bps fall in NIMs (4.4%). Improving asset quality and geographical diversification of AUM are encouraging. However, the metamorphosis of the borrowing profile (share of bank borrowing increased ~500bps QoQ to ~69% and that of NCDs and NHB loans declined) and its impact on NIMs in the current environment need to be watched. Our ABVs fall by ~4/5% in FY19/20E to factor in tighter liquidity conditions (slower AUM growth and NIM compression).
Outlook
However, the mgt claims to have sufficient funds (~Rs 17bn of unutilised limits and sanctions). Maintain BUY with a TP of Rs 562 (2.0x Sept-20 ABV of Rs 281).
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