Repco Home Finance asset quality remains stable with Gross stage 3 assets at 4.3% versus 4.4% QoQ (4.0% YoY). However, restructured assets (OTR 1.0 &2.0) increased to 6% as of Sept’21. Loan book de-grew by 2% YoY vs flattish (Q1FY22) led by higher balance transfers by banks although disbursements grew by 4% YoY (up 102% QoQ). NII grew by 12% YoY (up 8% QoQ) led by improvement in NIMs; PPoP grew by 14% YoY led by lower cost to income (17.7% vs 18.2% YoY). PAT grew slowly by 6% YoY led by higher provisions (up 135% YoY). Covid-19 second wave impact has been higher on asset quality along with competitive pressures on AUM growth.

"We have moved to FY24E estimates and have ‘BUY’ with a TP of Rs.411, valuing it at 0.9x P/BV FY24E (earlier 1.0x) as need to watch for slippages from restructured assets (6%)," stated IDBI Capital Equity Research.

Key highlights and investment rationale

Loan book de-grew: Loan book de-grew by 2% YoY vs 0.1% YoY growth (Q1FY22). Higher balance transfers although strong disbursements (up 102% QoQ) resulted in lower growth in AUM. Loan book in its core TN book (56% of AUM) de-grew by 1% YoY while non-Tamil Nadu book has de-grew by 3% YoY. Salaried loans have declined by 2% YoY while -3% YoY for non-salaried. Competitive intensity from banks due to high difference in lending rates resulted in higher balance transfers. Company expects loan growth of 8-10% in FY22.

Asset quality stable; restructuring at 6%: Gross stage 3 declined to 4.3% vs 4.4% sequentially and NNPA at 2.6%. Management guided GNPA would be below 3.5% for FY22 and below 3% by FY23. Credit cost would be 0.5% for H2FY22 and similar for FY23. Restructured assets stood at 6% of loans; need to watch out for slippages.

Outlook: Asset quality impact has been higher from second covid-19 wave due to higher concentration of self-employed segment (52%) and restructured assets are being the highest (6%). De-risking of the book through increasing concentration on salaried segment is a strategy to watch out for. Within salaried segment, they have a lending exposure to the informal sector which attracts limited competition.  

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