Repco Home Finance Ltd Share analysis

Repco Home Finance Ltd is a housing finance company in India, established in April 2000. Repco Home Finance Ltd was set up to tap into the growth potential of the housing finance market in India. It is a subsidiary of the Repatriates Cooperative Finance and Development Bank Limited (Repco Bank) that holds 37.13% stake as of September 30, 2024.

We think Repco Home Finance Ltd. is interesting because it can be an interesting candidate for potential re-rating if the business can get back on the growth track. Under the leadership of the new CEO, Repco Home Finance Ltd has strengthened its underwriting standards, leading to reduced slippages and improved recoveries. The new management team has set ambitious goals, targeting around 15,000 Cr AUM with a GNPA < 3% by FY25 and 20,000 Cr AUM with further reducing GNPA to below 2% by FY27. Repco Home Finance Ltd used to trade at 3-6x of book value before FY18, valuation started to cool off on account of asset quality deterioration starting FY17 due to Demonetization, GST and Covid-19 impact, especially to non-salaried segments. 

Repco Home Finance Ltd Company Summary

Repco Home Finance Ltd is a well entrenched player in the housing finance industry, focusing on the under-penetrated segment of Tier II, III, and IV cities. Its portfolio mix consists of home  loans and home equity (non-housing) loans, which comprise loans against property, commercial real estate loans, and other products. Its customer profile includes the non-salaried class comprising 48% of total advance with the rest being the salaried segment. It primarily caters to the small ticket-size segment, with an average ticket size of Rs 15 Lakh for housing loans. 

Geographically the business is spread well across 12 states and 1 Union Territory and operates through 184 branches and 43 satellite centers. A large portion of its loan portfolio is concentrated in the southern region, with Tamil Nadu exposure at 57% and Karnataka at 13%. After its dismal performance during the COVID-19 pandemic, the new management steadied the ship by simplifying the underwriting process and decentralizing powers, launching new software, boosting employee morale, and controlling BT-outs. In Q2FY25, it posted healthy growth sequentially, with a substantial improvement in asset quality. 

Repco Home Finance Ltd Management Details

Mr. K. Swaminathan joined as  New MD and CEO in Feb ’22 and has been instrumental since then in fine tuning the business process and trying to get Repco Home Finance Ltd back on the growth track. Mr. K. Swaminathan is supported by a credible management team.

Repco Home Finance Ltd – Industry Overview

Indian housing finance market

India’s housing finance market saw a robust ~13.1% CAGR during FY19-23, as disposable incomes increased, demand strengthened, and more players entered the sector. However, India’s mortgage penetration is relatively low at ~12.3% of GDP compared to other economies, indicating significant growth potential for banks and HFCs. The housing finance sector recorded a total outstanding credit of ~Rs 32 trn in FY24 with a growth of 15.2% led by rising incomes of its young population that moved to metros and surging demand for home loans in Tier 2 and Tier 3 cities. 

Scheduled commercial banks (SCB) hold the largest market share in housing loans at 68%, followed by HFCs at 31% and NBFCs at a minuscule 1%. As per CRISIL, the housing finance sector is expected to grow at a CAGR of 13-15% over FY24-27.

Source: Company, Bajaj Housing DHRP 

Key Growth Drivers for Housing Finance

The incumbent central Government has been emphasizing on “housing for all” with a thrust on affordable housing since it came into power in 2014. The regulatory framework has also been significantly tightened and improved by passing some critical acts like RERA that empowered customers with more rights and have tried to clean up some of the malpractices that real estate developers were following in the previous era. 

The efforts of the policy makers in developing the housing market in India can be summarized as below

Market Share (%)

The prime housing finance segment witnessed the fastest growth in housing finance from FY19 to FY24. Among the major ticket-size brackets, the Prime Housing segment (loans above ₹5.0 million) experienced the fastest growth from FY19 to FY24, with a CAGR of 19.5%. This was followed by the Mass Market Housing segment (loans between ₹2.5 million and ₹5.0 million), which grew at a CAGR of 15.9%. In contrast, the Affordable Housing segment (loans below ₹2.5 million) grew at a more modest CAGR of 5.6% during the same period.

