Repco is trading at cheap valuations and is a buy for 30% gains
Posted: Fri Jun 13, 2025 8:46 pm
We interacted with Repco Home Finance’s Management to understand the drivers of loan growth acceleration, factors which will influence portfolio spread/NIM, and actions taken to consistently reduce the overdue portfolio and NPLs. The management was quite confident about achieving the guided disbursements of Rs40bn in the current year and reaching 12% loan book growth, managing spread decline within 15-20 bps, and improving GNPL ratio to 2.5% by the year-end. Repco trades at an undemanding valuation of 6x P/E and 0.7x P/BV on FY27 estimates, and acceleration of loan growth and further improvement in asset quality should re-rate the stock. We have a BUY rating with a 12m PT of Rs560.
Foundation for higher growth in place
Foundational levers for growth have been put in place by the Management over the past 18-20 months, like 1) creating a Sales vertical (Sales Managers in most Branches) and having an off-roll DST team, 2) developing an enabling Regional layer for supporting TAT and decision making, 3) appointments of State Heads for key markets like Gujarat, Rajasthan and Others, 4) implementation of LOS, LMS, Collection System and separate Apps for Sales, Collection and Field Investigation, 5) tweaking of incentive structures and alignment of mindset/culture towards growth, and 6) augmentation of connector network and sourcing tie-ups with large/corporate DSAs. Additionally, Repco has accelerated branch addition from FY25 and intends to add meaningful distribution even in FY26. Branch Head’s bandwidth has been significantly released to largely focus on credit/income assessment.
Execution productivity needs to catch-up with Sourcing productivity; controlling BT will also be key
Business productivity from the above-mentioned steps has started to come through and it got manifested in strong disbursements numbers of Q4 FY25 (grew 28% qoq). In coming quarters, the execution run-rate should materially improve (on yoy basis) due to the enlarged sourcing funnel and due to business growing in the newly added branches. Management is now focusing on reducing Sanction TAT (currently 12-15 days) for better disbursement efficiencies and is likely to introduce BRE into the LOS for automated scorecard-based credit decisioning. Company’s focus has also increased on higher-ticket home loans but with traditionally targeted customer segment/credit profile. The other aspect of managing a better AUM growth would be controlling BTs (particularly in declining rate scenario) through offering of significant rate reduction and top-up loans to eligible customers with strong credit record. Repco’s Board and Management is aligned on delivering an improved growth with strong credit quality.
Asset quality to improve further
Repco has demonstrated a substantial improvement in GNPL level over the past three years without any meaningful write-offs. Steps that have worked well are 1) creation of a dedicated Collection and Recovery teams, 2) tightening of Legal mechanisms, 3) offering of OTS schemes (only partial interest waivers) and 4) conducting of auction melas (miniscule principal write-off if any). Due to strengthened underwriting (income/cash-flow being assessed through business visits), the credit quality of the portfolio disbursed from Apr’22 has been strong with low GNPLs and overdues. The overall Stage-2 portfolio of Repco has also seen a reduction from 13.6% as of FY23 to 9.7% as of FY25, and it targeted to decline to 7.5% by end of FY26. Management has guided for an absolute NPLs reduction of ~Rs750mn in the current year and attaining a lower GNPL level of 2.5%. Auction melas are planned more frequently (almost monthly) and the company will keep running the OTS scheme. Based on the guided improvement in asset quality, there would be a material release of ECL provisions. Notably, Repco carries a substantial PCR of 60% on its NPLs whereas the life-time principal write-offs have been miniscule.
Foundation for higher growth in place
Foundational levers for growth have been put in place by the Management over the past 18-20 months, like 1) creating a Sales vertical (Sales Managers in most Branches) and having an off-roll DST team, 2) developing an enabling Regional layer for supporting TAT and decision making, 3) appointments of State Heads for key markets like Gujarat, Rajasthan and Others, 4) implementation of LOS, LMS, Collection System and separate Apps for Sales, Collection and Field Investigation, 5) tweaking of incentive structures and alignment of mindset/culture towards growth, and 6) augmentation of connector network and sourcing tie-ups with large/corporate DSAs. Additionally, Repco has accelerated branch addition from FY25 and intends to add meaningful distribution even in FY26. Branch Head’s bandwidth has been significantly released to largely focus on credit/income assessment.
Execution productivity needs to catch-up with Sourcing productivity; controlling BT will also be key
Business productivity from the above-mentioned steps has started to come through and it got manifested in strong disbursements numbers of Q4 FY25 (grew 28% qoq). In coming quarters, the execution run-rate should materially improve (on yoy basis) due to the enlarged sourcing funnel and due to business growing in the newly added branches. Management is now focusing on reducing Sanction TAT (currently 12-15 days) for better disbursement efficiencies and is likely to introduce BRE into the LOS for automated scorecard-based credit decisioning. Company’s focus has also increased on higher-ticket home loans but with traditionally targeted customer segment/credit profile. The other aspect of managing a better AUM growth would be controlling BTs (particularly in declining rate scenario) through offering of significant rate reduction and top-up loans to eligible customers with strong credit record. Repco’s Board and Management is aligned on delivering an improved growth with strong credit quality.
Asset quality to improve further
Repco has demonstrated a substantial improvement in GNPL level over the past three years without any meaningful write-offs. Steps that have worked well are 1) creation of a dedicated Collection and Recovery teams, 2) tightening of Legal mechanisms, 3) offering of OTS schemes (only partial interest waivers) and 4) conducting of auction melas (miniscule principal write-off if any). Due to strengthened underwriting (income/cash-flow being assessed through business visits), the credit quality of the portfolio disbursed from Apr’22 has been strong with low GNPLs and overdues. The overall Stage-2 portfolio of Repco has also seen a reduction from 13.6% as of FY23 to 9.7% as of FY25, and it targeted to decline to 7.5% by end of FY26. Management has guided for an absolute NPLs reduction of ~Rs750mn in the current year and attaining a lower GNPL level of 2.5%. Auction melas are planned more frequently (almost monthly) and the company will keep running the OTS scheme. Based on the guided improvement in asset quality, there would be a material release of ECL provisions. Notably, Repco carries a substantial PCR of 60% on its NPLs whereas the life-time principal write-offs have been miniscule.