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Muted loan growth; reported NIM contracts ~30bp QoQ

PPOP miss; PAT in line, led by provision writebacks; asset quality improves

* Repco Home Finance (Repco)’s 4QFY25 PAT grew 6% YoY to INR1.1b (in line). FY25 PAT rose ~11% YoY to INR4.4b. NII in 4QFY25 grew ~5% YoY to ~INR1.7b (~7% miss). Other income increased 30% YoY to INR184m. Opex rose ~21% YoY to INR584m (~5% higher than MOFSLe).

* PPOP grew ~2% YoY to INR1.3b (~13% miss). Provision writebacks stood at INR233m, translating into annualized credit costs of -65bp during the quarter (PY: -30bp and PQ: 1bp).

* GNPA declined ~60bp QoQ to 3.25%, and NNPA dipped ~20bp QoQ to 1.3%. Repco reduced PCR on S3 loans by ~220bp QoQ to ~60%. It highlighted that asset quality witnessed notable improvement during the year, supported by the execution of four SARFAESI auctions and multiple special OTS schemes. Additionally, the company strengthened its collections infrastructure by onboarding 70+ dedicated recovery personnel.

* Home loans grew ~5% YoY, while other mortgage loans (including top-ups, CRE, and LAP) rose ~14% YoY. Management has guided for disbursements of INR40b in FY26, leading to an expected AUM growth of ~12% YoY. Additionally, the company outlined its long-term target of reaching an AUM of INR250b by FY28, supported by accelerated disbursement momentum and expansion initiatives.

* Repco’s valuation at ~0.6x FY27E P/BV is indeed attractive, but we believe that the company will continue to fall short of 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 broadly retain our FY26/FY27 EPS estimates. We model a loan/PAT CAGR of ~9%/3% over FY25-FY27E. For an RoA/RoE of 2.8%/12% in FY27E, we reiterate our Neutral rating on the stock with our revised TP of INR465 (based on 0.7x Mar’27E BVPS).

Loan growth remains subdued; disbursements rise 9% YoY

* Disbursements grew ~9% YoY to INR9.8b in 4QFY25. The loan book grew ~7% YoY to ~INR145b. Run-offs were higher, with repayment rates increasing ~85bp YoY to ~18% (PY: ~17.2%).

* The proportion of non-salaried customers remained broadly stable at ~52%. The proportion of non-mortgage loans rose to ~27% (PY: ~25%).

* Management highlighted that it has undertaken several initiatives to curb prepayments and BT-outs, and expressed confidence in meeting its disbursement and AUM growth targets for FY26. However, we estimate slightly lower loan growth of 9%/10% in FY26/FY27.

Reported NIM dips ~30bp QoQ due to yield compression

* Reported yields declined ~40bp QoQ to ~12.2%, while reported CoF was stable QoQ at ~8.9%, leading to ~40bp QoQ dip in spreads to ~3.3%. Reported NIM contracted ~30bp QoQ to 5.2%.

* The cost-to-income ratio rose ~4pp QoQ to ~31%. (PY: ~27% / PQ: ~27%).

* Management highlighted that it has received a refinance sanction of INR1.5b from NHB, which it plans to avail before Jun’25. We model a NIM of 4.9% each for FY26/FY27 (vs. 5% in FY25), primarily due to a moderation in its yields because of higher competitive intensity in a declining interest rate environment.

Key highlights from the management commentary

* Management shared that over the past three years, the company has disbursed INR90b, which has a GNPA of ~0.7%. It emphasized that the quality of the new book, built over the last three years, remains strong, and no significant incremental GNPAs are expected from this portfolio.

* Repco acknowledged that the E-Khata issue in Karnataka persists; however, the impact has moderated. It also noted an improvement in business performance in Karnataka during 4Q compared to 3QFY25.

* To diversify the funding sources, the company plans to raise INR10-15b via NCDs and CPs, with INR1b of CP and INR1b-INR1.5b of NCD raise targeted for the next quarter.

Valuation and view

* Repco's performance during the quarter was hurt by muted loan growth, despite a marginal uptick in disbursements. However, asset quality continued to improve, reflecting the company's focus on building a high-quality portfolio.

* We will continue to focus on the management’s ability to deliver on the guided metrics of loan growth and profitability. Like in the last fiscal 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 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 INR465 (based on 0.7x Mar’27E BVPS)

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