After declining over 40 percent in the last 1 year, ICICI Securities now believes this smallcap NBFC can more than double investor wealth in the next 1 year and turn into a multibagger stock.
The brokerage house has a 'buy' call on Repco Home Finance with a target price of ₹470 per share, indicating a potential upside of 163 percent from its current market price of ₹178.
This comes on the back of strong earnings in the June quarter. ICICI Securities in the report stated that lower credit costs lead to earnings beating Street estimates while margins also shrank as growth gathered momentum.
Repco Home Finance is a small-cap NBFC with a market capitalization of ₹1,116 crore.
The stock has risen 14 percent in the past 1 week on the back of impressive earnings for Q1, while n the last 1 month, it has risen nearly 18 percent.
However, the stock has not been a good performer in the long term, In the last 1 year, it has lost 42 percent, whereas in the past 3 and 5 year, the stock has declined 43 percent and 74 percent, respectively. The returns show that the stock performed better in the short term as compared to long-term investments.
In the June quarter, the company's standalone profit for Q1FY23 stood at ₹62.07 crore, up 93.2 percent YoY against the profit of ₹32.12 crore reported in the same quarter last year. However, the company's total income for Q1FY23 slipped 5 percent to ₹307 crore against ₹322.39 crore in Q1FY22. Net interest income, meanwhile, stood at ₹137 crore and margins at 4.6 percent for Q1FY23.
According to the brokerage firm, "Repco Home Finance reported PAT of ₹62.1 crore in Q1FY23, ahead of our expectations, due to lower credit cost at ₹23.7 crore (80 bps) vs our estimate of over ₹50 crore. The disbursement rate also picked pace and was up 7 percent QoQ. This, coupled with a lower repayment/prepayment run-rate, has arrested a sequential decline in the loan portfolio from Q1FY23 onwards. Yields contracted 60 bps QoQ due to conscious efforts of repricing loans lower to curtail balance transfer as well as waiving processing fees in a few cases. This dragged NIM and NII growth below expectations."
It also added that under the leadership of new MD & CEO, K Swaminathan, the growth strategy seems to be delivering the right results. The company's business franchise is currently undervalued.
Meanwhile, brokerage firm Phillip Capital also believes that the stock is poised for growth and can jump about 58 percent from the current market price. The brokerage firm has a 'buy' call on the stock with a target price of ₹250.
"Repco home delivered PAT which was above our expectation driven by lower credit cost. The highlight of the quarter was an improvement in asset quality and management’s endeavor to grow loan book," said Phillip Capital. Phillip Capital pointed out that Repco has lagged behind the industry peers in demonstrating business growth. Reviving growth and improving asset quality is the key focus area.
The brokerage firm expects Repco to deliver earnings growth of more than 40 percent and 17 percent in FY23 and FY24, respectively, and ROE of 11.4 percent and 12 percent, respectively, during a similar period.
According to a MintGenie poll, an average of 10 analysts have a ‘strong buy’ call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
