135% upside target! Is this smallcap stock a multibagger in making?

The stock is undervalued, said ICICI Securities, which has a price target of Rs 563. Though a decline from the Rs 650 target that ICICI Securities had set for the stock earlier, this target suggests a strong 135 per cent upside over Thursday’s price. The scrip was trading flat at Rs 237.95 on BSE.

“The company’s business franchise is currently undervalued, with the stock trading below FY23 book and 5 times earnings, and is available at less than 0.2 times Repco’s assets under management,” ICICI Securities said.

The domestic brokerage said Repco’s new CEO is likely to join the HFC with effect from April and, thus, growth strategy and business initiatives will be watched out closely, as those would set the stage for earnings momentum.

The company’s third quarter results were disappointing, with profit plunging 60 per cent to Rs 31.47 crore. Loan growth continues to remain muted, led by Repco’s inability to improve its disbursement levels and stem the elevated levels of balance transfers. Net interest margin moderated to 5 per cent in December quarter from 5.2 per cent in September quarter. Gross non-performing assets spiked 270 basis points sequentially.

“At this juncture, it will be important to understand the strategy of the new CEO, who is expected to come on board later soon, and monitor the company’s action plan for improving asset quality. The company has guided for a decline in gross Stage 3 NPAs to less than 4 per cent by March. We cut FY22 PAT estimates by 22 per cent to factor in lower loan growth and a compression in margin,” Motilal Oswal said.

The brokerage, however, said the risk-to-reward ratio is favorable at a valuation of 0.5 times FY24 P/BV as a franchise in its current form or even as a potential acquisition target.

Motilal has a target of Rs 370 on the stock, valuing the HFC at 0.7 times FY24 book value.

K Swaminathan has around 35 years of experience in the field of banking. But any constructive changes would only gradually manifest in business outcomes, said YES Securities.

“Low valuation (0.6 times FY24 P/ABV) and healthy base profitability (2 per cent plus RoA) protects meaningful downside, but growth visibility is must for re-rating,” it said while suggesting a target of Rs 310 on the stock.