Repco Home Finance - HDFC Securities Maintains 'ADD' On The Stock, Revises Target Price; Here's Why

HDFC Securities Institutional Equities

Repco Home Finance Ltd.'s incumbent Managing Director and Chief Executive Officer has implemented several initiatives over the past three years, including organisational restructuring, investments in distribution, tech transformation, and a focus on collections and recoveries. These initiatives are likely to enhance loan growth, which has remained significantly sub-par for the past few years (~5% compound annual growth rate during FY18-FY24).

Productivity metrics remain significantly low compared to peers, with room for improvement from diversification of sourcing channels and introduction of sales vertical.

While early delinquencies remain elevated (gross stage II at ~11%), enhanced collections and recoveries have led to a favorable turn in credit costs, which is likely to remain muted in the near term.

We believe that the impending management transition towards the end of FY25 is unlikely to disrupt these changes. We revise our FY25/FY26 estimates to factor in lower net interest margin and higher other income and maintain "ADD" with a revised RI based target price of Rs 560 (one times September-26 adjusted book value per share).

Revival in loan growth remains the key for any meaningful re-rating in the stock.

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