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Earnings in line but new business momentum muted Exhibiting openness to trade-off some spreads for better loan growth

* Repco Home Finance’s (Repco) 1QFY27 PAT grew ~6% YoY to INR1.14b (in line). NII in 1QFY27 grew ~13% YoY to ~INR2.1b (in line). Other income declined ~27% YoY to INR110m (~8% miss). Opex rose ~12% YoY to INR592m (~12% lower than est.).

* PPOP grew ~10% YoY to INR1.6b (~9% beat). Credit costs were higher than estimates at INR97m and translated into annualized credit costs of 25bp (PY: -7bp and PQ: -29bp).

* Repco’s 1QFY27 disbursements were impacted by employee transfers and promotion exercise during April-May, which temporarily disrupted business momentum as employees transitioned into new roles. With the organizational changes now largely settled, business momentum has improved, with encouraging trends in Jun’26 and Jul’26 and Aug’26 progressing as expected. Management shared that the moderation in business volumes in the quarter was transitory and expressed confidence in achieving its FY27 disbursement target of ~INR50b.

* Repco targets a 13-14% AUM growth in FY27, supported by deeper penetration in its non-core geographies and stronger origination capabilities. The company is broadening its geographic presence, with a focus on Karnataka, Telangana, and AP, while also building teams across Maharashtra, Rajasthan, Gujarat, and MP. The company plans to add 12-13 new branches in FY27. A wider sourcing network through DSAs, DSTs, and connectors, alongside improved operational efficiency and faster loan processing, should support higher origination volumes. Management expects the newer markets to gain meaningful traction over FY27-FY28 and increasingly contribute to overall loan growth.

* We believe Repco is taking several steps to accelerate growth, including strengthening its sourcing network, improving operational efficiencies, and expanding into newer geographies. Maintaining asset-quality discipline alongside growth remains a key positive, supported by strengthened recovery and collection efforts. However, execution across newer markets and the ability to deliver the targeted ~13-14% AUM growth will remain the key monitorables.

* We model a Loan/PAT CAGR of ~12%/5% over FY26-FY28E with an RoA/RoE of 2.6%/11% in FY28E. Reiterate our Neutral rating on the stock with a TP of INR415 (based on 0.5x FY28E BVPS).

Asset quality exhibits mild deterioration; recovery efforts to continue

* GS3 increased ~10bp QoQ to ~2.7%, while NS3 rose ~5bp QoQ to ~1.25%. PCR on S3 loans declined ~40bp QoQ to ~54.5%. Stage 2 rose ~20bp QoQ to ~7.2% as of Jun’26. For the book originated from Apr’22 onwards, GS2 stood at 4.3% (vs 7.2% for the overall book), and GS3 stood at 1.1% (vs 2.6% for the overall book).

* Asset quality remains a key focus, with GNPA at ~2.7% as of Jun’26 and management targeting GS3 of <2% by Mar’27. The company has strengthened recovery mechanisms through tighter monitoring, revised agency timelines and payout structures, systematic follow-ups, legal action, and SARFAESI. While Stage 2 increased marginally to ~7.2%, the newer book continues to exhibit healthy asset quality. We expect Repco’s credit costs to remain benign at ~2bp/~20bp for FY27/FY28

Valuation and view

* Repco reported in-line earnings, aided by better cost control, despite pressure on margins due to softer yields and higher than estimated credit costs. With the company’s internal reorganization now largely complete, disbursement momentum should improve in the subsequent quarters, supported by the company’s expansion and sourcing initiatives. There could be some near-term pressure on spreads as the company makes efforts to accelerate business momentum. Asset quality should continue to strengthen on the back of focused recovery measures. The key monitorable remains the pace at which these initiatives translate into sustained disbursement and AUM growth, particularly across newer markets.

* The company currently trades at ~0.5x FY27E P/B. We model a loan/PAT CAGR of ~12%/5% over FY26-FY28E, with an RoA/RoE of 2.6%/11% in FY28E. Reiterate our Neutral rating on the stock with a TP of INR415 (based on 0.5x FY28E BVPS).

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