Repco Home Finance

Abraham Maslow was an American psychologist who was well known for creating Maslow’s hierarchy of needs pyramid. He studied the behaviors of exemplars like Albert Einstein. And wanted to understand why some people could attain such unbelievable heights, while so many others continue to struggle. He explained this difference with hierarchy of humans needs pyramid. According to Maslow, the needs at each levels have to be satisfied before a person can progress to the next level. Exemplars like Albert Einstein is at the top of the pyramid and the rest struggle at the first and second levels.


In India urbanization is on the rise. Around 34% of Indians live in urban areas compared to 18% in 1971. This created a shortage of 18.78 million homes. In order to buy a home people need credit. Majority of people in India are self employed and banks will not lend money to them. Why is that? Unlike salaried people, the cash flows of self employed are volatile. And banks don’t like volatility. So the self employed are perpetually stuck in the second level of Maslow’s pyramid. Is there a solution? Housing Finance Companies (HFC) give credit to these people and help them to fulfill their aspirations and progress to the next level of Maslow’s pyramid. And Repco Home Finance Limited (RHFL) is one such company.


1. Business

RHFL was promoted by Repco Bank in April 2000 to tap the growth potential in the housing finance industry. RHFL is headquartered in Chennai, Tamil Nadu and it went public in March 2013. It lends money to people to buy homes in tier 2, tier 3, and at the peripheries of tier 1 cities. Around 93% of its loans are given to people in South India with Tamil Nadu representing 63%. RHFL gives individual home loans and loans against properties to both salaried and self employed people.


RHFL lends conservatively with an average loan-to-value ratio of 62% and income-to-installment ratio of 50%. For a property worth Rs 10 lakhs it lends Rs 6.2 lakhs and the rest is paid by the customer as a down payment. If the monthly mortgage payment comes to Rs 6,000 then the customer should earn at least Rs 12,000 to qualify for the loan. A low loan-to-value and high down payment is an excellent combination as it provides sufficient margin-of-safety for RHFL and also keeps the customers committed to pay back the loan.

As of March 2015, RHFL had 57,415 customer accounts with an average loan size of Rs 12 lakhs (0.002% of loan assets). Loaning money to several customers reduces single points of failure. What happens when a customer defaults on his loan. Should RHFL go to the court to repossess the property? With the introduction of SARFAESI act RHFL can foreclose the property after 60 days of notice to the customer who defaulted on his interest or principal payments. From the chart given below you can see that in six years RHFL grew its loan book at 38.69% and it hardly spent any money on advertising. If it didn’t spend much on advertising then how did customers looking for loans know about RHFL?


RHFL’s primary sources of customer acquisition are loan camps, customer walk-ins and referrals. Of these, loan camps contribute to about 70% of incremental originations. Manager of each branch conducts a loan camp once in every 2 months where, a primary assessment of customer documents is done and an in-principle sanction is given. The customer then approaches the branch for further processing of his/her loan. The branch personnel act as single point of contact to customers and are responsible for sourcing loans, carrying out preliminary checks on the credit worthiness of potential customers, providing assistance in documentation, disbursing loans and monitoring repayments and collections. – 2014 Annual Report

In the Maslow’s pyramid, property comes in the second level. Humans crave for anything in the first and second levels of the pyramid and decisions are made subconsciously in emotional parts of their brain. This is the reason why low cost marketing strategies like loan camps work very effectively and customers walk-in without persuasion. Also RHFL provides quality service in quick time at a reasonable cost. This makes its existing customers to recommend (a pattern also seen in Ashiana Housing) RHFL to their friends & family.

Until 2014, RHFL didn’t employ any direct sales agents (DSA) to avoid incentive caused bias. But in 2015 it employed DSAs in Maharashtra for experimentation purposes. If this works then it would use DSAs to expand into new geographies. Each branch is responsible for originating loans and collecting monthly payments. But loan approvals happen only at the head office. By separating loan origination and approval RHFL is reducing the probability of issuing bad loans. I like this separation even though it introduces some delays in the process. Take a look at  the loan origination and approval process which I got from here. From the diagram you can see that each customer is lent money at different rates of interest depending on their credit score.


