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MAGAZINE|JAN04,2014
MYBESTPICK
BasantMaheshwari
Founder & CEO, equitydesk is bullish on Tamil Nadu home loan major Repco Home Finance
BASANTMAHESHWARI
RepcoHome WellcapitalisedTNfocusedhomeloanplayerhasenoughheadroomtogrow CY13return 99% StockpriceRs320 P/B(FY15)2.1X Marketcap Rs1,989cr NetincomeRs406cr NetprofitRs80cr ROE17.06% RoCE13.49% *** Kolkataisdullandboringforinvestors.ThelandofTagoreandTeresadoesnthavemuchtoshow whenitcomestogroomingworldclasscompanies,withtheexceptionofITC,whichhasamarketcap ofRs250,000crore .Happily,though,asafulltimeinvestor,myworktakesmefarandwide togetasenseofthecompaniesinwhichIdecidetoinvest. Companyvisitsformanimportantpartofmyvacationsaswell.Ona holidaytoSikkim,myreturnwasdelayedbyadayandIgottovisitthe
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the Rs 515 lakh home loan space, mostly to self employed borrowers
ItwasonatriptoKeralalastyearthatIcameacrossanewsbriefaboutRepcoHomeFinance
Repco sources customers on its own, keeping operating costs low, which helps a branch achieve breakeven in the first year
Repcoseemedapromising investment,giventhestrong tailwindforcompanies cateringtosemiurbanand ruralareas.Theseareas haveseenastrongand steadyincreaseindisposable incomeinrecentyears,led bythefarmloanwaiverof 2008implementationofthe SixthPayCommission NREGAincreaseinpricesof foodsandvegetables,which hastransferredmoneyto semiurbanandruralIndia fromthemetrosandrisein priceoflandandgold,which createsawealtheffectinthe ruralpopulation.Almost64% ofRepcosloanbook originatesinTamilNadu.Itoperateswithverylittlecompetitioninitsspace,sincecompaniessuchas HDFCandLICHousingofferloanswithaminimumticketsizeofRs15lakh,whileShriramandM&M FinanciallookatlessthanRs5lakh,leavingtheRs515lakhmarketforRepco.Notsurprisingly,over thepast10years,thecompanyhasgrownitsloanbookatabove40%andlookssettogrowatan annualisedrateofmorethan30%forthenextfewyearsaswell. However,sinceselfemployedborrowersconstitute54%ofRepcosloanbookandthesecustomers haveerraticincomeflowsunliketheirsalariedcounterparts,thecompanysnonperformingasset (NPA)levelkeepsswingingfromquartertoquarterbeforenormalisingbytheMarchquartereach year.TheseNPAsaretechnicalinnatureas,inspiteofthehighgrowth,theloanlossatRs3.71crore isonly0.08%ofitstotallendingofoverRs4,000crore.Thecompanyhasrecentlycreatedan incentiveschemewherebybranchmanagerswillbeevaluatedbothforlendingaswellasforrecovery. Theideaistocompelemployeesdownthelinetofocusonrecoverybasedonquarterlytimelines. TheseinitiativesshouldhelpstreamlineNPAswings,ashasbeenevidentfromthequarterlyresults.
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Diggingdeeper Idecidedtomeetthemanagementearlierthisyear andshotoffanemailtothecompanyrequestinga meeting.WhenIreachedRepcosofficeinChennai,I wastakenrightawaytoVRaghu,executivedirector. Heknowshisworkandseemstobefocusedonjust onething:makingloansatreasonableratesandthen recoveringitwithinterest.Raghuemphasisedthat growingfastisnotaproblemasthetargetsegment remainslargelyuntapped.Hebuttressedhispointby statingthatTNconstitutes18%ofIndiasmortgage marketandifRepcofocusesonlyonthisstateitis possibletogenerateagrowthof25%to30%forthe nextfiveyearsatleast. WhenaskedaboutthelittleheadwaythatRepcohas madeintootherstates,themanagementsaidthe strategybehindventuringintootherstatesisthat whenTamilNadubecomessaturatedinafewyears, thecompanywouldalreadyhavetheinfrastructure readytoscaleupitsbusinessfromotherareas.K Ashok,thechiefgeneralmanagerandanoldhand, pointedoutthatRepcohadnottakenanyrateincreaseforthepasttwoyearsbecausegrowthwas profitableandthecompanywasmorefocusedondistributionandpenetration. IlatermetRVaradarajan,MD,whoinformedmethatRepcoBank,theparentofRepcoHome, maintainsazeroNPA.Healsoagreedwithmysuggestionofretainingthemoneyinthebusinessand growingitratherthandistributeitasdividends.Repcosourcescustomersonitsown,thuskeeping operatingcostslowat6%andhelpsabranchachievebreakeveninthefirstyearofoperation.The companyintendstoadd12to15branchestoitsexistingnetworkof102brancheswithastresson expandingtwothirdsofthenewonesinnicheoruntappedareas. ItscreditratingwasrecentlyupgradedbyIcratoAA(stable).Thisenhancedratingwillbeusedto diversifyitsliabilitysidebyissuingdebenturesandcommercialpaperandshouldresultinlowering borrowingcostsby25to30basispoints.Thecompanyscostofborrowinghasbeenconstantaround 9.3%,enablingittoenjoyaspreadof34%.ThankstotheIPOfundinfusion,thenetinterestmargin shotupto4.9%inQ2FY14,translatingtoaspreadof3.1%.ThenetNPAforthequarterwasat0.92% andisgettingsmoothenedoutforquarterlyaberrations.Areturnonassetsofaround2.7%without takinganypriceincreaseoverthepasttwoyearsleavesthecompanywithenoughfirepowerto weatheranystormandacapitaladequacyof24%indicatesthatitsreturnonequitycouldmove aheadfromthecurrent18%. AgainstitsissuepriceofRs172,thestockiscurrentlytradingatRs292,translatingto12times estimatedFY15earningspershareofRs25andataround2.1timesprojectedFY15bookofaround Rs140.Giventhereasonablevaluationandenoughroomforgrowth,thestockshoulddowellin2014 andappearstobeapotentialmultibagger. Thewriterholdsthestockinhispersonalcapacity
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