Regional Distribution of Housing Finance Outstanding

Urban regions accounted for the largest share of housing finance outstanding, approximately 65.0% as of FY24, followed by rural regions with a 20.0% share

Urban regions dominated housing finance credit with a 65.2% share, followed by rural regions at 19.8%. Semi-urban regions held a smaller share of 9.2% in credit outstanding.

Between FY19 and FY23, semi-urban regions experienced the fastest growth in credit outstanding, with a CAGR of 16.8%, followed by rural regions at a CAGR of 16.1%.

Market Share of Lenders

Public sector banks led the housing finance market, accounting for approximately 43.0% of the outstanding credit as of FY24:

As of December 31, 2023, public sector banks held a 42.9% share in overall housing credit, followed by private sector banks at 35.9% and housing finance companies (HFCs) at 18.6%.

From FY19 to FY24, private sector banks achieved the fastest growth in housing finance credit, with a CAGR of 16.1%. Public sector banks followed with a CAGR of 13.2%, while HFCs grew at a slower pace of 7.8%.

Asset Quality Trends

Private sector banks maintained the highest asset quality among major lenders, with 90+ DPD (Days Past Due) at just 1.05% as of FY24:

• In FY20, GNPAs in the overall housing loan portfolio rose sharply from 1.6% to 2.3% due to deteriorating consumer sentiment regarding the economy, employment, and household income.
• Housing finance companies faced significant asset quality challenges, with GNPAs peaking at 3.9% in FY21, an increase of approximately 60 basis points.
• Asset quality in the housing finance sector improved to 2.3% in FY22 and further to 1.9% in FY24, driven by economic recovery, pent-up credit demand, and supportive government initiatives such as the Liquidity Infusion Facility Scheme and the Affordable Housing Fund under the Atma Nirbhar Bharat Package.
• Among lenders, private sector banks led with the highest asset quality (90+ DPD at ~1.05%), followed by public sector banks (~1.61%). Housing finance companies had the highest 90+ DPD at ~4.28% as of FY24.

Borrowing Mix of HFCs

In FY23, bonds and term loans continued to dominate how Housing Finance Companies (HFCs) fund their operations:

• NCDs (Non-Convertible Debentures): These have been a key borrowing source for HFCs. However, their share has gradually dropped from 47.0% in FY19 to 38.0% in FY23.
• Term Loans from Banks: With rising repo rates making capital market borrowing more expensive, HFCs turned to banks for funding. In FY23, term loans accounted for 36.0% of borrowings, up 300 basis points.
• Looking Ahead: By FY24, the share of term loans likely rose to 37.0%, while NCDs crept up to 39.0%. Moving forward, banks are expected to lend even more to HFCs, thanks to regulatory incentives, pushing term loan shares higher.

Co-Lending: A Growing Collaboration

The co-lending model is transforming partnerships between banks and HFCs:

• Banks and HFCs now co-lend under a prior agreement, with banks taking their share of loans on their books.
• HFCs, however, must retain at least 20% of the loans, ensuring shared responsibility and risk.

Improving Asset Quality and Profits for HFCs

There’s good news for HFCs as they head into FY26:

• Margins and Profits: Net Interest Margins (NIMs) are expected to improve slightly, from 3.2% in FY24 to 3.3% supported by anticipated repo rate cuts in CY25
• Asset Quality: The GNPA (90+ DPD) ratio is projected to improve to 1.3% by FY26, showing better credit management
• Credit Costs: A drop of 20 basis points in credit costs is expected, thanks to higher write-offs earlier in FY24
• Return on Assets (RoA): With these positive trends, HFCs’ RoA is expected to climb to 2.0% reflecting healthier performance across the board.

Repco Home Finance Ltd Business Details

Repco Home Finance Ltd Operates in two business segments:

1. Individual Home Loans – Loans given to customers for buying or construction of homes. For individual borrowers in the salaried and non-salaried (self-employed professional and self-employed non-professional) segments, Repco Home Finance Ltd offers a range of customized home loan products to meet their specific needs.

2. Home Equity – A home equity loan is a type of loan that allows homeowners to borrow money using the equity in their home as collateral.

Repco Home Finance Ltd Product mix

Home Loans dominate the loan portfolio but have seen a gradual decline from 81% in FY15 to 75% in FY24. The LAP segment has shown an increase in its share of the product mix, rising from 19% in FY15 to 25% in FY24. 

