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Muted loan growth; asset quality stable despite seasonality

Reported NIM stable QoQ; disbursements rose ~22% YoY

* Repco Home Finance’s (Repco) 1QFY26 PAT grew 2% YoY to INR1.1b (6% beat). NII in 1QFY26 grew ~8% YoY to ~INR1.8b (in line). Other income was broadly flat YoY at INR150m. Opex rose ~17% YoY to INR530m (~8% lower than MOFSLe). ? PPOP grew ~4% YoY to INR1.4b (~7% beat). Provision writebacks stood at INR27m, translating into 1QFY26 annualized credit costs of -7bp (PY: 4bp and PQ: -65bp).

* GNPA rose ~5bp QoQ to ~3.3%, while NNPA dipped ~10bp QoQ to ~1.2%. The company increased the PCR on S3 loans by ~220bp QoQ to ~62%. Repco shared that the company has not witnessed any unusual trends or significant deterioration in any state. For the new book (originated post Apr’22), GS2 stood at 5% (vs 9.7% for the overall book) and GS3 stood at 1.1% (vs. 3.3% for the overall book).

* Home loans grew ~4% YoY, while other mortgage loans (including top-ups, CRE, and LAP) rose ~15% YoY. Management has guided for disbursements of INR40b in FY26 with a target AUM of INR160b by Mar’26.

* Management shared that momentum has picked up in Karnataka, with notable improvement in Gujarat and Rajasthan during 1Q. The 30-35 new branches opened over the past 2-3 years are now contributing meaningfully, boosting management’s confidence in achieving the ~INR40b disbursement target for FY26.

* Repco’s valuation at ~0.6x FY27E P/BV is indeed attractive, but we believe the company will continue to fall short of its loan growth guidance due to: 1) its inability to scale up loan growth in core home loans and 2) a greater focus on improving asset quality and profitability, which is detrimental to loan growth.

* We have made very marginal changes to our FY26/FY27 EPS estimates. We model a loan/PAT CAGR of ~9%/2% over FY25-FY27E. For an RoA/RoE of 2.7%/12% in FY27E, we reiterate our Neutral rating on the stock with a revised TP of INR430 (based on 0.7x Mar’27E BVPS).

Loan growth remains muted; disbursements rise 22% YoY

* Disbursements grew ~22% YoY to INR8.3b in 1QFY26. The loan book grew ~7% YoY to ~INR147b. Run-offs were higher, with repayment rates increasing ~280bp YoY to ~18% (PY: ~17.2%).

* As of Jun’25, the proportion of non-salaried customers remained broadly stable at ~52%, while loans for the salaried segment accounted for 48% share. Housing loans accounted for 72% of the loan book, while Home Equity accounted for 28%.

* Management indicated it is experiencing slightly higher BT-OUTs compared to peers (driven by ~100bp repo rate cut), but has managed the situation effectively so far. Repco is retaining quality customers by offering rate reductions or top-up loans. We estimate a slightly lower loan growth of 9%/10% in FY26/FY27.

Reported NIM stable QoQ; yields dip ~20bp QoQ

* Reported yields/COB declined ~20bp each QoQ to ~12%/8.7%. This led to stable spreads QoQ at ~3.3%. Reported NIM was stable QoQ at 5.2%.

* Cost-to-income ratio declined ~4pp QoQ to ~26.9% (PY: ~24.7% and PQ: ~30.9%). ? Management shared that its cost of borrowings (CoB) has been declining, and with commercial banks yet to pass on MCLR cuts, management expects the CoB decline to continue over the coming quarters. We model an NIM of 4.9%/4.8% for FY26/FY27 (vs. 5% in FY25), primarily due to a moderation in its yields amid higher competitive intensity in a declining interest rate environment.

Key highlights from the management commentary

* The company has enhanced its recovery efforts by appointing three dedicated recovery managers in each region, introducing a Board-approved one-time settlement (OTS) scheme, holding monthly mega auctions, and increasing the allocation of accounts to recovery agencies. Its vertical collections model has helped reduce bounce rates from 4-5% previously to around 1-2% currently.

* Management indicated that apart from Maharashtra—where additional manpower deployment is required—the company is experiencing healthy growth across all other states.

Valuation and view

* Repco’s quarterly performance was impacted by muted loan growth, despite a healthy growth in disbursements. Nonetheless, its asset quality continued to strengthen, underscoring the company’s commitment to building a high-quality portfolio.

* We will continue to focus on management’s ability to deliver on the guided metrics of loan growth and profitability. Similar to the previousfiscal year, we expect credit costs to remain benign due to recoveriesfrom NPA and the written-off pool.

* Although the risk-reward appears favorable at the current valuation of ~0.6x FY27E P/BV, we believe 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 INR430 (based on 0.7x Mar’27E BVPS)

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