Hiteshji, HG,
Can you please confirm if Repco has formed ‘Saucer’ pattern ?
PFA chart. What will be the targets in such a pattern.
hi rohit
Yes it does look like a saucer pattern… targets could be 360-70.
Aim to maintain NIMs, growth going forward
One regular contrarian has posted below on MC. It looks alarming to me too, arent we somehow getting carried away on REPCO? Views invited.
Post is below:
**"Repco home is a govt of India company… whose chairman is an ex-election comissioner, ex-chief income tax comissioner… not a business man…
on top of that check out Repco`s parent company…
“repco Bank” which is a Multistate co-operative society not a Bank… under Ministry og Home (Not under RBI like other banks)
repco bank was started to rehabilitate indian origin people from srilanka and burma…
people are being fooled that its a great company… with great management…"
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Manish all this is true. But this was known all along. What is it that’s worrying you?
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"Repco**
Manish,
Repco bank is not majority shareholders so govt can not mess it up easily. They need help of other big shareholders like Carlyle, WCP, Creador etc to approve any resolution. Hence eventhough it’s PSU promoted, govt can’t really influence.
Regarding management, They have been growing business at run rate of 35-40% since last few years without any issue so there’s no reason to doubt on their business acumen.
Vipul,
I don’t think one bit that govt. can’t needle in the affairs of the company. In fact, if the purpose for which it was set up is not being met, the govt. can and has every right to interfere and thus mess up. It is a risk. A big one. There is no running from it.
REPCO Bank, owned by the govt. is listed as the official promoter. Carlyle etc. are merely large passive shareholders and will have no saying whatsoever if the govt. were to interfere.
Management is eventually everything for any stock’s growth. Subroto Bagchi, MindTree founder once said that even Toilet cleaning business requires the same mgmt bandwidth as of any high end business. So now coming back to REPCO, its true its growing mostly due to its niche segement identification and absolulty nill competition in that space but Govt Babu at heat can always screw up randomly like LICHF bribary scandal. Moreover Govt Babus have usually no fire in the belly and its always FAT which lies there.
Well i hold it so bit cautious nothing else to add beyond it. In summary it lacks GRUH kind of strong Mgmt pedigree.
If you know of any management concerns, then please highlight the same with reason. I don’t believe in painting everybody with same color. Somebody whom I know met management and speaks high of them. Cost of operation for repco is lower than Gruh which speaks high of good cost-efficient business leaders. We also can see same from return ration and NPAs. However nothing is certain in investing and investment is betting on probability.
Of-course, I am invested so biased here.
1 Like
NSE website mentions that Board meeting scheduled for Feb 1 is now postponed to Feb 10. Does anyone have more info about this?
Repco has given good set of results
Total income Up 31.7%(16.7 to 27.14)
Net profit Up 65.5%
Net NPA on December 31st 2013 was 1.28% as against 2.32 % previous year
Yes repco has come out with expectedly good results in a tough macro situation.
It looks set for around 25-30% cagr growth in revenues and profits.
Based on fy 14 book value of around 120-130, its at around 2.5 times book and on expected eps of 18-20 it seems reasonably priced… not too cheap not too expensive.
for long term investor its seems a great buy.
Valuation based on book value is very much traditional. But see here when I do investments I apply some common sense. Think of this: Book value is like Resources and growth is like productivity. Many Loan companies are valued based on Book value especially the Public sector because people consider Loan Products very unproductive to the extent that they have to be valued just on book. HFC portfolios are very stable with Low NPA’s and good margins. An infra financing company or a CV financing company must be valued at book value even when the growth is there because if economy goes down they don’t grow and there can be rise in NPA.
To that extent I liked HFC’s better than all existing NBFC’s. Bajaj finance or sundaram finance or Shriram Transport finance(Many are bullish on this) are not one of those which can maintain 25-30 PE ratios.
Repco will be valued like a consumption stock on eps growth rather than book value growth. HFC’s like GRUH and Repco are treated like Franchise stocks. People need to get the difference between good and great.
Repco has given 0.93mn Esops to its employees at 78 rs in Aug-2012 but it came IPO with 170 rs. Can a public company allot shares less than IPO price ? It is looked like pre planned allotment.
How a company decides Esop share price after listing ? Is anyone see any risk in case of repco share dilution through ESOPs(1. For employees (more than 1%) 2. For Fund raising to leverage more)
**Source of material for your reference : **
ESOP given below market price; Shared MD with REPCO bank
REPCO has given ~0.93mn (~1.3% of capital base) ESOPs at a fixed
price of Rs. 78 per share to all the employees of REPCO. Although these
stocks were to be awarded in Aug-2012, SEBI required these to be
awarded only after 6 months of IPO.
These options would be given out to employees over the next three years
(~0.24mn given in Q2FY14) with a vesting period of one year. Rewarding
employees with ESOPs below market price is an uncommon practice.
While we are not votaries of such a practice we take comfort from the fact
that the scheme is extended to all the employees of REPCO and
secondly, fixed pay of the top management is the lowest with ED pay
~Rs. 2.2mn for FY13. We add potential dilution and impact on operating
costs in our assumptions. Further, ~100,000 options has been set aside
in lieu of a civil suit which the ex-MD of REPCO is facing in Honourable
High Court of Madras.
REPCO bank and REPCO home finance share a MD
Hi,
As I understand, an NBFC’s ROE is calculated by multiplying its RoA with Equity Multiplier. As per Repco’s Q3 FY 14 results, its RoA is 2.7% while its Equity Multiplier is around 6 times which gives its ROE as 16.2% whereas the company reports its ROE as 20.4%.
Could anybody explain what am I missing.
