If this is not too late, I would like you pitch in for the following question:
)- If REPCO does receive favorable ratings from the current credit rating process, how will it impact the cost of funds in the near future and long term ? (assuming interest rates stay the same).
as for Vivek Gautam’s questions- two of these were somewhat discussed in the last concall-
1). no loans to builders or developers (unlike 6% in case of GRUH).
2). LAP is 15% of their outstanding loan portfolio. Their plan is to take it to 20% in the next few years since it has a better margins. LAP customers are usually self-employed and hence the NPA is higher (about 2.9% if I remember correctly). However the LTV ratio is max 65% which is in favor of REPCO.
I attended the Repco AGM and it was kind of quite. Only one person asked questions during the meeting but then people flocked to ask questions later, me and Jatin included. Management didn’t introduce themselves in the beginning and this one guy seemed quite upset about it.
Cost of funds: NHB has come up with a lot of regulations so the component of NHB funding has gone down. They said that the target is to have a 3% spread and 4% NIM. They want to maintain that and NHB regulations will not let them do that. They evaluate the situation and then decide on what funding source to use. NHB funding may even go down to 25% if they decide so. They take loans from banks at base rates. The credit rating upgrade could happen anytime and they said they just had a meeting with someone about it. But a further upgrade from A+ rating won’t impact the borrowing from banks much. It makes a substantial difference only when using NCDs which is in a bad shape at the moment.
IPO funds havve already been deployed in the first 2 months after IPO. The average disbursements per month have been about 130-150 cr.
Power situation is improving but has not stabilised. Last month was very few power cuts but this month was again bad. But going forward, the situation will improve. Kudankulam and one more plant will be operational soon and this will help reduce the NPAs and improve demand. No comments on the numbers.
They might increase the base rate. Currently it is below Gruh.
The response to new branches has been good. In Tamil Nadu, they dont have to worry about getting new customers as the company brand is quite strong. They open the new branches at locations that are not too far away from an existing branch. Thats the reason they have not ventured into UP and Bihar for instance. They opened a branch in Pune and Pimpri where the NPAs are zero. They will slowly expand in Maharashtra. The direct sales teams, DST seem to be doing a good job and this model is working well.
One person commented that they are overdependent on parent Repco Bank and they should diversify. The reply was that they have already diversified and now borrow from 10 banks. Repco is also registered with NHB to raise public deposits, decision on which will be taken at the “right time”.
One guy wanted higher dividend :)) and the “company has made a note of it”
As per AR page 9, Repco instituted 466 cases under SARFAESI act, out of which 302 were settled. There are 164 cases pending. They can take time to settle because of the many steps required to be followed during these cases. But good thing is that recovery process is going well and there hasn’t been a single failed case.
Evaluating the credit repayment capability is the key aspect of Repco (Same concept as Gruh so nothing new). Average loan to value is around 60%.
I request Jatin to add to or correct what I have presented here.
This was my first AGM so bear with me for the inexperience.
I was 10 mins late & when I reached, a guy was putting all kind of question & complaints to the management including low dividend, inadequate disclosures in AR like employee strength, email id of mgt, FX expense of 7 lakhs.
Apart from what Rohit has written-
Dependence on Repco bank is coming down & will decrease going forward.
Cost of funds may go up soon, but company has the ability to pass it on to the customers. It would have been problem if only Repco had to pass it on. All HFC including LIC & Gruh have increased their rates a week or two back. Repco may do that, if needed.
Rating upgrade won’t help much as it is still getting loans at Base rates from Banks. Cost can’t go below base rate.
They plan to increase provisions going forward. Will take PCR to 70-80% in the long run.
Repco rate is lesser than Gruh. So that may benefit Repco in areas where Gruh is stronger.
For credit appraisal, they sit with the customers & work out the customer’s P&L and balance sheet. Loan to Asset Value is 65% & EMI to income is 50%.
Real-estate slowdown isn’t affecting them (in the 5 months this yr till now) due to customer profile & focus on Tier-II,III cities.
They took approval for max loan limit of 10,000 crs… planning to reach that level in 3-4 years…
Planning to maintain historical rates of growth
Overall, I feel they should be able to grow at 25% for next few years due to limited competition & customer profile & low housing loan penetration. The most important RISK remains Possibility of Bad Debts & losses on account of that.
look on repco’s website … guy who had shofted his loan to SBI so that he can go to vacation with his family(EMI hua cum ghumne chale hum) HAS AGAIN SHIFTED loan, this time to Repco
look on repco’s website … guy who had shofted his loan to SBI so that he can go to vacation with his family(EMI hua cum ghumne chale hum) HAS AGAIN SHIFTED loan, this time to Repco
this is the highest rating for short term borrowings, at par with GRUH. GRUH had borrowed about 4600cr+ in 2012-13 using commerical paper according to the latest Annual report.
Can someone explain the role of Commerical Paper in the context of GRUH/REPCO? In the last two annual reports of GRUH, it seems to have borrowed significant amounts using CP, however its outstanding borrowing on Mar 31 is always negligible. How does this actually work?
