CMP: INR628 TP: INR802 (+28%) Buy
Repco’s 4QFY16 PAT grew 21.3% YoY to INR422m (6% miss); While the
operating profits was 7% above est. (due to lower opex); higher provisions of
INR140m v/s est. of INR60m (led by higher write-offs and increase in provisions
on sub-standard assets) led to PAT miss.
Business momentum remained healthy, with loan book up 28% YoY to INR77b,
while sanctions/disbursement for the full year grew by 29/31%, respectively.
Loan mix shifted marginally towards self-employed which formed 58.8% of the
mix, v/s 57.8% in 3QFY16. LAP loans formed 19.8% of the company’s portfolio
with its contribution to the loan book remaining at less than 20%.
Asset quality remained stable YoY with GNPLs at 1.31% (vs. 1.32% in FY15).
However, provisions were higher at INR140m (vs. our estimate of INR60m), led
by a) Higher technical write-offs b) RHFL’s newly adopted policy of increasing
provisions on sub-standard assets from 15% to 40%, resulting in an
improvement of 110bp YoY in PCR to 63.5%.
Operating expenses fell by 7.3% YoY, led by a decline of 17% in employee
expenses due to zero ESOP charges, resulting in an improvement of 580bp YoY
in cost to income ratio to 16.2%.
Other highlights a) Calculated NIM remained stable YoY at 4.6% b) Average
ticket size stood at INR1.3m vs. INR1.2m in 4QFY15 c) NHB funding declined to
13.9% of overall borrowings vs. 21.4% last year (RHFL stopped borrowing from
NHB due to technical reasons, but will start using NHB lines from 1QFY17).
Valuation and view: RHFL has recorded a loan book CAGR of 33% over FY10-
16, with an equally impressive earnings growth of 24%. The company’s
presence in the underserved markets, pricing power on the asset side, recent
ratings upgrade (likely to lead to lower cost of funds), stringent cost control as
well as credit appraisal processes and expanding reach will ensure its earnings
growth in the near-to-medium term. We estimate a healthy 30%/26% loan/PAT
growth for the next three years. We may have to revisit our estimates post the
company’s earnings call. RHFL currently trades at 3.5/2.9x FY17/18E BV.
Maintain Buy with a TP of INR802/share (3.75x FY18 BV).
Loan book grows 28% YoY; Broad based growth in all segments
Business momentum remained healthy, with loan book growing a healthy 28%
YoY to INR77b, whereas full year sanctions/disbursement also grew at 29/31%
respectively.
Share of non-salaried borrowers in borrowing mix increased to 58.8% v/s 57.8%
during last quarter. 4QFY16 is the 13th straight quarter where the share of nonsalaried
borrowers has increased, this is in-line with company’s strategy to
target non-salaried segment.
Growth was broad based with nearly all geographies and segments (home loans
and LAP) growing at a healthy pace. LAP loans were 19.8% of portfolio and
continue to remain sub 20%.
Repayment rates stood at 19.5% v/s 16.6% in FY15; Competition is heating up
and the company is losing some business to competition 1-1.5% of higher
repayments are balance transfer cases; however management maintains growth
rates of over 25%.
GNPA stable; higher provisions due to policy change and technical write off
Asset quality remained stable YoY with GNPLs at 1.31% (v/s 1.32% in FY15) and
witnessed seasonal improvement of 100bp where Q2 & Q4 GNPAs are generally
lower than Q1 & Q43 GNPAs for Repco.
However provisions were higher at INR140m (est. INR60m) led by a) Higher
technical write-offs b) The company has adopted the policy to increase the
provisions on sub-standard assets from 15% to 40%. This resulted in 110bp YoY
improvement in PCR 63.5% (in-line with company’s strategy to shore up its PCR).
NIMs stale YoY at 4.6%; Opex down sharply
Operating expenses declined 7.3% YoY, led by 17% decline in employee
expenses -due nil ESOP charges (provisions for the 2nd tranche is over and 3rd
tranche will be allotted in 1Q), resulting in 580bp YoY improvement in cost to
income ratio at 16.2%.
However from 1QFY17, ESOP related expenses will kick-in again, thus we expect
CI to increase in ensuring quarters.
NII grew 28.7%, in line with loan growth; Calculated NIMs were stable at YoY at
4.6% Calculated spreads improved 10bp YoY to 3.22% led by a 36bp YoY decline
in funding cost v/s 26p decline in yields.
NHB funding declined to 13.9% of overall borrowings v/s 21.4% last year (Repco
has not been borrowings from NHB due to technical reasons, but will start
borrowing from 1Q17).
Valuation and view
REPCO has established a strong presence in southern states and is steadily
expanding to other geographies. Over the last decade, the company has built a
scalable business model with a well-balanced portfolio.
Strong loan growth momentum, stable margins and contained cost ratios would
be strong drivers of core earnings for RHF in the medium term. Moreover
presence in the under-served markets, pricing power on the asset side, recent
rating upgrade which would lead to lower cost of fund, stringent cost control as
well as credit appraisal processes and expanding reach will ensure earnings
growth in near to medium term; we expect a healthy 30%+ loan growth for the
next three years.
In our view Repco will continue to trade at premium multiples led by its niche
business model, inherently high profitability with the ability to improve return
ratios, high capitalization, consistent execution, and minimal asset quality
overhang—given a secured loan book. Ongoing downward trend in interest
rates could also prove to be a trigger for profitability. We may re-visit the same
post the earnings call. Repco is currently trading at 3.5/2.9x FY17/18E BV.
Maintain Buy with a TP INR802 (3.75x FY18 BV).
