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Presented by
Juno
Industry Overview &
Company Overview Financial Analysis Valuation Risk Analysis Conclusion
Competitive Positioning
Main Features
Niche focus on Tier II & Tier III cities
Recommendation
Upside: 16%
BUY Superior Return
Ratios viz. RoA driven
by industry leading
Expertise in serving niche Net Interest Margin
& under-penetrated self-
employed viz. highest
16% proportion of non-salaried
Upside loans (57%)
High capitalization & Low
leverage providing ample
scope for loan book growth
@30% CAGR
Holding Period Return
End of 2016 End of 2017 End of 2018
Well-recognized brand in Southern India with 142 branches Stable expansion strategy with addition of 12-15 new
branches every year
Low operating costs with lean branch model and centralized
loan process
Industry Overview &
Company Overview Financial Analysis Valuation Risk Analysis Conclusion
Competitive Positioning
Industry Overview
Factors favoring growth of Housing Finance Companies (HFC’s)
Increased reach
Aggressive marketing
Expertise in sourcing & appraisal of housing loans
Subsidized rates for funding to HFC’s through NHB
Factors NOT favoring traditional banks in the low cost housing market
SMALL HFC (Loan Book Size < 30000 cr.) LARGE HFC
Focus largely on Tier II & Tier III cities Focus mainly on Tier I cities Lower competition from banks and higher growth
More self-employed and non-salaried Salaried borrowers Opportunity to earn higher yields by 75-150 bps
borrowers
Proportion of bank borrowings for funding Higher proportion of Bonds and NCD’s Reduction in cost of borrowing by 100-150 bps
reducing over the years
Increasing efficiency in collection processes Asset quality almost constant Reducing GNPA levels and narrowing gap in asset
and risk control measures quality
Financial Analysis
Spread will determine competitiveness driven by:
Higher yields from non-salaried customers
Cost of funds will go down by 50-70 bps by FY17-18:
RBI’s recent policy rate cuts
Increasing share of borrowing from NCD’s and CP’s
Improved credit rating due to diversified borrowing
Financial Analysis
Borrowings to grow @CAGR 25% without equity
dilution in FY15-20
Current CAR of 20.26% well above regulatory requirement
Current Leverage of 6.29 well below that of peers
With borrowings CAGR of 25% over FY15-20, CAR will go down to
17.5% in FY20
Repco can easily support its loan book CAGR above 25%
through additional borrowings without affecting credit rating
Financial Analysis
Strong NII and PAT growth
Repco is set to post strong EPS CAGR of 25% over the
Repco’s NII is set to grow @28% CAGR driven by healthy
period FY15-20
NIM
Increasing provision coverage is likely to post slight
pressure on PAT
Industry Overview &
Company Overview Financial Analysis Valuation Risk Analysis Conclusion
Competitive Positioning
Relative Valuation
Multipliers P/B (x) P/E (x)
Assumptions for selecting Peers :
All mid-tier HFC’s: DHFL, GRUH, CAN FIN HOMES, GIC Forward Years 2016 2017 2016 2017
Companies like India Bulls, LICHF, and HDFC have not been Forward Value 5.2 4.5 31.1 26.1
considered due to higher LTV, different target segment(salaried),
different operating model etc. Weights for multipliers 100% 0%
Relative Valuation
Reasons for Repco to continue to trade at higher
multiple:
III. Potential for RoE expansion without any further equity
dilution
Risk Analysis
Company Risk: CAMELS analysis
Risk Analysis
Strategic Risk: GRUH could emerge as serious competitor
Repco is looking for growth in the Western Zone especially
Gujarat and Maharashtra states
Conclusion
Expertise in serving
niche & under- Cost of capital to
penetrated self- reduce going forward
employed segment