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Maintain ADD on Repco Home Finance - Nothing changes - HDFC Securities

Posted On: 2020-07-28 10:30:00

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities.

Repco's 4Q earnings were a mixed bag- NIMs were better than expected, while provisions dragged net earnings. We have reduced our earnings estimates to factor in slower growth and higher provisions, despite the management being more optimistic on both. We maintain our ADD rating with a target price of Rs 207. REPCO's strong capital base (25.9%), comfortable funding position, and attractive valuations underpin our stance.

1QFY21 highlights: NII grew 13/7% YoY/QoQ and was 6.3% ahead of estimates. While PPOP grew 22.7/4.2%, PAT dipped 7.4/31.6% on account a sharp rise in provisions.

AUM trends: The AUM growth trend was seen slowing in earlier quarters, and has been exacerbated by COVID-19 to come in at 7.2/1.7%-the slowest ever. Despite REPCO's small base, we project AUM growth at just ~4% over FY21-22E. We believe COVID-19 and intense competition from banks, as suggested by commentary, will limit growth.

Asset quality and moratorium trends: GNPAs were stable QoQ at 4.3% but cushioned by the standstill classification benefit. As of June, 68% of REPCO's borrowers paid all instalments for the month, and ~32% of the portfolio was under moratorium. The commentary indicates that collection efficiency improved in July. We expect GNPAs to rise to 6.2% by FY21E on account of COVID-19, the management is more sanguine in its outlook.

Funding: On this front REPCO is quite comfortable. Overall borrowings grew 8.4/2.8%. On a sequential basis, borrowings from Repco Bank, accounted for most of net incremental borrowings, growing 32.8/35.7, to constitute 10.5% of borrowings. Other bank borrowings (ex-NHB) constitute 75.2% of borrowings, and grew 12.1/1.8%.

Provisions: REPCO made non-tax provisions of ~Rs 400mn, most of which were related to COVID-19. We expect non-tax provisions to average 0.8% of average assets over FY21-22E, vs. 0.5% over FY16-20.

Shares of REPCO HOME FINANCE LTD. was last trading in BSE at Rs.145.65 as compared to the previous close of Rs. 138.75. The total number of shares traded during the day was 835 in over 14 trades.

The stock hit an intraday high of Rs. 145.65 and intraday low of 145.65. The net turnover during the day was Rs. 121617.

Source: Equity Bulls

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