Repco Home Finance Ltd (REPCOHOME) Q2 FY22 Earnings Concall Transcript

Repco Home Finance Limited  (NSE:REPCOHOME) Q2 FY22 Earnings Concall dated Nov. 16, 2021

Corporate Participants:

T. Karunakaran — Chief Operating Officer

Yashpal Gupta — Managing Director & Chief Executive Officer

Subramanian Balaganapathy — Assistant General Manager

Analysts:

Shweta Daptardar — Prabhudas Lilladher Pvt Ltd. — Analyst

Abhijeet Tibrewal — Motilal Oswal. — Analyst

Sarvesh Gupta — Max Capital Group — Analyst

Vikram Subramanian — Spark Capital Advisors — Analyst

Akash Jain — MoneyCost Investments — Analyst

Rishikesh Oza — RoboCapital — Analyst

Pravin Mule — Prabhudas Lilladher — Analyst

Presentation:

Operator

Ladies and gentlemen. Good day and welcome to Repco Home Finance Limited Q2 FY22 Earnings Conference Call hosted by Prabhudas Lilladher Private Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presenting concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Daptardar from Prabhudas Lilladher. Thank you and over to you, ma’am.

Shweta Daptardar — Prabhudas Lilladher Pvt Ltd. — Analyst

Thank you, Nirav. Good evening, all. On behalf of Prabhudas Lilladher, I welcome you all to the 2Q FY22 earnings conference call of Repco Home Finance Limited. We have with us today the management represented by Mr. Yashpal Gupta MD and CEO; Mr. Karunakaran, COO accompanied by other members of senior management team. I would now like to hand over the call to Mr. Karunakaran for opening remarks. Thereafter, we can open the floor for Q&A. Over to you, sir.

T. Karunakaran — Chief Operating Officer

Thank you. Good evening, ladies and gentlemen and actually a warm welcome to this earning conference call of Repco Home Finance for the quarter ended 30/21. I hope you and your loved ones are staying strong in this challenging time. As we saw last year, business confidence and momentum picked up meaningfully in the economy as the localized restrictions were relaxed one by one. The fact that the vaccination drive was on full swing also boosted sentiment and positively altered people’s behavior. In the last quarter, we have shared this restructured about 5.1% of the loan book under OTR 2 and had given guidance that incremental addition to this pool will be contained below INR100 crores. I’m happy to inform you that additions to this OTR pool were contained below INR70 crores and our ratio, that means restructured under OTR to total loan book at the end of September stood at 5.7%. In addition, we have already started strong collection from OTR accounts and we are confident of resolving most of the cases before stipulated timelines. Our business performance shows handsome sequential improvement with the sanction and disbursement rising over 100% over the previous quarter. The loan book contracted about 1% sequentially, settled at INR11,889 crores. Prepayments and repayments at the end of the year ended September 2021 stood at 19%.

On the profit profitability front, we reported multi-quarter high spreads and margins, which is at 4% and 5.2% respectively because of our strong recovery mechanism and risk-based model, we were able to maintain this spread. The profit before provision grew by 14% year-on-year in Q2. Quarterly profit has come back to usual rate of INR83 crores to INR86 crores per quarter. Once the provisioning cycle normalizes in the next quarter and growth comes back, we should set target of achieving INR100 crore profit per quarter.

We reported ROA of 2.9% in Q2 as against 1.1% in Q1 of this current financial year. Even though our leverage is coming down steadily our ROE as end of September, 2021 stood at 17.3%. Stage 3 ECL provision improved to 43% and overall ECL coverage at the end of September 2021 stood at 77%. The balance between exposure to the self-employed and salaried class people stood at 51.5% and 48.5% respectively. The share of non-housing loan, otherwise called loans against property, or mortgage loan, constitute about 18.7% of the total loan book.

Cost to income ratio more rated to 17.2%. Total capital adequacy ration continues to increase and be comfortable at above 33.2% comprising of Tier I capital of about 32.7%. Our retail network comprises of 155 branches and 22 satellite centers. Our liquidity continues to be remain robust for us and at the end of September we’re having INR600 crores, cash and cash equivalents in the balance sheet and we are having more than INR1,600 crores unutilized line of credit.

