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MOSL: REPCO HOME FINANCE (Buy)-Growth remains tepid-Sand mining ban the key issue

Repco Home Finance: Growth remains tepid; Sand mining ban the key issue

(REPCO IN, Mkt Cap USD0.5b, CMP INR558, TP INR740, 33% Upside, Buy)

 

• REPCO reported a tepid 4% YoY increase in 3QFY18 PAT to INR485m (15% miss). Sluggish loan growth, a sharp uptick in opex and a modest sequential increase in the GNPL ratio were key highlights of the quarter.
• While 3Q is a seasonally weak quarter in terms of disbursements, we had expected a sequential pick-up due to the low base in 2Q. However, while sanctions were sequentially stable at INR7.7b, disbursements declined 13% QoQ to INR6.6b. Management attributed this to the lack of demand for self-construction due to unavailability of sand in Tamil Nadu. However, recently, the Supreme Court lifted the sand mining ban in TN via an interim order.
• Consequently, loan growth was sequentially similar at 9.6% (v/s 10% in 2QFY18), resulting in a loan book of INR94.9b. We expect loan growth of ~10% in FY18, which should increase to ~14% in FY19 and further thereafter.
• LAP book has remained steady at INR17-18b for the past six quarters.
• Calculated spreads declined 20bp QoQ to 3.2%.
• Opex increased by 33% YoY to INR138m (19% miss), led by higher business promotion expenses and one-off employee expenses (INR15m).
• GNPA ratio increased 30bp QoQ to 3.7%, driven by a 70bp QoQ increase in LAP. The company has INR910m worth of NPLs in the 91-120dpd bucket and also NPLs worth INR1.75b, for which it has initiated SARFAESI.