REPCO Home Finance: Confident of recovering 90% of its non-performing assets

Dated:- 21st August 2019

Updates on the Indian market:

With the completion of result season and no major economic news today, the markets continued the downward journey. Most of this decline came during the closing hours. The Nifty fell by 98 points (-0.9%). Some of the biggest losers in NSE 50 were Tata Motors (-9.5%), Indiabulls Housing (-8.9%) and Yes Bank (-8.6%). All the NIFTY sectorial indexes fell.  With a 3% decline, PSU Bank and Metal sectors were the worst performers.

REPCO Home Finance: Confident of recovering 90% of its non-performing assets

Following are the excerpts from the interview given by Mr Yashpal Gupta, MD & CEO of Repco Home Finance published in Livemint.

·       The loan loss of guarantee given by the government to non-banks may not help the company. He was optimistic about the announcement on priority sector lending through Non-Banking Financial Companies (NBFC).

·       All the Non-Performing Assets (NPA) are from the retail segment as 100% of the loan book is to the retail segment. According to him, the first quarter slightly lags in recoveries and it is a yearly phenomenon for the company. The second part is that because the customers are retail, even after they become NPA, they continue to pay, unlike corporate or builder loans.

·       Out of the NPAs as of June 2019, more than 50% of the accounts are paid with a gap of 2-3 months. It is the technical issue which keeps them as NPA; otherwise, the company does not see any problem as all other numbers are very good according to Mr Gupta.

·       Most of the NPAs are coming from non-salaried class. Earlier, these customers used to pay and the payments used to be in cash. It was affected because they are integrating into the formal economy. The salaried segment is not affected that much. Within product-wise, LAP and home loan are equally distributed.

·       The loan book growth during the quarter was at 13% and the company has given guidance of 12-15% YoY loan book growth for the year. The salaried segment percentage has increased from 45% to 48% during the quarter. The company is confident that the lower prepayment rates along with muted disbursements will lead to loan book growth.

Consensus Estimate (Source: market screener website)

·       The closing price of Repco was Rs 315/- as of 21^st August 2019. It traded at a price to Book Value (P/BV) multiple of 1.09x/0.96x the consensus Book Value estimates for FY20/21E of Rs 290/330 respectively.

·       Consensus target price of Rs 447/- implies a P/BV of 1.35x on EPS of Rs 330 for the year ending Mar-21E.