RHFL borrows money from three sources. They are (1) term loans from banks;  around 65% (2) term loans from NHB; around 25% (3) working capital loans from its promoter Repco Bank; around 10%. From the chart given below it’s evident that term loans from NHB has come down over the years. At this point I have couple of questions. Who is NHB? And why did the borrowing from NHB come down?


In India RBI governs all the banks. Similarly National Housing Bank (NHB) governs all the HFCs. NHB operates as a principal agent for promoting, regulating, and providing financial support to HFCs like RHFL. In order to facilitate priority sector and rural lending, NHB refinances funds to HFCs at lower than market rates. But with low rates comes tight regulations like capping the interest rate spread to 2%. And this spread is insufficient to compensate for the risks taken by RHFL. So it reduced its borrowing from NHB.

The share of NHB funding has declined over the years. It has gone down from 56.43% in FY10 to 24.99% in FY14. Effective Sep 2013, refinance from NHB under the Rural Housing Fund (RHF) entailed an on-lending spread cap of 2%, which was insufficient given the risks and operational costs involved in servicing loans in rural areas As a result, the company did not avail refinance under this window. – 2014 Annual Report

Interest on a housing loan can be fixed or floating in nature. Average age of a housing loan is around 15.75 years. And the average age of RHFL borrowing is around 9 years. Due to the long term nature of housing loans and medium term nature of RHFL borrowing, it prefers to lend at floating rates. This allows RHFL to reprice the loans when its cost of borrowing increases. This reduces interest rate risk to some extent. As of 31-Mar-2014, 19.76% of borrowings were on fixed rate basis and 80.24% were on floating rate basis. And all its outstanding loans were on floating rate basis.

How good are the quality of RHFL loans? In order to answer this question we need to look at its NPAs and write-offs. To learn more about NPAs go here. From the chart we can see that the RHFL has high quality loan assets. The only concern is that its provision coverage ratio in 2015 is 62.4% which is low. Ideally I would like to see this at 80-90%. The management is working on this to increase the coverage to 100% in the near future.

repco-provisions-gross-netProvisioning is an accounting liability created by the company according to the rules set by NHB. What is more important is to see how much of that liability actually turned bad. This is measured by write-offs. Since inception RHFL has written off loans aggregating Rs 4.33 crores, which is only 0.07% of total cumulative disbursements.

As on March 31, 2014, RHFL had 55% loan book exposure to non-salaried segment (consisting of professionals and non-professionals). Generally, income profile of the non-salaried segment tends to be lumpy which leads to significant quarter-on- quarter volatility in NPAs. However, such volatility in NPA profile is not representative of the true asset quality given conservative underwriting policies of the Company. RHFL has, since inception, written off loans aggregating Rs 4.33 crore, which is a mere 0.07% of total cumulative disbursements. – 2014 Annual Report

It’s time to look at the report card of RHFL. From the table and chart given below we can see that it did a fantastic job by compounding its net-interest-income and profit-before-tax at 39.37% and 37.73%. At the same time it kept its operating expenses (also known as cost-to-income ratio) very low between 18-20%. These are fantastic achievements and the management deserves some credit.



2. Moat

Lending is a commodity business and customers don’t care from whom they borrow the money from. They will go to someone with low lending rates. So RHFL doesn’t have power over its customers. Also the company doesn’t have any power over its suppliers; banks and NHB. Its interest rate spread and NIMs fluctuate according to market conditions. This is clearly evident from the chart.


Low refinance rates from NHBs are available to other HFCs. So this can’t be an advantage. Around 65% of RHFL borrowed funds comes from banks. And banks are dinosaurs as they have access to low cost funds in the form of deposit accounts. So what is the source of RHFL moat? To answer this question let’s travel back 70 million years. You’ll see dinosaurs (banks) roaming all over earth. It would be hard to spot mammals (RHFL). But if you look inside the burrows you will find them. Why does it live inside the burrows? It is the only way for mammals to survive the onslaught of dinosaurs.

Like mammals living inside the burrows, RHFL operates in tier 2, tier 3, and at the peripheries of tier 1 cities. And it lends money to non-salaried people the segment which banks don’t bother to touch. This unique strategy is the first source of RHFLs moat. Is there any other moat for RHFL? Insurance like lending is a commodity business. May be we can look at what Buffett wrote about moats in an insurance business.