Going forward Repco Home Finance Ltd will maintain the non-housing book at around 30%.

The share of home loans in AUM has been decreasing due to regulatory changes that reclassified reimbursement loans as home equity. NHB’s directive is to classify plot loans, where construction isn’t completed within 36 months.

Repco Home Finance Ltd Operating Ratios

Repco Home Finance Ltd NIM has been relatively stable, hovering around 4.4%-4.9% in FY15-FY21, with a noticeable improvement to 5.0%-5.2% in FY22-FY24. Management Guidance for FY25 NIM is expected to range between 4.8%-5.2%, with potential compression as Repco Home Finance Ltd targets higher growth.

The yield on advances has seen a gradual decline from 12.5% in FY15 to 10.7% in FY23, followed by a rebound to 11.7% in FY24. Spreads have remained in the range of 3.0%-3.5%, with a peak of 3.9% in FY22 and 3.4% in FY24. Anticipate spreads narrowing to around 3. As Repco Home Finance Ltd is focusing on higher growth and better customer quality might lead to slightly lower yields in FY25

The cost of funds decreased steadily from 9.7% in FY15 to 6.9% in FY22, then increased to 8.3% in FY24.

The cost-to-income ratio improved from 21% in FY15 to 16.9% in FY17 but then gradually worsened, reaching 24.7% in FY24 due to branch expansion. CRAR improved significantly from 20.3% in FY15 to a peak of 36.0% in FY23, slightly declining to 34.0% in FY24.

Repco Home Finance Ltd Borrowing Mix

Repco Home Finance Ltd’s proportion of borrowing from commercial banks has increased significantly from 68% in FY15  to  79.2% in FY24. A steady decline has been seen in reliance on NHB, dropping from 21% in FY15 to 10.8% in FY24. The reduced contribution of NHB funding in recent years can be attributed to higher Non-Performing Assets (NPAs), which limited access to this low-cost funding source.

However, with NPAs now on a downward trend,  Repco Home Finance Ltd stands to benefit from the competitive rates offered by NHB, as it has begun meeting the eligibility criteria for funding. Furthermore, it anticipates receiving an NHB sanction in the coming months, which could rejuvenate this funding avenue. Also, plans are underway to diversify the borrowing mix by tapping the debt market through NCDs.

Repco Home Finance Ltd AUM, Sanctions and Disbursements

Repco Home Finance Ltd AUM has grown consistently from ₹6,013 Cr in FY15  to ₹13,513 Cr in FY24, showing a CAGR of ~9.4%.Repco Home Finance Ltd sanctions show volatility, with peaks and troughs over the years and strong growth in FY16 (28%) and FY23 (72%). Sharp declines in FY20 -18% and FY21 -28% during challenging periods. Repco Home Finance Ltd disbursements stagnated post-FY16, averaging ₹2,800 Cr until FY19, followed by a sharp 43% decline by FY21 due to economic pressures and the pandemic. Recovery began in FY22, with disbursements reaching ₹3,135 Cr in FY24, driven by improved market conditions and strategic efforts. Repco Home Finance Ltd is guiding for ₹3,600-3,800 Cr disbursement in FY25

Repco Home Finance Ltd Branches, Employees and Live accounts

From FY19 to FY22, Repco Home Finance Ltd  has only added 9 branches and From FY23 to H1FY25 48 new were added. Repco Home Finance Ltd  is targeting 40 new branches per year till FY27. Post the appointment of New MD and CEO in Feb’22 – Mr. K. Swaminathan has taken major steps including verticalization of business into Separate Sales and Collection verticals and has also increased the pace of hiring in both sales and collection verticles

Repco Home Finance Ltd Customer Mix

Salaried Segment as % total customer mix has increased from 43% in FY15 to 48% in FY24, reflecting a gradual shift towards a more stable and lower-risk customer base.

Non-Salaried Segment as % total customer mix has decreased from 57% in FY15 to 52% in FY24, indicating a controlled reduction in higher-risk lending to self-employed individuals.

Going forward, Repco Home Finance Ltd will continue to maintain an optimal blend of non-salaried and salaried loans in the loan book.

