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Housing finance firms a big story, and investors are loving it

The segment has already brought out many multibaggers over the past 5-10 years.

Updated: Apr 19, 2018, 09.58 PM IST
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The segment has already brought out many multibaggers over the past 5-10 years.
Housing finance companies never had it so good. Supportive policy framework and more disposable income are creating a perfect mix for them. And investors are in a state of awe.

The segment has already brought out many multibaggers over the past 5-10 years. Still, analysts give a big thumbs-up to HFCs, considering the promise the sector shows.

Let's check the factsheet. Indiabulls Housing Finance has surged nearly 350 per cent since its listing on July 23, 2013.

Except some private lenders, housing finance companies have delivered far superior returns compared with banks. For instance, share price of Dewan Housing Finance jumped over 550 per cent during April 9, 2013, and April 9 this year. Repco Home Finance, LIC Housing Finance and HDFC soared 140-260 per cent during the same period. On the other hand, IndusInd Bank, YES Bank, Kotak Mahindra Bank, HDFC Bank, Federal Bank and Axis Bank rallied anywhere between 100-380 per cent.

During the last five years, players such as Indiabulls Housing Finance, PNB Housing Finance and Dewan Housing Finance have grown much above the sector average, translating into market share gains. However, HDFC has retained its market edge in housing loans despite competition from banks and other HFCs.

Continued policy initiatives with focus on affordable housing, supportive demographics in terms of a growing working age population and urbanisation are all giving the housing industry a leg to stand on.

Mahesh Nandurkar, India Strategist, CLSA, in a chat with ETNow said, “We continue to like housing finance companies (HFCs) because we feel that the housing market is at its bottom and the only way it can move from here is on the upside and the housing finance companies will be one of the key beneficiaries. So, in the financial space, I would go with some of the high-quality NBFCs, specifically on the housing side, and private retail banks.”

The space is dominated by lenders such as SBI, ICICI Bank, Axis Bank and a handful of HFCs like HDFC, LIC Housing, Indiabulls Housing and Dewan Housing. These players accounted for 56 per cent of total housing loans in India.

A report by SBICAP Securities showed that the mortgage to GDP ratio, a widely used metrics to map mortgage penetration, reveals that the Indian mortgage market is still under-penetrated in comparison to global peers. The brokerage house expects the ratio to improve to 12 per cent by 2022 from 9.40 per cent in FY17. Not just that, the market share is seen to go up for these HFCs on the back of incrementally faster growth rates.

Their market share also offers a tell-all picture. It has improved significantly compared with the overall banking sector over the past 10 years till FY17.

Even housing loans are in the pink of health. Outstanding housing loan stood at Rs 14 lakh crore as of FY17, which were serviced by all major players. Banks -- both public and private -- disbursed around 60 per cent of housing loans, with State Bank of India leading the pack.

Talking about growth, HFC loan to individual portfolio has grown at a CAGR of 22 per cent over FY12-17 while the corresponding figure for Scheduled Commercial Banks (SCBs) came in at 17 per cent, leading to sectoral home loan portfolio growing at 19 per cent per annum, the SBICAP Securities report showed.

Of late, Housing Development Finance Corporation, India’s largest mortgage financier, has raised its benchmark prime lending rate (PLR) for the first time since December 2013, marking a shift in the interest rate trajectory.

“This hike in PLR will help us maintain our margins in the 2.20 per cent to 2.35 per cent range, which has been our historic average for more than 10 years,” according to a report by The Economic Times quoting HDFC CEO Keki Mistry.

SBICAP Securities has initiated a coverage on Indiabulls Housing Finance with ‘Buy’ rating with a target price of Rs 1,600. It also has buy call on Dewan Housing Finance (target price Rs 820), PNB Housing Finance (Rs 1,500) and LIC Housing Finance (Rs 685). However, it has ‘Hold’ on HDFC and REPCO Home Finance with a target price of Rs 1,920 and Rs 660.

Table 1 (3)

Investec recently initiated coverage on PNB Housing Finance with ‘Buy’ rating and set a target price of Rs 1,600. It held that the business of PNB Housing Finance is highly scalable with reasonable return ratios. “Growth to drive return on equity (RoE) would expand to 18 per cent by FY20,” Investec stated.
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