CFA Institute Research Challenge

Hosted by

Indian Association of Investment Professionals (IAIP)

Submitted by

Team Venus

Repco Home Finance Ltd.

CMP: 687

TARGET PRICE: 875

Y/E Mar '15 - INR m m

(Except per share data)

2016E

2017E

2018E

NII
PPP
PAT
ROA (%)
ROE (%)
Diluted EPS (INR)
BV/PS (INR)
Diluted PE (x)
P / BVPS (x)
Dividend Payout(%)

3045.4
2811.5
1771.0
2.5
19.8
28.4
156.0
24.2
4.4
9.2

3994.1
3737.4
2374.3
2.7
22.0
38.1
190.6
18.1
3.6
9.2

5139.2
4856.8
3080.3
2.7
23.2
49.4
235.4
13.9
2.9
9.2

Stock Info
REPCO IN
62.4
785/470
43.6
59.13

Shareholding
Promoter Group
FIIs
Mutual Funds
Non-Institutions

Ticker Symbol: REPCOHOME

Sector: Housing Finance

RECOMMENDATION: BUY

Our recommendation on Repco Home Finance Limited (RHFL) is a BUY

with a 12 month target price of INR 875. Going forward, we expect RHFLs
loan book to grow at an average rate of 28%.

Financial Snapshot

Bloomberg
Equity Shares (INR mm)
52 Week Range (INR)
M. Cap (INR b)
Free Float (%)

Exchange: NSE
Industry: Banking/Finance

37.25%
30.20%
16.24%
15.68%

What is driving RHFLs growth

Level of Urbanization
Our findings identify that economic growth would be the major driver for the
company. This would be driven by large scale efforts taken by Government of
India (GOI) and State Governments to promote various schemes at both rural
and urban level. It includes Housing for All, Smart Cities, AMRUT,
establishment of Industrial Corridor lead to creation of township, boost of Special
Residential zone (SRZ) (on the same lines as Special Economic zone),
conversion of Kutcha houses to Pucca house etc. These all schemes and
initiatives will directly or indirectly help the company.
Strong fundamentals
Repco Home Finance is a consistent performer in housing finance industry and
has made distinguished presence in the southern states of India. The company is
increasing its loan book size year-on-year (Y-o-Y) basis and easy availability of
funds at cheaper cost will translate to better profit margins and sustainable cash
inflows. The companys debt-to-equity ratio is very less (D/E: 5.4) in comparison
to its peers as the industry average lies in a range of 10 to 12. Company is
presently targeting at 0 NNPA levels in the next three years, by increasing the
Provision Coverage Ratio (PCR) to 100%.
Niche Segment targeting
Housing Finance to self-employed and small ticket segment remains
underpenetrated despite measure taken by regulators like allowing lower risk
weight (50% v/s 75% on loans above INR 3mm) and cheaper refinance options.
Large Housing Finance Companies (HFCs) has avoided these underpenetrated
areas and customer segments due to difficulty in credit appraisal process.
REPCO has tapped this opportunity with right geographies expansion in Tier 2 &
Tier 3 cities, lower ticket size and customer profile. This strategy has worked well
for RHFL to post strong growth (delivered 2x sector average growth over FY1015) and superior yields (12.5%+ v/s 11% for bigger HFCs)
Upside and Downside Risk
The current valuations including the multiples are well below the intrinsic value
and we remain bullish on the stock in the coming years. Since the 2013 IPO,

RHFL has consistently outperformed the broader index. We expect prices to go up and trade in the range of INR 850-1000.
Downside risks for the company include: (1) Rise in NPAs, (2) Sluggishness in the economy leading to lower spending by individuals
and (3) Hike in interest rates in the economy.
The stocks can achieve higher prices than target due to: (1) Sharp increase in loan book due to aggressive expansion policies,
(2) Improved economic outlook leading to huge influx of investments, (3) Easy availability of funds at lower rates, (4) Any regulatory
changes in favor of HFCs.

Source:

Student Research

Page 1 of 32

Investment Summary
Geographical Presence

Repco Home Finance Ltd. (RHFL) is a HFC registered under

National Housing Bank (NHB), with permission to accept deposits.
Incorporated in April 2000, RHFL was given license to commence
business in 2002. It is engaged in providing long term loans for
residential purposes. Headquartered in Chennai, Tamil Nadu in
southern India, it operates in 11 states through 108 branches and 38
satellite centers, each branch covering 25-30 km. radius. It operates
under 2 segments: Individual home loans and Loans against
Property (LAP). The company does not provide financing services to
construction projects. RHFL caters to individual borrowers in both the
salaried and self-employed segments.

(INR mm)

P / BV

ROE (%)

FY'16E FY'17E FY'16E FY'17E FY'16E FY'17E

42,850

24.23

18.07

4.41

3.61

19.84

21.97

242,818

15.30

13.42

2.63

2.20

17.18

16.38

93,669

35.80

28.80

10.70

8.60

33.20

33.30

10,770

10.62

9.62

1.67

1.53

15.75

15.92

26,455

18.12

15.08

2.31

1.97

12.75

13.04

20.81

17.00

4.34

3.58

19.74

20.12

Average

PE

Market Cap

HFC

Housing Finance brief Industry outlook

Housing finance market has been growing at healthy rate of 19%
CAGR over the last three years while reporting good asset
quality by almost all players. Recent initiatives announced by
Government like Housing for all by 2022, Pradhan Mantri Awas
Yojna, AMRUT and Smart Cities are expected to boost the
demand for housing finance. Emergence of small niche players
who serve entirely different customers i.e. self-employed
segment, low income group people have given high growth
potential in this segment. On the supply side, various state
Government initiatives have encouraged builders / developers to
launch projects in the affordable housing space.

Financial performance
RHFLs revenue has grown by 29.5% Y-o-Y and NII grew by 24.4% Y-o-Y in FY15 .We expect the interest income to grow by
~27% and NII to grow at an average rate of 29.4% over the next 3 years. The NIM has been range bound between 4.2%-4.6%
over the last 5 years and we expect the company to maintain the same margin in future. Total income for Q116 stood at
Rs.2,001 mm, up 28% Y-o-Y whereas NII grew by 25% to Rs.664 mm during the same period. This was driven by 30%
increase in loan book and quick disbursement of the loans in first quarter of FY16
Growth prospects
With strong presence in Tier-II and Tier-III cities, we expect RHFL to focus on consolidating their foothold in current states,
while also expanding the operations in new states, including Tier-I cities. The number of branches is expected to grow by 1215 Y-o-Y. Also, we expect the loan book to grow by ~28.5%
Valuation
Our valuation analysis using DDM and Relative valuation model suggests a 12-Month target price of Rs. 875. The company is
currently trading at a price of Rs. 687. The company is radically strong and it reflects in the stock price movement. Within span
of two years price has increased from INR 170 to current market price of INR 687 (i.e. almost 300 percent return). The stock
currently trades at 5.28x P/BV & 34.8x PE.

Source:

Student Research

Page 2 of 32

See Appendix: 1

Business Description

Repco Home Finance Ltd. (RHFL) is a NHB registered housing finance company engaged in providing long term loans for residential
purposes. It was incorporated in April 2000 and is headquartered in Chennai, Tamil Nadu. It operates under 2 segments: Individual
home loans and Loans against Property (LAP). The company provides these services to individual borrowers in both the salaried and
non-salaried (self-employed professional and self-employed non-professional) segments. As on June 30, 2015, 81.0% of the loan
portfolio consisted of individual home loans and remaining 19% from LAP. Also non-salaried segment contributed to 57.1% of the loan
book composition with remaining 42.9% constituting the salaried segment.
Growth Drivers

Coverage

Customer

Process

Profitabil;ity

Deeper presence in Southern region and peripheral of tier 1 cities

Open 10-15 branches every year and 3-5 satellite centres

Focus on under and unserved non-salaried segment

Better customer engagement in salaried segment

Centralized credit appraisal team

2 Tier credit appraisal

Lean branch model which leads to low operating cost

Stable NIM and returns

As on April 2015, RHFL operates in 11 states and a union territory

through 106 branches and 36 satellite centers. Further two thirds of
its centers are located in Tier 2 and Tier 3 cities. It has operations
mostly in south India which contributes to ~90% of the loan book.
Over the past 2 years RHFL has expanded its operations to five
states including Maharashtra, MP, West Bengal, Gujarat and
Orissa. Lead promoter, The Repatriates Co-operative Finance and
Development Bank (Repco Bank) owns a 37.4% stake in the
company. The sources of borrowings include NHB, Banks, Repco
Bank Ltd, Non-Convertible Debentures and Commercial papers.

