In This Article:
Repco Home Finance Limited (NSE:REPCOHOME), a ₹25.0b small-cap, operates in the financial services industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. Financial services analysts are forecasting for the entire industry, a positive double-digit growth of 29% in the upcoming year , and an enormous growth of 99% over the next couple of years. This rate is larger than the growth rate of the Indian stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Repco Home Finance is a laggard or leader relative to its financial sector peers.
See our latest analysis for Repco Home Finance
What’s the catalyst for Repco Home Finance’s sector growth?
The threat of disintermediation in the consumer finance industry is both real and imminent, taking profits away from traditional incumbent financial institutions. Over the past year, the industry saw growth in the thirties, beating the Indian market growth of 22%. Repco Home Finance lags the pack with its lower growth rate of 15% over the past year, which indicates the company has been growing at a slower pace than its consumer finance peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with Repco Home Finance poised to deliver a 14% growth compared to the industry average growth rate of 29%. As an industry laggard, Repco Home Finance may be a cheaper stock relative to its peers.
Is Repco Home Finance and the sector relatively cheap?
The consumer finance industry is trading at a PE ratio of 20.73x, relatively similar to the rest of the Indian stock market PE of 17.18x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 6.5% compared to the market’s 9.3%, potentially indicative of past headwinds. On the stock-level, Repco Home Finance is trading at a lower PE ratio of 11.62x, making it cheaper than the average consumer finance stock. In terms of returns, Repco Home Finance generated 16% in the past year, which is 9.5% over the consumer finance sector.
Next Steps:
Repco Home Finance is consumer finance industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, Repco Home Finance is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at Repco Home Finance’s fundamentals in order to build a holistic investment thesis.