LIC Housing Fin, other home loan stocks may rally 20%; Jefferies initiates coverage, check buy, sell ratings

Reasonable affordability, preference for home-ownership post Covid and low mortgage penetration (11% of GDP) should drive housing demand, Jefferies India said in a note

Aavas Financiers, Aptus Value Housing Finance India, Can Fin Homes, LIC Housing
Jefferies India has initiated coverage on Aavas Financiers, Aptus Value Housing Finance India, and Can Fin Homes with a ‘buy’ rating. Image: Reuters

Reasonable affordability, preference for home-ownership post Covid and low mortgage penetration (11% of GDP) should drive housing demand, Jefferies India said in a note, initiating coverage on select stocks in the sector. The research firm noted that under-penetration should drive 13 per cent CAGR in housing loans, and 17 per cent loan CAGR at smaller HFCs targeting affordable housing over FY22-25. “Demand is holding-up well despite the government discontinuing the CLSS scheme. Affordable HFCs (AHFC) are growing fast by leveraging improved funding, deeper network & underwriting capabilities,” the research firm added.

Jefferies India has initiated coverage on Aavas Financiers, Aptus Value Housing Finance India, and Can Fin Homes with a ‘buy’ rating. It sees better value at LIC Housing Finance; among affordable HFCs, it prefers Aavas Financiers, given its deep network and a strong asset quality track record.

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Can Fin Homes

BUY | Target Price: Rs 730 | Upside potential: 19.6%

Analysts say that healthy loan growth, strong asset quality will offset lower spreads due to higher CP mix and drive 15% EPS CAGR, 16% ROE over FY22-25e. Wider audit related overhang should recede as limited irregularities were found, they added. “Our PT of Rs730 is based on GGM implied 2.2x June 24e BV,” Jefferies India noted.

Aavas Financiers

BUY | Target price: Rs 2,850 | Upside potential: 19.6%

Jefferies India noted that with a branch-intensive model, Aavas has managed asset quality better than peers through Covid. It believes that loan growth should stay strong, and it’s lower than peer home loan rates will allow it to defend spreads better than peers. “Its deep franchise and healthy returns should support premium valuations. Our PT of Rs2,850 is based on Gordon growth model (GGM) implied 5.7x June 24e BV, tad above historical avg.,” the report added.

LIC Housing Finance

BUY | Target price: Rs 450 | Upside potential: 14.3%

Jefferies India, in a note, said that steady loan growth, resilient spreads due to 53% fixed liabilities vs 95% floating rate loans, lower credit costs due to stabilizing asset quality will drive 25% EPS CAGR & 14% ROE over FY22-25e. At 0.7x FY23 BV, valuations seem cheap & should re-rate as incremental spreads improve. “We set our PT at 0.8x June 24e BV (1.1x P/ABV), at 20% discount to 3 yr avg P/B, reflecting risk of some slippages in its restructured book. We expect further rerating if the restructured book holds up,” it said.

Aptus Value Housing Finance India

BUY | Target price: Rs 330 | Upside potential: 13%

Analysts said that Aptus’ concentrated affordable housing franchise should drive strong loan growth, which despite some margin pressure should drive 20% profit CAGR and 6%+ RoA over FY22-25e. “Our PT of Rs 330 is based on GGM implied 4x June 24e BV,” they added.

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