RHFLs primary sources of customer acquisition are loan camps, customer walk-ins and referrals. Manager of every branch conducts a
loan camp once in every 2 months. This contributes to ~70% of incremental originations. The branches then source loans and carry out
the preliminary checks on credit worthiness of the borrower, post which the application is sent to the centralized processing unit for
approval. Branches are also responsible for assistance in documentation, disbursing loans and in monitoring repayments & collections.
The company is also presently exploring the Direct Sales Agent model through some of its branches.
The company is able to keep its operational costs at lower level due to the lean branch model which includes 3-4 employees per branch
with local knowledge. Also no expenses are incurred on commissions as the company is following direct business sourcing. As on June
30, 2015 the company employs 571 people.

Dream Home loan

Individual Home Loans

Construction / Purchase

Home Makeover loans

Repairs, renovation and / or extension

Plot loans

Purchase of plot for construction of a house

S uper loans

Loans for construction on land owned by borrowers parents

Fifty-plus loans

Loans to people above 50 years against pension income stream

NRI Housing loan

For construction and purchase of house in India

Repco Rural

Construction and purchase of house by weaker section in rural areas at affordable rate

Repco Advantage

Limited period scheme for housing loans at attractive rate of interest

Loans Against Property

Source:

Prosperity loan

Loans against mortgage of immovable property

New Horizon loan

Purchase and/or construction of non-residential and commercial property

Student Research

Page 3 of 32

Management & Governance

RHFL has an experienced board & management team, guiding the company to a new horizon by taking strategic initiatives. Shri T. S.
KrishnaMurthy, Chairman of RHFL, has more than 50 years experience. He has served as Chief Election Commissioner of India and
Chief Commissioner of Income Tax. Shri R. Varadarajan, Managing Director of the company, has more than 35 years of experience in
banking and financial services. Repco Bank, the promoter of Repco Home Finance, holds 37.25% stake in the company is a wellrecognized name in South India and has been in operation for more than 45 years.
Stakeholders

% of Outstanding shares

Managing Director

0.05%

Executive Officers

0.09%

Guidelines & Compliances:

The Company is in compliance with the guidelines, circulars and directions of

NHB and the Companies Act 2013, guidelines, directions and circulars of MCA,
SEBI etc. The Companys Capital Adequacy Ratio (CAR) as on 31 March 2015
Total
0.14%
was 20.26% (as compared to 24.50% in FY14) which is well above the
prescribed 12% threshold as per NHB Directions. This consisted entirely of Tier 1 capital. The Company has also complied with the
guidelines to provide for DTL on Special Reserve in a phased manner, in accordance with the NHB guidelines. Employee Stock Option
Scheme is in compliance with the extant regulations prescribed by the SEBI.
Committees & Policies:
The Company has formulated an asset liability management (ALM) policy which lays down mechanisms for assessment of various
types of risks and altering the asset-liability portfolio in a dynamic way to manage such risks. The Company has in place a risk
management policy framework which codifies the various risks and the methodologies to ensure such risks are mitigated. Rigorous 2tier credit appraisal process keeps credit risk in check at branch and head office level.
Corporate Social Responsibility (CSR):
The Company has in place CSR Committee of Directors and has also formulated a CSR Policy. The gross amount required to be spent
by the company during the year 2014-15 as CSR expenditure under section 135 of the Companies Act of 2013 is Rs. 2.24 crores being
2% of the average profit after tax of past three financial years. For requirement of details/ interpretation of relevant covenants of
Companies Act, 2013, regarding the activities for spending as well as due to time constraints, the entire amount could not be spent
during the year. The company has spent a sum of Rs. 13 lakh towards CSR activities.

Industry Overview

See Appendix : 2

Overview of Indian economy

The Indian economy in last one decade has witnessed the onset of a New Age with GDP hovering in a range of 5% to 9%. Supportive
policy environment by newly elected government is continuously trying to create conducive nature for businesses which will boost both
domestic and foreign investments. Simultaneously favorable external environment specifically the continuous fall in oil and commodity
prices has helped in containing the fiscal deficit target of 3.9%. Further, declining inflation rates, narrowing of current account deficit
(CAD) and jump in external forex reserves makes India the hottest destination for investments by foreign institutional investors (FIIs).
According to the estimates of World Bank and IMF, India is expected to have GDP growth at around 7% to 7.5% for FY16. A political
mandate and benign external environment has created an opportunity for India to achieve double-digit growth trajectory. For long run
growth, private investments must be the primary engine and macro-economic improvements will play an important role.

Housing Industry Outlook

Indias housing finance industry comprises of banks and HFCs. The main growth driver for this industry is the growing urban population of
different income groups and the aspiration to own a house. The market has huge untapped potential and factors like urbanization and
demographic composition are aiding to this opportunity.

Source:

Student Research

Page 4 of 32

 Market Size & Key Players

HFC market share (%)

45%

The size of the home loan industry is around INR 10.6 lakh
crores, of which Commercial banks & co-operatives contribute
~INR 6.64 lakh crore and the remaining ~INR 3.94 lakh crore
is contributed by HFCs. The key players in Housing Finance
Companies are LIC Housing, Deewan Housing Finance
Limited (DHFL), Repco Home Finance, Gruh, GIC and
CanaraFin Homes among others. The growth of home loan
disbursements in tier II & III cities is expected to grow at a
CAGR of 19-21% in the next 5 years. The long term outlook
remains robust due to rise of financial inclusion and growth in
housing demand which is followed by rise in property prices.

40%

35%

30%

25%

Conducive Growth Environment

Housing for All Advantage
60%
50%
10%
40%
30%
30%

50%

20%
10%

10%
0%
March'15 Growth

Increase due to
normal growth

Increase due to
Housing for All

March'22 Growth

Increasing Urbanization

The demand for housing is rapidly increasing on account of

thrust of infrastructure development and 100 Smart Cities
plan initiated by the government. In the medium to long term,
the developers are focusing more on affordable housing
projects due to a rise of income level. The government is
boosting the housing industry by recently launched Housing
for All mission under Pradhan Mantri Awas Yojana. This
would bridge the huge gap between housing demand and
supply. Also to encourage customers, GOI has proposed a
credit linked subsidy capital which will increase customer
demand by improving affordability due to lower EMI
payments.
Housing for all programme will increase annualized growth
of housing finance sector from 18% to 23 - 25% in the next
five years.
Improving Demographics

40%
34%
35%

30%

26%

There is an increasing demand for home loan from all income

level categories. In this high boom period, the HFCs have
started to increase the loan tenure. The HFCs are planning to
increase average ticket size in tier II and tier III cities for
individuals, leading to higher financial penetration.

23%

25%
17%

20%
15%

28%

30%

18%

18%

14%

10%

Increasing income level is thus improving affordability.

Evolution of nuclear family concept along with easy
availability of finance & tax incentives under Income tax act
are some of the factors which are beneficial to HFCs.

5%
0%
1941

1951

1961

1971

1981

1991

2001

2011

2016

% of urban population

Under-penetrated Market
Mortgage as of % of GDP

120%

101%
69%

60%
30%

Generally, individuals in India resort to buying a property

through their savings or borrowings from relatives and friends.
The organized housing mortgage penetration is at a very
nascent stage in India and accounts for only 30% of the total
housing investment. The mortgage loan-to-GDP ratio is
estimated to be in the range of 8-10% as compared to 101% in
Denmark, 81% in UK, 69% in USA and 20% in China. The
banks and HFCs are introducing more innovative loan
products in both urban and rural areas for deeper penetration.

81%

90%

8%

17%

20%

26%

29%

32%

39%

41%

45%

0%

Mortgage as of % of GDP

Urban Housing
Category

Rural Housing

Shortage (mm) % to Total

Category

Shortage (mm) % to Total

Economically Weaker section

10.55

56.18

Below Poverty Line (BPL)

39.3

90

Lower Income group

7.41

39.44

Above Poverty line

4.37

10

Higher Income group

0.82

4.38

Total

18.78

100

43.67

100

Source:

Student Research

Page 5 of 32

 Asset Quality upbeat

In India, individuals who prefer mortgage loans are mostly first time buyers and there is less chance of them defaulting. All HFCs
were able to maintain their net NPAs around 0 - 0.5% in the last 3 years which reflects that the HFCs are able to keep 100%
provisions. The strict provisioning norms help them to have adequate coverage and absorb losses.
Stringent Regulatory Framework
The housing crisis of 2008 in developed countries called for stringent regulatory requirements to exposure limits, asset quality and
capital requirement. Some key changes include reduced amortization period, lower LTV ratio, inclusion of stamp duty charges in
LTV, removal of prepayment penalty, uniformity in charging interest rate for old and new customers, provisioning norms on both
individuals & non-individuals loan portfolio and creation of DTL on special reserve. GOI has also set up Central Registry of
Securitization Asset Reconstruction and Security Interest of India (CERSAI) under SARFAESI Act, 2002 which keeps central
database of all mortgages created by lending institutions and Credit Risk Guarantee fund Trust for Low Income Housing
(CRGFTLIH) in urban areas with a corpus of INR 10 bn and the trust is managed by NHB.