Repco Home Finance Ltd Geographical Mix

Repco Home Finance Ltd loan book remains concentrated in the southern states – TN 56% of the portfolio as of FY24, Karnataka 13%, Andhra Pradesh 6%, Telangana 5 % and Kerala 2.5%. During the last few years, Repco Home Finance Ltd has expanded its network to other states, including Gujarat, Madhya Pradesh, Maharashtra, Rajasthan, and West Bengal. While this has marginally reduced its exposure to the southern states in the recent past, Repco Home Finance Ltd is expected to remain a regional player in the medium term. Repco Home Finance Ltd has strategically shifted focus to increase its footprint outside Tamil Nadu, with rising shares from Maharashtra, Karnataka, and non-Tamil Nadu regions. Currently, the Loan Portfolio (~80%) is concentrated in South India. Repco Home Finance Ltd is trying to deepen its penetration in the non-Southern states to build on the brand value by opening new branches. 

We see many other home finance companies following a similar template of becoming strong in their home market, then expanding into neighbouring states and regions before trying to become a pan India player. This is more prevalent within the HFC’s and NBFC’s that are focused on the non salaried segment (Aptus, India Shelter, Five Star Business Finance, Aadhar Housing Finance) than in HFC’s that have a higher reliance on the salaried segment (Home First Finance). It takes a longer time to build strong local connections needed to underwrite credit to the non salaried segment, for this reason we believe that scaling reliably is much tougher in the non salaried segment but this gets compensated by higher spreads in lending.

Repco Home Finance Ltd Asset Quality

In Fiscal 2020, Repco Home Finance Ltd GNPAs increased sharply from 3% to 4.3% due to slippages as consumer perception of the general economic situation, employment scenario, and household income had plunged. Continuing consumer pessimism and lockdowns in FY21-FY22 further impacted self-employed customers and micro, small, and medium enterprises.

Repco Home Finance Ltd GNPA peaked at 7% in FY22; subsequently, the asset quality improved to 5.8% in FY23 and 4.10% in FY24, led by economic recovery, pent-up credit demand, and government schemes.

After Swaminathan’s takeover, he added a separate collection vertical of ~180 personnel From April 23, and Demand notices were sent to NPA accounts under the SARFAESI act. Underwriting standards improved, which led to lower delinquencies from disbursements in the last 2 years. Out of total disbursements of approximately ₹7,500 Cr over the past 2.5 years, only around ₹50 Cr have turned into NPAs, reflecting a GNPA ratio of less than 1%. In H1FY25, Repco Home Finance Ltd issued 500 auction notices, 447 possession notices, and 1,000 demand notices. A mega auction is planned for December 2024.

We observe that the pace of recovery of NPA accounts has picked up pace since Mr Swaminathan assumed charge from Indian Overseas Bank. We have often seen that recovery is a long drawn out process in semi urban and rural India where there are political compulsions and community related challenges at play compared to the urban market. Investors will need to form an independent view on why Repco Home Finance Ltd was reluctant to pursue all legal options for recovery prior to the management change. In lending businesses, answers to such qualitative questions can reveal finer details about the business that a cursory glance of financials cannot.

Repco Home Finance Ltd Qualitative insights

Lead Generation – Each branch has a dedicated sales vertical responsible for sourcing new leads. Lead generation primarily relies on local DSAs (builders, brokers, etc.) and direct marketing campaigns such as pamphlets, auto ads, and loan stalls at local events/festivals.

Underwriting Model – Underwriting starts with an intensive Personal Discussion (PD) and detailed document verification, including KYC, bank statements, salary slips, business ledgers, and property documents.

Branch managers and sales staff conduct on-site visits for property/residence/office verification and customer reference checks. Eligibility is evaluated using CIBIL/CERSAI scores, and property valuation is based on prevailing market rates. All documents are uploaded to the system for approval by the Head Office.

Ticket Size – Housing loans range between ₹10 lakhs and ₹25 lakhs, while LAP  loans range between ₹20 Lakhs and ₹1 Cr.

Branch Segment – Branches are segmented into three categories based on loan outstanding: ₹50 Cr, ₹100 Cr, and ₹150+ Cr.

