IGI Logo

Operational transformation sets stage for better business momentum NIM stable QoQ; asset quality improvement gaining traction

* Repco Home Finance’s (Repco) 2QFY27 PAT grew 8% YoY to INR1.2b (in line). NII in 2QFY27 grew ~9% YoY to ~INR2.1b (in line). Other income grew ~16% YoY to INR143m (vs est. of INR130m; ~10% beat). Opex rose ~18% YoY to INR709m (~13% higher than est.).

* PPOP grew ~6% YoY to INR1.5b (~5% miss). Provisions stood at ~INR4m, translating into annualized credit costs of ~1bp (PY: -4bp and PQ: 24bp).

* Repco shared that it targets disbursements of INR13-13.5b in 3QFY27 and INR16.5-17b in 4QFY27. The aspiration for stronger business momentum is underpinned by organizational verticalization into dedicated sales, credit, operations, and collections teams, enabling sharper accountability and focused execution.

* On the sourcing front, an expanded DST network, a developing DSA channel, the connector model, and revised incentives are expected to improve sourcing productivity. A revamped technology platform and mobile applications for sourcing executives should further enhance TAT and operational efficiency.

* We believe Repco's investments in strengthening its sourcing capabilities, organizational structure, and recovery mechanisms have laid the foundation for a gradual pick-up in loan growth. While improved disbursement momentum and asset quality trends are encouraging, the ability to sustain better loan growth without compromising asset quality and manage yield pressures (to retain better quality customers) will remain key monitorables.

* We model a loan/PAT CAGR of ~12%/6% over FY26-FY28E with an RoA/RoE of 2.7%/11% in FY28E. Reiterate our Neutral rating on the stock with a TP of INR375 (based on 0.5x Sep’28E BVPS).

Disbursement momentum expected to now accelerate

* Disbursements grew ~13% YoY and ~43% QoQ to INR12.1b in 2QFY27. Loan book grew ~9% YoY/2.7% QoQ to ~INR164b. Repayment rates declined ~50bp YoY to ~19.3% (PY: ~19.8% and PQ: 18.5%).

* As of Sep’26, loans to the non-salaried segment accounted for ~54% of the outstanding loan book and loans for salaried segment accounted for ~46%. Housing loans accounted for 71% of the loans, while Home Equity accounted for 29% of loan book.

* Repco plans to add 12-13 branches, largely outside Tamil Nadu, to deepen its presence in non-core markets. With employee organizational realignments largely completed and branch-level execution improving, management expects these investments to translate into stronger business generation and higher disbursements, while dedicated recovery mechanisms support disciplined growth and portfolio quality. We expect Repco to deliver a loan CAGR of ~12% for FY26-28.

Highlights from management commentary

* The ATS of incremental disbursements stood at INR2.3-2.5m, compared to an overall portfolio ticket size of ~INR1.4m.

* The average yield on housing loans stood at ~11.1%, while non-housing loans generated a higher yield of ~13.3%. Salaried customers carry an average yield of ~11.25%, compared with ~12.1% for non-salaried borrowers.

Valuation and view

* Repco's 2QFY27 performance reflects the gradual benefits of its operational restructuring, with improved sourcing and recovery mechanisms expected to support business momentum in the coming quarters. Disbursements are expected to accelerate, supported by stabilization of the sales team and expansion of sourcing channels. While asset quality has improved, sustaining this improvement alongside faster growth will remain a key monitorable. Further, the ability to maintain spreads amid higher funding costs will be critical.

* We model a loan/PAT CAGR of ~12%/6% over FY26-FY28E with an RoA/RoE of 2.7%/11% in FY28E. Reiterate our Neutral rating on the stock with a TP of INR375 (based on 0.5x Sep’28E BVPS).

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH00000041