Thanks
the bigger picture… 
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(I dont have the answer to your question but couldnt resist the full toss ball…hope u take it in the right spirit…)
Manish,
I tried to make sense of ROE figure but couldn’t. But as Hitesh sir has said look at the bigger picture.
We won’t gain much by debating exact calculations of ROE figures. The rough number and loan book growth number is enough. For example if you calculate Gruh’s ROE by formula (FY13 Net / FY 12 Book) for any year, ROE comes to 35%+. This is not the real figure (unbelievable figure actually) but this is the figure that matters when estimating future numbers and book growth.
R. Varadarajan-Managing Director, Raghu- Executive Director, Karunakaran- CFO and K.Ashok- CGM and Chief Credit Officer addressed the call .Highlights by Capital Mkt:
Business
- On the back of strong growth in disbursements, earning surged 50% in 9MFY2014.
- Disbursements grew by 55% YoY to Rs 1203 crore in 9MFY2014. Loan book surged 32% to Rs 4319 crore at end December 2013.
- Non-salaried segment constitutes 54.5% of the loan book of the company and salaried segment accounted for the rest. Loan against property (LAP) currently constitutes 17.5% of the loan book.
- Going forward, the proportion between salaried and non-salaried will be 50-50 with plus or minus 5% flexibility.
- Average ticket size in the home loan segment at end December 2013 is Rs 10.4 lakhs and loan against property it is Rs 12.7 lakhs.
- A bifurcation of total book between individual loans and LAP is 82.5% and 17.5%.
- As per the company 25% to 30% growth is sustainable and expects the proportion of LAP should reach up to 20% of the total advances and the 80% would be the individual housing loans.
- LTV for LAP is 50%, while that for home loans salaried segment stands at 85% for non-salaried segment at 65%.
Sector outlook
- As per the company, the growth opportunities in housing sector remains intact on the back of robust retail demand and acute housing shortage in the country. Demand in Tier-II and Tier-III cities has been consistently growing.
- Housing finance industry is expected to grow between 16% and 17% in FY2015.
Margins
- Constant focus on cost control and robust risk management measures has helped to improve margins and returns.
- Incremental yields on housing loans have remained stable at 12.1%, because of no change in interest rates on advances. On the LAP side it is 15.9%.
- NIM as at the end of December 2013 was 4.6%, compared to 3.8% at end December 2012 and 4.7% at end September 2013.
- As most of the assets are at variable rates, any increase in the cost of funds is passed on to the borrower so that the spread and NIM is maintained.
- As a long-term policy, the company proposes to have a NIM of around 4% and spread of around 3%.
Asset quality
- As non-salaried segment tends to have a lumpy cash flow profile, it causes seasonality in NPA trends. However, all these NPAs are technical in nature with total write-off till date being just 0.07% of total disbursements.
- GNPA for Q3FY14 has been 2.0% as against 2.9% for Q3FY13.
- Company strictly adheres to the National Housing Bank norms for making provisions. Provision coverage ratio (PCR) has improved to 37.4% from 21.8% a year back. Company proposes to step up PCR to the level of at least 50% by year-end.
- Company conducts special recovery camps consisting of officials from corporate office reaching out to branches showing delinquency and arrest it well in advance.
- Company has applied 90 days past dues norms for recogninsing NPAs in line with the NHB norms.
- NPA in LAP segment was 2.35% at end December 2013 up from 2.2% at end September 2013.
- Capital adequacy ratio stood at 24.95% at end December 2013.
Borrowings
- Company currently borrows from three sources â bank borrowings 65%, NHB borrowings 26% and Repco Bank 9%.
- Two-thirds of total liability side from the NHB is under the rural housing fund scheme. Blended cost of funds from NHB borrowings is 8.1% from NHB.
- Cost of borrowings from the banks in this quarter stood at 10.2%, while outstanding borrowings stood at Rs 2330 crore at end December 2013.
- For the current quarter, company has sufficient availability of funds.
- Company is looking to further diversify borrowing profile and plan to enter the NCD market at an opportune time. It is also in talks with the RBI to tap the ECB borrowings route.
- Company has a limit of about Rs 500 crore to be raised through the NCD route and about Rs 200 crore in the CP route. Company would evaluate the market conditions before taking action.
Network and expansion
- Company currently has network of 103 branches and satellite centers at end Dec 2013.
- Going forward, it plans to deepen presence in existing Southern and non-Southern markets as well as expand geographically as and when see an opportunity.
- It is looking at tier 2 and tier 3 cities and not at tier 1 cities. It would like to consolidate in the states in which operating right now during the current year.
Expenses
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The other operating expense included one-time expenditures Rs 2.1 crore for free insurance to all the borrowers on their property for this year. Of this, about Rs 35 to 40 lakhs is for the current quarter, balance pertains to previous quarters. Going forward, it will be on a monthly basis.
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Company has also recognized an expense of Rs 0.96 crore for grant of ESOPs to employees and advertisement expenses of Rs 1.4 crore.
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About 244735 options were granted at Rs 75 per share on 25 October 2013. At that time the market price was Rs 285.70, so the difference in value of around Rs 211 has to be amortized for the four quarters.
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The total ESOP is about 9 lakhs. Company is likely to allocate ESOP next year again at the discounted price to incentivize employees.
2 Likes
Thanks Nikhil. The way I have tried to interpret Hitesh’s guidance about ‘missing the big picture’ is that though the company’s ROE at present is @ 16.5% but its leverage is only around 5 times. If it keeps growing at 25-30% rates (which it most probably will), it will get more leveraged. If it is able to maintain the RoA at @ 2.5%, then at say 10 times leverage, it will attain an ROE of 25%.
So we are looking at a stock whose ROE is most probably going to expand whichmay alsolead to PE expansion. So the bigger picture is good.