Broker's Call : Repco Home Finance (Accumulate)

| Updated on August 20, 2019 Published on August 21, 2019

Elara Capital


CMP: ₹316.2

Target: ₹390

Loan book growth remains soft at 13 per cent y-o-y for 1QFY20, as home State (Tamil Nadu) woes increase post the recent draught. Tamil Nadu share has come off by 2 per cent y-o-y, but still remains high at about 57 per cent, which is growing at 8 per cent, thus impacting overall growth. Growth excluding TN remains strong at 28 per cent, with higher contribution from flood affected States of Karnataka and Gujarat. Growth in Maharashtra remains strong at 27 per cent, though concerning, as peer HFCs in the affordable segment in the State have been reporting elevated NPAs. We see still high share of TN impacting growth and expect a 12 per cent Loanbook CAGR over FY19-21E.

The elevated levels of NPA have been on books since last two years, with about 70 per cent from the home State and majority in the high ticket LAP segment. We see lower probability of recovering the same, with additional pressure from growth in newer geographies, especially from the flood affected Karnataka (14 per cent of book) and Gujarat.

Valuation: Our concerns on Repco are, a continued subdued growth in TN, a late diversification outside home State followed by an aggressive growth and stickiness in NPA with inadequate provisioning. We see growth as the key to earnings revival, which we currently expect at a CAGR of 12 per cent of FY19-21E; higher than build-in credit costs is the key risk to our already subdued earnings forecast. The recent correction provides an upside to our Target Price of ₹390. We have an Accumulate rating on the stock.

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Published on August 21, 2019
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