Repco Home Finance - Asset Quality Retains Strong Turf; Growth Healthy; Result Update Q2FY15 :: Edelweiss report link

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Repco Home Finance’s (RHF) Q2FY15 PAT of INR327mn surpassed our INR310mn estimate. The beat was not only due to lower credit cost (at 13bps versus 80bps in Q1FY15), but also impressive NII growth (up 21%), a derivative of healthy loan growth (30% YoY) and improving NIMs. While PAT growth seems optically lower at 12% YoY, the vector driving the same was creation of deferred tax liability, taking the tax rate to 34% compared to 26% a year ago (PBT grew 26% YoY). Key highlights were: (1) following seasonality, GNPLs came off significantly to 1.65% (2.49% in Q1FY15), surprisingly lower than Q2FY14 (1.67%); (2) coverage was shored up to 51.5% (36.0% in Q1FY15), a step in the right direction; and (3) growth momentum continued with disbursements growing 27% YoY to INR5.4bn and loan book surging 30% to INR52.4bn. The potential to grow manifold in an underserved market underpinned by sufficient CRAR of 22% will sustain RHF’s loan CAGR of 27% plus and help it post impressive 23% plus earnings CAGR (despite DTL), 2.5% RoA and 18-19% RoE in FY16.

Asset quality surprise; coverage surge step in right direction

Following seasonality, GNPLs came off significantly from 2.49% in Q1FY15 to 1.65% in Q2FY15. However, what was surprising was that the quarter’s number was lower than Q2FY14 (1.67%), which was not anticipated given GNPLs in Q1FY15 were much higher at 2.49% compared to 2.22% in Q1FY14. Moreover, RHF shored up coverage again to 51.5% (36% in Q1FY15). Despite this, credit cost was contained at INR17mn (13bps), taking H1FY15 credit cost to 0.5%, lower than H1FY14. The personalised appraisal expertise mastered by the company, along with robust risk management systems and processes in place, lend comfort on asset quality. We estimate GNPLs of 1.7% by FY16.

LINK
https://www.edelweiss.in/research/Repco-Home-Finance--Asset-Quality-Retains-Strong-Turf;-Growth-Healthy;-Result-Update-Q2FY15/27509.html