Repco Home Finance - Asset Quality Improves; Tepid Revenue Suppresses Earnings; Result Update Q3FY15 ::Edelweiss, report

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Repco Home Finance’s (RHF) Q3FY15 PAT of INR307mn was in line with our estimate as better-than-expected asset quality was offset by lower revenue traction. Key highlight was GNPLs rising mere 34bps to 1.99% (compared to historical trend of 80-120bps QoQ rise in Q3) feeding into lower-than-expected credit cost of 19bps versus 50-80bps in Q3 historically. Disbursements were muted at INR4.7bn (up mere 7% YoY) resulting in sub-30% loan growth (at 27% YoY). However, management expects them to revert to normal levels. The potential to grow manifold in an underserved market underpinned by sufficient CAR of 21.5% will sustain RHF’s loan CAGR of 25% plus and help it post impressive 24% plus earnings CAGR, 2.5% RoA and 20% RoE.

Slower disbursements feed into lower-than-trend loan growth

Disbursements were moderate largely on lower draw downs from sanctions (up 19% YoY) leading to lower disbursement/sanctions ratio of 90% versus run-rate of over 95% historically. Management highlighted that the trend rectified in January and it expects normalised disbursements going forward. Given the vast opportunity landscape, we expect it to return to healthy growth.

Asset quality springs a positive surprise

Underpinned by target customer segments (non-salaried), RHF’s NPL profile is seasonal in nature with usual spike in Q1 and Q3. However, the quantum of uptick is structurally falling-apparent across 3-4 years with dip in quantum of rise in GNPLs. In Q3FY15, this trend was further strengthened with only 34bps rise (versus 50-80bps in earlier years). While coverage is at 42%, RHF expects to shore it up to 50% over next couple of years.

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https://www.edelweiss.in/research/Repco-Home-Finance--Asset-Quality-Improves;-Tepid-Revenue-Suppresses-Earnings;-Result-Update-Q3FY15/28247.html