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Edelweiss upgrades Repco to buy, price target Rs 460

Edelweiss has upgraded and given Repco Home Finance a ‘buy’ rating with a target price of Rs 460, saying the risk-reward has turned favourable for the stock. The stock traded nearly 1 per cent higher at Rs 312 on Monday when Sensex was up over 250 points at 37,609.

The brokerage said it has become positive on RHF’s presence in an under-served market and its grip on the self-employed segment. However, the brokerage said the current challenges are likely to reset its near-term growth, which will moderate EPS growth. “That said, post-correction, the stock is trading at 0.9x FY21E P/BV, rendering risk-reward favourable,” the brokerage said.

Company FinancialsRepco Home Finance posted better-than-expected Q1FY20 PAT of Rs 62.40 crore driven by better revenue (NIMs improvement) and curtailed cost. Key highlights includes a) continued softness in disbursements – down 5% YoY to Rs 670 crore – restricted AUM growth to merely 13 per cent YoY. b) better spreads (supported by a hike of 20bps YoY in lending rate) cushioned revenue momentum. c) GNPLs rose in line with the seasonal trend (across the board), but the rise was higher than historical levels, thereby indicating a softer recovery at large.

RHF’s disbursement trend continues to be soft (down 5% YoY), restricting AUM growth at 13% YoY (in line with estimate). The moderate growth is largely attributable to Tamil Nadu—its home markets, which grew merely 8% YoY (~57% of book) — indicating slower recovery. On the positive side, the non-home market sustained momentum – up 20% YoY – with Maharashtra jumping 26% YoY and Gujarat 46% YoY. Sustained growth momentum coupled with the recovery in home markets will be key.

Tracking seasonal trend, GNPLs rose to 4.2% (3% in FY19). However, the rise has been slightly higher than historical levels, indicating softer recovery. “Our GNPLs’ analysis shows an increase across segments—LAP GNPLs (6.9% versus 5% in FY19) and core home loan segment (3.6% versus 2.5% in FY19). While management has sharpened focus on recovery and is refraining from high-ticket disbursements, the benefits are yet to reflect,” the brokerage said.

Investment Rationale“A sluggish recovery in home market and systemic risk aversion would persist, but likely to be offset by momentum in non-home markets and sustained revenue traction. Anticipating softness in growth and volatility in asset quality, we downgraded RHF in September 2018. The stock has since underperformed benchmark Sensex by 35 per cent. The stock is now trading at 0.9 times FY21E P/BV, which captures all in concerns, in our view, and leaves limited downside. Hence, we are upgrading the stock to buy from hold with a price target of Rs 460 (unchanged),” the brokerage said.

Source: Economic Times