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One of the most difficult industry to value is consumer finance, given that they adhere to different rules compared to other companies. For example, businesses that deal with loans are required to hold more capital to reduce the risk to shareholders. Emphasizing line items such as book values, in addition to the return and cost of equity, can be useful for assessing REPCOHOME’s valuation. Today I will show you how to value REPCOHOME in a relatively accurate and straightforward way.

See our latest analysis for Repco Home Finance

What Model Should You Use?

Let’s keep in mind two things – regulation and type of assets. India’s financial regulatory environment is relatively strict. Furthermore, consumer financials usually do not hold significant amounts of physical assets as part of total assets. This means the Excess Returns model is best suited for calculating the intrinsic value of REPCOHOME rather than the traditional discounted cash flow model, which has more emphasis on things like capital expenditure and depreciation.

How Does It Work?

The central assumption for Excess Returns is, the value of the company is how much money it can generate from its current level of equity capital, in excess of the cost of that capital. The returns in excess of cost of equity is called excess returns:

Excess Return Per Share = (Stable Return On Equity – Cost Of Equity) (Book Value Of Equity Per Share)

= (0.16% – 14%) x ₹282.49 = ₹6.87

We use this value to calculate the terminal value of the company, which is how much we expect the company to continue to earn every year, forever. This is a common component of discounted cash flow models:

Terminal Value Per Share = Excess Return Per Share / (Cost of Equity – Expected Growth Rate)

= ₹6.87 / (14% – 7.7%) = ₹118.05

Combining these components gives us REPCOHOME’s intrinsic value per share:

Value Per Share = Book Value of Equity Per Share + Terminal Value Per Share

= ₹282.49 + ₹118.05 = ₹400.53

This results in an intrinsic value of ₹400.53. Relative to the present share price of ₹344, REPCOHOME is , at this time, trading in-line with its true value. This means there’s no real upside in buying REPCOHOME at its current price. Pricing is only one aspect when you’re looking at whether to buy or sell REPCOHOME. There are other important factors to keep in mind when assessing whether REPCOHOME is the right investment in your portfolio.

Next Steps:

For consumer financials, there are three key aspects you should look at:

1. Financial health: Does it have a healthy balance sheet? Take a look at our free bank analysis with six simple checks on things like leverage and risk.

2. Future earnings: What does the market think of REPCOHOME going forward? Our analyst growth expectation chart helps visualize REPCOHOME’s growth potential over the upcoming years.

3. Dividends: Most people buy financial stocks for their healthy and stable dividends. Check out whether REPCOHOME is a dividend Rockstar with our historical and future dividend analysis.