See Appendix: 3 , 4 , 5

Valuation
We give a BUY recommendation with a 12-month target price of Rs 875 (upside potential of 27%).

RHFL has outperformed its peers in last few years in terms of CAR (20.3%), low debt-to-equity ratio and consistent NIM. At macro level,
the economic condition is showing positive future outlook where we can expect the company to further increase the loan book size. This
coupled with decreasing average cost of borrowing will lead to increase in bottom line of the company.
Valuation for RHFL is carried out by using two methods: (1) Dividend discount model (DDM) two stage growth model (2): Relative
valuation.
We have taken the weighted average of the two methods and arrived at the target price of the share. We have given weights of 70% for
DDM and 30% for relative valuation method. The DDM has been assigned maximum weightage as it takes into account two stages of
growth (which can be estimated with substantial reliability) till perpetuity. The relative valuation has been assigned a lower weight
because it includes the peer multiples only for the current year. Recommendations are made on the basis of potential future growth of
share value in comparison to its intrinsic value.
Cost of Equity: The expected cost of equity assumed in the DDM model is 11.84%. This figure was arrived at through CAPM model,
where the RF rate was assumed at 7.58%, beta of 0.69 and expected market return of 14%.
Dividend Discount Model: We have calculated value per share using two-stage DDM. This equity valuation method is based on two
growth periods; one from FY16 to FY18 where the company is expected to have a high growth rate and the second period (terminal
period) in which we assume that the company will grow at a sustainable industry growth rate.

Through DDM-two stage model, we arrived at a 12-month target price of

Rs. 919

Where, V0 = Stocks intrinsic value

D0 = Most recent dividend paid
gS = Short term dividend growth rate
gL = Long term dividend growth rate
r = required rate of return
t = 1, 2,...n years

Relative Multiple Valuations:

For this technique, we considered four peer companies including Canara Fin Homes, GRUH, GIC and LIC Housing Finance. The peer
companies are comparable in terms of target market within the industry. The peer companies derive majority chunk of their revenue from
housing finance business. For relative multiple valuation, we used EV/PPP, P/E and P/BV ratio as these are the primary drivers for the
housing finance industry. The price arrived through relative multiple valuation has been given a small weightage of 30% in comparison to
DDM.
The 12 month target price of the stock derived through relative multiple valuation is Rs 772.
Final Price:
The final price of the stock arrived at through DDM and Relative Valuation Model is Rs 875.

Source:

Student Research

Page 6 of 32

Financial Analysis
Operating performance and Revenue:
16,000

40%
14,382

11,178

12,000

35%

31.9%
8,687

29.5%

8,000

30%

28.7%

5,353

6,930

28.7%

4,000

25%

25.4%

20%
FY'14A

FY'15A

FY'16E

FY'17E

Revenue

Growth

6000

6%

5139.2
3994.1

4000

2000

FY'18E

4.6%

2373.3
4.4%

1908.4

5%

3045.4
4.5%

4.5%

FY'17E

FY'18E

4.4%

4%

3%
FY'14A

FY'15A

FY'16E

Net Interest Income

Net Interest Margin

2.9%

23.2%

22.0%

25.0%

19.8%
2.7%

20.0%
16.0%

15.8%
2.7%

2.7%
2.5%

2.6%

15.0%

2.5%
10.0%

2.3%

5.0%

Robust Revenues: FY15 has been characterized by a strong growth in

revenues with a Y-o-Y growth of 29.5% and a CAGR of 32.3% over last 5
years. We expect the interest income to grow at an average rate of ~27.0%
from FY16 to FY18 on account of an expected average growth of ~28.5% in
the loan book of the company during the same period. Other Income is also
expected to grow at the same rate due to the expected dividend to be
received on the non-current investments.
Margins expected to remain constant: The Net Interest Margin stood at
4.50% for FY15 as compared to 4.70% for FY14. Going forward we expect
the Net Interest Income to grow at an average rate of 29.3% from FY16 to
FY18 as compared to a Y-o-Y growth of 24.4% in FY15. This is because of
an expected reduction in interest expenditure due to improved average cost
of borrowings.
We expect the commercial banks to pass on the previous rate cuts by RBI
and also the Company is expected to explore the securitization route. This
will considerably bring down the average cost of borrowings from the current
9.5% to ~9.0 over the next 3 years. The spread is thus expected to increase
from the current 3.0% to ~3.6% in the next three years. We expect NIM to be
in a range of 4.4% to 4.6% for the period FY16 to FY18.
Improved Profitability: PAT grew by 11.8% Y-o-Y in FY15 and is expected
to grow at an average rate of ~36% during FY16 to FY18. This is mainly due
to increased revenues and improved margins. Also the company is expected
to get accounting tax advantage in FY16 and FY17 due to the one time hit
taken in FY15 owing to the special reserve provisioning. Going forward we
expect the effective tax rates to reduce considerably due to macro reforms in
corporate taxation policies. However for income projections we have
assumed an effective tax rate of 30% since we do not have substantial data
to gauge the extent of reduction through macro policies.

2.3%

2.1%

0.0%
FY'14A

FY'15A

FY'16E
ROA

FY'17E
RoE

3.0%
75.0%

70.0%

2.5%

FY'18E

80.0%

90%
75%

62.4%

2.0%
1.5%
1.0%

60%

51.5%
1.5%

1.3%

1.3%

1.2%

1.2%

45%
30%

0.7%
0.5%

0.4%

0.5%

0.3%

0.2%

0.0%

15%
0%

FY'14A

FY'15A

GNPA

FY'16E
NNPA

FY'17E

FY'18E

RHFL has been giving a healthy return on equity of 15.9% in FY15 and we
expect this figure to reach ~23.2% by FY18 because of the expected
increase in the bottom-line figures. Also the ROA is expected to grow from
2.3% in FY15 to 2.7% in FY18.
Improved asset quality: The gross NPA of the company has been rangebound between 1.2% to 1.5% over the past 5 years. This is a matter of
concern since the NPA levels are not improving and the gross NPA levels
are much higher than the industry average. However net NPA ratios have
been consistently improving over the past 5 years due to improved Provision
Coverage Ratio (PCR) from 27.8% in FY11 to 62.4% in FY15. However, the
company is planning to increase PCR to 100% in the next 2-3 years. Going
forward we expect the company to maintain a PCR of ~70% to ~80% during
FY16 to FY18. The projections hence show a reduction in NNPA from 0.5%
in FY15 to 0.2% by FY18.

Provisioning Coverage

The loan book has grown by 29.0% in FY15 and a CAGR of 30.5% over the
last 5 years. Going forward we expect the loan book to grow at an average
rate of ~28.5% for FY16 to FY18 owing to the consolidation taking place in
the existing geographies and reduced growth in the number of new branches
and satellite centers during the period. We expect the number of total
branches to grow from current 106 to 150 and number of satellite centers
from 36 to 60 by FY18.

Source:

Student Research

Page 7 of 32

30%

Comfortable Capital Adequacy: RHFL has maintained a Capital Adequacy

Ratio (CAR) at around 20.3% in FY15 as against National Housing Banks
prescribed limit of 12%, consisting entirely of Tier 1 capital. The company is
expected to maintain the same in the years to come. This shows that the
company has a strong capital base for its profitable operations and to act as
a cushion for insulating it from the vagaries of the market adversity.

CAR

25%

20%

24.5%
20.3%

15%

19.2%

18.2%

17.5%

FY'16E

FY'17E

FY'18E

10%
FY'14A

140

FY'15A

Loan Book ('000 mm)

Since RHFL only operates with tier 1 capital, there is further scope of
venturing into Tier 2 capital. This can help the company absorb any
additional risky assets during contingency period.

128

120

Huge Opportunity in self-employed segment: The loan book expanded by

around 29% to 6012.92 crores in FY15. The loan book of the company can
increase at a great pace due to healthy customer mix. Under served
segments non-salaried and Tier 2/3 markets can prove to be promising for
Repco Home Finance. They are also trying to tap unexploited opportunities
in Loan against Property (LAP) segment, that comprised 19.21% of the loan
book in FY15.