I dont know much but since CP are short term borrowings, the value on balance sheets may vary widely. For example if Gruh issued a large sum of CP in first few months of a FY, it would be repayed in less than a year and hence amount in March would be less. They may be using other sources during the later part of FY. This is just my guess. Can anyone else educate us?
Btw…below is the info on BSE site.
Repco Home Finance Ltd has informed BSE that the Company’s Rs. 500 crore non convertible debentures programme has been assigned a rating of [ICRA] AA- and the Company’s Rs. 250 crore commercial paper has been rated [ICRA] A1+ rating by M/s. ICRA Limited.
I have a question…NCDs carry higher interest rates than the banks. So why raise money via NCD route?? My understanding was that a company that can not raise money at bank base rates go for NCDs and pay higher interests.
Saw this article that CPs may become favourable now
I request someone to please explain advantages and disadvantages of CP/NCD
Commercial Papers (CPs) are short term instruments with maturity of less than 1 year. Banks issue Certificates of Deposits (CDs) while NBFCs/Manufacturing Companies issue CPs. These are tradeable instruments in the money markets. Usually other banks, insurance companies/MFs/PPFs/treasuries of big companies (eg Reliance generates lots of money by investing its idle cash in NCDs/Government Securities and money market instruments) invest in CPs and NCDs. For an NBFCs/Banks CPs/CDs are usually used to meet their short term asset liability mismatch. eg. currently I expect to disburse Rs.100 crore of loans in next three months and I have liabilities maturing (repayment of loans etc) of Rs.100 crore after 3 months. It doesn’t make sense for the bank/NBFC to issue NCD of 5 years or take a loan of higher maturity. What I can do is issue a 90 day CP of Rs.100 crore and pay the CP in 3 months.
NCDs of companies rated AA/AAA carry lower yields than bank rates (this happens most of the times unless there is sharp increase in yields like what had happened 15-20 days back). For a company like Gruh which has HDFC parentage, yields on its NCDs were just 20 - 30 basis points (bps; 0.2 - 0.3 %) higher than HDFC Ltd. The advantage with Bank Loans is that they can be prepaid unlike NCDs. Bank Loans are usually floating (linked to Base Rate) while NCDs rate is fixed.
Gruh reported 25% growth in PAT. But NIMs contracted from 4.38 for FY13 to 4.14 for this quarter.
Management commented that it was a veru bad quarter for cost of funds. I think if Gruh can get such a significant impact on NIMs, then margins for Repco will also be under pressure. Although NHB funding for Repco was already lower there could be some effect.
By the way, Repco has moved up from 240-245 to 270 now.
banking/ HFC dont work this way. The IPO money forms part of the networth which impacts the CAR ratio. The management can borrow money based on the CAR ratio limits (around 8-12%) and lend it out.
So IPO money is not lent out directly …it allows management to borrow more and lend more. The difference between this borrowing and lending drives the NIM.
tracing cash flows is not as useful for banking / lending as it is for other type of companies
It is more nuanced than that. for starters, money is fungible …what that means is the company is not keeping the IPO money in a separate bucket. that money goes into a pool - lets call that loanable money. on a loan book of 3700 Crs …thats barely 8% of assets …so even if its cost is 0 from accounting perspective, the impact is not much from the larger scheme of things.
as i said earlier, dont think of IPO money as something which is distinct from the other money which is to be lent out. it all forms the cash inflow along with the borrowed capital. outflow is money lent out. this IPO money as part of inflow is just a small portion of the inflow.
the above math is meaningless from an economic perspective. the real cost of equity capital is 15%+ …equity capital has the highest cost…way more than debt. so even if the NIM shows some temporary bump (which is doubt), it does not mean anything.
the way i would think is - the company has taken on additional capital which forms part of networth. this enables the company to borrow more and lend more. the difference between the borrowing and lending is the NIM which is the gross earnings on the expanded equity capital.
anytime a bank or HFC raises equity, it may raise the book value and appears to be zero cost money. in reality that is the most expensive money - in effect the company has sold a small portion of your holding to raise this money …
Jatin Kalra wrote:
banking/ HFC dont work this way. The IPO money forms part of the networth which impacts the CAR ratio. The management can borrow money based on the CAR ratio limits (around 8-12%) and lend it out.
So IPO money is not lent out directly …it allows management to borrow more and lend more. The difference between this borrowing and lending drives the NIM.
tracing cash flows is not as useful for banking / lending as it is for other type of companies
What Rohit explained is very important in context of financials. You have to look at equity capital as means for expanding your loan book faster. For example if Repco has ROE of 20% then it can only grow loan book at 20% if they keep their CAR at same level. IPO money boosted the CAR % and they can now grow at 30-35% until the CAR level comes down to their comfort zone. This can be termed as burning or exhausting Equity capital.
Usually when Equity is raised at higher PB multiples, it benefits existing investors. For it increases book value / share. And if company manages to get back to normal ROE levels in few quarters (that is deploy the capital fully), market again gives it original PB valuation.
That depends on ROE it makes and involve other calculations. But in general financial companies fully deploy newly raised capital in 5-7 quarters time. We’ll know this when reported CAR ratio comes to pre-IPO level.
