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REPCO home finance

NPA NIM
q1FY15 1.6 4.4
q4FY14 1 4.7
q3FY14 1.3 4.6
q2FY14 0.92 4.7
q1FY14 1.5 4.7
q4FY13 1 3.8
q3FY13 2.32 4.6

net npa, Net interest margins

Quaterly, half yearly, annually

R. Varadarajan - Managing Director addressed the call:Highlights by Capital Mkt:

  • The company has posted strong loan growth of 31% in Q1FY2015, driven by 24% surge in disbursement. The company expects to sustain loan growth in the 25-30% in the medium term.The loan mix between housing and loan against portfolio (LAP) stands at 80.8:90.2 at end June 2014.
  • With the strong capital adequacy ratio of 23.5%, entirely comprising of Tier - I capital, the company has large room for growth.The average loan-to-value (LTV) for the company stands at 62%.The company has posted healthy growth in PAT, despite high base and increase in NPAs.
  • GNPA ratio surged to 2.5% at end June 2014 from 1.5% a quarter ago. As per the company, an increase in GNPA ratio is mostly on technical reasons.The company proposes to reduce GNPA ratio back to 1.5% in FY2015.
  • In the absence of fresh NPA provisions, the provision coverage ratio (PCR) of the company declined to 36.4% at end June 2014 from 51.5% a quarter ago. However, the company proposes to improve PCR strongly in FY2015 and further raise to 100% in next few years.The spread and NIM stood at 2.8% and 4.4% in Q1FY2015. The company has spread and NIM target of 3% and 4%.The company expects to maintain expense ratio at 19-20% for FY2015.The effective tax rate is expected at 33-34% for FY2015.

I am not very comfortable with the volatility in NPAs be it for technical reasons or whatever. Not paying a loan installment for 90 days is a serious issue and implies that budget is indeed tight for the borrowers - mostly self employed.

Can someone clearly explain why a small time businessman’ s expenses blow up in the 1st qtr and stabilize thereafter?

Do Gruh’s NPAs follow the same pattern?

Bobby

1 Like

I think we can have an unbiased look at GIC Housing Ltd, an out of favour stock (disclosure - I have vested interest in the stock and have been holding it since IPO).

A look at all the important ratios will show that the stock is trading cheap. All the required information can be accessed from any of the numerous sites that give information about stockmarket (eg moneycontrol.com) and also BSE and NSE.

Heard there is a board meeting on 11th to increase fii limit , Can anybody confirm this news ? Any info ?

Bobby,

Repco GNPA and NNPA are 2.49% and 1.60% in FY Q1 15 (2.22% and 1.52% in FY Q1 14).

Gruh GNPA and NNPA are 0.44% and 0.04% in FY Q1 15 (0.46% and 0.05% in FY Q1 14).

Their total customer base is less than 50K, so non-salaried is about 25K (50:50 split between salary and non-salary)… to know which segment of non salaried in Q1 defaulted is little hard to find out as every segment must be small. But total Credit loss Repco made till date is Rs. 4 Cr. out of total Rs. 7000 Cr. disbursements since inception. To me 0.06% Loan Loss in the starting phase of business is an encouraging figure (may be due to their better profiling through Repco Bank client base).

For me, mismatch of the Asset Quality of Repco vs. Gruh is more than adequately priced in at current valuation.

Missed to add, in the coming months how the small expansions in disparate geographies would help them maintain their loan book is something to keep a close tab on as the Repco Bank advantage would be missing there.

However, it is a long term bet on macro story / interest reduction / huge market and other more banal reasons we all know… Let’s see…

Disc. : Invested and plan to remain invested (<5% of portfolio)

This is the crux of the matter for repco. People do too much analysis on its NPA ratios and are often deterred from buying a great business.

They have NPA swings because nature of their clientele. They cater to a lot of non salaried people and those are the guys who are exposed to some seasonality as well as unexpected expenses against lumpy earnings.

Repco has shown tremendous growth of 30-35% since past many years and I think along with Gruh has something of a niche in the HFCs.

Currently the capital adequacy ratio is also high so they wont need to dilute equity too much. Their NIMs are quite high. The all important ROA is very good in the range of 2.5 to 2.7%.

