Neutral Repco Home Finance Ltd For Target Rs.400 by Motilal Oswal Financial Services Ltd
Loan growth and disbursements remain weak; asset quality improves
Earnings in line; reported NIMs rose ~40bp QoQ
* Repco’s 3QFY25 PAT grew 7% YoY to INR1.1b (in line). NII grew ~9% YoY to ~INR1.8b (~5% beat). Other income grew 35% YoY to INR196m. Opex rose ~31% YoY to INR535m (~12% higher than MOFSLe).
* Provisions for the quarter stood at ~INR3m, translating into annualized credit costs of ~1bp (PY: 9bp and PQ: -45bp). GNPA declined ~10bp QoQ to ~3.85%, while NNPA declined ~10bp QoQ to ~1.5%. The company increased the PCR on S3 loans by ~110bp QoQ to ~62%.
* Home loans grew ~4% YoY, while other mortgage loans (including top-ups, CRE, and LAP) rose ~17% YoY. Management guided for disbursements of ~INR9.5b-10b in 4QFY25, and its loan book is expected to grow to ~INR146b by Mar’25.
* Valuations at ~0.5x FY27E P/BV are indeed attractive, but we believe that the company will continue to under-deliver on its loan growth guidance because of: 1) its inability to scale up loan growth in core home loans, and 2) too much focus on improving asset quality and profitability, which is detrimental to loan growth.
* We keep our FY26/FY27 EPS estimates largely unchanged. We model a loan/PAT CAGR of ~9%/7% over FY24-FY27E. For RoA/RoE of 2.8%/12.1% in FY27E, we maintain our Neutral rating on the stock with our revised TP of INR400 (based on 0.6x Sep’26E BVPS).
Loan growth remains subdued; repayment rates higher
* Disbursements in 3QFY25 were flat YoY at INR7.6b. Loan book grew ~7% YoY to ~INR142b. Run-offs were higher, with repayment rates increasing ~100bp YoY to ~16.3%. Disbursements were subdued during the quarter, impacted by disruptions in Karnataka and some changes in the underwriting standards.
* The proportion of non-salaried customers remained broadly stable at ~52%. The proportion of non-mortgage loans was largely stable at ~26%.
* The company is prioritizing housing loans and aims to expand this segment more aggressively than non-housing loans. We estimate a loan growth of 9%/10% in FY26/FY27.
Reported NIMs rose ~40bp QoQ; yields rose ~50bp sequentially
* Reported yields rose ~50bp QoQ to ~12.6%, and reported CoF also increased ~10bp QoQ to ~8.9%, leading to spreads increasing ~30bp QoQ to ~3.7%. Reported NIM rose ~40bp QoQ to 5.5%.
* The company implemented an MLR increase in Nov’24 and Dec’24, leading to an improvement in NIMs and spreads in the current quarter.
* The cost-to-income ratio (CIR) declined ~40bp QoQ to ~27%. (PY: ~23% and PQ: ~27.4%).
* The company will prioritize portfolio quality, with a greater focus on housing loans, which may exert some pressure on yields. We model NIMs of 5.0% each for FY26/FY27 (vs. 5.1% in FY25E), primarily due to a moderation in its yields because of higher competitive intensity.
Key highlights from the management commentary
* Repco is planning to do two mega auctions in the quarter, where the company will auction around 300 properties.
* The company has secured a sanction of INR1.5b from NHB after a three-year gap and plans to utilize those funds over the next three-six months.
* The company does not anticipate any additional credit costs in FY25. Based on the current trend, it expects no major impact on credit costs in FY26 either.
Valuation and view
* Repco's performance for the quarter was impacted by subdued loan growth and disbursements. However, asset quality continued to improve as the company remained committed to building a high-quality portfolio. Further, reported NIMs and spreads rose sequentially, supported by the PLR hike during the quarter.
* We will continue to focus on the management’s ability to deliver on the guided metrics of asset quality and loan growth. Like last fiscal year, we expect credit costs to remain benign and model net provision write-backs in FY25.
* We believe that REPCO should utilize the levers on its NIM for stronger loan growth in FY26-FY27. Although the risk-reward appears favorable at the current valuation of ~0.5x FY27E P/BV, we believe that the company will have to start delivering stronger loan growth in its core home loan product to command higher valuations. We reiterate our Neutral rating with a TP of INR400 (based on 0.6x Sep’26E BVPS).
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