Now, I will summarize the key financial highlights for the half year ended September, 2021 before opening the floor for Q&A. Total income stood at about INR656.9 crores. Our PAT end of September stood at INR118 crore. ROA and ROE stood at 2.0% and 12% respectively. Loan book remained stood at INR11,889 crores. Core profitably remained strong spreads and margin of 3.9% and 5% respectively.

I express my sincere thanks for all of you for joining the call. Now floor is open for Q&A.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] First question is from the line of Abhijeet Tibrewal from Motilal Oswal. Please go ahead.

Abhijeet Tibrewal — Motilal Oswal. — Analyst

Yeah. Thank you for taking my questions and congratulations on the set of results. Sir, just two or three questions here. First is on your disbursement. Sir, I was looking up, I mean let’s say about two years back we used to do disbursement or rather we had achieved disbursement of about INR850 crores. So what I’m trying to understand is since then, I mean we have already only despite I mean COVID coming in between, we had only gained from to strength to strength and despite that, our levels of disbursements kind of continued to languish. While if I look at some of your other peers, they have all been reporting, I mean historical high levels of disbursements just like you have reported historical high levels of spreads and margins. So, sir, when can we — I mean I understand, I mean last one-and-a-half year was difficult because of COVID, but when can we reasonably expect that you can go back to your old ways of disbursing something like, let’s say, INR850 crores, INR900 crores on a quarterly basis, especially in the second half of the fiscal year? That’s my first question, sir.

Yashpal Gupta — Managing Director & Chief Executive Officer

So, you will ask all questions together?

Abhijeet Tibrewal — Motilal Oswal. — Analyst

Sir, I can maybe tell you two of my other questions together and then you can answer.

Yashpal Gupta — Managing Director & Chief Executive Officer

Yes.

Abhijeet Tibrewal — Motilal Oswal. — Analyst

Yes, sir. So the second and the third questions are, sir — Gupta sir we are given to understand that the current — your current term is getting over in January — January next year. And given that I mean maybe the Board will only meet for the next set of results sometime maybe in February, has the Board deliberated or have you already applied for an extension or are you looking to take up some other role and we are already looking for a candidate is something that I wanted to understand.

And, sir, lastly, on the operating expenses, sir, you are already running a very lean machinery. I mean, there is not much to read into operating expenses. But given the fact that you have also been saying that you’re investing in kind of building up digital capabilities, have you already started kind of reflecting the investments that you’re doing in technology in your opex? And, sir, last question that I wanted to squeeze in this Friday there was a RBI circular which talked about our recognition of NPAs. So if you could just share some light on that if you had the chance to deliberate on that?

Yashpal Gupta — Managing Director & Chief Executive Officer

Yeah. Thank you. So I will answer your question one by one. [Indecipherable].

Abhijeet Tibrewal — Motilal Oswal. — Analyst

Sure sir. And I think — I don’t know if only my line was bad or was it the case for everyone. Sir, I briefly lost you when you were commenting on — I mean, if at all, there is any succession planning or what’s the plan like, I briefly lost you. Could just repeat yourself when you were commenting on —

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable] Board has taken a decision to recruit somebody else have taken a decision to move on. [Indecipherable].

Abhijeet Tibrewal — Motilal Oswal. — Analyst

All right sir. Thank you so much. And sir wish you all the very best for your days ahead.

Yashpal Gupta — Managing Director & Chief Executive Officer

Thank you.

Abhijeet Tibrewal — Motilal Oswal. — Analyst

Thank you.

Yashpal Gupta — Managing Director & Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Sarvesh Gupta from Max Capital Group. Please go ahead.

Sarvesh Gupta — Max Capital Group — Analyst

Good afternoon, sir. Sir, just one question that we have been hovering around is INR12,000 crore loan book. So what is the guidance for the full year in terms of the loan book growth? And I am not sure if I heard you correctly, but are you saying that next quarter onwards you are aiming for a disbursement of around INR1,000-odd crore?

