by Angel Broking...!
Operates in attractive..
loan segment - Priority sector home loans:
Repco Home Finance Ltd –RHFL - is
largely focused on providing home loans in tier-II and tier-III cities (with a
sub- Rs. 10 lakh
average loan ticket size that is Rs. 9.2 lakh ), due
to which a large part of its book qualifies as priority
sector lending (PSL) for banks.
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| REPCO_HOME Finance IPO Press meet |
In Angel Broking
view, NBFCs operating in PSL segments
enjoy competitive advantages, as most banks (especially
in the private sector)
have a perennial shortage in meeting their PSL
targets, creating favorable
demand-supply dynamics for those NBFCs that can
source higher-yielding PSL
loans at reasonable asset quality.
REPCO’s loan book profile also allows it to procure
44 per cent of its total borrowing via
low-cost NHB (National Housing bank) refinance averaging nearly 7.5 to 8 per cent (NHB refinance is available under various
schemes, primarily for rural loans upto Rs. 15lakh and also for low
cost urban housing loans up to Rs. 10lakhs).
Moreover, the funding that it gets from banks in
turn largely qualifies as PSL for the banks (loans by banks to NBFCs, which are
on-lent as home loans less than Rs.
10lakhs qualify as PSL). This
makes it
attractive for banks to lend to RHFL at a reasonable
cost (about 1% above
base rate), as against alternatives such as parking
funds under RIDF at extremely
low yields, to meet their PSL targets.
Relatively low-cost NHB and bank funding enables it
to maintain healthy margins and return ratios (NIMs at 3.8 % and RoE at 22.2 %
in 1HFY2013, calculated on an annualized basis)
In terms of borrower profile, about 53 % of RHFL’s
outstanding loan book
constituted loans to relatively higher-yielding
higher-risk non-salaried segment. To
mitigate risks, the company, lends at a low LTV of
about 65 %, as per the
management.
In terms of geographical presence, 67 % and 98 % of
its business is
concentrated in Tamil Nadu and South India,
respectively, largely in tier-II and
tier-III cities.
Management expects strong growth to continue:
Over FY2008-12, the company grew its loan book at a
CAGR of 43.8 % (albeit on a small base) to Rs.2,802 cr, driving PAT (Profit
After Tax - Net Profit) CAGR of 43.3 %.
As of September 30, 2012, its CRAR stood at a
comfortable 15.9 % (entirely tier-I). Further, IPO proceeds would increase its
capital base by nearly 0.9 x, providing enough headroom for maintaining strong
loan growth for the next few years as well.
Funding mix is also expected to remain stable (In FY
2014 NHB refinance facility for Rural housing fund increased by 50 % to Rs. 6,000
cr; bank demand for PSL opportunities is also expected to remain strong and
future outlook is favorable, in our view, given government’s priority sector
focus).
Outlook and Valuation..!
RHFL
generated 22.2 % RoE in 1HFY2013E and would trade
at 1.8x FY 2013E ABV (at the upper end of its price
band, based on post-issue
networth).
Closest comparable peer - Gruh HF (mainly western
India, rural and
semi-urban focus, largely PSL qualifying home loans)
appears extremely
expensive at valuations of 7.3x FY 2013E BV,
notwithstanding its 30 % earnings
growth trajectory and 35 % ROEs (FY 2013E).
Other NBFCs like Mahindra Finance and Shriram
Transport Finance operating in different priority sector
segments to a varying degree and generating similar
return ratios, are trading at
2.6 x and 2.3 x FY 2013E ABV, respectively (but they
have larger, relatively more
seasoned loan books and longer proven track record).
Overall, keeping in mind RHFL’s attractive niche
loan segment, strong growth prospects and reasonable
valuations, Angle Broking recommend subscribe to the
issue at the upper band.
SUBSCRIBE
Issue Open: March 13, 2013
Issue Close: March 15, 2013
Issue Details..!
Face Value: Rs. 10
Present Eq. Paid-up Capital: Rs. 46.4cr
Offer Size: 1.57cr Shares
Post Eq. Paid-up Capital: Rs. 62.2cr
Issue size (amount):* Rs. 259-270cr
Price Band: Rs. 165-172
Post-issue implied mkt. cap *: Rs. 1,026cr- Rs. 1,069cr
Promoters holding Pre-Issue: 50.0 %
Promoters holding Post-Issue: 37.4 %
Note:*At the lower and
upper price band,
respectively
Book Building
QIBs Up to 50%
Non-Institutional At least 15%
Retail At least 35%
Post Issue Shareholding Pattern
Promoters Group 37.4
MF/Banks/Indian
FIs/FIIs/Public & Others
63.6
Review by
Vaibhav Agrawal
022 – 39357800 Ext: 6808
vaibhav.agrawal@angelbroking.com
Sourabh Taparia
022 – 39357800 Ext: 6872
Sourabh.taparia@angelbroking.com
Photo: The Hindu
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