Target: ₹350
CMP: ₹212.55
Repco delivered a good quarter with earnings beat of 10 per cent encompassing the impact of some structural changes and a small compression in NIM. The key positive highlight of company’s performance was sustained improvement in asset quality in a usually soft quarter, which drove not only negligible credit cost but also NPL coverage improvement.
The roll-out of new loan origination system across branches in December impacted disbursements for the quarter (which notably still was reasonably healthy in pre-Covid context).
With loan portfolio on semi-annual reset and large borrowings linked to MCLR, the portfolio spread/NIM compressed 10 bps q-o-q to 3.3 per cent/4.8 per cent. The non-employee opex was higher on account of non-recurring fee payments for consultancy on tech and strategic changes.
Repco’s valuation should track improving asset quality and growth trends in the long run. While the company’s delivery on asset quality has been comforting, a secular improvement in loan book growth is keenly awaited. We expect 12 per cent loan CAGR over FY23-25 with average RoA/RoE delivery of 2.4 per cent/12 per cent.
Growth beyond 15 per cent and increase in dividend pay out can raise RoE, given high tier-1 capital.