Yashpal Gupta — Managing Director & Chief Executive Officer

Yes, you are right. You heard me right. And if it was not heard, [Indecipherable]

Sarvesh Gupta — Max Capital Group — Analyst

For March end. And what will be the similar guidance for the NPA numbers?

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable] way to look at that, but the way we are looking at around [Indecipherable] GNPA very much.

Sarvesh Gupta — Max Capital Group — Analyst

Okay. And sir, what we saw this quarter that in spite of we are disbursing like around INR500-odd crores but still the loan book on a QoQ basis came down by a few percentage points. So I think even with like INR800 crore book disbursement, we will probably be at the same level, right? So I think —

Yashpal Gupta — Managing Director & Chief Executive Officer

You are right on that, but one thing is that [Indecipherable] reducing the rate. [Indecipherable] loan or lower ROE which we are trying to do. So we are [Indecipherable].

Sarvesh Gupta — Max Capital Group — Analyst

Understood. And in terms of the competitive intensity in the enrollment earlier I think the bank transfers were a bit higher than usual. So how are you seeing the competitive environment right now? Are you seeing similar level of bank transfers meaty out happening or has it come down marginally because of loan growth in other segments in the economy? If you can comment on that —

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable] similar.

Sarvesh Gupta — Max Capital Group — Analyst

Similar. Okay. Okay. Understood, sir. Thank you and all the best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Vikram Subramanian from Spark Capital Advisors. Please go ahead.

Vikram Subramanian — Spark Capital Advisors — Analyst

Hi, sir. Thanks for taking my question. So my first question is regarding growth again. So you had mentioned, we have been slightly behind peers because we didn’t want to compromise on margins. But now that we have started reducing the rates, could you give us some guidance on what kind of yield reduction might we be looking at going forward? And apart from playing around with rates is there any other strategy that we are implementing to drive the growth?

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Vikram Subramanian — Spark Capital Advisors — Analyst

Okay. Okay. Okay. Sir, one more question if I may on management continuity, so I think I heard you saying that you will not be continuing and the Board is in the process of —

Yashpal Gupta — Managing Director & Chief Executive Officer

No, let me clarify that is a proposal put up in the Board. We will know in one or two weeks what will happen because as of now my contract is till 2, January. [Indecipherable]

Vikram Subramanian — Spark Capital Advisors — Analyst

Okay. But in the evaluation stage — so we are evaluating a successor, would it be internal or external? Is there any indication on that side?

Yashpal Gupta — Managing Director & Chief Executive Officer

See that Board will decide, right. [Indecipherable]

Vikram Subramanian — Spark Capital Advisors — Analyst

Okay. But we will get to know within the next two weeks.

Yashpal Gupta — Managing Director & Chief Executive Officer

Yes, correct.

Vikram Subramanian — Spark Capital Advisors — Analyst

Okay. And finally, just one last thing, sir, on RBI circular, I understand we will still be in the evaluation phase because it’s not even been [Indecipherable] update from RBI. But the concern here is [Indecipherable] update seem to be either retrospective or effective immediately. So is there at least any ballpark range of figure — back of the envelope calculation figure of how much impact we could have on [Indecipherable] number because of —

Yashpal Gupta — Managing Director & Chief Executive Officer

I cannot declare a number but [Indecipherable]

Vikram Subramanian — Spark Capital Advisors — Analyst

Got it, got it. Okay, thanks, sir.

Yashpal Gupta — Managing Director & Chief Executive Officer

But I cannot tell a number.

Vikram Subramanian — Spark Capital Advisors — Analyst

Sure. Sure. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Abhijeet Tibrewal from Motilal Oswal. Please go ahead.

Abhijeet Tibrewal — Motilal Oswal. — Analyst

Yes. Again, thanks for taking my question. Sir if I heard you right during the opening remarks —

Operator

Abhijeet, sorry to interrupt, your voice is not coming clear. May I request you to speak through the handsets?

Abhijeet Tibrewal — Motilal Oswal. — Analyst

Is it better now?

Operator

Yes, thank you.