RHFL operates with a cost-to-income ratio of 18-20%. How does it run on such low costs? It runs its branches efficiently by having only 3-4 employees. On average each employee handles 105 customer accounts. This makes RHFL a low-cost operator and it’s one of the key moats for the company. From all this I am convinced that banks can’t compete with a low cost operator like RHFL for sometime. But what about other HFCs. Can they not compete? Yes they can and there is one player that I can think of. GRUH Finance an NFC promoted by HDFC Ltd is one of the competitors of RHFL. Both RHFL and GRUH are low-cost operators and they compounded their loan book at 31%.


Some of the differences that I see between them are (1) GRUHs strategy is based on women empowerment + non-salaried segment and RHFL is based on non-salaried segment (2) GRUH sources loans through third party channels by appointing associates and RHFL doesn’t have a sales agent and it mainly depends on loan camps (3) GRUH has more diverse source of funding like NCDs and public deposits. RHFL went public recently so it will diversify its funding sources in future (4) GRUH has a coverage ratio of 100% and RHFL needs some work on this (5) GRUHs loan approval process is decentralized whereas RHFLs is centralized.

As the opportunity size is huge, I believe that RHFL and GRUH will thrive and grow for a very long time. The key is set up pan-india branch network and make life harder for others.


3. Management

The first test for a good management is conservatism. From the chart given below you can see that RHFL management produced decent returns on assets and equity. At the same time they didn’t over leverage their balance sheet and stayed within the boundaries of permissible limits set by NHB.



The second test for a good management is to look at how they compensate themselves. R.Varadarajan is the managing director of the company. His salary and allowances are paid by the promoter; Repco Bank. RHFL reimburses the additional pay to Repco Bank for the services provided by him. For the year 2013-14 his additional pay was Rs 3.22 lakhs and performance incentives including cash award came to Rs 20.5 lakhs. On a pretax profit of Rs 149 crores his total compensation is a rounding error. T.S. Krishnamurthy is the chairman of the company and he receives a sitting fees of Rs 80,000 per annum which is miniscule. Overall I am sold on RHFLs management.

4. Valuation

Before valuing the business let’s first understand the thesis on which our valuation is going to hinge on. There is a shortage of 18.78 million homes. In 2015 RHFL had 57,415 accounts. If we assume that each account represents one home then RHFL current market share of homes is 0.31%. From the chart given below we can see that mortgage penetration in India is very low. From these two facts we can safely assume that there is a lot of room for future growth.


Here are the assumptions I am going to use for valuing RHFL.

Loan book growth     : 25% for five years and 20% next five years
Net Interest Margin  : 4%
Cost-to-income ratio : 20%
Provisioning         : 5%
Taxes                : 33%
Dividend payout      : 8% for five years and 10% next five years
Exit multiple        : 2 times book
Share dilution       : None and I understand this is unrealistic
Home price           : 8% growth


With a reasonable exit multiple of two times book the market capitalization + dividends  of RHFL in year 2025 will be around Rs 10,500 crores. Its current market capitalization is Rs 3,750 crores. If someone buys RHFL today and holds it for the next ten years then he would get a compounded return of around 11%. Given that lending business is prone to negative black swans, I need additional returns to commensurate for the risk incurred.

As of this writing I don’t own any shares of RHFL. Click here to download the financial data I used to write this post. Also I would recommend you to read its IPO filing document which contains tons of information about HFC industry. Disclaimer: This is not a recommendation to Buy-Sell-Hold. And I am not a SEBI registered analyst.

69 thoughts on “Repco Home Finance

  1. [image: Inline image 1] Maturity of its advances is less than 10 years.

    Also, do not compare India’s Mortgage as % GDP. India is a rural area and many live together with family and especially rural population will continue doing so. So Repco Finance is at disadvantage. Plus, if rural housing market is buoyant, many players will enter. So 20-25% growth rate (for 10 years) is too optimistic. For that it has to expand beyond South India which is not possible as players like Gruh, Magma, DCB Bank, IDBI (IDBI Bank later) are present. All of them are banking on rural story. Recently Bajaj Finance & MMFS are also interested in Home Loans. More competition will not hurt NIM% but definitely growth rates. Also, India Post which will soon act as a Bank will hamper prospects for many NBFCs with rural lending products.

