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Repco Home Fin.: All-round performance

Mar 11, 2014 | Updated on Oct 30, 2019

Repco Home Finance (RHFL) announced its results for the third quarter of the financial year 2013-14 (FY14). The institution grew its income from operations by 33% YoY and the profits by whopping 62.5% YoY during 3QFY14. The profits for the 9mFY14 also increased by healthy 50.2% YoY. Here is the detailed analysis of the results.

Performance summary
  • Income from operations grew 33.0% YoY in 3QFY14 with a healthy growth in disbursements. Consequently, the net interest income grew by 62.3% YoY.
  • Net interest margins moved up from 3.8% in 3QFY13 to higher levels of 4.6% in 3QFY14.
  • The other income grew by 9.7% YoY.
  • Net profit for the quarter increased by 62.5% YoY in 3QFY14 on account of higher net inetrest income and lower provisioning costs. For 9mFY14, the profits rose by 50.2% YoY.
  • Gross NPAs have reduced to 2.0% from 2.9% earlier, while the net NPA ratio has declined to 1.3% in 3QFY14 from 2.3% in 3QFY13.
  • The cost-income ratio was at 26% for the third quarter of FY14.

Financial Performance Snapshot
Rs (m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Income from operations 993 1,321 33.0% 2,818 3,708 31.6%
Interest Expense 702 849 20.9% 1,956 2,339 19.6%
Net Interest Income 291 472 62.3% 862 1,369 58.9%
Net interest margin (%)       3.8% 4.6%  
Other Income 38 42 9.7% 102 146 44.1%
Other Expense 58 110 90.0% 156 267 71.6%
Provisions and contingencies 50 35 -29.4% 109 186 70.8%
Profit before tax 221 368 66.5% 699 1,063 52.1%
Tax 54 97 78.9% 176 276 57.5%
Profit after tax/ (loss) 167 271 62.5% 523 786 50.2%
Net profit margin (%) 16.8% 20.5%   18.6% 21.2%  
No. of shares (m)         62.2  
Book value per share (Rs)         112.1  
P/BV (x)*         2.8  
* Book value as on 31st December 2013

What has driven performance in 3QFY14?
  • Thanks to continued robust growth opportunities in the housing sector particularly in Tier II and Tier III cities, RHFL has reported 50% YoY profit growth for 9mFY14. Also, for 3QFY14, the profits have grown by whopping 63% YoY. The primary driver to the earnings growth has been the healthy growth in disbursements during the third quarter. Banking on the rural niche presence the company has reported growth with quality during 3QFY14.

  • With sanctions growing at a healthy rate of 51% YoY and disbursements at 57% YoY during 3QFY14, the business growth visibility remains robust for RHFL. Moreover, rich loan-mix skewed towards non-salaried segment that forms 54.5% of the total loan book and salaried segment accounting for 45.5%, supports the growth strategy.

    Outstanding loan book composition
    Segment 3QFY13 3QFY14
    Non Salaried 52.7% 54.5%
    Salaried 47.3% 45.5%
    Individual Home Loans 85.9% 82.5%
    Loans against Property 14.1% 17.5%

  • Strong disbursements and expansion in margins has led to compelling 62.3% YoY growth in net interest income for the company during 3QFY14. The loan against property segment that offers higher yields currently constitutes 17.5% of the loan book. The company plans to step it up higher to 20% levels providing boost to the loan book going forward. Moreover, the cost of debt for the company remains benign. Diversified borrowing profile with higher borrowings from banks and NHB ensure low cost funding. Consequently, the margins for the quarter have expanded from 3.8% in 3QFY13 to 4.6% in 3QFY14. The favorable loan mix backed by high yielding assets and niche business focus will continue to ensure steady margins for the company.

  • The operating expenses for the company stood higher and reported almost 90% YoY increase during 3QFY14. Certain one-off expenditures such as advertisement expenses, renewal insurance premiums paid on home loans and expenses pertaining to ESOP grants have accentuated the operating costs during 3QFY14. Subsequently, the cost-income ratio hiked to 21% levels in 3QFY14 from 18% same quarter a year ago. That said, the continued focus on low0cost business model is expected to ensure cost efficiencies going forward.

  • The asset quality for the company has demonstrated consistent improvement over the quarters. For 3QFY14, the gross NPAs were seen down to 2.0% and net NPAs at 1.3% as against 2.9% and 2.3% respectively same quarter a year ago. Greater focus on recoveries and robust risk management practices has enabled RHFL to contain asset quality pressures. However, the 2% plus NPA levels have been the norm for RHFL owing to exposure to non-salaried segment that have volatile cash flows. The provision coverage for the company has improved to 37.4% during the third quarter of FY14 from 21.8% a year ago.

  • The provisions for the quarter stood lower and declined by 29.4% YoY. Therefore, strong net interest income and lower provisions boosted the profitability of the company. RHFL reported whopping 62.5% YoY profit growth during 3QFY14. The RoEs at 20.4% and RoAs at 2.7% stood strong during 3QFY14.

  • The total capital adequacy ratio for the company stood at 25% at the end of December 2013.
What to expect?
At the current price of Rs 313, the stock is valued at 1.6 times our estimated FY18 adjusted book value.

Steady loan growth backed by rich composition, lean business model, niche business focus and robust asset quality reinforces our belief in the company. That the company plans to move out of home turf and expand in non-southern states is icing on the cake.

We like the growth with quality strategy of Repco Home Finance Ltd that holds enough potential to build credibility for itself amongst investors, over the long term. We recommend investors to BUY the stock from a perspective of 4 to 5 years. However, we suggest that investors should not buy the stock if the stock price exceeds Rs 350. We would also like to point out here that the risk profile of this company is medium. However, given the geographic concentration and higher exposure to the risky asset class, we have been conservative with our estimates.

Also, we would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Within your overall exposure to equities, please ensure that you broadly follow our suggested asset allocation. We suggest that no single small cap stock should comprise more than 2%-3% of your total stock portfolio.

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