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By Krishnan ASV
Repco Home Finance Ltd (NS:): REPCO’s Q3 earnings disappointed our estimates due to elevated provisioning and subdued loan growth (-2.3% YoY). GS-III/NS-III increased sharply to 7%/5.1% (Q2FY22: 4.3%/2.5%), as REPCO aligned its stage-wise asset classification with the RBI’s IRAC norms. However, the spike in the impaired portfolio, adjusted for change in classification norms, was a negative surprise, even as the macro environment saw a healthy recovery. Further, loan growth continued to be muted, led by softer disbursements (-20% YoY; -15% QoQ), falling significantly short of management guidance, and it is only likely to pick up in FY23. NIMs were steady sequentially at 5%, driven by stable asset yields.
Given the impending appointment of a new MD & CEO from 1 March, we await a roadmap from the new management. We hack our FY22/FY23/FY24 earnings estimates by 24%/15%/14% due to elevated credit costs and muted loan growth and maintain ADD with a revised target price of INR328 (0.9x Sep-23 ABVPS).
Sub-par performance; need for a reset
REPCO’s Q3 earnings disappointed our estimates due to elevated provisioning and subdued loan growth (-2.3% YoY). GS-III/NS-III increased sharply to 7%/5.1% (Q2FY22: 4.3%/2.5%), as REPCO aligned its stage-wise asset classification with the RBI’s IRAC norms. However, the spike in the impaired portfolio, adjusted for change in classification norms, was a negative surprise, even as the macro environment saw a healthy recovery. Further, loan growth continued to be muted, led by softer disbursements (-20% YoY; -15% QoQ), falling significantly short of management guidance, and it is only likely to pick up in FY23. NIMs were steady sequentially at 5%, driven by stable asset yields. Given the impending appointment of a new MD & CEO from 1 March, we await a roadmap from the new management. We hack our FY22/FY23/FY24 earnings estimates by 24%/15%/14% due to elevated credit costs and muted loan growth and maintain ADD with a revised target price of INR328 (0.9x Sep-23 ABVPS).
Asset quality fails to impress: GNPA spiked sharply to 7% (Q2FY22: 4.3%), even as PCR drifted lower to 30% (adjusted GNPA at 4.6%). While the recent RBI clarification on IRAC norms provides relief to NBFCs until Sep-22, the company guided that it would maintain its stock of incremental provisions and organically lower GNPA/NNPA through enhanced focus on collections and recoveries. GNPA deteriorated across segments, with home loans/LAP GNPAs at 6.3%/10.2% and salaried/self-employed GNPAs at 3.8%/10%.
Subdued growth perplexing; eyes on new management: REPCO’s muted loan growth (-2.3% YoY) is increasingly a cause of concern, having delivered a mere 5% CAGR during FY19-FY21. Muted loan growth and deteriorating asset quality continue to weigh on the stock despite depressed valuations (0.6x Sep-23 ABVPS). We believe the new leadership team (MD & CEO, CFO) needs to clearly articulate a medium-term roadmap in order to address issues of how to keep the franchise relevant.
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