    Also, keep in check Loans per branch, or per employee. Growth led by geographical expansion is not very profitable growth. If it stays in South India and increases loan per branch, its competitive advantage will increase.

    On Wed, Jun 10, 2015 at 8:21 AM, Seeking Wisdom wrote:

    > Jana Vembunarayanan posted: “Abraham Maslow was an American > psychologist who was well known for creating Maslow’s hierarchy of needs > pyramid. He studied the behaviors of exemplars like Albert Einstein. And > wanted to understand why some people could attain such unbelievable > heights, w”

    • Hi Ketan,

      Thanks for your valuable comments. Only time will tell how successful will it be outside South India.

      As of now loans per branch is skewed as it takes time for new branches to scale up. I agree with you that over time it will be a good indicator of competitive advantage.


  2. Thanks for excellent analysis, you make all the things look simpler.

    There are many other players like mahindra finance and bajaj finance who has started HFC, and will compete in this segment. So that should also be factored.

  3. Hello Jana………Great work congrats.
    Just to better understand things, whats your rationale for having an exit multiple of 2 times book?

    • Brijesh,

      I vaguely remember Buffett telling that one should not pay more than 2-3 times book even for a very well run bank. Here is a link on this topic


  4. Thats fantastic work . Most people assume rural area means the villages . The Rural area also means small towns and district headquarters and block headquarters. With India being a land deficient country the cost of land is exorbitantly high and the land for building a house even more so. The aspiring class of hard working people now are slowly but surely turning to nuclear family. So the growth of REPCO is a given and all competition should be welcomed.

  5. Repco and Gruh both should face no problems growing at 25-20% for next 10 years. Gruh’s loan book is 9,000 Cr and Repco’s 6,000 Cr in 12 lakh Cr mortgage market. The industry itself will grow at 15-18% for a decade considering current low penetration and huge need for housing. We should not get surprised by figures like 50,000 Cr loan book after 10 years. The morgage market size by then would well be 60 Lakh Cr and capturing 1-2% of that is not difficult for Gruh and Repco.

    Disclosure – I hold both Repco & Gruh in my folio

  6. Jana how do you manage to tabulate the required data from multiple years into a precise excel sheet? I want to know please guide me.

    Your analysis is excellent as usual!

  7. Hi Jana,

    As always lucid post. I think we have gone ultra conservative on exit multiple but then better to go wrong on right side!


    • Vivek,

      Thanks. Point (1) and (2) from Buffett is to avoid permanent loss of capital.


      • Hi Jana, Slightly delayed response – My sources were largely edelweiss website, few previous industry research reports and ARs wherever data was missing, I can send you not so pretty sheet I used for post if you need just mail me at vivek[dot]bothra[attherate]outlook[dot]com

  8. Repco & Gruh contributes to 55% of my equity portfolio. Thanks for this analysis. got many insights…..

  9. Hi Jana,

    As usual you have done wonderful analysis of the company. I would like to know whether you have done any analysis on HDFC. I am interested in just reading an analysis of HDFC as it has been one of the consistent out performer of the market both in terms of it’s market cap as well as growing profitablity over so many years. I think, I read somewhere a few months ago that it had a record of consecutive growing quarterly profits over a very long time. No other company has managed to achieve that.

    I would also like to ask you one more thing. You said that lending is a commodity business and therefore the moat should be with the one who is offering customer cheapest loan. I am not sure of the rates HDFC offer to its customers but it is such a giant mammoth in the sector, I believe it might have more than one moats for the same.

    The company really fascinates me every time I look at it and I can actually call it bluest of the blue chips. If you have any thoughts about the company, I would love to read it in future blog posts


    • JB,

      In case of RHFL they aren’t the cheapest provider of loans. Their moat comes from being a low cost operator.

      Coincidentally I purchased the book ‘A Bank for the Buck’ last week and I will reading HDFC Bank later this month.


  10. Once again, fascinating! I know US banks ok – the numbers here are not something that US banks can do. For example NIM at Wells Fargo is about 3.11% and is pretty much the top of US banks. So this Indian company is pretty cool.

