Thanks a lot @nav_1996
Motilal Oswal report on Repco Home. Target 904
Not referring to repco. But I wonder why we give importance to brokerage house targets. They have put in a lot of efforts making this research report. Why is it free when it helps others , that too with a price target?. And why is the target 904?. Why not 900, 910 or 950?
Right. Forget the target. Just check info available in the report and use it for your own analysis. Helps if we do not have all the past data in place. but one has to do his own thinking.
Keki Mistry ’ So, if someone has been lending money at 10-11 percent – not even 11 percent, less than that – then these cases are generally very safe lending. However, if the lending has been done at 13-15 percent, then it is a little risky’
Excellent Interview on LAP
Does anyone know Repco’s Interest rate for LAP ???
Repco has been falling as market is concerned on its LAP exposure. Would like to know whether anybody has idea how robust the system of lending it has ?
Cholamadlam had also shown rise in NPA portfolio LAP. Looks like these is nothing abnormal here.
But I guess time for all NBFC to correct to more realistic valuations.
I guess Repco lends at high rates to regular home loans itself and not just LAP. This is because they lend to non-salaried class. Same is the case with GRUH, which is a subsidiary of HDFC.
Dear newone, nav_1996 and nil_71,
Repco had 20.7% loan exposure to LAP as of 30th Sep 2016. Of this 1.7% is just classified as LAP while in reality it is a third loan taken by a borrower for construction of home. For academic reasons it is classified as LAP. Anyway, for the balance 19% the policy adopted by Repco is to not lend beyond 50 -52% of value of the property. Assuming that some portion of loan is already paid for these LAP loans unless and until the property prices correct by more than 50% there would not be any danger of default.
Repco management has committed to keep the LAP portion below 20% and they have kept their words so far. They are also not going to give loans beyond 50 Lakhs in future as measure of further fiscal prudence.
Did anyone attend the concall today? Was there any update on the CBI case?
I attended the concall.
On CBI Issue: Management sounded and was very confident that it was according to the book. The MD said that the issue will be resolved without any problems once they verify the books.
Management call highlights - please feel free to add or correct
- NPA’s diverging from trend: Traditionally Q2 and Q4 NPA print for the company has been lower than Q1 and Q3. Management indicated that accounts classified NPA as at Sept end have to a degree been collected subsequently. Specifically, there were delays in a few high ticket LAP’s accounts, which is under resolution. Without giving a specific guidance, Management expects year end NPA print / coverage ratio to be “on the trend previous years” Management indicated that there have been instances in the past where NPA’s have moved above the trendline in Q2 since non salaried segment income stream is not linear (unlike salaried class) but has got resolved subsequently (not a permanent loss).
- Effect of de-montisation: Company see’s property prices correcting in the short term, however LTV’s offer asset coverage protection (62% overall average; 50-55% LAP and 70-75% for home purchase or self construction - 40% of the customer set). In the case of higher priced homes, the company takes 2 independent valuations (else 1). In all instances, asset value is lower of the valuation or company’s estimate of sale-able value. The asset is only one part of the story. Lending is also based on the borrowers ability to repay. Company us the Installment to (Disposable) Income Ratio (IIR) when determining the loan amount. IIR ranges between 50-60% for borrowers. Management did not expect loan installments to be delayed due to demonitisation as borrowers are small businesses (read - not targetted holders of black money) and would be easily able to convert their currency. (Note:Close to 90% of payments are current made via PDC’s)
- Short term Business prospects: In the short term, growth is expected to be better in the second half as INR 200 cr of disbursements were held up due to a specific issue with property registrations in TN.
Longer term prospects: The company expected de-monitisation to spur demand for small homes as land prices would fall. The management wants primarily to operate in the non-salaried / small salaried space and smaller towns (avoided by PSU and Private competitors) as it sees less competition and favorable risk reward.
- CBI case (case registered against mgmt persons due to complaint by a third party on waiver of prepayment charges): No financial impact on Repco. Management said proper guidelines had been followed in the waiver of and they would represent the same to the CBI.
- Cost of borrowing: Efforts on diversify the lending profile so as to reduce cost of borrowing (current around 9%). The company has a constraint in improving rating (AA-) due to overall rating of promoter (Repco Bank)
I came away sanguine of the Company’s prospects. Key short term monitorable is the NPA ratio. Longer term we have to see how growth is trending, given the recent Govt action.
Lenders give LAP at loan to value of ~50%. Also, property prices do not fall by 50%. So, there should not be any defaults on LAP. But, defaults happen on LAP. LICHF and CANFIN too are going slow on LAP.
The end use of money from mortgage loan is to build a house, but for LAP it is personal use. The nature LAP is different from home loans. But, I am not very conversant with LAP as a product. Please feel free to illuminate if any of the boarders have a good knowledge.
Generally good companies and Banks give LAP considering the income of the borrower along with the property value. The income of the borrower is considered in deciding the quantum of the loan. Maximum 50% of income of 15 years is considered for the loan. Those who give loans on only property prices are more susceptible to defaults.
I certainly don’t have deep enough knowledge to enlighten however would like to add my two cents. LAP as a product is riskier than home loans with relatively higher chances of default. They are to an extent a variant of personal loans with relatively lower interest rates. Not all banks restrict the LAP amount to 50% of market value of the property. It varies from as low as 40% to as high as 70%. A conservative lender looks at both property value as well as borrowers payback capability before lending. I would refrain from repeating the info related to Repco’s policy for LAP because it’s already covered by others.
KK, I think what matters is the repayment capability of the borrower and not really the property price. The property / asset price is primarily a collateral.
If the borrower is able to make his payments, then property price fall / rise doesn’t matter much for the lender.
If the borrower is not able to make his payments and if the property price is still stable / increasing, this is an issue for the lender as even though they have a good collateral, they still need to spend time / money in recovery
If the borrower is not able to make his payments and if the property price falls, then the lender is in real trouble.
I am sure Repco management has good management practices, in the sense, they lend sensibly even though they operate in the self-employed segment, where there is more risk.
But one thing that I don’t understand is: Why is the NPA very high for Repco, when NPA levels are so low (almost negligible) for the micro finance companies that also lends to similar segment. Granted, there are differences between the target customers of companies like Repco / Gruh and that of the micro-finance companies. But the risks are almost similar.
Does anybody have a link to the transcript of the latest conference call?
You can get the con call audio from researchbytes.
Repco was asked on the NPA issue and they were asked exactly this Q. Wrt that other HFCs, why your NPA number is higher ? MD replied that their NPA is little seasonal as they lend to Self-Employed people but he is confident , at the end of FY , it will come down
He handled most of the LAP issues and NPA issues with a good confidence and never tried to evade any Q.
He is still confident of 25% growth in income and keep the margin same. Let’s see
He clearly mentioned that other HFCs are getting better rating and lower borrowing cost as they have the backing of its parent.