Repco’s 4QFY16 PAT grew 21.3% YoY to INR422m (6% miss); While the
operating profits was 7% above est. (due to lower opex); higher provisions of
INR140m v/s est. of INR60m (led by higher write-offs and increase in provisions
on sub-standard assets) led to PAT miss.
Business momentum remained healthy, with loan book up 28% YoY to INR77b,
while sanctions/disbursement for the full year grew by 29/31%, respectively.
Loan mix shifted marginally towards self-employed which formed 58.8% of the
mix, v/s 57.8% in 3QFY16. LAP loans formed 19.8% of the company’s portfolio
with its contribution to the loan book remaining at less than 20%.
Asset quality remained stable YoY with GNPLs at 1.31% (vs. 1.32% in FY15).
However, provisions were higher at INR140m (vs. our estimate of INR60m), led
by a) Higher technical write-offs b) RHFL’s newly adopted policy of increasing
provisions on sub-standard assets from 15% to 40%, resulting in an
improvement of 110bp YoY in PCR to 63.5%.
Operating expenses fell by 7.3% YoY, led by a decline of 17% in employee
expenses due to zero ESOP charges, resulting in an improvement of 580bp YoY
in cost to income ratio to 16.2%.
Other highlights a) Calculated NIM remained stable YoY at 4.6% b) Average
ticket size stood at INR1.3m vs. INR1.2m in 4QFY15 c) NHB funding declined to
13.9% of overall borrowings vs. 21.4% last year (RHFL stopped borrowing from
NHB due to technical reasons, but will start using NHB lines from 1QFY17).
Valuation and view: RHFL has recorded a loan book CAGR of 33% over FY10-
16, with an equally impressive earnings growth of 24%. The company’s
presence in the underserved markets, pricing power on the asset side, recent
ratings upgrade (likely to lead to lower cost of funds), stringent cost control as
well as credit appraisal processes and expanding reach will ensure its earnings
growth in the near-to-medium term. We estimate a healthy 30%/26% loan/PAT
growth for the next three years. We may have to revisit our estimates post the
company’s earnings call. RHFL currently trades at 3.5/2.9x FY17/18E BV.
Maintain Buy with a TP of INR802/share (3.75x FY18 BV).
Loan book grows 28% YoY; Broad based growth in all segments
Business momentum remained healthy, with loan book growing a healthy 28%
YoY to INR77b, whereas full year sanctions/disbursement also grew at 29/31%
respectively.
Share of non-salaried borrowers in borrowing mix increased to 58.8% v/s 57.8%
during last quarter. 4QFY16 is the 13th straight quarter where the share of nonsalaried
borrowers has increased, this is in-line with company’s strategy to
target non-salaried segment.
Growth was broad based with nearly all geographies and segments (home loans
and LAP) growing at a healthy pace. LAP loans were 19.8% of portfolio and
continue to remain sub 20%.
Repayment rates stood at 19.5% v/s 16.6% in FY15; Competition is heating up
and the company is losing some business to competition 1-1.5% of higher
repayments are balance transfer cases; however management maintains growth
rates of over 25%.
GNPA stable; higher provisions due to policy change and technical write off
Asset quality remained stable YoY with GNPLs at 1.31% (v/s 1.32% in FY15) and
witnessed seasonal improvement of 100bp where Q2 & Q4 GNPAs are generally
lower than Q1 & Q43 GNPAs for Repco.
However provisions were higher at INR140m (est. INR60m) led by a) Higher
technical write-offs b) The company has adopted the policy to increase the
provisions on sub-standard assets from 15% to 40%. This resulted in 110bp YoY
improvement in PCR 63.5% (in-line with company’s strategy to shore up its PCR).
NIMs stale YoY at 4.6%; Opex down sharply
Operating expenses declined 7.3% YoY, led by 17% decline in employee
expenses -due nil ESOP charges (provisions for the 2nd tranche is over and 3rd
tranche will be allotted in 1Q), resulting in 580bp YoY improvement in cost to
income ratio at 16.2%.
However from 1QFY17, ESOP related expenses will kick-in again, thus we expect
CI to increase in ensuring quarters.
NII grew 28.7%, in line with loan growth; Calculated NIMs were stable at YoY at
4.6% Calculated spreads improved 10bp YoY to 3.22% led by a 36bp YoY decline
in funding cost v/s 26p decline in yields.
NHB funding declined to 13.9% of overall borrowings v/s 21.4% last year (Repco
has not been borrowings from NHB due to technical reasons, but will start
borrowing from 1Q17).
Valuation and view
REPCO has established a strong presence in southern states and is steadily
expanding to other geographies. Over the last decade, the company has built a
scalable business model with a well-balanced portfolio.
Strong loan growth momentum, stable margins and contained cost ratios would
be strong drivers of core earnings for RHF in the medium term. Moreover
presence in the under-served markets, pricing power on the asset side, recent
rating upgrade which would lead to lower cost of fund, stringent cost control as
well as credit appraisal processes and expanding reach will ensure earnings
growth in near to medium term; we expect a healthy 30%+ loan growth for the
next three years.
In our view Repco will continue to trade at premium multiples led by its niche
business model, inherently high profitability with the ability to improve return
ratios, high capitalization, consistent execution, and minimal asset quality
overhang—given a secured loan book. Ongoing downward trend in interest
rates could also prove to be a trigger for profitability. We may re-visit the same
post the earnings call. Repco is currently trading at 3.5/2.9x FY17/18E BV.
Maintain Buy with a TP INR802 (3.75x FY18 BV).
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