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Buy Repco Home Finance; target of Rs 684: Cholamandalam Securities

RHFL’s loan book grew at moderate rate (11.8%YoY, 2.2%QoQ) to INR 100.7bn (lower than CSEC’s estimate of 15.5% YoY) on the back of higher disbursements (28.4% YoY), predominantly in the Non-Tamil Nadu regions (constituting 41.1% of the current loan book). The loan book from the Non Tamil Nadu regions grew by ~20% YoY, while the Tamil Nadu region demonstrated slow growth of 7% YoY. Repco has consistently grown its loan book at a steady pace and has maintained margins over the period at healthy levels (>4.5%).

Outlook

We expect loan growth to pick up going ahead, driven by government’s push on affordable housing, and with improvements in cost ratios aiding on the profitability front, we maintain BUY rating on the stock and arrive at target price at INR 684, assigning a P/ABV of 2.5X FY20E.