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MOSL: REPCO HOME FINANCE (Buy)-TN issues still persist but other geographies pick up

Repco Home Finance: TN issues still persist but other geographies pick up

(REPCO IN, Mkt Cap USD0.4b, CMP INR406, TP INR550, 35% Upside, Buy)

 

• REPCO's 2QFY19 PAT declined 5% YoY to INR666m (11% above our estimates). While operating profit was in line, negative credit costs drove PAT beat.
• Business still remains sluggish (due to sand mining issues in Tamil Nadu) with sanctions and disbursements growing 9%/3% YoY. Home loan disbursements were down 2% YoY, while those in LAP were up 26% YoY.
• Consequently, overall loan book growth was a steady 11% YoY - driven by 6% YoY growth in Tamil Nadu. Among the larger states it is present in, Karnataka has witnessed the most consistent pick-up in growth quarter after quarter - from 7% YoY a year back to 23% YoY now.
• Calculated spreads decreased 80bp YoY to 3.15% off a high base due to large yield compression. Interestingly, cost of funds has been largely stable at 8.1-8.2% over the past four quarters. Over the past two months (Oct and Nov), REPCO has hiked interest rates twice amounting to 45bp on all incremental loans. It expects to hikes rates on existing loans too.
• The liquidity situation has been managed well as the company has drawn down INR4-5b bank lines in the past two months. Additionally, it has secured an INR5b line from NHB at a weighted average rate of ~7.5%.