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Stronger on all fronts

Repco’s NIII/PPOP/PAT were 3%/3%/6% ahead of our estimates driven by betterthan-expected loan growth, NIM and asset quality. Key highlights of the quarter were a) 20% yoy disbursement growth on like-to-like basis, 2) sustained moderation in BT Out, 3) NIM expansion of 10 bps qoq aided by significant improvement in portfolio yield (transmission of MLR hikes through six-monthly repricing), 4) abs. Rs250mn reduction in GNPLs without write-offs and 5) delivery of strong 2.8%/15.8% RoA/RoE.

Growth is improving and would get a fillip from various initiatives

Disbursements in Q1 FY24 stood Rs6.85bn v/s our estimate of Rs6.45bn. Adjusted for portfolio buyouts in Q4 FY23 and Q1 FY23, the originations were down 11% qoq (owing to seasonality) but up 20% yoy. Loan book grew by 1.7% qoq and 6.7% yoy, also aided by portfolio run-off being slower (annualized 15% v/s 19% in Q4 FY23 and 18% in Q1 FY23). BT IN at (Rs0.8bn) was higher than BT Out (

Management in confident about delivering 20% disbursements growth (Rs36bn disbursements) and 12% loan portfolio growth (Rs140bn) in the year. Growth efforts have shifted from relying on loan camps, brand, and referrals to reaching out customers through DSTs, DSAs and network expansion. The verticalization of Sales, Credit and Collections at the branches, efficiencies from the new LOS and compensation structure revisions are expected to augment productivity of branches and employees. Repco would also opportunistically pursue portfolio buyouts that are complimentary and profitable. Hence, management expects loan growth near industry/peers in FY25.

Walking the talk on asset quality; improvements to continue

Absolute GNPLs were down 3% qoq, and in percentage terms declined by 30 bps to 5.5%. There were no write-offs in the quarter, and recoveries (Rs800mn) were significantly higher than slippages (Rs560mn). Stage-2 assets were stable in absolute terms. Credit cost was just Rs50mn (annualized 16 bps) with GNPL coverage improved by 180 bps to 51.4%. Focused recovery actions and presentation of SARFAESI notices has been yielding NPL reduction. Having delivered NPL reduction of Rs250mn in Q1 FY24, the co. is confident about achieving its guidance of Rs1bn NPL reduction during the year. It also expects Stage-2 loans to come below 10% by Mar’24 (from ~13% currently) due to augmented collection efforts on early buckets. Credit cost for the year is estimated to be within Rs250mn and is estimated to be benign in FY25 too with further asset quality improvement.

Earning upgrades continue; stock firmly on valuation re-rating journey

Our earnings estimate of FY24/25 undergo 4-5% upgrade on raising of loan growth and moderation of credit cost assumptions. We expect 13% loan CAGR (being conservative v/s Management’s expectations), 17% PAT CAGR and avg. 2.7%/13% RoA/RoE delivery over FY23-25. Under the leadership of the new MD & CEO (Mr. Swaminathan), the company has delivered consistent gradual improvement in growth and meaningful improvement in asset quality. After all structural changes are done (likely by Q2/Q3 FY24), the loan growth should improve at a faster clip. Notwithstanding the recent strong price performance, Repco’ valuation still remains undemanding at 5x P/E and 0.8x P/ABV on FY25 estimates. The expected further improvement in growth and asset quality will incrementally re-rate the stock. We retain BUY with substantially raised 12m PT of Rs450.

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