    My question is: what is the current stated book and tangible book per share and what is the current per share price in the sensex market? What is the ROA at 2014 year end?

    I think you referenced a 50% payment to income ratio? That is high! Is that total debts (including mortgage) or mortgage only? Either way, that is considered very high for US standards. I realize India is different. Do you have a sense of the average debt/income ratio on the loan book? (hard to get but sometimes you can)

    • Mary,

      Compared to US installment-to-income ratio is high. Considering the conservatism in indian spending and negligible write offs for 15 years tells me that this should be ok.


  11. Hey Jana,

    Another very interesting business =]

    Two things I find quite perplexing considering the very low NPA ratios:

    1. The average mortgage installment to income of 50% is very high (even if it’s “disposable income”).

    2. As India’s interest rate is quite high for a time now (7-8.5% for the last 3 years), borrowers are bound to have difficulties paying up their relatively expensive mortgage loans at above 10% interest rates. Add to that the fact that inflation had fallen since the beginning of 2014, and you get borrowers who can mark-up their incomes only by a bit (relatively speaking), but not enough in order to keep up with the high interest rates on their mortgages.

    Kind regards,


    • Hi Michael,

      Thanks for your comments

      (1) Compared to US installment-to-income ratio is high. Considering the conservatism in indian spending and negligible write offs for 15 years tells me that this should be ok.

      (2) I agree if the interest rates shoots up beyond 13+% it’s going to be hard for the borrowers to keep up.


  12. I see the ROA at 2.60 – again doubling the top US banks. The rest I cannot easily understand. Very, very different. I study banks for years now, but cannot comprehend. Will ask you sometime.

  13. Jana,

    Thank you for posting your thoughts , you are laying a framework for analyzing each industry . Reading your articles is a very enlightening experience and I eagerly wait for your next articles

    Srinivas D

  14. Dear Jana,

    A very crisp analysis of REPCO. I admire and envy your understanding and writing skills. Once quick question, could you please educate me on the term “provision coverage ratio”, as far as I understand, is it the provision provided / Gross NPA recognized. Is it the correct interpretation.

    • Nikhil,

      Thanks for the comments. If $100 is given out as loans and $10 is not performing i.e. interest or principal payments are not made. And the company reserved $5 against these non performing loans. Then it has a coverage ratio of 50% ($5 / $10). I would highly recommend this document


      • Thanks Jana, Certainly a high coverage ratio is better ti avioid future negative suprises. A quick follow up question,do you have the coverage ratio of peers in handy (GRUH, DHFL etc). Thanks

      • Jana, thanks for sharing the doc. Makes a very good read for a novice like me. Could you please recommend a similar doc for the Pharma industry.

  15. I get a bit confused. I am a US bank stock owner and we have different terms. In short words, the “provision” is a quarterly number taken off the income statement. This is added to the “allowance for loan losses” on the balance sheet. We would not see provision being 100% of NPA. We would hope the allowance is 100% of NPA. However, there are reasons this may not be so. Different banks have different recovery estimates on NPA, different regulators have different reserve requirements.

    When viewing this Indian finance company I get confused between “provision” and “allowance” which seem to be used interchangeably, but I am not used to that wording.

    • In India allowance is linked to employee compensation. And provision is used in both income statement and balance sheet. In annual report go to page 39 and 40 and you’ll see it clearly.


  16. Hi Jana,

    Thanks again for the great article and enlightening to every one.

    It is a great framework to analyze in 4 part of business, moat, management, and value and how to get insights and make it a potential idea.

    On the value part, was trying with PE aspects considering everything as earnings with 20 times as exit multiple and 15 CAGR of EPS growth and it gives mcap 9500cr odd around.

    If we’re doing same extrapolation to GRUH (say 4 times book value rather 2 times as exit), it is also giving very less potential to appreciate.

    At ground level (in tamilnadu for example): Have heard referrals from banks like SBI (where i’ve got housing loan) to Repco when some one approaching for non-salaried segment.

    With low cost-to-income ability in HFC, need to try for can fin homes as well even though not having much NIM (~2%) appreciation potential, but processing speed and scale of loan disbursal will be giving more appreciation in returns.


