MOSL: REPCO HOME FINANCE (Buy)-At the crack of dawn-Most issues resolved-Price correction provides a good entry point

​REPCO HOME FINANCE: At the crack of dawn; Most issues resolved; Price correction provides a good entry point

(REPCO IN, Mkt Cap USD0.6b, CMP INR629, TP INR750, 19% Upside, Buy)

• FY17 was a tough year for Repco Home Finance (REPCO), with headwinds existing in the form of unfavorable regulations (Madras High Court order that banned registration of unapproved plots), demonetization, sand mining ban in the state and slippage of high-ticket LAP loans into NPL. Weak business environment translated into earnings and stock performance as well. REPCO has corrected 30% from its peak and has been an underperformer for the past two years.
  
• There are some early signs of a turnaround. A well-set procedure is now in place for regularization of certain unapproved plots. Our interaction at ground level reveals that large part of unapproved plots has been regularized, and the remaining should be done in the ensuing quarters.
  
• Sand prices have shot up sharply over the past year. The government has taken some steps to address this problem. Meanwhile, the High Court recently came out with an order banning sand mining in TN for the next six months and recommending import of sand. Our channel checks reveal that the cost of imported sand, inclusive of custom duties, is one third that of current mined sand rates in TN. Restoration of normalcy in this regard will go a long way in boosting real estate demand.
  
• While FY18 should be another year of slow growth, we expect growth to pick up to 18-20% from FY19. The stock trades at 2.5x FY19E BVPS, at a discount to peers as well as its history. Buy with a target price of INR750 (2.5x FY20E BVPS).