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Not much changes
Slowing growth and stable asset quality in a qtr that usually sees seasonal improvement, disappointed. The tax cut boosted earnings. Maintain BUY with a TP of Rs 419 (1.5x Sept-21E ABV).
HIGHLIGHTS OF THE QUARTER
* Asset Quality Stable QoQ: In a qtr that usually sees significant asset quality improvement, GNPAs were stable at ~Rs 4.85bn (+30% YoY, 4.2%). Home loans (+60/30bps, 3.6%) and the non-salaried segment (+190/90bps, 6.5%) saw deterioration. We expect GNPAs of 3.2% by FY22E.
* Growth Languishes: AUM growth hit a 6 qtr low of ~10.7%, with home loan growth (+10.5/1.4%) slowing to a record low and. Slow growth in TN, continues to drag overall growth. Ex-TN growth (+17% YoY, ~44% of loans) too slowed. Higher prepayments and takeovers by banks constrained growth. Our growth estimates remain unchanged at ~13% over FY20-22E.
* Provisions Seesaw: REPCO continues to witness an inexplicable and sharp qtrly movement in provisions. 2Q provisions were a meager Rs 1mn (vs. ~Rs 75mn QoQ and writebacks of ~Rs 35mn YoY). While erratic LLPs appear to mirror qtrly asset quality movement, we would expect them to mimic expected PD and LGD trends over a longer time frame (adjusting for seasonal volatility). In line with our NPA assumptions, we model LLPs at 30bps over FY20-22E
* NIMs Contract Slightly: While spreads remained flat QoQ, as 3.1% as both yields (11.6%) and CoF (8.5%) fell 10bps each QoQ, margins fell ~20bps to 4.3% (ample nevertheless) due to an increase in leverage. Margins may see further relief from MCLR cuts, as bank loans are ~75% of borrowings. We model NIMs of 4.3% over FY20- 21E.
* Borrowings: Bank borrowings saw a ~24/10% YoY/QoQ increase. Further, REPCO has undrawn bank lines of ~Rs 28bn.This is very impressive (for an entity of its scale) given the troubles faced by NBFCs in raising money from banks. However, there is no visibility of the use of these funds for faster growth.
Inexplicably slow growth at REPCO, in the face of waning competition has disappointed for a while now. Availability of debt and ample CRAR (~25%) and liquidity are big positives, even though REPCO may not use this to grow much faster. At 1x FY21E ABV, our stance is mostly premised on inexpensive valuation.
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HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475
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