100
100
77

80
60
60

47

40
20
0
FY'14A

FY'15A

FY'16E

FY'17E

FY'18E

Key Financial Ratios

FY'14A

FY'15A

FY'16E

FY'17E

FY'18E

CAR

24.5%

20.3%

19.2%

18.2%

17.4%

NIM

4.6%

4.4%

4.4%

4.5%

4.5%

18.4%

21.0%

17.3%

16.0%

15.2%

2.6%

2.3%

2.6%

2.6%

2.7%

Operating Ratios:

Cost-Income
Profitability Ratios:
ROA
RoCE
RoE

2.6%

2.3%

2.6%

2.7%

2.8%

16.0%

15.8%

19.9%

21.7%

23.1%

1.5%

1.3%

1.3%

1.3%

1.3%

Credit Quality Ratios:

GNPA
NNPA

0.7%

0.5%

0.4%

0.3%

0.3%

51.5%

62.4%

70.1%

75.0%

80.0%

NII

52.0%

24.4%

28.3%

31.2%

28.7%

Net Profit

37.6%

11.8%

44.7%

31.8%

30.5%

Borrow ings

26.3%

30.7%

28.7%

28.7%

28.7%

Loan Book

31.5%

29.0%

28.7%

28.7%

28.7%

Provisioning Coverage
Grow th Ratios:

Competitors Analysis

See Appendix: 6

Given the size and market, RHFL is competing with Gruh Finance Ltd, GIC housing Finance Ltd. and CanFinHomes Ltd who are the
main competitors. All the small housing finance companies experienced rapid growth in terms of their loan book in recent past with quick
sanctions and disbursement. Among all given peer set CanFinHomes Ltd has highest sanctions (~ 45% of Loan Book) and GIC Housing
Finance has given quickest disbursements (~ 97% of Total Sanctions).
On the Asset quality part GIC Housing Finance is experiencing highest Gross NPA but due to 100% provision coverage ratio all the
small HFCs except RHFL is having zero Net NPA. The company is moving towards 100 % PCR in coming years which will help in
improving its asset quality.
All the HFCs are maintaining healthy CAR (Minimum 12%). RHFLs CAR stands at 20.3% which is highest among the peer set. RHFL
can also explore the option of issuing Tier 2 capital to absorb any losses from risky assets in future and thereby maintainin g a healthy
CAR. The company has given lowest dividend among all the HFCs.
Source:

Student Research

Page 8 of 32

HFC

Average

Loan Details
Loan Book Sanctions Payouts

Revenue

GNPA

NPA Details (%)

NNPA
PCR

CAR

CRAR Details (%)

Dividend
Tier-I Cap Tier-II Cap
%

6,013

2,399

2,181

692

1.30

0.50

62.37

20.30

20.26

0.00

15.00

1,08,361

31,713

30,327

10,669

0.46

0.22

52.61

15.30

11.82

4.19

250.00

8,915

3,670

3,121

1,060

0.27

0.00

100

15.36

13.89

1.47

100

6,617

2,305

2,225

716

1.73

0.00

100

15.36

15.36

0.00

50.00

8,231

3,670

3,346

816

0.17

0.00

100

18.40

15.60

2.80

70.00

0.79

0.14

83.00

16.94

15.39

1.69

97.00

See Appendix: 7

Investment Risk

The primary business activity of the company is to lend loans in the housing finance space. Hence there are many risk associated with
company including strategic risk, market risk and operational risk among others. The main aim of the company is to implement various
policies and procedures to mitigate risks.
75.0%

10.0%

6.0%

All industries in the economy run on market sentiments and there is

always market risk associated with it. The companies always aim to
lessen market risk effect but it can never be completely eliminated.

4.0%

8.0%

60.0%

Market Risk (MR):

45.0%

30.0%

2.0%

15.0%

0.0%
FY'07A FY'08A FY'09A FY'10A FY'11A FY'12A FY'13A FY'14A FY'15A

Loan Growth

GDP

Unfavourable market conditions result into lower spending on

home (MR1)
The Companys revenue and margins would depend on the prevailing
economic conditions. During times of recession, the consumer is less
willing to spend. Also in Tier I cities like Mumbai and Gurgaon which
have a supply glut, there are fewer buyers due to high charging prices.

Competition form Big Banks (MR2)

As on March15, ~68% of companys borrowings are from scheduled banks (i.e. Public Sector banks, Private Banks, foreign banks etc.).
But these banks also provide housing loans which constitute a major chunk of their loan book. These banks can eat away the market
share by charging lower interest rates.

Source:

Student Research

Page 9 of 32

Fluctuation in Interest rate (MR3)

Fluctuations in interest rates at macro level will highly impact the bottom line figures of the company. RHFL procures loans from
commercial banks at base rate. So any increase in the interest rate in the economy will indirectly affect the margins since the company
doesnt really have any pricing power.
Regulatory risk (RR):
Any changes in regulatory norms have a huge impact on the business of housing finance companies.

Inability to meet financial obligation as per prudential norms (RR1)

There are several regulatory changes made by NHB so that all companies in this sector have the ability to absorb losses and sustain
it in long run. Also these changes mainly aim to pass on to the customers more benefits, which will lead to increased demand for
housing loans. Recent key regulatory changes by NHB includes inclusion of stamp duty & other charges in Loan-to-value (LTV) ratio,
increase in maximum permissible LTVs on loans backed by mortgage guarantee and removal of prepayment penalty in case of
floating rate loans to individual borrowers among others.

Financial Risk (FR):

Crunch of liquidity (FR1)

Generally this liquidity crunch arises due to asset liability mismatch. Generally HFC has very high liquidity risk as majority of its
liabilities are contracted within a span of 10 years whereas assets which are generated (i.e. loans disbursements) has average span
of 15-20 years. This results in maturity mismatch between assets and liability. Currently, company has raised money through CP and
NCDs which has maturity of 1 and 3 years respectively. During maturity of these short term funds, there can be high liquidity crunch
due to payment of these instruments.

Default risk of customer (FR2)

For company, more than 50% of the loans are disbursed to non-salaried individuals and there were many instances in each quarter
where the individuals were not able to pay instalments thus leading to a rise in NPA levels for that particular financial year. The company
has placed effective credit risk assessment, evaluation, monitoring and mitigation system to guard credit risk. In last 9 years company
has written off only Rs 3.4 crores.

Risk Matrix for RHFL

Company Risk:

Economic downturn of 2008 sub-prime

crisis led to requirement of stricter financial
supervision due to the exposure of various
risks. We consider CAMELS framework
which tries to capture safety and
soundness of financial institution having
360 degree review for each financial ratios.
(i.e. capital requirement, asset quality,
management quality, earnings quality,
liquidity and sensitivity). RHFL has low
PCR as compared to its peers. This has
led to higher net NPA levels. Hence
company need to concentrate more on
improving asset quality by decreasing
NPAs.

Company
Repco home Finance
GRUH
GIC
CanFinHomes
LIC Housing Loans
Source:

Student Research

Overall

Page 10 of 32

Appendix
Appendix 1: SWOT Analysis

Page 11 of 32

Appendix 2(a): Importance of Housing and Role of various agencies

In developing country like India, adequate shelter and basic facilities are important factors for socio
economic developments.
Many professions like construction workers, builders, developers, suppliers, civil engineers, furnishers,
interior decorators, and plumbers derive their livelihood directly and indirectly from Housing sector.
By investing in housing, people create an equity which can be used as collateral which makes them more
creditworthy during financial assessment.
Census 2011, figures reveal that the housing stock has grew by 33 % form 24.9 crore in 2001 to 33.1 crore
in 2011. But need gap analysis suggest that housing shortage is prevailing due to mismatch between the
people for whom the houses are being built and those who need them. As per the estimates, housing
shortage for 2012-17, urban area have about 95% shortage in economically weaker sections and lower
income group categories, whereas rural areas have about 90% shortage in below poverty line category.
Rapid urbanization is the key feature of Indias transition phase. As per the projections, the urban population
of India is likely to grow from 285.3 mm in 2001 to 533 mm in 2025. Various studies project that about 40%
of total population will be in urban areas by 2030.
Number of metropolitan cities with population of more than 1 mm has increased from 35 in 2001 to 50 in
2011 and likely to touch 87 by 2031. The expansion of many cities will happen in many cases through
peripheral inclusion of smaller municipalities and large villages in core cities. This rapid urbanization will
have fundamental impact on political, economic and social situations due to critical issues like lack of basic
infrastructure such as transport, affordable housing roads, sanitation and drinking water systems, slums,
internal migration and inclusive cities. To address the issue of rapid urbanization and to improve the quality
of life, it is essential that the housing stock is improved through urban renewal, in situ slum improvement and
development of new housing stock in cities as well as townships to meet the housing demand.
There should be optimal balance between the growth in investment in housing and economic growth to
maintain the stability and health of the national economy.

