Buy Repco Home Finance; target of Rs 562: HDFC Securities

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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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