Market is still not sure what should be fair PE band for Repco because it focused too much on past qtr performance.

I believe Repco growth story is here to stay for long. This is ideal time for long term investor in Repco.

Kunal
Disc : Still not invested but coming soon

I spoke to the MD Vardarajan during their AGM. Felt that the management was quite transparent and down to earth.

Regarding NPAs, the quarterly volatility is something investors have to live with given how self employed people in the south (mostly TN) manage their cash flows however their 14 year history shows that actual write offs are marginal so let us hope that the future is not too different from the past.

Apart from that the MD has a simple philosophy to become the next Gruh;

)- Maintain loan growth in the 20-25% range

)- Target NIM of 4%

)- Keep bad loans at less than 1% of book

)- Focus on core business; no unrelated expansions

Bobby

RBI hiked FII limit in Repco to 49% as per BSE announcement : http://www.bseindia.com/xml-data/corpfiling/AttachHis/Repco_Home_Finance_Ltd_171014.pdf

Any take on Q2 numbers, didn’t have time to look for details

Key Metrics taken from ResearchBytes uploaded presentation

Looks in-line with MD's though process as per AGM notes, didn't check any analyst OR Market expectation

Year/Ratios Q2 FY15 Q2 FY14 Q1 FY15 Q4 FY14
NIM 4.5% 4.7% 4.4% 4.7%
Net NPA 0.8% 0.9% 1.6% 0.7%
ROAA (TTM) 2.5% 2.7% 2.6% 2.7%

Q on Q Revenue increase as compared to last year Q2 is 31%.

Also H on H Revenue increase is also 31% compared to last year

New Norms by RBI for NBFC’s brings NPA on par with Banks

The Reserve Bank of India announced a revised framework for non-banking financial companies (NBFCs), raising the minimum net owned funds limit while capping deposit acceptance and aligning bad loan norms with banks, reports CNBC-TV18’s Latha Venkatesh. Among the important norms laid out in the framework: all NBFCs will have to take a certificate of registration for continuing business and they must have net-owned funds of at least Rs 1 crore by 2016 and Rs 2 crore by 2017. Rules have also been changed for asset finance companies, who until now could easily take public deposits – they now have to obtain an investment-grade rating from a rating agency but this rule too is applicable from March 2016. The most important ones, though, are the changes in the bad loan rules. As of now, NBFCs mark a loan as bad loan only if the interest is not paid for six months while for banks it is three months. Now NBFCs have to mark a loan as bad loan if the interest has not been paid for 90 days or 3 months. This, however, kicks in only by March 2018. As of now the six months remain for this financial year (FY15), for the next financial year (FY16), a loan is bad if it is not paid for 5 months, and it turns bad if not paid within 4 months in FY17. The RBI also raised the minimum net worth for asystemically-importanta NBFCs from Rs Rs 100 crore to Rs 500 crore. Deposit-taking NBFCs and systemically important NBFCs have to maintain 10 percent Tier I capital (out of 15 percent capital adequacy ratio). Earlier, NBFCs were required to maintain capital adequacy ratio of 15 percent, of which 7.5 percent was Tier I capital. This will have to be raised by 2017. The stricter norms are expected to weigh on NBFC shares in the immediate term even though the central bank has given time to comply with the changes.

Read more at:http://www.moneycontrol.com/news/cnbc-tv18-comments/rbi-tightens-nbfc-rules-brings-npa-normsparbanks_1224266.html?utm_source=ref_article

It seems Mr M has decided to give Repco the same valuations as Gruh. In the mean time Gruh has also raced to some crazy 18 times P/B, Repco to 7 times P/B now, both trailiing fy 14. So either it could be bubble now in HFC or Mr M may wish to value these niche players on some other valuation parameters of p/e etc not p/b

Looking at these valuations Can fin looks damm cheap, with zero NPA and 40 % loan growth and P/B of 2.1 only.

Comments are welcome !

Gruh and Repco are valued on PE basis is what i understood. Gruh PE is 52, repco 36 (trailing)

now that the valuations have run up high …just like other companies…is it worth adding now?

)- Gruh will always trade at Premium Valuation than Repco (due to parentage pof HDFC)