Buy Repco Home Finance, target Rs 683: HDFC Securities

HDFC Securities has a buy call on Repco Home Finance Ltd. with a target price of Rs 683.0 . The current market price of Repco Home Finance Ltd. is Rs 598.0 Time period given by the brokerage is a year when Repco Home Finance Ltd. price can reach defined target.
Repco Home Finance Ltd., incorporated in 2000, is a mid-cap company with a market cap of Rs 3817.81 crore.

Investment rationale by HDFC Securities
REPCO’s 4Q numbers beat estimates given the claw back in asset quality (GNPAs dipped ~20% QoQ). Though overall growth (+10% YoY) was sluggish, it was largely owing to (deliberately) tepid growth in LAP (up merely 2%). Credit costs dipped (60bps ann. vs. 83bps in 3Q) as REPCO wrote back provisions of Rs 28mn. NIMs too improved 20bps QoQ to 4.8% as yields remained flat and COF dipped 30bps.

Though asset quality healing (a typical 4Q phenomenon) lagged in comparison with previous years, the stock of GNPAs under SARFAESI (~60%) and robust recoveries in 4Q provide visibility on future improvement. The shying away from big ticket LAP loans and restricting LAP share to below 20% add to our comfort. With business headwinds receding and expansion into newer geographies (will add 15-20 new branches), rebound in growth (CAGR of ~18% over FY18-20E) is a given. We like REPCO for its steady (if slow) healing, 2%+ RoAAs and the sizable addressable opportunity. Maintain BUY.