Page 12 of 32

Appendix 2(b): Issue of Housing - India

Increasing threat of housing shortage: Exponentially growing population, urbanization and more popularity of
nuclear families has resulted in a huge problem of housing shortage in India.
Need of affordable housing for slum free India: Rural migration is the most important contributor to the growth in
the slum population in Indian metropolitan cities. This has resulted in a large demand supply gap in the housing
facilities in these cities. The exponentially growing population has made the situation even worse, specifically for
Lower Income Groups and Economically Weaker Sections in urban population. While, on the other side, the
percentage of population employed in agriculture shows a steep downward curve due to continued large scale
migration, the rural areas are still facing the problem of housing shortage. This increase in population, if not matched
with the required increase in housing units could contribute to the development of further slums in urban areas,
creating a social problem and becoming detrimental to the overall health of the Indian economy. So, there is a need
of flexible affordable housing schemes to make India slum-free.
Affordability & Approval to be made easy: Owing to the issues like accessibility of land, land cost, high cost of
mortgage, government approval procedures and availability of finance, many common households usually could not
afford a suitable shelter. Hence, strategies need to be initiated and adopted at the governmental level to deal with the
issues relating to land cost, institutional development and legislation, and make the housing products available to the
masses at affordable cost.

Page 13 of 32

Appendix 2(c): Role of various agencies towards Housing

(1): Role of Central Government
- Central government facilitates and enables the private companies to take up more and more housing projects
- Help and guide State government to adopt and implement the National Urban Housing & Habitat Policy in a
particular time frame
- To encourage economic weaker section and Lower Income group for promotion of housing come with new financial
instruments
- To develop housing promotion model and basic standards for social and economic services
(2): Role of State Government
- To decentralize and incentivize production and availability of local building materials
- To encourage Community Based Organizations (CBOs) and Cooperative Group Housing Societies to have
partnership with urban local bodies to have housing related micro-finance and housing development
- To create Metropolitan plan, Regional plan and District plan along with provisions for adequate land
- To provide adequate water supply, drainage, sewerage, sanitation and solid waste management
- To bridge the funding gap and provide suitable flow of financial resources for large housing and habitat development
projects
(3): Role of Financial Institutions
- To introduce more innovative financial instruments such that all sections of society can avail the benefits
- To devise housing finance schemes announced at center such that it reach from low to high income group level
- To utilize some part of the resources towards financing slum improvement and up-gradation programs
- To create flexible model in relation to credit appraisal norms.

Page 14 of 32

Appendix 2(d): Housing Schemes implemented State wise

State

Schemes

Objectives

Gitanjali & Amar Thikana

Adhikar

West Bengal
Nijo Griha Nijo Bhumi Prakalpa

Backward Region Grant Fund

Maharashtra
Housing
&
Area
Development Authority (MHADA)

Development programs covering housing for all

sections of the society and providing infrastructures like
schools, hospitals, community centers, etc.

Acceleration of slum rehabilitation

Construction of houses at Solapur, Nashik, Pune,

Kolhapur, Nanded, Garkheda in Aurangabad and
Kamtee in Nagpur for Beedi workers
Construction of houses for houseless BPL families in
the rural areas
Centrally sponsored scheme with Central and State
share in the ratio 75:25
Grant of 68,500 is given to BPL beneficiaries to
construct their own houses
Implemented through the District Rural Development
Authority of 33 Zilla Parishads
Construction of 125000 houses for APL beneficiaries in
low income category under Revised Rajiv Gandhi
Gramin NiwaraYojana - II.
Resolving the housing problems of the economically
weaker sections of society
Provision of providing government land at concessional
rates for development of habitations
Provision to grant permission for township development
in agricultural areas

City
&
Industrial
Development
Corporation Limited (CIDCO)
Shivshahi Punarvasan Prakalp Ltd.
(SPPL)
Beedi Kamgar Gharkul Yojana
Maharashtra

Indira Awas Yojana

Rajiv Gandhi Gramin NiwaraYojana-I

Revised Rajiv Gandhi Gramin Niwara

Yojana-II

Madhya
Pradesh

Housing Policy, 2007

Homes for minority people & fishermen

Implemented in rural areas & non-municipal urban
areas
Additional employment opportunities for construction
workers.
To solve the accommodation problem of Low Income
Group people especially the minority people residing in
urban areas
Construction of Rental homes for Middle Income Group
people
Housing to all landless and homeless families
Homestead pattas distributed to the eligible
beneficiaries.
Address the problem of regional imbalances in respect
of housing for poor people
Construction of 34,758 dwelling units in the eleven (11)
backward districts of the State
Provide affordable housing to people specially
belonging to Below Poverty Line (BPL), Economically
Weaker Section (EWS), Backward Classes and
Minorities
Provide housing facilities in Mumbai and some parts of
the State at affordable prices

Page 15 of 32


Mukhyamantri Awas Yojana

CM
Infrastructure
development
programme (District Plan)
Integrated
Housing
and
Development Project (IHSDP)

Slum

Mukhya Mantri GRUH (Gujarat Rural

Urban Housing) Yojana

Gujarat

Gujarat Slum Rehabilitation Policy PPP - 2013

Gujarat Affordable Housing Policy 2014

Rajiv
Gandhi
Rural
Housing
Corporation Limited (RGRHCL)
Karnataka Housing Board (KHB)
Karnataka Slum Development Board
RuralAshraya/Basava Vasathi Yojane

Karnataka

Ambedkar Housing scheme

Indira Awas Yojana
Urban Ashraya Scheme

Endeavors to provide housing to the people of

Karnataka at affordable cost

Provide basic amenities to the slum dwellers and

shelter to the needy in the slums.

Providing the housing for rural houseless poor

Implemented for rural houseless poor belonging to

SC/STs.
Implemented for rural BPL houseless families

Nanna Mane (Affordable Housing for

Low-income Groups)

Odisha

Housing Schemes Under Backward

Region Grant Fund (BRGF)

Objective of making cities slum free

Provide affordable houses to people belonging to
Economically Weaker Sections and Lower Income
Groups.
In-situ rehabilitation of the slum dwellers families on
public land by providing houses of minimum 25 sq.
meters carpet area with basic civic amenities, free of
cost through public private partnership.
Provide housing at reasonable price to poor urban
families belonging to lower and middle income group,
by involving both public institutions and private
developers
Provide affordable housing for people belonging to
EWS and LIG

Low Cost Housing Scheme under the

National Welfare Fund for Fishermen
(NWFF)

Provide dwellings to a large number of houseless

families
Financial assistance to families for constructing their
own houses
Dwelling houses to be constructed for the urban poor
residents of slums in the various towns of Madhya
Pradesh
Provide the Urban Poor with adequate housing and
infrastructural facilities in the slum areas

State sponsored Scheme implemented for the urban

poor.
New Scheme to benefit the people above poverty line
by providing affordable houses to the low income group
families like auto drivers, film industry workers,
unorganized sector workers, beedi workers, street
vendors, etc.
Sponsored by the Centre, envisages better living
amenities for poor fishermen

Objective of making the Housing program for

Economically Weaker Section of people (EWS) more
effective and to address the problem of regional
imbalances