    • Thanks Muthu. When coming up with exit multiple be very conservative as the key point in investing is to not lose money.


  17. Dear Vembu,

    Nice write-up. REPCO is in a very competitive space and its advantage in its categories would be questioned in the coming years. In this scenerio, there is no MOS at 5 times ABV/Share unless they raise capital like Yesbank

    Equity 812.11
    Gross NPA 79.12
    ABV 732.99
    ABV/share 117.92

    • Sethu,

      Agreed and I’m not recommending the stock at the current price.


  18. Transcripts of the latest concall indicate further potential for profit by way of securitization of loans with banks looking to meet priority sector lending targets. Management has said they don’t securitize their loans at all. So it might come later and if it does it could become another Shiriram Transport Finance Corp during its heydays.

  19. Hi Jana,

    Nice post 🙂

    There is lot of talk about housing sector slowdown in Tamilnadu and it’s impact being severe on the number of transactions etc etc and it’s impact on Housing finance & Repco. So I was searching for some data to make sense out of these talks and here is what I came across.

    Year | No. of Property Registration in TamilNadu
    2013-14 | 26.53 lacs
    2012-13 | 26.9 lacs
    2011-12 | 35 lacs
    2010-11 | Couldn’t find data
    2009-10 | 27.39 lacs
    2008-09 | 28.32 lacs

    So, seems like over a period of 6 years when no. of transactions were essentially flat, Repco did a fantastic job and continues to do so. Thought this might add value to your readers.




  20. Hi Jana,

    Nice article. Lot of hard work has gone into it.
    I have a biggish allocation to Repco and I just cringe at the thought of earning 11% CAGR for next 10 years when India is supposed to witness its golden period.

    I am sure you have read Prof Bakshi’s article wherein he made the case for Nestle’s higher valuations.
    Similarly in case of Repco :-

    1)When terminal growth is 20% and similar RoE then why not apply a PE of 20
    2)With Gruh at 10X BV and Repco at 4X book and history of similar valuations for number of years then 2x BV seems low for exit price.
    3)Good visibility of earnings for next 10 years and even thereafter.
    4)Clean management.

    I think with limited investing opportunities in India for FII’s and Repco available 23-24 forward PE, chances are good that we might get returns similar to the business growth rate ie 20-25%.

    Anyways your analysis will certainly help me check my expectations from the stock.
    I was adding it at current prices also.
    Hope for the best.


    Vivek Gupta

  21. Beautiful article! Crystal clear writing. It was be a joy to read it. Loved the human pyramid part. However I was rather stunned to read the conclusion part. Rejecting the stock based on a vague Buffet quote about banks? In what was otherwise a great analysis based on sound logic and intuition.
    Hope you won’t mind me bringing up these two points.
    1) The last three years in TN were not good for small business owners and self employed people. The power cuts were acute especially in the rural and sub urban regions (RHFL territory). Small business were winding up everyday and a general investment lull. In this tough evironment RHFL has maintained its growth disbursement with low NPAs. This is in itself is a big achievement and deserves our respect.

    2) Exit price : Buffet has given a treasure trove of knowledge for us retail investors. But 99% of his teachings and findings are bases on the US economy and its outlook. He advised retail investors in his forward to ‘the Intelligent investors’ to target a CAGR of 6% …yes 6%. Even Peter lynch the name synonymous with multi-baggers on “One up on wall street” said the maximum return one should expect is 12% over a period of time. These return expectations all holds relevance to the US economy a ‘matured’ economy with low rates of inflation. The depth of the Indian economy is at the least 100 years behind the US. This low base allows companies like RHFL to grow for atleast a decade without any hindrance. It well may continue its 25-30% growth rate.
    Considering the opportunities ahead of it ‘2 times the BV’ should not be the reason for rejecting this good structural bet.

    In my early years of investing I have missed lots of opportunities after actually identifying them.
    Because its easy to find fault than making a case for investing.

    2007 – Rejected Page at cmp 600. 16pe. Because you dont pay that much for a franchise company.

    2008- Sold vakrangee at Rs 20 at 20cr map. The reason being promoter requesting a 1% sales incentive. Its current mcap is 5000cr+

    After doing all the hard work you should take the jump. There will always be something which you Dont like in a good story.
    Would be great to hear your reply!!

