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Photo: Ramesh Pathania/Mint
Photo: Ramesh Pathania/Mint

Stable asset quality at Repco supports its modest valuation

Besides a stable loan book, another factor helping the lender is its improved liquidity and asset liability position

Repco Home Finance Ltd’s shares have risen about 11% ever since the financier released its September-quarter results last week. The lender reported a 20% year-on-year drop in net profit, which investors seem to have shrugged off. Investors seem to be cheered by the lender’s sharply improved collection efficiencies and the fact that the management doesn’t see a big hit on the asset quality.

Indeed, the lender’s collections rose to 93% in September, similar to most of its peers. What’s more is that provisions dropped sharply on a sequential basis, helping boost its operating profit. The reduction in provisions shows that the lender is sanguine about risks going ahead and sees no need for a sharp increase in its provisions.

To be sure, the company has managed to keep its asset quality stable despite the hit from the pandemic and also a sluggish real estate sector. Bad loans fell marginally to 4% of the total loan book, from 4.2% a year ago.

Slow but steady
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Slow but steady

The company also said that it may not end up restructuring more than 2% of its loan book given the moratorium ended in August.

Analysts expect asset quality to remain stable in the coming quarters as well.

Another factor helping the lender is its improved liquidity and asset liability position.

“Over the past year, Repco has reduced its dependence on capital market borrowings; 96% share of borrowings now come from banks and National Housing Bank (NHB)," wrote analysts at Motilal Oswal Financial Services Ltd. “On the back of strong spreads and conducive liquidity environment, we upgrade our estimates by 10-12% for FY21/FY22," the note said.

But the lender’s performance is not the only reason behind its share price rise. The government has announced several measures targeted to boost the real estate sector and these are expected to aid lenders such as Repco Home Finance in their disbursement growth.

That said, the jury is still out on whether Repco would see a sharp improvement in AUM growth. Disbursements are still 30% lower than levels seen before the pandemic.

Despite the recent gains, shares of Repco Home Finance are still 30% lower than their February highs and trade at a discount to their estimated book value for FY21.

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