Value Investors avoid IPOs saying Its Probably Overpriced. But when Repco Home Finance came out with its IPO, it immediately caught my eye.... Maybe because of Representative Bias (similar business to Gruh Finance, a huge wealth creator) or because of Authority Bias. Or maybe because of superb business fundamentals & great past record.
But to build a solid conviction, good performance after IPO was a must. And Repco has delivered exactly what the doctor ordered.
Repco is in the business of housing finance. What separates it from other housing finance comps & banks is its Tier-II & Tier -III focus, Small average loan size (<10 lakhs) & loans to non-salaried class.
If you are holding for Long Term, what's more important is how the business will look in the future than what is looking right now!!!
Based on this logic, I tried to project how Repco will look after FY2017-18... i.e 5 years down the line. Here is my take-
Assumptions- 25% annual disbursements growth, 20% annual repayments growth, NIM of 3.5%, Div Payout of 15%, Gross NPA at 1%, Tax rate of 25%.
Facts underlying the assumptions-
But to build a solid conviction, good performance after IPO was a must. And Repco has delivered exactly what the doctor ordered.
Repco is in the business of housing finance. What separates it from other housing finance comps & banks is its Tier-II & Tier -III focus, Small average loan size (<10 lakhs) & loans to non-salaried class.
If you are holding for Long Term, what's more important is how the business will look in the future than what is looking right now!!!
Based on this logic, I tried to project how Repco will look after FY2017-18... i.e 5 years down the line. Here is my take-
| 2013 | 2018 | |
| Equity | 634 | 1200 |
| Debt | 3158 | 9749 |
| Good Assets | 3514 | 10721 |
| NPA | 36 | 108 |
| Cash | 210 | 67 |
| Other Assets | 32 | 52 |
| NII | 125 | 375 |
| Other Income | 15 | 24 |
| Provisions | 9 | 16 |
| Cost | 24 | 66 |
| PBT | 107 | 318 |
| Tax | 27 | 79 |
| PAT | 80 | 238 |
Assumptions- 25% annual disbursements growth, 20% annual repayments growth, NIM of 3.5%, Div Payout of 15%, Gross NPA at 1%, Tax rate of 25%.
Facts underlying the assumptions-
- There is Huge Demand for housing loans especially from Tier-II & Tier-III cities and especially from non-salaried class due to under penetration.
- Repco can Supply its product (loan) to meet this demand due to good Capital Adequacy Ratio having raised capital from IPO.
- The segment is Niche & there is limited competition due to small loan size, non-salaried customers.
Aggressive Assumptions?
The assumptions that I have taken are conservative, IMHO.
- Assumed 25% disbursements growth while comp has been growing at 40% historically.
- Assumed NIM of 3.5% while it was 3.9% last year & should improve as Repco's debt rating improves.
- Company's NPA has only been notional till now, it has hardly lost money as bad debt to customers.
On a PAT of 240 crs & Book Value of 1200 crs, Repco can trade at 3600 crs Mcap {15 times PE & 3 times PB}...
A cool 3 bagger in 5 yrs time.. with a CAGR of 22%.
Risks-
A cool 3 bagger in 5 yrs time.. with a CAGR of 22%.
Risks-
- Rash Lending- With so much cash at disposal, company can go into imprudent lending, resulting into bad debts & hence losses, which may hurt the shareholders.
- Slowdown in Home Purchases- Any slowdown in real estate activities can hurt the company.