Referral Fees – Referral fees range from ~40-50 bps for connectors, ~55-60 bps for individual DSAs, and ~90-100 bps for corporate DSAs, payable upon loan disbursement.

Processing Fees – Customers are charged 1% processing fee for direct cases and 1.5% for DSA-sourced leads.

Interest Rates – Home loans start at a base rate of 10%, with a premium of 0.25-0.5% added based on factors such as customer profile, credit score, loan type, and ticket size. LAP loans typically have a yield of 14-15%. The salaried segment interest rate is ~10%. Non-salaried segment interest rate ranges from 12–13%.

LTV Calculation – Loan-to-Value (LTV) is based on a system-generated formula using the Total Realisable Value (TRV), which is usually 5-10% below the market value. LTV ranges between 75% and 90% of TRV.

Incentive Structure – Sales and collections teams have predefined targets set by the Head Office and earn incentives based on achieving these targets.

Collections – A dedicated collections vertical handles EMI recovery, with branch managers focusing on early-bucket (B0) and NPA (B3) cases. After an EMI bounce, automated follow-ups are sent, followed by field visits if needed. Legal notices and SARFAESI actions are taken as a last resort.

Legal/Technical Valuation – External lawyers and vendors handle legal and technical valuations, while an in-house legal team at the Head Office manages loans above ₹25 lakhs.

Turnaround Time and Productivity – Branches have a TAT of ~5-8 days, with the Head Office taking ~2 days to sanction loans. A branch typically disburses 10-15 files per month.

Hiring – As of now, there are 172 employees in Sales and 180 employees in Collections. The company plans to hire an additional 20–30 employees in Sales during the second half of FY25. Additionally, 200 branch heads are also actively involved in sales activities. The count of Direct Sales Team (DST) employees stood at 40.

Technology Adoption – While traditionally paper-based, Repco has adopted technology to improve operations and reduce TAT from 15 days to ~5-8 days. Tools like Azentio (LOS/LMS) are used for document uploads, eligibility checks, and loan monitoring, while Perfios analyzes customer bank statements. Third-party data (CIBIL/CERSAI) is also leveraged for underwriting.

Repco Home Finance Ltd Corporate Governence

Board Composition – As of FY24, the Board comprises 9 Directors, 5 of whom are Independent. Among the non-independent Directors and Non-Executives are Mr. Thangaraju, the company’s chairman, and Mr. K. Swaminathan, MD and CEO of Repco Home Finance. The senior management team comprises members with adequate experience in their respective functional domains.

Promoter remuneration – The total remuneration drawn by promoters in FY24 was INR 1.19 Cr in the form of salary, which is <1% of FY24 net profit.

Related Party Transactions – There were no material related party transactions with promoters or entities controlled by promoters in FY24.

Contingent Liabilities – On a consolidated basis, contingent liability amounts to 511 Cr higher than FY23, which is 17% of the net worth.

Dividend Policy – Repco Home Finance Ltd has consistently distributed dividends. For FY24, the total dividend payout will be ₹17 Cr.

Repco Home Finance Ltd Financial Performance

Over the last 5 years, Repco Home Finance Ltd AUM has grown at a flat CAGR of 3.40%, and profit after tax has grown at 9%. Much of this growth has come since FY22 after COVID-related issues were resolved in the economy. The Home Loan portfolio has grown at a CAGR of 1.90%. Whereas the Home Equity has grown at a CAGR of 9%. Throughout this period they have higher GNPAs  7% in FY22 spike during COVID.

Repco Home Finance Ltd Sanctions and Disbursements have grown at a flat CAGR of -0.10% and distributions at 0.20%. 

They’ve consistently generated ROA in the range of 2-3%. ROE  has been in the 13-18% range. Going forward, management has guided FY25 ROA & ROE of 3% and 15-16%

Our view is that growth has been sub par and probably explains why the market isn’t enthused by the NPA cleanup seen so far. We have noticed this in multiple lending businesses that while asset quality cleanup is very important, the market is willing to pay healthy valuation only if the business can scale at a healthy rate (~2x of the nominal GDP growth rate) and can keep asset quality healthy.