Page 16 of 32

Appendix 2(e): City-wise Residex Indicator

2007
Index

Q2
2011
Index

Q3
2011
Index

Q4
2011
Index

Q1
2012
Index

Q2
2012
Index

Q3
2012
Index

Q4
2012
Index

Q1
2013
Index

Q2
2013
Index

Q3
2013
Index

Q4
2013
Index

Q1
2014
Index

Hyderabad

100

91

84

79

86

85

84

90

88

84

88

93

95

Faridabad

100

220

206

218

217

217

216

205

207

202

204

209

209

Patna

100

146

141

140

129

140

138

151

152

147

150

159

150

Ahmedabad

100

169

163

167

164

174

180

191

192

186

191

197

209

Chennai

100

248

271

296

304

309

312

314

310

303

318

330

349

Jaipur

100

64

65

64

80

78

85

87

112

110

108

105

101

Lucknow

100

160

154

165

164

171

175

189

183

187

191

185

194

Pune

100

150

169

184

181

200

201

205

221

219

219

235

232

Surat

100

149

139

152

144

145

138

150

140

142

145

154

165

Kochi

100

107

97

82

72

73

80

87

89

86

86

85

85

Bhopal

100

224

208

211

204

207

206

216

230

227

220

223

226

Kolkata

100

194

191

190

191

196

191

209

197

189

199

196

206

Mumbai

100

181

194

193

190

197

198

217

222

221

222

222

229

Bengaluru

100

92

93

100

92

100

98

106

109

108

107

111

107

Delhi

100

147

154

167

168

172

178

195

202

199

190

196

199

Bhubneshwar

100

161

164

168

172

197

195

193

202

195

Guwahati

100

157

159

158

166

153

147

149

160

154

Ludhiana

100

163

171

168

179

167

157

150

150

145

Vijayawada

100

184

186

181

185

184

174

167

161

160

Indore

100

208

203

196

194

195

184

180

184

181

Chandigarh

100

194

191

192

188

183

Coimbatore

100

184

178

178

173

170

Dehradun

100

183

184

184

186

191

Meerut

100

191

189

176

171

165

Nagpur

100

163

168

162

175

180

Raipur

100

156

155

157

159

166

CITIES

Page 17 of 32

Appendix 3: Projected Financial Statements

Income Statement
In Millions of INR except Per Share

FY'17E

FY'18E

03/31/2011

03/31/2012

03/31/2013

03/31/2014

03/31/2015

3/31/2016

3/31/2017

3/31/2018

Interest Income

2,142.5

3,056.0

3,914.3

5,163.7

6,694.8

8,334.1

10,723.4

13,797.7

Interest Expended

1,278.7

2,023.1

2,656.5

3,247.5

4,317.7

5,288.7

6,729.2

8,658.4

NII

863.8

1,032.9

1,257.8

1,916.2

2,377.1

3,045.4

3,994.1

5,139.2

Other Operating revenue & Other income

117.1

132.8

145.5

189.7

235.4

353.2

454.5

584.7

Employee benifit expenses

72.2

105.0

139.8

210.5

335.0

335.5

416.6

514.2

Depreciation and Amortization Expenses

15.7

16.2

15.2

24.1

29.5

36.4

39.2

50.2

Other Operating Expenses

61.7

72.9

86.9

153.3

182.9

215.3

255.3

302.8

831.2

971.7

1,161.4

1,718.0

2,065.2

2,811.5

3,737.4

4,856.8

38.7

155.4

92.3

223.8

202.1

281.4

345.5

456.3

Profit before tax

792.5

816.3

1,069.1

1,494.2

1,863.1

2,530.1

3,391.9

4,400.4

Tax Expenses

211.0

201.7

267.8

390.3

630.9

759.0

1,017.6

1,320.1

Profit After Tax

581.5

614.6

801.3

1,103.9

1,232.2

1,771.0

2,374.3

3,080.3

Basic EPS

12.52

13.23

17.07

17.71

19.78

28.40

38.07

49.39

62.4

62.4

62.4

62.4

62.4

62.4

62.4

62.4

12.52

13.23

17.07

17.66

19.71

28.38

38.05

49.37

0.90

1.00

1.30

1.20

1.81

2.61

3.50

4.54

FY'11A

FY'12A

12 Months Ending

FY'11A

FY'12A

FY'13A

FY'14A

FY'15A

FY'16E

INCOME:

EXPENDITURE:

Pre Provisioning Profit

Provisions and Contingencies

No of Diluted Shares outstanding

Diluted EPS
Dividend per share

Balance Sheet
In Millions of INR except Per Share
12 Months Ending

03/31/2011

03/31/2012

FY'13A
03/31/2013

FY'14A
03/31/2014

FY'15A
3/31/2015

FY'16E
3/31/2016

FY'17E

FY'18E

3/31/2017

3/31/2018

EQUITY AND LIABILITIES

Shareholders Funds
Share Capital

464.4

464.4

621.6

621.6

623.6

623.6

623.6

623.6

2,013.0

2,568.2

5,723.6

6,789.0

7,497.5

9,105.8

11,261.9

14,059.2

13,064.2

17,702.1

21,772.4

29,108.2

38,797.4

45,588.6

58,658.2

75,475.3

-27.6

-79.3

-111.8

-186.6

342.4

342.4

684.8

684.8

87.8

246.2

335.1

557.4

762.4

1,009.4

1,337.0

1,768.2

Short Term Borrowings

2,430.3

2,405.2

3,944.9

3,977.2

4,848.4

6,238.3

8,026.7

10,328.0

Other Current Liabilities

2,850.9

5,060.6

5,414.6

6,231.7

7,749.6

14,303.0

18,403.5

23,679.8

62.2

80.4

112.2

105.1

135.5

164.6

200.0

243.0

20,972.8

28,527.1

37,924.5

47,390.1

60,756.8

78,255.4

100,645.0

129,453.3

Net Fixed Assets

30.0

33.2

44.7

49.9

89.3

102.1

128.6

162.6

Non-Current Investments

20.5

80.5

80.5

124.0

124.0

124.0

124.0

124.0

19,339.5

26,291.1

33,205.6

43,636.6

56,278.8

72,459.0

93,291.0

120,112.1

84.6

175.0

2,101.4

218.9

175.3

342.5

436.9

558.4

1,418.7

1,798.9

2,294.9

3,043.6

3,950.3

5,036.6

6,421.7

8,187.7

Reserves and Surplus

Non-Current Liabilities
Long Term Borrowings
Net Deferred Tax Liability
Long Term Provisions
Current Liabilities

Short Term Provisions

Total Liabilities
ASSETS
Non-Current Assets

Long Term Loans and Advances

Current Assets
Cash and Bank Balances
Short Term Loans and Advances
Other Current Assets
Total Assets
Notes:

1)
2)

52.0

69.2

85.6

130.6

139.1

191.1

242.8

308.5

20,972.8

28,527.1

37,924.5

47,390.1

60,756.8

78,255.4

100,645.0

129,453.3

All figures in INR mm except per share data

Stock Price as on 23-Oct-2015

Page 18 of 32

Appendix 4: Estimates

Loans and Advances

FY'11A

FY'12A

FY'13A

FY'14A

FY'15A

FY'16E

FY'17E

FY'18E

Long term Loans and Advances

19339.5

26291.1

33205.6

43636.6

56278.8

72459.0

93291.0

120112.1

Short term Loans and Advances

1418.7

1798.9

2294.9

3043.6

3950.3

5036.6

6421.7

8187.7

20758.2

28090.0

35500.5

46680.1

60229.1

77495.6

99712.7

128299.8

Total Loans and Advances

FY'16E

FY'17E

Assumptions

FY'18E
%

Long-term loan book growth

28.75%

28.75%

28.75%

Short term Loan book Growth

27.50%

27.50%

27.50%

Borrowings
All figures in INR mm
Long Term Borrowings

FY'11A

FY'12A

FY'13A

FY'14A

FY'15A

FY'16E

FY'17E

FY'18E

13,064.2

17,702.1

21,772.4

29,108.2

38,797.4

45,588.6

58,658.2

75,475.3

LT Borrowings/Total Borrowings

71.2%

70.3%

69.9%

74.0%

68.9%

68.9%

68.9%

68.9%

Short Term Borrowings

2,430.3

2,405.2

3,944.9

3,977.2

4,848.4

6,238.3

8,026.7

10,328.0

ST Borrowings/Total Borrowings

13.2%

9.6%

12.7%

10.1%

9.4%

9.4%

9.4%

9.4%

Other Current Liabilities

2,850.9

5,060.6

5,414.6

6,231.7

7,749.6

14,303.0

18,403.5

23,679.8

18,345.4

25,168.2

31,132.7

39,317.4

51,396.0

66,129.9

85,088.5

109,483.0

88.4%

89.6%

87.7%

84.2%

85.3%

85.3%

85.3%

85.3%

Total Borrowings
Total Borrowings/Total Advances

FY'11A

FY'12A

FY'13A

FY'14A

Total Borrowings/Total Advances

88.38%

89.60%

87.70%

84.23%

85.33% Estimate

FY'15A
85.33%

LT Borrowings/Total Borrowings

71.21%

70.34%

69.93%

74.03%

68.94% Estimate

68.94%

ST Borrowings/Total Borrowings

13.25%

9.56%

12.67%

10.12%

9.43% Estimate

9.43%

Revenue from Operations

FY'11A

FY'12A

FY'13A

FY'14A

FY'15A

FY'16E

FY'17E

FY'18E

2115.2

3024.4

3870.9

5109.0

6627.3

8250.6

10616.0

13659.5

Processing Fee

99.1

111.8

118.8

181.7

221.2

302.4

389.1

500.6

Penal Interest

23.2

30.9

41.0

46.9

63.7

83.5

107.4

138.2

Other Operating Income

17.8

21.0

26.4

3.9

9.7

40.2

51.7

66.5

2255.4

3188.2

4057.1

5341.5

6922.0

8676.7

11164.1

14364.8

Interest on Housing Loan

TOTAL

Assumed Yield on Total Loans &

Advances

Total Loans and Advances

Y-o-Y Growth
Notes:

12.60%

FY'11A

FY'12A

FY'13A

FY'14A

FY'15A

FY'16E

FY'17E

FY'18E

20,758

28,090

35,500

46,680

60,229

77,496

99,713

128,300

35.32%

26.38%

31.49%

29.03%

28.67%

28.67%

28.67%

1)
2)