Abhijeet Tibrewal — Motilal Oswal. — Analyst

Sir, if I heard you right during the opening remarks, you suggested that going forward we will be looking to target quarterly profits of about INR100 crores, given that I mean credit costs are expected to normalize. What I was trying to wrap my head around was, I mean you also suggested that we are now kind of trying to or rather we have already cut our rate of interest. And when I look at our cost of borrowings at least on a calculated basis, it gives me the impression that our cost of borrowings seem to have bottomed out. So if we are going to cut our interest rate, I mean that will impact your maybe spreads and margins. And given that the current operating expenses do not reflect the investments that you are doing on the digital side. Are we just trying to suggest that this normalization in credit cost itself will help to deliver INR100 crores of PAT in the quarters to come?

Yashpal Gupta — Managing Director & Chief Executive Officer

No, there are two parts. [Indecipherable]

Abhijeet Tibrewal — Motilal Oswal. — Analyst

Right, sir. And this INR13,000 cores items that you are giving that is for the end of this fiscal year, right, over the next two quarters you are —

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable] 2022.

Abhijeet Tibrewal — Motilal Oswal. — Analyst

Yes, yes, sir. The next question is for Bala. Bala, if you can just help me, I mean I’m seeing we have about INR375 crores in ECL provisions. What is the corresponding [Indecipherable] provisions that we have now?

Subramanian Balaganapathy — Assistant General Manager

We are not disclosing that, Abhijeet.

Abhijeet Tibrewal — Motilal Oswal. — Analyst

Okay. Okay. No worries. I will come back in the question queue. Thank you so much.

Operator

Thank you. The next question is from the line of Akash Jain from MoneyCost Investments. [Phonetic] Please go ahead.

Akash Jain — MoneyCost Investments — Analyst

Hi, I have two questions. I think one question is something that I think all investors have been asking every quarter and that is on growth. And I think to some extent [Indecipherable] has handled that question. But I’m just curious because we are — obviously we are suffering because of balance transfer held by banks, right. And there are so many affordable housing companies in Tamil Nadu itself in our core market, which are lending at 17%, 18%. And now more customers have a track record, so we can also get a comfort around payments, etc. Why are we not still being aggressive in [Indecipherable] for such customers, because if you’re losing customers you should be very aggressively getting customers from others also. So that is one part. The second part is on collections. So we have restructured the book both in restructuring one and restructuring two, just want to get a sense on what is the kind of collection efficiency we are seeing in the restructured book. Do you see some of these — some of the accounts falling into delinquency or you are seeing strong recovery trends on the restructured book? Thank you so much.

Yashpal Gupta — Managing Director & Chief Executive Officer

Okay. [Indecipherable]

Akash Jain — MoneyCost Investments — Analyst

The collection efficiency on the restructured book.

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Akash Jain — MoneyCost Investments — Analyst

Yeah. So if I understand you correctly on the first question, you are basically saying that a lot of affordable housing companies are giving very small ticket size loans and that is why it is not necessarily economically useful for us to takeover loans of both ticket size. Am I right?

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Operator

Akash, do you have any follow-up question?

Akash Jain — MoneyCost Investments — Analyst

No. I am good. Thank you so much.

Operator

Thank you. The next question is from the line of Rishikesh Oza from RoboCapital. Please go ahead.

Rishikesh Oza — RoboCapital — Analyst

Hi, sir. Sir, my first question is on loan book growth. So if you could indicate what growth are we going to have in second half and also going ahead in FY ’23?

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Rishikesh Oza — RoboCapital — Analyst

Did you say INR15,000?

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Rishikesh Oza — RoboCapital — Analyst

Okay. And sir, if you could indicate what credit costs are you going to maintain going ahead in this year and next year?

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Rishikesh Oza — RoboCapital — Analyst

0.5. Next year you are saying 0.5.

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Rishikesh Oza — RoboCapital — Analyst

Okay. And sir, what the branch additions are you going to do coming — going ahead?

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable] every year. We are looking at the same rate [Indecipherable] for this year and for next year.

Rishikesh Oza — RoboCapital — Analyst

Okay. And sir, ROE and ROA guidance that you could share, sir.

