Repco Home Finance targets faster FY27 loan growth as margins face near-term pressure

Investment View and Valuation

Motilal Oswal Financial Services retained its Neutral rating and Rs 415 target price for Repco Home Finance in its August 12, 2026 results update. The broker viewed 1QFY27 earnings as in line, supported by better cost control, but noted muted new-business momentum, softer lending yields and higher-than-expected credit costs.

The target price is based on 0.5 times FY28E book value per share. At the prevailing price of Rs 367, Repco traded at about 0.5 times FY27E price-to-book.

1QFY27 Financial Performance

Repco Home Finance reported 1QFY27 PAT of Rs 1.14 billion, up about 6 per cent year on year and in line with Motilal Oswal’s estimate. Net interest income rose about 13 per cent year on year to about Rs 2.1 billion, also in line with the broker’s estimate.

Other income declined about 27 per cent year on year to Rs 110 million, around 8 per cent below estimate. Operating expenses rose about 12 per cent year on year to Rs 592 million, but were around 12 per cent below estimate. This drove pre-provision operating profit growth of about 10 per cent to Rs 1.6 billion, around 9 per cent above estimate. Credit costs were Rs 97 million, higher than estimated and equivalent to annualised credit costs of 25 basis points.

Disbursement and AUM Growth Outlook

Disbursements increased only about 2 per cent year on year to Rs 8.4 billion in 1QFY27. The loan book grew about 9 per cent year on year and 0.7 per cent sequentially to about Rs 160 billion.

Management attributed the weak quarterly disbursement performance to employee transfers and promotions during April and May, which temporarily disrupted business activity. The organisational changes are now largely settled, with encouraging business trends in June and July 2026 and August progressing as expected. Management retained its FY27 disbursement target of about Rs 50 billion and aims for 13-14 per cent AUM growth.

Repco’s growth plan involves deeper penetration outside its core markets, particularly Karnataka, Telangana and Andhra Pradesh, while building teams in Maharashtra, Rajasthan, Gujarat and Madhya Pradesh. The company plans to add 12-13 branches in FY27.

• Wider sourcing through DSAs, DSTs and connectors.
• Improved operating efficiency and faster processing to lift originations.
• Meaningful traction from newer markets during FY27-FY28.

Motilal Oswal considers the sourcing, efficiency and expansion initiatives positive, but identifies execution in newer markets and delivery of the 13-14 per cent AUM growth goal as key monitorables.

Margins and Lending Yield Outlook

Margins weakened during the quarter. Reported loan yields declined about 30 basis points sequentially to about 11.7 per cent, while the cost of borrowings declined 10 basis points to about 8.3 per cent. Spreads fell 20 basis points to about 3.4 per cent, and reported net interest margin contracted 10 basis points to 5.4 per cent.

The broker expects Repco to accept some yield compression and a roughly 10-basis-point near-term decline in spreads to retain quality customers and accelerate growth. It forecasts net interest margin of 4.9-5.0 per cent in FY27E-FY28E, with borrowing costs broadly stable due to NHB funding and cost-reduction efforts.

Asset Quality and Credit Costs

Asset quality showed mild deterioration. Gross Stage 3 increased about 10 basis points sequentially to about 2.7 per cent, net Stage 3 rose about 5 basis points to about 1.25 per cent, Stage 2 increased to about 7.2 per cent and Stage 3 provision coverage declined to about 54.5 per cent.

Management targets gross Stage 3 below 2 per cent by March 2027. It has strengthened recoveries through tighter monitoring, revised agency structures, follow-ups, legal action and SARFAESI.

The April 2022 onwards book had healthier asset quality, with Stage 2 at 4.3 per cent and Stage 3 at 1.1 per cent. Motilal Oswal expects benign credit costs of about 2 basis points in FY27E and 20 basis points in FY28E.

Earnings Estimates and Key Monitorables

Motilal Oswal raised its FY27E PAT estimate by about 4 per cent, primarily reflecting lower operating expenses, while FY28E PAT was reduced about 1 per cent. The broker forecasts loan and PAT CAGR of about 12 per cent and 5 per cent, respectively, over FY26-FY28E. It estimates FY28E return on assets and return on equity at 2.6 per cent and 11 per cent, respectively.

The broker’s central thesis depends on internal reorganisation translating into sustained disbursement and AUM growth without materially undermining spreads or asset-quality discipline. Key monitorables include execution in newer markets, delivery of the 13-14 per cent AUM growth goal, the FY27 disbursement target of about Rs 50 billion, margin resilience and progress towards reducing gross Stage 3 below 2 per cent by March 2027.