Spotting a multi-year growth opportunity for affordable housing finance companies, domestic brokerage firm Nirmal Bang has initiated coverage on Home First Finance Company (HFFC) and Aavas Financiers.
HFFC gets a ‘buy’ recommendation with a target price of Rs 1,150 while Aavas has a ‘buy’ recommendation with a target price of Rs 1,775. The firm foresees an upside potential of 30.5% for HFFC from its closing price of Rs 881.10, while it expects an upside potential of 14% from its current price of Rs 1,545 for Aavas.
Aavas Financiers, which is also due to report its quarterly results later this week, has reported a 13% gain in the past one month. However, it has reported a 12% decline for the last one year. HFFC, on the other hand, has gained 23% in the last year, while increasing 4% in the last month.
Despite the backdrop of India's housing market grappling with a significant shortage of affordable housing options, the outlook for affordable housing finance companies (AHFC) remains positive, according to a report by Nirmal Bang.
AHFCs with a geographically diversified portfolio, a deep distribution focus, a niche customer segment, and a granular underwriting model are considered best-positioned to capitalize on this opportunity, the brokerage said.
“Factors such as rising urbanization, increasing per capita income, government initiatives and low mortgage penetration, adds the broking firm, a substantial opportunity for growth can be seen,” the report suggests.
However, the report states concerns that the sector faces its share of challenges, including rising competitive intensity, near-term compression of spreads, and elevated operational expenses. Additionally, AHFCs have experienced a de-rating due to supply overhang, particularly stemming from stake sales by private equity funds.
The housing shortage and low mortgage penetration in India underscore the pressing need for affordable housing solutions, presenting AHFCs with a compelling growth opportunity. As these companies navigate challenges and capitalize on favourable market dynamics, investors may find potential in the promising future of India's affordable housing finance sector.