    • Lynchfan,

      Thanks for the compliments.

      I have an aversion towards financial stocks as they’re prone to negative black swans. To buy I need to be compensated with additional returns.

      I understand that I will miss out on lots of opportunities. And I’m ok with that as the first rule of investing is to avoid permanent loss of capital.


  22. Hi Janav. I love the simplicity with which you put forward your case.

    Can you share the results if you were to consider a 3, 3.5 and 4 times book value in your valuation instead of the currently assumed 2x book value.

    I am sceptical about entering Repco at the valuations as they are currently optimistic and their endeavours in expansion in north india are more of an experiment than certain. However, i was wondering what the numbers would be if we considered 3,3.5 and 4 x as the story is still strong. I mean, the valuations are optimistic, but the story is strong.

    Can you please plug in those numbers or send me the worksheet.

    Awaiting your reply.

  23. Thank you Jana.

    If the most optimistic exits give you an 18% return y.o.y in a sector that is supposed to zoom, it looks like a clear pass, unless a black swan event allows you an entry at 1.5-2x current book.

  24. according to the management, interest rate subvention recently announced by the government would allow Repco to grow at far higher rates. With higher growth one should expect valuations to be far higher than two times book.

  25. Hi Jana,
    Great Post!

    Have a look at this article on LAP –

    Does RHFL have any satellite offices? Can Fin homes seems to be going that way, has tremendously increased the number of satellite offices as compared to opening branches. Keeping cost lows, and being as effective. Don’t know if they are similar to ‘loan camps’ model conducted by RHFL.

    “Further, your Company introduced the concept of ‘Satellite Offices’ by which many branches in metropolitan/tier- II cities can source business from additional locations (within 30 km radius of main branch) apart from providing doorstep service to existing/potential customers with lower operating
    costs considering the smaller unit size. Your Company intends to open 23 branches/Satellite Offices in
    2015-16” – Can Fin FY15 AR


    • Gupta,

      Thanks for sharing the article against LAP. Repco’s LAP is slightly less than 20% of its loan book. Over the last 3 years its share of LAP has gone up from less than 15%.

      Yes they do have satellite offices like Can Fin Homes.


    • Ramachandran,

      I haven’t looked at PSU banks. After reading an article on economist [] about PSU banks I would stay away from it.


  26. Hi Jana. Excellent analysis. Thank you very much.

    I have done asset liability mismatch calculation as shown by you for SCUF. I have found huge mismatch till 7 to 10 years.

    I have used Mismatch = Inflows – Outflows ( Inflows = advances + Investments, Outflows =Borrowing + Market borrowings)

    Please find values as mentioned below.

    Mismatch -493.21 -41.76 -39.17 -97.21 -160.9 -515.97 -32.42 333.76 757.5 1210.33 1068.5

    Cumulative Mismatch -493.21 -534.97 -574.14 -671.35 -832.25 -1348.22 -1380.64 -1046.88 -289.38 920.95 1989.45

    What can we infer from this.?

    • Figures are for Repco taken from annual report 14-15. Method taken from your other post covering SCUF

    • Bhavan,

      Repco assets are very long term in nature (home loans) and liabilities are medium – long term in nature. This is common in home loan companies unlike SCUF. This means that they need to fund their mismatch with additional borrowings.


  27. Jana, thanks for your wonderful insightful analysis. It seems clear that repcos moat comes from its lean branch model plus customer coverage and more importantly from Low cost customer acquisition through the “loan camps”. This camp sounds very mysterious as I wonder how exactly they source or drum up demand for such camps or walk ins in a Low cost manner that cannot be replicated by larger banks? Or is the efficiency of the bank in conducting the camp ie answering customer questions transparently or so that differentiates it? If this is primarily due to lack of competition in the niche in Tamil Nadu, then seems likely that their marketing costs may go up to substitute for acquisition through these camps? Rgds Varun

  28. Thanks Janav for wonderful analysis. I have this stock since January 2015 and I was surprised why this was not increasing. Now it is clear to me. Good education for me Thanks again.
    This write up increased my conviction but I have lowered my expectations. Its OK for me for this stock.

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