ADD on Repco Home Finance - Moratorium trends confound - HDFC Securities

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities

REPCO's 1Q earnings were adversely impacted by a sharp fall in margins and elevated provisions. The sequential reduction in Gross Stage III was optical. Further, while the portfolio under moratorium remained sticky at ~35%, borrowers representing 8.7% of loans had not paid a single instalment since March, which was more confounding than promising, given that collection efficiency for the month was between 65-70%. However, REPCO's strong capital base (CRAR at 26.1%) and comfortable funding position are (remain) positives and drive our ADD rating (target price of Rs 207, 0.7xFY22E ABV) along with relatively inexpensive valuations.

1QFY21 highlights: NII dipped 1/4.7% YoY/QoQ, led by a 20/40bps fall in NIMs, and sluggish loan growth. PPOP grew 4.4% YoY, but dipped 1.2% QoQ, despite the sharp 23.3% QoQ fall in operating expenditure (flat YoY). PAT (+ OCI) grew 2% YoY (limited by elevated provisions), and 35.2% QoQ.

AUM growth continued to slow, reaching just 5.6% YoY (slowest ever). We continue to build loan growth of 4.3% over FY21-22E, as REPCO will face stiff competition from banks, amidst uninspiring macros. Even the management trimmed its growth guidance. REPCO classified Rs 5.7bn of loans within its LAP portfolio, as 'CRE housing loans'.

Asset quality and moratorium trends: GNPAs dipped 30bps QoQ to 4%, aided by the standstill classification benefit and collections in overdue accounts. The moratorium portfolio remained sticky (35%, of which borrowers representing 8.7% of the portfolio did not pay a single instalment since March). Asset quality risks thus persist and have accordingly increased our NPA estimates to 6.4% by FY21E.

Provisions: Non-tax provisions dipped 45.1% QoQ to Rs 221mn, but remained elevated (2.97x YoY), and included Rs 150mn of COVID-19 related provisions. The total stock of such provisions is Rs 550mn. Stage III coverage rose sharply (+1070/546bps) to 41.2% (the highest since 4QFY18). We build provisions of ~85bps over FY21-22E vs. 50bps over FY17-20

Shares of REPCO HOME FINANCE LTD. was last trading in BSE at Rs.181.9 as compared to the previous close of Rs. 173.25. The total number of shares traded during the day was 78680 in over 230 trades.

The stock hit an intraday high of Rs. 181.9 and intraday low of 181.9. The net turnover during the day was Rs. 14311892.

Source : Equity Bulls

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