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MOSL: REPCO HOME FINANCE (Buy)-Disbursement pick-up encouraging, but spreads weak

Repco Home Finance: Disbursement pick-up encouraging, but spreads weak

(REPCO IN, Mkt Cap USD0.5b, CMP INR600, TP INR710, 18% Upside, Buy)

 

• REPCO's 1QFY19 PAT increased 9% YoY to INR609m. Pick-up in disbursements, spread pressure and higher opex were the key highlights of the quarter.
• Sanctions increased 22% YoY to INR7.6b, while disbursements rose 28% YoY to INR7.0b in the quarter. However, the Tamil Nadu market still faces shortage of sand availability, leading to tepid 6% YoY loan book growth in this geography.
• Consequently, loan growth was at 11.9% YoY (v/s 10.3% in 4QFY18), resulting in a loan book of INR101b. Core home loan growth improved to 14% YoY, the highest in the past four quarters, while the LAP book has remained steady at INR17-18b for the past eight quarters.
• Calculated spreads decreased 20bp YoY to 3.1%, driven by declining yields (-60bp to 11.35%) and CoF (-40bp to 8.2%). We believe that cost of funds has bottomed out and this should negatively impact spreads, going forward.
• Opex increased 30% YoY to INR219m, leading to a 300bp+ YoY increase in the cost-to-income ratio to 18.4%. This was driven by higher DSA commissions, fees paid to an external agency for KYC checks and due diligence, and higher legal fees due to enforcement of SARFAESI.
• GNPL ratio was flat YoY at 4.0%, but PCR increased from 33% to 41% YoY. ECL, as on 1QFY19, stood at 66bp, which is largely comparable to peers like PNBHF (52bp), IHFL (45bp) and GRUH (62bp). This implies that, while REPCO has higher GNPLs than peers, its eventual losses are similar to peers.