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Repco Home Finance Stock Analysis

HomeStock AnalysisRepco Home Finance Stock Analysis

21 April, 2016

Price: Rs. 587.75

While the public sector banks are suffering due to the concerns around high non-performing assets (NPAs), private banks and selected non-banking financial companies (NBFCs) have become the recent favorites among the investors. In the NBFCs space, we are bullish on Repco Home Finance (“Repco Home” or the “Company”). The bullish view comes on the back of robust growth of more than 20 % in loans, sanctions and disbursements. Besides, the management has also given strong guidance of more than 25 % increase in loan book and profitability due to rising penetration of tier 2 and 3 cities in the coming 1-2 years.

Repco Home operates in a niche segment, which is under-served by banks and larger housing finance companies. The Company is present in 2 segments – Individual Home Loans and Loans against Property and provides loan products to individual borrowers in both the salaried and non-salaried segments.

INVESTMENT RATIONALE

repco homeRobust Loan Growth Coupled With Healthy Asset Quality

Over the last five years (i.e. 2011-2015), loan books have grown at a CAGR of 30%. For the same period, profit after tax grew at a CAGR of 21 %. For FY 2015, Repco Home reported a healthy 29% loan growth (compared to 32 % for FY 2014) despite sluggish economy and lower loan off-take in both wholesale and retail segments. Net Profit for the same period grew 12 %. Net Interest Income grew by only 24 % in FY 2015.

The asset quality for Repco Home Finance is amongst the healthiest despite significant exposure to the non-salaried segment. Gross Non-Performing Assets (“GNPAs”) for FY 2015 stood at 1.30 % of gross advances, and Net Non-Performing Assets (“NNPAs”) came at just 0.50 % of customer assets. In the last few years, there have been many challenges with respect to NPAs for the financial sector due to bad economic and business environment. But Repco Home’s has maintained healthy asset quality primarily due to strong risk management practices. Repco Home also does not have any exposure to developer/builder loans, which has also helped it to maintain a healthy asset quality.

Focus on Branch Expansion

Initially the Company has kept its focus on South India, with over 83% of its branch network located in this region. However, over the past 3-4 years; Repco Home has been expanding in other states such as Maharashtra, Gujarat, West Bengal and Odisha by opening branches and satellite centres. Currently, the Company has its presence in 11 states and 1 Union Territory with 113 branches and 38 satellite centres.

Going ahead, the Company plans to add 15 branches annually, with approximately two-thirds in the South and the remaining in the Rest of India.

repco home networkFocus On Self-Employed and Underserved Areas

Repco Home’s business model focuses on the segment which is largely under‐served, especially in smaller towns and cities i.e. tier II and III cities. This strategy has favored the Company as most tier I cities are widely catered by banks and big NBFCs, thereby leaving limited room for a small & new player, who will not be able to survive the huge competition.

Taking advantage of this, Repco Home has carved a niche for itself by (i) Focusing on tier II and III cities. This leads to lower competition from banks and other HFCs leading to high advances growth, (ii) Focusing on the self-employed segment which is highly under penetrated and relatively less competitive and offers higher yields.

As per the National Sample Survey office, the self employed segment accounts for 34% of the workforce but accounts for ~10% of the loans. Realizing the size of opportunity, Repco Home has made its strong presence into this segment. Repco Home has more than 50% of its loan book exposure to self employed segment.

INVESTMENT CONCERNS

Geographical Concentration

REPCO HOME LOAN BOOK

Repco Home has 63% exposure to Tamil Nadu and the four southern states contribute approx. 90% of the loan book. Any adverse impact from politics, economic downturn, or natural calamities poses a risk to its business growth and asset quality.

Competition

REPCO HOME COMPETITION

KEY FINANCIAL FIGURES (In Rs. Cr.)

 

FY2013

FY2014

FY2015

Total Income from Operations

405.71

534.15

692.20

Expenses

32.01

383.81

72.13

EBITDA

373.70

150.34

620.07

Depreciation

1.52

2.41

2.95

Finance Costs

265.64

0.00

431.77

Other income

0.26

1.20

0.82

Exceptional items

0.00

0.00

0.00

PBT

106.80

149.13

186.17

Tax

26.78

39.03

63.09

Extraordinary Items

0.00

0.00

0.00

PAT

80.02

110.10

123.08

PROFITABILITY ANALYSIS (%)

 

FY2013

FY2014

FY2015

Operating Profit Margin Ratio

92.11

28.15

89.58

Net Profit Margin Ratio

19.72

20.61

17.78

KEY BALANCE SHEET FIGURES (In Rs. Cr.)

 

FY2013

FY2014

FY2015

Share Capital

62.16

62.16

62.36

Reserves & Surplus

572.36

675.97

749.75

Net worth (shareholders funds)

634.52

738.13

812.10

Long Term Borrowings

2,177.24

2,910.82

3,879.74

Current liabilities

947.17

1,031.39

1,273.35

Other long term liabilities and provisions

33.51

55.74

76.24

Deferred tax liabilities

 

34.24

Total Liabilities

3,792.45

4,736.09

6,075.68

                                                                                                                                                                                  

 

FY2013

FY2014

FY2015

Fixed Assets

4.47

4.99

8.93

Noncurrent Investments

8.05

12.40

12.40

Current assets

448.20

336.38

426.47

Long term advances and other noncurrent assets

3,320.56

4,363.66

5,627.88

Deferred tax assets

11.18

18.66

Total assets

3,792.45

4,736.09

6,075.68

EFFICIENCY ANALYSIS (In %)

 

FY2013

FY2014

FY2015

ROCE

13.29

4.12

13.22

ROE / RONW

12.61

14.92

15.16

VALUATION ANALYSIS

 

FY2013

FY2014

FY2015

Total Income from Operations

(` Cr)

405.71

534.15

692.20

Growth (%)

31.66 %

29.59 %

PAT (` Cr)

80.02

110.10

123.08

Growth (%)

37.59 %

11.79 %

Earnings Per Share – basic

17.07

17.71

19.78

Earnings Per Share – diluted

17.07

17.64

19.71

Price to Earnings

9.42

18.65

32.44

 

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 
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