Buy Repco Home Finance; target of Rs 804: HDFC Securities
HDFC Securities’ research report on Repco Home Finance
Repco’s 1QFY18 net earnings fell short of our estimates owing to lower NII, as disbursements declined 17.5%, resulting in loan book growth of 0.7/13% QoQ/YoY. Also, asset quality deteriorated, with GNPAs slipping back to the demonetisation level of 4%, from 2.6% in 4QFY18. Repco continues to be impacted by the registration issue in TN, which contributes 62% to its loan book. Asset quality woes are mainly related to LAP customers, mainly in construction activities in TN. With registration and other issues like sand availability, among others, getting resolved, we expect business momentum to pick up going forward. We like Repco owing to its focus on underserved housing finance markets, especially the self-employed in Tier II and III cities. We lower our loan book and credit cost assumptions, resulting in our PAT estimates dipping by 7/8% for FY18/19E respectively.
We maintain BUY with a revised TP of Rs 804 (3.3x Mar-19E ABV of Rs 244).
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