All figures in INR mm except per share data

Stock Price as on 23-Oct-2015

Page 19 of 32

Standard Assets, NPA and Provisions

Standard Asset
FY'11A

FY'12A

FY'13A

FY'14A

FY'15A

FY'16E

FY'17E

FY'18E

17431.2

23788.7

29730.9

37367.4

47983.3

61057.6

78562.1

101085.4

3052.1

3869.1

5191.1

8565.8

11354.7

15264.4

19640.5

25271.4

20483.3

27657.8

34922.0

45933.2

59338.0

76322.0

98202.6

126356.8

Housing Loan
Individual house Ownership
Mortgage/ Other loans
Total Standard assets
Provisions - Housing Loans

95.1

118.9

149.5

192.3

244.2

314.2

404.3

Provisions - Other loans

12.2

23.8

31.2

47.8

62.6

61.1

78.6

101.1

Provisions

12.2

118.9

150.1

197.3

254.9

305.3

392.8

505.4

FY'11A

FY'12A

FY'13A

FY'14A

FY'15A

FY'16E

FY'17E

FY'18E

137.8

176.0

165.8

210.4

238.3

22.6

24.8

38.7

69.1

112.0

160.4

200.8

204.5

279.5

350.3

425.8

517.7

629.3

20.7

26.5

24.9

31.6

35.7

Sub-Standard Asset
Housing Loan
Individual house Ownership
Mortgage/ Other loans
Total sub-standard asset
Provisions - Housing Loans
Provisions - Other loans

3.4

3.7

5.8

10.4

16.8

Provisions

24.1

30.2

30.7

42.0

52.5

128.4

206.3

316.1

Net NPA

136.3

170.6

173.8

237.5

297.8

297.5

311.4

313.2

FY'11A

FY'12A

FY'13A

FY'14A

FY'15A

FY'16E

FY'17E

FY'18E

Individual house Ownership

73.1

161.3

268.4

338.0

353.1

Mortgage/ Other loans

18.4

21.0

52.0

65.5

85.4

91.5

182.3

320.4

403.5

438.5

564.2

726.0

934.1

36.6

75.7

123.9

258.9

353.1

Provisions - Other loans

9.2

12.1

21.8

49.7

85.4

Provisions

45.8

87.8

145.7

308.6

438.5

564.2

726.0

934.1

Net NPA

45.7

94.5

174.7

94.9

0.0

0.0

0.0

0.0

FY'11A

FY'12A

FY'13A

FY'14A

FY'15A

FY'16E

FY'17E

FY'18E

Individual house Ownership

0.0

0.0

0.3

2.3

2.3

Mortgage/ Other loans

0.0

0.0

0.1

0.1

0.1
1.6

2.0

2.6

Doubtful Asset
Housing Loan

Total Doubtful Assets

Provisions - Housing Loans

Loss Asset
Housing Loan

0.0

0.0

0.4

2.4

2.4

Provisions - Housing Loans

Total Loss Asset

0.0

0.0

0.3

2.3

2.3

Provisions - Other loans

0.0

0.0

0.1

0.1

0.1

Provisions

0.0

0.0

0.4

2.4

2.4

1.6

2.0

2.6

Net NPA

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Notes:

1)
2)

All figures in INR mm except per share data

Stock Price as on 23-Oct-2015

Page 20 of 32

Appendix 5(a):

Relative Valuation

CanFinHomes
Number of equity shares

GIC

Gruh

LIC

Repco

27

54

363

505

676

214

252

444

Market Value of equity

17,985

11,543

91,483

224,314

Market Value of Debt

73,745

50,038

82,072

965,319

Enterprise Value

91,650

61,540

172,814

1,189,315

Market Price per share

EPS

62

51,044

41.5

19.1

5.6

27.5

19.7

290.0

122.6

19.6

154.9

130.0

EV/PPP

60

37

51

56

P/E

16

11

45

16

13

BV/Share

P/BV

Valuation - Competitor summary

Min

Max

Average

Repco's Valuation
Metric

EV/PPP

37.08

60.42

51.25

2063.82

P/E

11.21

45.33

22.26

24.56

P/BV

1.75

12.86

4.95

130.27

Multiple

Valuation - Price Target (INR mm except per share data)

Multiple

Value - Min

Value -Max

Value -Average

EV

76,519

124,686

105,768

Less: Debt

51,044

51,044

51,044

175

175

175

Add: Cash
Equity Value

25,651

73,642

54,724

Value per share (Rs.)

411

1,181

878

P/E

275

1,113

547

P/BV

228

1,675

645

Valuation - Price Target (INR )

Min

Max

Average

EV/PPP

411

1,181

878

P/E

275

1,113

547

P/BV

228

1,675

645

Average Target Price

305

1,323

690

Page 21 of 32

Appendix 5(b):

Dividend Discount Model

Dividend Discount Model
FY'15A

FY'16E

FY'17E

FY'18E

Terminal Value

1.81

2.61

3.50

4.54

5.06

Return on Equity

15.8%

19.8%

22.0%

23.2%

Ploughback rate

90.81%

90.81%

90.81%

90.81%

Growth rate

14.39%

18.02%

19.95%

21.06%

11.52%

2.3

2.8

3.2

813.7

Expected Dividend

Discounted Price

Weights

Target Price through DDM

822.0

919.3

1028.2

1149.9

0.70

Price target from Relative Valuation

689.8

771.5

862.8

964.9

0.30

1 year Target Price

Assumptions
RF Rate

7.58%

Beta

0.69

Expected Market Return

13.75%

Expected Cost of Equity

11.84%

Net Income
Shares Outstanding as on 30th Sep 2015
Basic EPS
Options Outstanding as on 31st March 2015
WAEP
Options converted to shares
Diluted shares
Diluted EPS
Notes:

1)
2)

FY'16E

FY'17E

FY'18E

1,771.0
62.37
28.4
247,625.0
75.0
0.027
62.40
28.4

2,374.3
62.4
38.1

3,080.3
62.4
49.4

38.1

49.4

All figures in INR mm except per share data

Stock Price as on 23-Oct-2015

Page 22 of 32

875

Appendix 5(c): BETA Analysis of Stock

To calculate systematic risk of Repco Home Finance, a 1 year daily return (i.e. 365 days) and also 2-years monthly
return is regressed with market return of both SENSEX (BSE index) and NIFTY (NSE index) and finally we took the
average both beta to capture better sensitivity. Our analysis reveals that both indices are good measure to quantify
riskiness of stock as both have more or less same R-squared numbers. R-square is statistical measure which
indicates the percentage of change in Repco share price return that is explained by change in market return. Rsquare value lies between 0 and 1 and value close to 1 reveals that majority of change in share price return is explain
by market return itself.
The standard error for 1-year daily return is quite less than compare to 2-year monthly return. The beta for Repco
Home Finance in both BSE and NSE indices is coming more or less same. When we compare riskiness of
companies in Housing Finance industry, Gruh is least risky and GIC is most risky stock. For valuation purpose, we
used NSE beta as we have taken NSE market return while calculating cost of equity.

BETA Analysis

REPCO

CanFinHom

GIC

GRUH

LIC Housing

2Y - Monthly Beta - BSE

0.34

1.57

1.86

-0.07

1.6

R-square

0.03

0.24

0.41

0.44

Standard error

0.08

0.11

0.08

0.12

0.06

2Y - Monthly Beta - NSE

0.45

1.7

1.94

-0.15

1.66

R-square

0.04

0.25

0.45

0.002

0.47

Standard error

0.08

0.11

0.08

0.12

0.07

365 Days - Daily Beta - BSE

0.83

1.2

1.4

0.82

1.46

R-square

0.16

0.17

0.3

0.13

0.43

Standard error

0.02

0.03

0.02

0.02

0.02

365 Days - Daily Beta - NSE

0.89

1.26

1.4

0.83

1.5

R-square

0.18

0.19

0.31

0.12

0.47

Standard error

0.02

0.03

0.02

0.02

0.01

Average of 2Y & 1Y Beta of BSE

0.585

1.385

1.63

0.375

1.53

Average of 2Y & 1Y Beta of NSE

0.67

1.48

1.67

0.34

1.58

Page 23 of 32

Appendix 6: Credit Ratings Outlook

HFC

Rating
Agency

Outlook

Term
Loans

NCDs

CP

Deposits

ICRA

STABLE

AA-

AA-

A1+

CARE

AA-

AA-

A1+

CRISIL

STABLE

AA+

AA+

A1+

FAAA

ICRA

STABLE

AA+

AA+

A1+

MAAA

CRISIL

STABLE

AA+

AA+

A1+

ICRA

STABLE

AA+

AA+

A1+

ICRA

STABLE

AAA

AAA

A1+

MAAA

CARE

AAA

AAA

CRISIL

STABLE

AAA

AAA

A1+

FAAA

CARE

AAA

AAA

RHFL

GRUH

GIC

CanFinHomes

LIC Housing

Page 24 of 32

Appendix 7: Company Risk Analysis

We used CAMELS framework to analyze the performance of the company. We have considered 20% weight to each
Capital requirement, Asset quality, Management quality, Sensitivity and 10% to each liquidity and earnings of the
company. Finally we arrived at final score by taking the product of weighted score and percentage consideration.
Then depending on final score we have rated in the range from 1.0 to 5.0.

