Dear Community Members,
I have been following Repco Home Finance business from past 5 Years now, and reluctant to touch it as Finance is not my circle of competence. However, The technical Pattern reversal which it has created and looking at the concall highlights it looks that Repco will not have much stress and actually it can prosper as covid subsides.
Here i am sharing with you, q4 Concall highlghts. Will watch Q1 FyY21 Concall too once its released.
Q4 Concall highlights
Collection Efficiency & Bounce rate
68% of customers paid their EMI in June. The collection trend has improved further in July
and most likely 75% of customers are expected to pay. Management believes that the normal
collection rate of 95% can be achieved by October/November if Covid flattens out.The collection rate is 95%+ for non-moratorium customers (chosen not to opt for June and in cases where company did not find requirement), which is comparable to pre-Covid era.
Though the first presentation bounce is slightly higher currently (17-20% v/s 15% before Covid).
Almost all customers who opted/given moratorium in June are the ones who were under moratorium in the first moratorium period.
Disbursements are now at 50% of pre-Covid level. By end of Q3 FY21, company believes
that it can achieve 80-90% of pre-Covid quantum.
The initial focus of disbursements would be on better CIBIL score clients.
About Rs90bn of the loan book (nearly 80%) is in Tier 2-4 cities. Negligible competition from
banks and other HFCs for fresh disbursements; however, most PSU Banks and some private
banks have been aggressive in loan takeover from Repco.
Even in the second moratorium phase, Repco has not availed moratorium from its lenders. Company currently has Rs3bn worth of cash/FDs, about Rs20bn of undrawn sanctioned lines and additional sanctions in the pipeline. Liabilities maturing in coming 3 months is about Rs8bn and coming 6 months is Rs12bn.
Incremental cost of borrowing has been coming down at a fast clip. Incremental funding tie- up was at around 7% during the April-July period, but it included liquidity from NHB at lower rate.
Asset quality and additional provisions
The additional covid-related provision of Rs0.4bn made by Repco was based on portfolio assessment on four parameters viz. a) customers’ area/location in the context of Covid incidence, b) borrower’s occupation, c) a number of defaults in six months before Covid and d) whether moratorium taken or not taken.
These provisions represented management overlay on the ECL requirement and are thus
additional provisions spread across Stage 1, 2, and 3 customers (majority attributable to
Stage-3). The management intends to make further prudential provisions in Q1 FY21.
GNPLs in the Home Loans segment stood at 3.8% and in LAP at 6.6%. GNPLs for salaried
customers were at 1.6% and for self-employed borrowers at 6.7%.
It expects to reign in the GNPL ratio at 4.5% by the end of the current fiscal. This expectation stems from a) improving collection trends (morat % coming down and normal collection efficiency in the non-morat book), b) a significant reduction in Stage-2 assets over FY20 and sustenance at a lower level even as of June, c) >90% of loans for self-occupied homes and b) only 5% of home loans representing booking for under-construction apartments in projects of small and large builders.
The collection of soft and hard buckets is in-house and only in cases of chronic NPLs (2+ years older) the company seeks support of recovery agencies.
The majority of the LAP NPLs represent high-ticket (>Rs10mn) legacy loans. Over the past three years, the average ticket size of the portfolio has been brought down significantly and concentration has been reduced.
In FY22, management believes that GNPLs could come down to 3.5% if the macro scenario
Risk/Reward for the trade is 1:3.4
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