 "Angel Broking, Ajcon Global recommend Subscribe for Repco Home Finance")
Angel Broking's Vaibhav Agarwal and Saurabh Taparia have recommended Subscribe to Repco Home Finance's (RHFL) public issue at the upper band. Reason: RHFL’s attractive niche loan segment, strong growth prospects and reasonable valuations.
The report by Agarwal and Taparia says RHFL operates in an attractive loan segment, that is, priority sector home loans segment. The company is largely focused on providing home loans in tier-II and tier-III cities (average loan ticket size = sub-Rs 10 lakh), due to which a large part of its book qualifies as priority sector lending (PSL) for banks. “In our view, NBFCs operating in PSL segments enjoy competitive advantages, as most banks (especially private sector ones) 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,” says the report.
RHFL's loan book profile also allows it to procure 44% of its total borrowing via low-cost National Housing Bank (NHB) refinance averaging about 7.5-8%. NHB refinance is available under various schemes, primarily for rural loans up to Rs 15 lakh and also for low cost urban housing loans of up to Rs 10 lakh. Moreover, the funding that it gets from banks in turn largely qualifies as PSL for the banks (loans by banks to NBFCs as home loans less than Rs 10 lakh qualify as PSL). This makes it attractive for banks to lend to RHFL at a reasonable cost (about 100 basis points above base rate), as against alternatives such as parking funds under Rural Infrastructure Development Fund (RIDF) at extremely low yields, to meet their PSL targets.
In terms of borrower profile, around 53% of the company's outstanding loan book constituted loans to relatively higher-yielding higher-risk non-salaried segment. To mitigate risks, the company, lends at a low Loan-to-Value (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.
Over FY2008-12, the company grew its loan book at a CAGR of 43.8% (on a small base) to Rs 2,802 crore, driving profit after tax (PAT) CAGR of 43.3%. As of September 30, 2012, its CRAR stood at a comfortable 15.9% (only tier-I). Further, IPO proceeds would increase its capital base by nearly 0.9x, providing enough headroom for maintaining strong loan growth for the next few years as well. Funding mix is also expected to remain stable as in FY2014 NHB refinance facility for rural housing fund increased by 50% to Rs 6,000 crore; bank demand for PSL opportunities is also expected to remain strong and future outlook is favorable, given government’s priority sector focus, said Agarwal and Taparia in the report.
RHFL would trade at 1.8x FY2013E ABV (at the upper end of its price band, based on post-issue networth). Closest comparable peer - Gruh Housing Finance (in western, rural and semi-urban India, largely PSL qualifying home loans) appears extremely expensive at valuations of 7.3x FY2013E BV, notwithstanding its 30% earnings growth trajectory and 35% RoEs (FY2013E). 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 2.6x and 2.3x FY2013E ABV, respectively, but they have larger, relatively more seasoned loan books and longer proven track record.
Ajcon Global has come out with its report on Repco Home Finance (RHFL) IPO. According to the research firm, the company is valued at 2.36x - Book Value /share at upper end of the price band. One can subscribe to this issue, says Ajcon Global.
Repco Home Finance's IPO opens on March 13 and closes on March 15, 2013.
The report by Agarwal and Taparia says RHFL operates in an attractive loan segment, that is, priority sector home loans segment. The company is largely focused on providing home loans in tier-II and tier-III cities (average loan ticket size = sub-Rs 10 lakh), due to which a large part of its book qualifies as priority sector lending (PSL) for banks. “In our view, NBFCs operating in PSL segments enjoy competitive advantages, as most banks (especially private sector ones) 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,” says the report.
RHFL's loan book profile also allows it to procure 44% of its total borrowing via low-cost National Housing Bank (NHB) refinance averaging about 7.5-8%. NHB refinance is available under various schemes, primarily for rural loans up to Rs 15 lakh and also for low cost urban housing loans of up to Rs 10 lakh. Moreover, the funding that it gets from banks in turn largely qualifies as PSL for the banks (loans by banks to NBFCs as home loans less than Rs 10 lakh qualify as PSL). This makes it attractive for banks to lend to RHFL at a reasonable cost (about 100 basis points above base rate), as against alternatives such as parking funds under Rural Infrastructure Development Fund (RIDF) at extremely low yields, to meet their PSL targets.
More From This Section
Relatively low-cost NHB and bank funding enables it to maintain healthy margins and return ratios. Net Interest Margins (NIMs) at 3.8% and RoE at 22.2% in H1FY2013, calculated on an annualised basis, says the report.
In terms of borrower profile, around 53% of the company's outstanding loan book constituted loans to relatively higher-yielding higher-risk non-salaried segment. To mitigate risks, the company, lends at a low Loan-to-Value (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.
Over FY2008-12, the company grew its loan book at a CAGR of 43.8% (on a small base) to Rs 2,802 crore, driving profit after tax (PAT) CAGR of 43.3%. As of September 30, 2012, its CRAR stood at a comfortable 15.9% (only tier-I). Further, IPO proceeds would increase its capital base by nearly 0.9x, providing enough headroom for maintaining strong loan growth for the next few years as well. Funding mix is also expected to remain stable as in FY2014 NHB refinance facility for rural housing fund increased by 50% to Rs 6,000 crore; bank demand for PSL opportunities is also expected to remain strong and future outlook is favorable, given government’s priority sector focus, said Agarwal and Taparia in the report.
RHFL would trade at 1.8x FY2013E ABV (at the upper end of its price band, based on post-issue networth). Closest comparable peer - Gruh Housing Finance (in western, rural and semi-urban India, largely PSL qualifying home loans) appears extremely expensive at valuations of 7.3x FY2013E BV, notwithstanding its 30% earnings growth trajectory and 35% RoEs (FY2013E). 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 2.6x and 2.3x FY2013E ABV, respectively, but they have larger, relatively more seasoned loan books and longer proven track record.
Ajcon Global has come out with its report on Repco Home Finance (RHFL) IPO. According to the research firm, the company is valued at 2.36x - Book Value /share at upper end of the price band. One can subscribe to this issue, says Ajcon Global.
Repco Home Finance's IPO opens on March 13 and closes on March 15, 2013.