Repco Home Finance Ltd – Comparative Analysis

To understand Repco Home Finance Ltd.’s investment potential, we have conducted a comprehensive analysis. This analysis includes comparing Repco Home Finance Ltd to its competitors (peer comparison), comparing a benchmark index, and comparing sector performance.

Repco Home Finance Ltd Peer Comparison

The closest peers of Repco Home Finance Ltd in terms of lending profile seem to be Home First Finance Ltd, Aptus Value Housing Finance India Ltd, and AAVAS Financiers Ltd. All of them posted 25%+ 5 years AUM CAGR, while Repco Home Finance Ltd’s growth has been poor at 3.40% 5 years AUM CAGR.

Aptus Value Housing Finance India Ltd has the highest yield at 17.37%, AAVAS Financiers Ltd and Home First Finance Ltd have moderate yields at 13.13% and 13.60%, while Repco Home is the lowest at 11.7%. 

All four players have a similar 8-9% range of cost of funds. AAVAS Financiers Ltd has the best asset quality, with the lowest GNPA of 0.94% and NNPA of 0.67%, indicating strong risk management and healthy loan performance. In contrast, Repco Home has the weakest asset quality, with the highest GNPA (4.1%) and NNPA 1.5%. Going forward Repco Home Finance Ltd expects asset quality to improve and for the growth rate to improve as the efforts of the new management start bearing fruit.

Aptus Value Housing Finance India Ltd outperforms in return ratios with the highest ROA (8.0%) and ROE (18.3%), While Repco Home Finance Ltd is clearly lagging and has the lowest ROA of 3.0% and ROE of 15.8%  among peers, indicating relatively lower profitability.

In FY24 AAVAS Financiers Ltd had the most extensive network with 367 branches and 6,075 employees. Repco Home Finance Ltd has the smallest setup, with 212 branches and 1,087 employees.

Repco Home Finance Ltd Index Comparison

Repco Home Finance Ltd share performance vs S&P BSE Small cap Index as the index benchmark comparison is a fundamental tool for understanding the investment potential and making informed decisions in the context of the broader market

Why you should consider investing in Repco Home Finance Ltd ?

We believe that Repco Home Finance Ltd offers some compelling reasons to track the business closely and to consider investing if one is looking to invest in a housing finance sector

Potential for rerating as asset quality improves – Repco Home Finance Ltd used to trade at 3-6 times of book value before Sep ’18, and got derated to around 0.4-0.9 times book value due to declining asset quality. Repco Home Finance Limited used to have a GNPA of around 1-2% before FY18. Currently, GNPA is around 4.10%, and GNPA peaked at 7% in FY22. From the last 8 quarters, GNPA has been trending lower, and going forward, this trend is expected to come down <2% by FY27. which may lead to rerating in the future.

Management targeting 20,000 Cr, Loan book and GNPA < 2% by FY 27  – Management highlighted that Repco Home Finance Ltd wants to grow consciously going ahead without affecting the asset quality. Management is guiding for a 20000 Cr loan book by the FY27 end (Non-home loans will be 25-30% of this), and asset quality GNPA is expected to decrease below 2%. In H1FY25, Repco Home Finance Ltd issued 500 auction notices, 447 possession notices, and 1,000 demand notices. A mega auction is planned for December 2024. Signs of recovery in credit growth and reduction in NPA.

Investments in technology upgrades – Phase 1 of the new software project comprising LLMS, LOS, and EGL is fairly stabilized. Phase 2, comprising software relating to support functions, is in various stages of implementation and testing. Repco Home Finance Ltd has spent around 27 Cr in the last few Quarters. It will help Repco Home Finance Ltd to improve turnaround time and improve productivity for employees.

Strong Hiring and branch expansion –  Repco Home Finance Ltd has only added 9 new centers from FY19-22, and from FY23 to H1FY25, 48 New centers were added in the last 2.5 years, and going forward, it is targeting to add 40 new branches till FY27. The new CEO has taken certain steps from FY23. Onwards, Employee Headcount increased by 400+, i.e., 170+ in the sales team and 180+ in the collections department, and Repco Home Finance Ltd plans to hire an additional 20-30 employees in sales during the H2FY25.

What are the Risks of Investing in Repco Home Finance Ltd?

