REPCO home finance

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Thanks. Will wait to educate myself on if PE can/should be used or not. At this point in time I am not equipped enough to be able to compare between both and hence would refrain from talking about pros and cons of both approaches in relative terms.

Personally, I just try to follow a basic thing which is valuation approach for a firm should be driven by where the value is created from or where the value lies within the firm. And hence have been able to reconcile with book value (alongwith other associated stuff as stated above) as a good approach to value banks or NBFCs.

Also believe that such theories need to deliberated much in detail with appropriate back testing etc.,. as well. Don’t think I have the time to deliberate that much but none the less will try to read what I can find on this :smile:

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In investing,

  1. Sometimes, apart from theoretical knowledge, logic and common sense will be of great help.
  2. Sometimes, microscopic view does not give broader picture, you will only see electrons/protons rotating around nucleus, take a lift and see from 10th floor, you might see a beautiful picture.

This is not pointed towards anyone, just my view based on my experience.

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327

Very well said and is very true from my personal experience.

328

I agree. Interpretations might still be different even after adopting the points you stated. But following above 2 points, I personally am positive about stocks like Repco despite discussion on valuations.

Discl: Don’t hold Repco at this moment. Have had it in the past. Intend to buy again. Positively biased on home finance. Hold Canfin in the same sector (21-22% of the portfolio).

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My 2 C, folks look at PE in the bull market for upside and book value/share during bear market for downside protection.

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330

I am trying to assess the impact of Chennai rains on NPAs for Repco as it will take atleast 6 months to 1 yr to recover from damage.Any pointers from past ?
We haven’t seen any commentary from Management(may be too early now as things are still not stable)

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331

well, Gujarat earthquake and other calamities didn’t break Gruh so don’t think one or two quarters of delayed payments can’t be handled by Repco. It is the general insurance guys who need to be worried about.

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nothing going to stop , business, earnings etc …so albeit nominal delays or so

rather the damage may need loans to repair etc …maybe better loan off take in this misery ??

333

Its true that floods have hit Chennai badly… My heartfelt feelings are with the affected… But coming to its effect on repayment of housing loans… ideally a person opts for home loan considering their long term stability in income and such situations are bound to arise in anyone’s life… I am aware that Chennai floods have affected people at large and its not an isolated event for an individual customer, hence I feel that people may find tough to pay their immediate EMIs but certainly its not going to take long when things will turn GOOD for people and they will be able to bring things to normalcy including paying long term plans of life e.g. housing loans

I feel that its impact on Repco’s earnings will be minimal & even may not see any noticeable impact in Q3 or annual results.

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334

To try and guage the impact of Tamil Nadu (TN) floods, lets look at a few numbers:

Assume TN loans don’t grow (this is debatable, as there may be opportunities to lend for home redevelopment)

Assume TN gross NPA doubles to 5% of the loans outstanding (I think this is possible and maybe conservative assumption, given that loan repayment would be the last thing on the mind in current situation)

While this will not have to be provided immediately on default, it will attract 25% provision after 90 days.

The additional provision of Rs 53.5 cr (25% of gross NPA) appears significant considering FY15 PAT of 123cr and H1-FY16 PAT of 69 cr

One argument is that the loan would have to be classified as NPA only upon default extending over 90 days. In the next 3 months, it is possible that some of the borrowers are able to stabilise and resume their repayment. Upon full stabilisation, which could be 6-9 months away, and clearing off all the overdues, these loans can be re-classified as normal, leading to write-back of earlier provisions. Therefore, any adverse impact on financials might be a temporary situation.

Another is that the company can try and focus to compensate the situation by growing the non-TN book so that the overall impact is minimised.

A black-swan (sorry for use of the term) event could be that RBI gives a temporary concession/reprieve to banks and financial institutions to defer recognition of NPAs due to the floods situation.

Disclosure: I anticipate a spike in NPA over the next 2 quarters, impact on loan growth rates that the company has been posting till now, and impact on income and profits of the company (how much impact I am not able to gauge - and the above exercise is only an inexact attempt to quantify the discussions surrounding the topic).

Hence I reduced by holding by 20% at 690-700 levels recently. It still remains one of my top holdings and I remain convinced about the long term story. I will buy back my position if the price corrects significantly from here.

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335

What i heard, saw from TV it seems flood is mainly concentrated in Chennai. Can anyone help me to understand which are other areas in TN which are badly effected in flood. I doubt repco having too much ex-poser in chennai.

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floods have not sunk the whole of tamil nadu it has damaged mainly chennai.one needs to find how much of their loan book is in the chennai area.disc invested 13% portfolio

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Floods have affected Chennai, Kanchipuram (more rains than Chennai), Thiruvallur, Nagapattinam and Cuddalore districts in Tamilnadu and also in Pondicherry/Karaikal. North East monsoon season is not yet done with and maybe other districts are affected. For example, I’ve read reports that in cauvery delta (Tiruchi and Thanjavur Disctricts) samba paddy cultivation areas are inundated.

It remains to be seen if floods this will seriously affect Repco’s business. In medium-long term I think this would be a non event. Anyway we need to wait for the quaterly results to gauge any hit in the earnings of finance companies. Auto companies who have manufacturing base in Chennai are the ones who are affected and will post lower earnings for sure. Eicher Motors have already announced that they have lost production of 11,200 motorcycles and still as of today running in 50% capacity only.

Sundaram Finance who is a dominant lender (they also have a HFC arm) in Tamilnadu has taken a hit in the markets. They have announced special 8.5% loans for flood affect home renovations upto 10 lac. This is from the NHB’s 6.5% refinancing package. So there might be opportunity like this to gain market share or earn goodwill & trust.

Disc: Invested in Eicher Motors only from the businesses discussed.

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I live in Chennai and my feeling is Chennai flood would hardly have any impact on home loans.
We are good, the impact was no where close to what you felt watching on tv. I doubt my friends who are planning to buy homes soon would change their mind due to flood. The only thing I think can happen is the residential plots which got affected by flood may see a drop in price of houses for upcoming projects but that too is a very small number maybe around 10-15% of the overall construction work going on in the city. Unlike Eicher Motors where production was hampered here I don’t think any permanent loss is incurred by home loan sector except for suspicion in the minds of buyers which all areas to avoid for buying homes.

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339

Another fear market has, is about the loss of income to lower-middle income group and hence rise of NPA’s from that group. What do you think of that ? How is the un organised working class coping up with the situation ?

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340

I think it is all about FII selling. Everyone knows that its NPA issues (if any) would prove to be temporary.

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Repco, in total has 47 branches in tamilnadu out of which 8 are in chennai.
Interesting thing is that most of the cities that repco is present it has only 1 branch or max 2. With having 8 branches in chennai, I feel that it is a significant market for repco.
Also, it is the middle and lower income group which will feel the pain of floods to whom repco caters. So I think this quarter will be ok on npa front but, next quarter is going to have a significant spike.

I am expecting gnpa to go to 3.5-4% of fy16 loan book.

Disc- not invested but waiting on sidelines to enter

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http://economictimes.indiatimes.com/industry/banking/finance/banking/housing-finance-companies-to-lower-interest-rates-in-flood-hit-chennai/articleshow/50174353.cms
News related to repco. though it may not impact largely due to small 100 cr kitty and repco only get 25-30 crores , but it reflects the govt entities working towards rehabilitation

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Not sure what percent of unorganized working class go fore home loans, for organized class I can say there was hardly and impact in long term.

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Related party transaction with Repco bank was not passed in the special resolution. Was this move against the interest of minority shareholders?

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