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Rishikesh Oza — RoboCapital — Analyst

ROE and ROA guidance.

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Rishikesh Oza — RoboCapital — Analyst

So ROE of 14% to 15% you are saying for this year, sir, or next year?

Yashpal Gupta — Managing Director & Chief Executive Officer

No. It’s fully for next year.

Rishikesh Oza — RoboCapital — Analyst

Okay. Okay.

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Rishikesh Oza — RoboCapital — Analyst

Okay. Got it. Thank you.

Operator

Thank you very much. The next question is from the line of Vikram Subramanian from Spark Capital Advisors. Please go ahead.

Vikram Subramanian — Spark Capital Advisors — Analyst

Hi, sir. Thanks for taking the follow-up. Just one clarification on the previous answer that you gave to the previous participant. [Indecipherable] think you mentioned something like 0.5 percentage. Is this for FY ’22 or ’23?

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Vikram Subramanian — Spark Capital Advisors — Analyst

Okay. You mean — I don’t get it, sir. You are saying 0.5 percentage for Q3, Q4 or —

Yashpal Gupta — Managing Director & Chief Executive Officer

No, I am saying 0.5 for Q3, Q4 and 0.5 for next year, full.

Vikram Subramanian — Spark Capital Advisors — Analyst

Okay. Okay. For FY23 you are saying 0.5. But given that [Indecipherable]

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable] 0.25 for towards December and January-March.

Vikram Subramanian — Spark Capital Advisors — Analyst

Okay. Okay, got it, sir. No, what I was about to ask was 0.5, half a percentage of credit cost for FY23 given that we are targeting on reducing GNPA trajectory and therefore, we will see a bit of release of provision. Doesn’t 0.5 seem a bit high, sir, for targeting?

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Vikram Subramanian — Spark Capital Advisors — Analyst

Okay. Okay. No, I am just — are we envisaging any major write-offs in FY23, may be coming from the — that’s the reason or they are just being conservative.

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Vikram Subramanian — Spark Capital Advisors — Analyst

Okay. Okay, thanks. Thanks for the clarification.

Yashpal Gupta — Managing Director & Chief Executive Officer

And I will add one more thing that though it is a drought, but it is a drought only for the [Indecipherable].

Vikram Subramanian — Spark Capital Advisors — Analyst

Okay, sir. Thank you. Thanks a lot.

Operator

Thank you very much. [Operator Instructions] The next question is from the line of Pravin Mule from Prabhudas Lilladher. Please go ahead. Pravin, may I request you to unmute your line from your side and go ahead with your question please?

Pravin Mule — Prabhudas Lilladher — Analyst

Hello. Yeah. Am I audible?

Operator

Yes.

Pravin Mule — Prabhudas Lilladher — Analyst

Yeah. Sir, thanks for the opportunity. I have three questions. Firstly on your Stage 3 has been lingering at 4% plus levels, how do you see the headline asset quality shaping up going ahead and if you could provide any ballpark number for this? My second question is on, could you please provide the breakup of Stage 2 and Stage 1 assets, and write-offs during the quarter?

Yashpal Gupta — Managing Director & Chief Executive Officer

[Indecipherable]

Subramanian Balaganapathy — Assistant General Manager

Yeah. Stage one is around 85% and stage — 3 4.3% GAAP.

Yashpal Gupta — Managing Director & Chief Executive Officer

Hello.

Pravin Mule — Prabhudas Lilladher — Analyst

Yeah. Thank you, sir.

Operator

Yes, sir. You are audible. Pravin, do you have any follow-up questions?

Pravin Mule — Prabhudas Lilladher — Analyst

No. Thank you.

Operator

Thank you very much. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Ms. Shweta Daptardar for closing comments.

Shweta Daptardar — Prabhudas Lilladher Pvt Ltd. — Analyst

Thank you, Nirav. On behalf of Prabhudas Lilladher we thank the management of Repco Home Finance for the opportunity. Thank you all.

Operator

Thank you very much.

T. Karunakaran — Chief Operating Officer

Thank you.

Operator

[Operator Closing Remarks]