Investors need to keep the following risks in mind if they choose to invest into this business. Risks need to be weighed in combination with the advantages listed above to arrive at a decision that is optimal for your portfolio construct.

Rules and regulatory policies – Any unfavorable change in rules and regulatory policies can have a negative impact on the earnings outlook of Repco Home Finance Ltd. Also in recent months regulatory tightening has picked up. 

Macroeconomic risks – Any slowdown in the Indian economy may adversely impact the Housing Finance sector. 

Regional Concentration – Repco Home Finance Ltd operates on a modest scale with a significant regional concentration. As of Q2FY25, approximately 84% of its loan book is concentrated in five South Indian states, with Tamil Nadu being the largest contributor at 56%. While Repco Home Finance Ltd has been making efforts to expand its presence beyond the South by opening branches in West Bengal, Odisha, Maharashtra, Gujarat, Madhya Pradesh, and Rajasthan, it continues to face concentration risk despite these geographic diversification initiatives.

Relatively higher exposure to riskier borrower segments – Repco Home Finance Ltd primarily caters to the housing finance needs of a relatively riskier segment, focusing on low- and middle-income borrowers in the informal sector. Non-salaried borrowers make up 52% of the total loan book, which could pose challenges to asset quality and profitability during an economic slowdown. However, Repco Home Finance Ltd’s moderate loan-to-value (LTV) ratios and heightened focus on collections are expected to help limit potential losses significantly.

Higher Competition – The housing finance industry is highly competitive; Repco Home Finance Ltd is facing competition from small finance banks, larger banks, and other HFCs. Banks, in particular, pose significant competition due to their extensive branch and distribution networks, along with access to cheaper funding, enabling them to offer more attractive terms to borrowers.

Sub par recovery of stressed assets – The previous management was slow to explore all possibilities of recovering stressed assets, this might indicate intangible factors which are difficult for investors to assess from a distance. Lenders with high levels of geographical concentration can sometimes be at the mercy of non economic factors like political interference and dynamics of the local community. This aspect needs to be evaluated closely by investors for this business.

Repco Home Finance Ltd Future Outlook

Management is guiding for a 20000 Cr loan book by the end of FY27 (Non-home loans will be 25-30% of this) with GNPA is expected to decrease below 2%. For FY25 Management is Guiding for disbursements of ₹3,600-3,800 Cr, with the loan book expected to reach ₹14,800 Cr with GNPA< 3%. Both Yield & NIM NIM is expected to decline as Repco Home Finance Ltd is focusing on higher growth and better quality 

Branch network: Total branches stood at 227 as of September 2024, with two new branches opened in 2QFY25 and plans to scale up the branch count to 250 by March 2025.

Credit costs: Expected to be marginal or NIL in FY25, with stronger write-backs anticipated in the second half of the year.

Sales and Collection: ​​Repco Home Finance Ltd has recruited experienced employees for its sales and collections teams. As of now, there are 172 employees in Sales and 180 employees in Collections. Repco Home Finance Ltd plans to hire an additional 20-30 employees in Sales during H2FY25. Additionally, 200 branch heads are also actively involved in sales activities. The count of Direct Sales Team (DST) employees stood at 40. The collections team is prioritizing efforts on Stage 2 loans and aims to align its performance with peers in terms of reducing Stage 2 levels.

Sourcing Channels: Repco Home Finance Ltd is expanding its sourcing network by adding multiple channels, including connectors and Corporate DSAs.

Asset Quality: A systematic and consistent focus on NPA accounts is driving a notable improvement in asset quality. Out of total disbursements of approximately ₹7,500 Cr over the past 2.5 years, only around ₹50 Cr have turned into NPAs, reflecting a GNPA ratio of less than 1%. Total write-offs amounted to ₹13 Cr over the last year.

Repco Home Finance Ltd Technical Analysis

We consider technical analysis to be a useful input in taking medium-term investment decisions. Many a time price action tends to lead to fundamental developments; this is too important an aspect to be ignored by retail investors who do not have access to management outside of common forums like investor calls & AGM.

