Repco Home Finance Limited
Know the Company
Repco Home Finance Ltd (Repco) is one of the leading housing finance companies in India, established in 2000 in Chennai. The company is a subsidiary of Repco Bank – a Government of India enterprises. Repco primarily caters to the housing finance needs of individuals in semi-urban and rural areas, especially for low – and middle-income households.
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Repco’s product portfolio includes loans for constructing, purchasing, or renovating residential properties, as well as loans against property. The company has an extensive network across 12 states and one union territory, comprising 184 branches, 43 satellite centers, and 2 asset recovery branches as of September 2024. The company serves states including Tamil Nadu, Karnataka, Andhra Pradesh, Telangana, Kerala, Maharashtra, and more, but majority of its branches are located in TN.
As of Sep, 2024, housing loans constituted almost 76% of Repco’s loan book, with the remaining 24% comprising non-housing loans. Notably, all loans are extended to retail clients, reinforcing Repco’s commitment to supporting individual borrowers.
Repco Micro Finance Limited (RMFL), incorporated in 2007 is a subsidiary of Repco, which classified as an NBFC-MFI (Micro finance institution) in 2013, focuses on extending loans to economically backward women through Women Self-Help Groups for income generation.
Strengths
Repco Home Finance operates with a focus on understanding the unique financial requirements of individuals in untapped non-metro areas and delivering personalized solutions. It has a strong presence in South India, particularly in Tamil Nadu, and offers diversified products catering to various customer segments. The company leverages technology to streamline operations, enhance customer experiences, and maintain a competitive edge in the dynamic housing finance sector. Its consistent growth is driven by prudent risk management practices and a focus on maintaining high asset quality.
The company boasts robust capital adequacy ratio, strong profitability ratios, and a loyal customer base. Repco is maintaining consistency in Net Interest Margins (NIM) and improvement in asset quality. For the Q2FY25, the company reduced its gross NPA from Rs 583 crore to Rs 552 crore (quarter-on-quarter), while net NPA declined from Rs 223 crore to Rs 217 crore. As of March 31, 2024, it maintained a provision coverage ratio of 65.2%. As of March 31, 2024 about 90.5% of the loans in Stage-3 were under various stages of procedure under SARFAESI act. The capital adequacy ratio of the company stood at 33.98%, well above the regulatory minimum of 15%.
Repco reported satisfactory financials for the Q2FY25. Compared to Q1 FY25, loan sanctions rose by 27%, from Rs 727 crore to Rs 926 crore (QoQ), and loan disbursements grew by 28%, from Rs 680 crore to Rs 867 crore. Total income also showed a significant increase, growing by 28%, from Rs 416 crore to Rs 428 crore. Net profits for the quarter increased by 7%, from Rs 105 crore to Rs 113 crore. As of September 30, 2024, the company’s loan book stood at Rs 13,964 crore, an 8.1% increase from Rs 12,922 crore a year ago. The company maintained a healthy loan spread of 3.4%, with a return on assets at 3.3% and a return on equity at 16%, compared to 3.1% and 16.1%, respectively, in Q2 FY25.
Borrowing Profile of Repco’s funding is well diversified as it sourced from three primary verticals such as refinancing from the National Housing Bank (NHB), term loans, and working capital facilities from Repco Bank and other banks. As of March 31, 2024, 79.2% of its borrowings were from commercial banks, 10.8% from NHB, and 10.0% from Repco Bank. Of its borrowings, 1.7% were at a fixed rate, while 98.3% were on a floating rate basis, which insulated from the changing interest rate scenario.
Repco’s short- and long-term debts are rated by Care Edge Ratings and ICRA Limited. Its term loan facilities and Non-Convertible Debentures (NCDs) hold an AA- (Stable) rating, while its Commercial Paper facility is rated A1+. These ratings were reaffirmed in FY24, reflecting the company’s strong creditworthiness.
Housing finance companies play a significant role in making housing accessible to middle- and lower-income groups, as a major portion of the funds is borrowed to purchase or construct a house in India.
India’s growing urbanization, rising disposable incomes, and increasing demand for homeownership due to demographic advantage, are major growth drivers for Housing Finance companies. This sector is poised for expansion due to a large housing deficit and Support from Government and Policies such as affordable housing under government initiatives like Pradhan Mantri Awas Yojana. The government’s focus on housing for all, coupled with tax incentives on home loan repayments, boosts the demand for housing finance.
Industry Scenario
The real estate industry experienced significant growth momentum during the past several quarters despite higher interest rates. Sales of new residential units remained robust, with the industry expected to grow by 13–15% for the next few years. Average sale prices have also increased due to higher-value housing units, a demand-driven price rise, and a reduction in inventory overhang.
While mid- and high-range housing segments continue to dominate the real estate market, affordable housing remains a significant and dynamic segment of India’s real estate sector, bolstered by government’s various initiatives. The last Interim Budget 2024 underscored key initiatives for infrastructure and housing. Pradhan Mantri Awas Yojana (Grameen) which close to achieving the target of 3 crore houses, with an additional 2 crore homes targeted over the next five years. Middle-Class Housing Scheme, a new initiative to encourage middle-class families to buy or build their homes. An 11% increase in infrastructure spending, expected to bolster the growth of residential, commercial, and industrial real estate assets across the country.
Outlook
Macroeconomic factors, coupled with government initiatives like interest subsidies, tax benefits, and affordable housing programs, have significantly boosted real estate demand, especially in residential housing, going forward.
Repco plans to deepen its penetration into non-southern states by opening new branches to expand its brand presence. Its strategy focuses on customer acquisition and increasing ticket sizes in line with market growth. Furthermore, Repco aims to enhance revenue streams through cross-selling initiatives and fee-based income, which all are expected to give a bright future for the company.
Repco has set an ambitious target of achieving an AUM of Rs 20,000 crore by FY27. The company management is optimistic that various favorable factors such as government schemes, demographic advantages, a young working-class population, and double-income families, etc, could accelerate growth of the housing sector in the country in the years to come.
Challenges and Concerns
Housing finance companies (HFCs) face significant risks, including heightened competition from banks, which are benefited from greater access to inexpensive funds with extensive branch networks. It is enabling banks to offer more competitive interest rates than HFCs.
Elevated borrowing costs scenario might strain profit margins as well as reduce demands also a cause of concern. Additionally, stringent regulatory requirements in India, such as increased capital adequacy norms, stricter asset quality monitoring, and enhanced reporting standards increase significant compliance burdens to housing finance companies. These regulations demand robust risk management frameworks, higher operational costs, and continuous system upgrades for Housing finance companies.
Sector: Financial Services
Market Price: Rs. 387.15 as on today
FV: Rs 10/-
Stock Name: Repco Home Finance Ltd
BSE Code: 535322, NSE Code: REPCOHOME
Market Cap.: Rs 2300 Cr
Book Value: Rs. 494
Segment: Finance – Housing
Incorporation: 2000
Headquarters: Chennai,Tamilnadu