Rating Range Rating Analysis

Rating Inference

Recommendation

1.0 - 1.5

Doubtful

HFC's financial health is not in good shape - Higher probability of failure

and requirement of regulatory control

1.6 - 2.5

Under-perform

HFC reflects weakness in all its asset and earnings quality.

If not corrected it will lead to major financial shocks

2.6 - 3.5

Average

A well good run HFC - Able to satisfy all the regulatory

norms and required standards

3.6 - 4.5

Superior

Specifies more than required standards but not able to meet all
specifications

4.6 - 5.0

Outstanding

Best in all perspectives and easily outperforms its competitors

Page 25 of 32

REPCO HOME FINANCE

Total Weights
(1)

20%

Particular
(2)

Weights
(3)

Ratio
(4)

Score
(5)

Capital Adequacy Ratio

80%

20.3%

Debt to Equity Ratio

10%

6.3%

Equity Ratio

10%

13.0%

Gross NPA to Gross Advances

40%

1.2%

Provision Coverage Ratio

30%

62.4%

Total Investments to Total Assets

15%

0.0%

Standard Assets to Total Loans

15%

98.7%

Loan Growth rate

30%

30.0%

Earnings Growth rate

30%

21.0%

Profit per Employee (in Rs. crore)

20%

0.2

Loan Assets per employee (in Rs. crore)

20%

11.0

Return on Assets

20%

2.3%

Return on Equity

20%

16.1%

Net Interest Margin

20%

4.5%

Pre Provisions Profit to Total Assets

20%

3.4%

Cost to Income

20%

20.9%

Current Ratio

50%

3.3%

Cash to Total Assets

50%

0.3%

Market Risk, Interest rate risk, Credit risk

100%

20%

20%

10%

10%

20%

Weighted Final
Score
Score
(3*5)
(1*5)

5.0

1.0

1.5

0.3

3.9

0.8

4.0

0.4

2.0

0.2

4.0

0.8

Total Final Weighted Score

3.5

Page 26 of 32

GRUH
Total Weights
(1)

20%

Particular
(2)

Weights
(3)

Ratio
(4)

Score
(5)

Capital Adequacy Ratio

80%

15.4%

Debt to Equity Ratio

10%

12.0%

Equity Ratio

10%

7.8%

Gross NPA to Gross Advances

40%

0.3%

Provision Coverage Ratio

30%

100.0%

Total Investments to Total Assets

15%

0.9%

Standard Assets to Total Loans

15%

99.7%

Loan Growth rate

30%

29.5%

Earnings Growth rate

30%

22.2%

Profit per Employee (in Rs. crore)

20%

0.4

Loan Assets per employee (in Rs. crore)

20%

15.4

Return on Assets

20%

2.5%

Return on Equity

20%

32.0%

Net Interest Margin

20%

4.2%

Pre Provisions Profit to Total Assets

20%

3.7%

Cost to Income

20%

17.0%

Current Ratio

50%

4.0%

Cash to Total Assets

50%

0.8%

Market Risk, Interest rate risk, Credit risk

100%

20%

20%

10%

10%

20%

Final
Weighted Score
Score
(3*5)
(1*5)

3.0

0.6

4.6

0.9

3.6

0.7

4.0

0.4

1.5

0.2

4.0

0.8

Total Final Weighted Score

3.6

Page 27 of 32

GIC
Total Weights
(1)

20%

Particular
(2)

Weights
(3)

Ratio
(4)

Score
(5)

Capital Adequacy Ratio

80%

15.4%

Debt to Equity Ratio

10%

9.3%

Equity Ratio

10%

9.8%

Gross NPA to Gross Advances

40%

1.7%

Provision Coverage Ratio

30%

100.0%

Total Investments to Total Assets

15%

0.2%

Standard Assets to Total Loans

15%

98.2%

Loan Growth rate

30%

23.9%

Earnings Growth rate

30%

17.2%

Profit per Employee (in Rs. crore)

20%

0.5

Loan Assets per employee (in Rs. crore)

20%

30.4

Return on Assets

20%

1.5%

Return on Equity

20%

16.5%

Net Interest Margin

20%

2.5%

Pre Provisions Profit to Total Assets

20%

2.5%

Cost to Income

20%

25.8%

Current Ratio

50%

3.6%

Cash to Total Assets

50%

0.8%

Market Risk, Interest rate risk, Credit risk

100%

20%

Weighted
Score
(3*5)

Final
Score
(1*5)

2.3

0.5

2.7

0.5

3.4

0.3

1.5

0.2

4.0

0.8

20%

10%

10%

20%

Total Final Weighted Score

3.0

Page 28 of 32

CanFinHomes
Total Weights
(1)

20%

Particular
(2)

Weights
(3)

Ratio
(4)

Score
(5)

Capital Adequacy Ratio

80%

18.4%

Debt to Equity Ratio

10%

9.6%

Equity Ratio

10%

9.3%

Gross NPA to Gross Advances

40%

0.2%

Provision Coverage Ratio

30%

100.0%

Total Investments to Total Assets

15%

0.2%

Standard Assets to Total Loans

15%

99.8%

Loan Growth rate

30%

39.4%

Earnings Growth rate

30%

20.4%

Profit per Employee (in Rs. crore)

20%

0.18

Loan Assets per employee (in Rs. crore)

20%

19.1

Return on Assets

20%

1.2%

Return on Equity

20%

11.2%

Net Interest Margin

20%

2.5%

Pre Provisions Profit to Total Assets

20%

1.8%

Cost to Income

20%

25.6%

Current Ratio

50%

5.1%

Cash to Total Assets

50%

7.8%

Market Risk, Interest rate risk, Credit risk

100%

20%

20%

10%

10%

20%

Weighted Final
Score
Score
(3*5)
(1*5)

3.9

0.8

4.4

0.9

2.6

0.5

2.6

0.3

4.5

0.5

4.0

0.8

Total Final Weighted Score

3.7

Page 29 of 32

LIC Housing Finance Limited

Total Weights
(1)

20%

Particular
(2)

Weights
(3)

Ratio
(4)

Score
(5)

Capital Adequacy Ratio

80%

15.3%

Debt to Equity Ratio

10%

12.6%

Equity Ratio

10%

7.0%

Gross NPA to Gross Advances

40%

0.5%

Provision Coverage Ratio

30%

52.6%

Total Investments to Total Assets

15%

0.2%

Standard Assets to Total Loans

15%

99.5%

Loan Growth rate

30%

21.0%

Earnings Growth rate

30%

9.0%

Profit per Employee (in Rs. crore)

20%

0.9

Loan Assets per employee (in Rs. crore)

20%

68.2

Return on Assets

20%

1.5%

Return on Equity

20%

19.8%

Net Interest Margin

20%

2.2%

Pre Provisions Profit to Total Assets

20%

1.9%

Cost to Income

20%

15.2%

Current Ratio

50%

16.6%

Cash to Total Assets

50%

2.7%

Market Risk, Interest rate risk, Credit risk

100%

20%

20%

10%

10%

20%

Weighted Final
Score
Score
(3*5)
(1*5)

2.2

0.4

2.4

0.5

3.8

0.8

3.8

0.4

4.0

0.4

4.0

0.8

Total Final Weighted Score

3.3

Page 30 of 32

Appendix 7 (a): FMEA Analysis

Risks

Severity

Occurrence

Detection

Risk Priority
Number

16

Regulatory Risk (RR)

Inability to meet financial obligation as per
prudential norms (RR1)

4
Market Risk (MR)

Unfavouarble market condition result into lower

spending on new homes (MR1)

32

Severity Scale

Occurance

Detection

Competiton from big banks (MR2)

24

1 - Not Severe

1 - Not likely

1 - Easy to Detect

15

5 - Very Severe

5 - Very Likely

5 - Not easy to detect

30

Fluctuation in interest rate (MR3)

Operational Risk (OR)

Disruptions in technology or from people or any
external factors (OR1)

5
Fianacial Risk (FR)

Crunch of liquidity (FR1)

Default Risk of Customers (FR2)

27

Page 31 of 32

Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the
content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company.
Market making:
The author(s) does not act as a market maker in the subject companys securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be
reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information
is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment
advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by
any individual affiliated with IAIP Indian Association of Investment Professionals, CFA Institute or the CFA Institute Research Challenge with
regard to this companys stock.

CFA Institute Research Challenge

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