At Congruence Advisers we like to consider both the long-term weekly chart and the daily chart to arrive at a view on price action on any stock. Combined with our understanding of fundamentals, we usually end up being better placed to be able to judge both the business cycle and the stock cycle. Playing the stock cycle right is extremely important for investors looking to extract significant alpha over the medium term

Repco Home Finance Ltd Price Chart

On weekly charts, Repco Home Finance fits the pattern of a stock that was a market darling at one point of time but has flattered to deceive since then. The 5 year chart has been very choppy as the business and the stock has struggled to find its feet and establish any secular trend. One can observe from the shareholding pattern that both FII and DII holding have come down steadily since 2017 while public shareholding has more than doubled. One would also do well to notice that the bulk of retail shareholding spiked in the 12 months post COVID as it rose from < 10% to 22%. 

In a fundamental sense, the 2022 bottom was formed closer to 0.4x book value while the recent peak of 2024 corresponds to a book value of 1.4x

Based on this combination of technicals and fundamental ratios, it does look like the price of 380 becomes a very important level for the stock to defend if this market volatility continues through 2025. This corresponds to a Price to Book multiple of ~0.7x. If the stock falls below this level, it would imply that the market believes that growth will be tough to come by even if asset quality sustains at the current level.

On the day chart, the rising short term trend line has been decisively broken accompanied by the 50 DMA crossing below the 200 DMA from above. The short term price movement indicates a clear bearish trend which implies muted investor expectations for Q3 and Q4 FY25. 

Repco Home Finance Ltd Latest Result, News and Updates

Repco Home Finance Ltd Quarterly Results

Repco Home Finance Ltd reported strong disbursement growth at 27.5% QoQ. However, AUM growth remained stable at 8.1% YoY vs 8.3% YoY in Q1FY25. Management guided for disbursements target to be achieved while AUM to be lower than Rs.15000 Cr for FY25. Net interest margin remains stable QoQ at 5.1%, backed by improvement in yields. 

Repco Home Finance Ltd has increased the lending rate by 10bps, which should support the margins. Asset quality improved during the quarter, with GNPA at 4.0% vs 4.3% QoQ due to better collections.  NII grew by 2% YoY led by a decline in NIMs. PAT grew by 15% YoY, led by write back of provisions that supported RoA at 3.3% (highest in last 3 years).

NPAs from the restructured loan book stood at approximately ₹150 Cr as of September 2024, compared to ₹158 Cr in June 2024. Stage 2 loans in the restructured book were approximately ₹200 Cr.

In H1FY25, Repco Home Finance Ltd issued 500 auction notices, 447 possession notices, and 1,000 demand notices. A mega auction is planned for December 2024. The total written-off pool was approximately ₹100 Cr as of September 2024.

Final thoughts on Repco Home Finance Ltd

Overall it would be safe to say that the price indicates muted investor expectations for the business over the next 2 quarters. Any positive surprise can swing the mood in favour of a small rerating to 1x Price to Book value.  In such stocks, investors will need to choose the right low risk entry point which can only be established through a combination of fundamentals and technical analysis. The chart does not appear conducive for playing a short term bounce, healthy returns can happen over the medium term (3-5 years) once fundamentals indicate that the business had indeed turned the corner.

This is clearly not a stock for the faint hearted, though it often becomes tempting to do bottom fishing in such counters. There are better managed HFC’s that are available at less than 3.5x Price to Book value where the growth, asset quality and unit economics are all far superior to Repco Home Finance Ltd.

Dabbling in such counters should be an endeavor only for high risk appetite investors who have at least 2 cycles of experience in investing in lending businesses. However, the risk reward ratio would become significantly skewed in favor of investors if the current downtrend of lenders in the market continues and this story trades at a Price to Book multiple < 0.6x

Disclaimer – This note is part of a business research & analysis series on small companies, there is no BUY/SELL recommendation or target price issued as part of this. There is no assurance that this stock makes for a good investment, there is no guarantee that this stock will be included in the coverage universe of Congruence Advisers. The note contains some forward-looking statements and insights drawn from the historical results, annual reports and investor presentations; they are to be viewed only within this context and not as a prediction of future performance of the business or the stock covered.

While due care has been taken to ensure that the information here is as accurate as possible, Congruence Advisers disclaims any liability in case of any unintentional inaccuracies. 

The content does not constitute investment advice.

Disclosure (Updated as of Dec 31, 2024) – No position in the stock in personal portfolio