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Better-than-expected on all fronts

Repco Home delivered a beat of 4%/7%/3% on NII/PPOP/PAT versus our expectations. The pleasant features of the quarter were a) organic disbursements at Rs7.7bn, being up 11% qoq/29% yoy despite loss of productivity due to LOS implementation, b) sequential loan book growth of 2% (annualized 8%), also aided by controlled BT Out, c) NIM expansion (up 30 bps qoq) coming through from the MLR hikes, d) continuance of strong momentum in NPL reduction and modest credit cost, and e) the co. delivering RoA/RoE of 2.5%+/14%+ for second consecutive quarter.

The management expects 20% growth in sanctions/disbursements and 12% growth in loan assets in FY24 on conservative basis. GNPL reduction is targeted at Rs1bn during the year, and hence credit cost is estimated at around Rs250mn. NIM/Spread are expected to be maintained at 4.8-5%/3-3.3%, supported by rate hikes and shifting of re-pricing mechanism to 3-month. Our FY24/25 estimates stand upgraded by 5- 10%. Stock trades at 3.8x P/E and 0.5x P/ABV on FY25 estimates. Sustained improvement in growth and asset quality would trigger substantial re-rating. We have a BUY with 12m PT of Rs350.

Encouraging growth trends

Repco disbursed Rs7.7bn versus Rs6.9bn in the preceding quarters, despite fully migrating to new LOS (loan origination system) in Q4 FY23. The co. also acquired a DA pool of Rs0.66bn, having similarity in ATS, customer profile and location. The earlier acquired DA pool of Rs0.7bn in June is having negligible delinquencies. Moderation in ann. portfolio run-off (underpinned by restrained BT Out) and focus on BT IN also aided loan assets growth during the quarter. Further stabilization of branch operations on the new LOS (well received by the field) would enable higher disbursements in coming months. The sanction ATS has also been gradually increasing. The co. plans to open 10 new branches and upgrade some of the Satellite Offices into a branch during the year.

Good momentum in NPL resolutions; Stage-2 expected to decline too

Asset quality continued to improve with GNPLs/NNPLs declining by 4%/10% on qoq basis to the levels of 5.8%/3%. NPL reduction has been mainly led by collections/normalizations (limited role of recoveries) and was brought about despite slippages of Rs0.77bn in H2 FY23 from the restructured portfolio. Worst is over in terms of stress flow from restructured portfolio, and the current Rs2-2.5bn loans in Stage-2 are exhibiting a reasonably healthy repayment trend. The co. has created a separate collection team from April for current and OD buckets, which has improved collections in initial delinquency buckets and will reduce slippages into Stage-3. Management confident of reducing the Stage-2 bucket from current ~13% to below 10% by end of the year.

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