Global brokerage house Jefferies has initiated coverage on Home First Finance, a housing finance company, with a ‘buy’ call. It has a target price of ₹900 per share on the stock, indicating an upside of 25 percent from its current market price of ₹720 (as on November 18).
The stock has shed 28 percent from its 52-week high of ₹1,004, hit in August this year. It has fallen around 7 percent in the last 1 year and is down 4 percent year-to-date (YTD).
The stock has fallen nearly 4 percent in November so far, extending losses for the third straight month.
However, Jefferies stated that it is positive on housing finance companies (HFCs) that are targeting the affordable housing sector.
The brokerage expects Home First Finance to deliver a 30 percent loan compound annual growth rate (CAGR) over FY22-25e by expanding distribution by 60 percent and leveraging superior productivity. This should drive 28 percent Net Interest Income (NII) CAGR over FY22-25e, despite some Net Interest Margin (NIM) pressure, it noted, adding that the firm's asset quality should improve further, driving lower credit costs. It forecasts an Earnings Per Share (EPS) CAGR of 24 percent and a Return on Equity (ROE) increase to 15 percent over FY22-25e (from 12 percent FY22), driving the re-rating.
"Reasonable affordability, preference for home-ownership post-Covid and low mortgage penetration (11 percent of GDP) should drive housing demand. Penetration is even lower in the affordable housing segment, where shortage can widen to 9 crore plus units by 2030," it explained.
The brokerage believes housing credit demand will stay strong, and loans at affordable HFCs will grow at 17-18 percent CAGR over FY22-25e.
Home First Finance reported a 21 percent YoY growth in its net profit in Q2FY23 at ₹54.3 crore versus ₹45 crore in the year-ago period. Its total income rose 30 percent YoY to ₹189 crore in Q2FY23 from ₹146 crore in the corresponding period last year.
Assets under management (AUM) also jumped 36 percent YoY to ₹6,275 crore in Q2 and disbursements advanced 36 percent YoY to ₹702 crore.
“Key risks include pressure on growth/ NIMs due to balance transfers and higher opex and slippages as it moves into deeper geographies,” added Jefferies
According to a Mintgenie poll, 13 analysts on average have a 'strong buy' call on the stock.