Jefferies Expects Strong Profit Growth For Affordable Home Financiers
Jefferies expects loan growth at affordable housing finance companies to stay strong and grow at 19-20% CAGR over FY23-26.
Jefferies expects strong profit growth for affordable housing financiers driven by strong loan growth over the next three years.
"Loan growth at affordable housing finance companies stays strong and should grow at 19-20% CAGR over fiscal 2023-26," the brokerage said in an investor note dated March 5.
It pointed out that net interest margins have held up well and could take a tad longer to bottom. But profit growth should be strong for these companies, the brokerage added.
The brokerage expects the net interest margins to ease slowly. However, net interest income should still grow at a 22-26% CAGR over fiscal 2023–2026, Jefferies said.
Among affordable housing finance companies, a few larger ones, such as Aavas Financiers Ltd., Aptus Value Housing Finance Ltd., and Home First Finance Company India Ltd., are growing faster and gaining share, Jefferies said.
The expected loan growth of 19–20% will support a 23–31% loan CAGR over fiscal 2023–2026, it said. Growth should get a boost as operating expenses moderate from their current elevated levels for Aavas, the brokerage said.
Higher Rates For Affordable Vs Large HFCs
Higher rates are not a major headwind for affordable housing finance companies as housing loan rate hikes have been much lower, at 50 to 160 basis points, as compared to large housing financiers, the brokerage said.
Few of the large housing financiers have witnessed a slight moderation in home loan demand due to the higher rates.
Improvement In Asset Quality
The brokerage sees marked improvements in asset quality for housing finance companies as well as affordable housing finance companies. "Stage 3 assets and softer bucket delinquencies have improved for HFCs and AHFCs," it said. Stage 3 assets refer to loan accounts where repayment has been overdue for more than 90 days.
However, Jefferies flagged the possibility of some slippages from restructured books at large housing finance companies as they come out of moratorium.
Among affordable housing financiers, asset quality trends are improving too, the brokerage said. "We expect credit costs to be broadly stable across FY23–26," it said.
Top Picks
Jefferies, while keeping a positive stance on the sector, said that larger housing finance companies such as LIC Housing Finance Ltd. and Can Fin Homes Ltd. should see better margins as rates stabilise.
Net interest margins at Can Fin should bottom out and could surprise positively after rates stabilise due to lagged repricing of its loans, added Jefferies.
It maintains a 'buy' rating on both LIC Housing and Can Fin, with price targets of Rs 358.85 and Rs 563.40 apiece, respectively.
Among the affordable housing financiers, the brokerage prefers Aavas as its margins are likely to hold up better compared to its peers. "Potential moderation in opex intensity at Aavas in 2HFY24 should also lift profit growth and drive rerating."
Citing a potential earnings growth of 21-23% CAGR over fiscal 2023–2025, Jefferies justified its positive stance on affordable housing financial companies.
It kept 'buy' rating for Aavas with a price target of Rs 1,826.95. The brokerage maintained a 'buy' call for both Aptus and Home First with target prices of Rs 236.60 and Rs 746.70 per share.
The consumer finance segment has underperformed and valuation comfort is better, it said.
