Will home finance firms' dream run continue?

Shares of housing finance companies (HFCs) have rallied sharply in the past one year, on the back of high growth in disbursement and declining costs of capital. The average one-year gain for major mortgage lenders’' scrip is around 50 per cent, as against seven per cent for the benchmark Sensex and 15 per cent for the BSE Bankex.

The counter has been buzzing this week, with Dewan Housing Finance’s (DHFL) strong second quarter results and PNB Housing Finance’s initial public offering of equity’s pricing sparking re-rating expectation. Analysts say the Street will watch the results announcement by HDFC, the segment leader, and the response to the PNB Housing IPO. If both outcomes are positive, HFC prospects would get a boost. Some optimism has already got priced into stocks of LIC Housing Finance, CanFin Homes and GIC Housing, they add.

Experts expect companies focused on smaller cities to benefit more, as housing sector growth in the big ones is slowing. Future earnings are expected to be driven by the growth in tier-II and tier-III centres, they feel. In the HFC pack, analysts are bullish on DHFL, which earlier this week surpassed Street expectations with its September quarter earnings growth.

“DHFL continues to capitalise on its mortgage lending expertise in an under-penetrated market. We expect AUM (assets under management) growth to remain higher than the industry average at 20 per cent. Margins can improve further with rating upgrade and an evolving liability mix. More, the management’s continued commitment to lowering of operating cost should improve investor sentiment and lead to re-rating. Due to its strong performance, we upgrade the FY17/18 EPS (earnings per share) estimates by 10 per cent each. The stock is attractively priced at 1.3 times the FY18 estimated P/B (price to book value) and 7.9 times the P/E (price to earnings), a steep discount to other HFCs,” went a report by brokerage Motilal Oswal. It expects the stock to rise up to Rs 462. The shares closed at Rs 334 on Wednesday, following a two-day gain of 8.4 per cent.

 

LIC Housing, Indiabulls Housing and PNB Housing’s IPO also look attractive on a P/B basis, say analysts.