In my piece of June 2014, I had rightly raised the issue “Why We Need To Grab A Chunk Of Housing Finance Stocks Soon”. I pointed out that there is enormous scope for the housing sector in the wake of NAMO’s “100 cities” and “housing for all” game plan. I also pointed out that all the savvy investors are already sitting pretty on housing finance stocks and that we have to stake our claim as well.
Of course, credit for putting the spotlight on the potential of housing finance companies has to go to Basant Maheshwari. He put a buy on Repco Home Finance in December 2013, when the stock was at Rs. 340. At the CMP of Rs. 544, there is a handsome gain of about 70%.
Basant gave a talk where he said that Repco is a stock that one can “bet one’s house on”. He has also put the stock in his Model Portfolio.
Repco Home Finance appears to be a popular stock amongst savvy investors. Anand Narayan, Sr. MD of Creador, called it “a high quality business that has a great track record and it will continue to perform well”.
Vinay Khattar of Edelweiss also expressed great confidence in the stock and gave detailed reasoning why the stock has to form part of our portfolio.
Shiv Puri of TVF Capital expressed the same sentiments about the housing mortgage sector and Repco in his latest interview.
Repco’s MD, R. Vardarajan, also came on record to explain the company’s business model and the “moat” that it enjoys to keep competitors at bay.
Interestingly, while Mohnish Pabrai is obviously in agreement that the housing sector will boom in the near future, he has not gone with the consensus on the choice of stock. Instead, he has bought 993,558 shares of GIC Housing Finance in the July – September quarter. The holding is worth Rs. 18 crore at the CMP of Rs. 182.
Mohnish’s choice appears to have been dictated by his instincts of a “contrarian” and “value investor”. GIC Housing is a much cheaper stock as compared to Repco Home Finance. While Repco is presently quoting at a high P/BV valuation of 4.20 times, GIC Housing is quoting at a P/BV of 1.49 times. In terms of P/E, Repco is at 29x, while GIC is at 9.4x. GIC Housing Finance also offers a dividend yield of 2.7%. So, GIC HF’s “margin of safety” is much more than Repco, Mohnish must have calculated.
However, the downside with GIC Housing Finance is that it is a quasi-PSU, with the attendant problems. Also Repco has put up a scorching growth pace of sales and profit growth over the past five years at a CAGR of 36% and 34% respectively. In contrast, GIC Housing’s sales and profit have grown at a CAGR of 19% and 21% respectively over the past five years.
FirstCall Research has issued a detailed research report in which it has explained the dynamics of the sector and of GIC HF. FirstCall has advised a buy with a modest target price of Rs. 208.
If you are looking for a housing finance stock, you can also consider LIC Housing Finance (P/BV 2.6), Indiabulls Housing Finance (P/BV 2.4) and Dewan Housing (P/BV 1.3). Rakesh Jhunjhunwala has put his might behind Dewan Housing Finance while Vijay Kedia and Daljeet Kohli have shown confidence in LIC Housing Finance.
ROCE for REPCO is not great…why are people betting in it?
ROE of Repco is not great as it holds a lot of cash(CASA). It would improve overtime as they would deploy that cash in future. If make the Cash component constant then RoR would be more than all others barring the Gruh.
I think if you are taking the 10-15 year view than going with the best always pays..Both Gruh and Repco have highest RoA’s and good loan disbursal processes.
GIC looks great in short term and has around 50% Margin of safety…which is missing in others. Actually others look overvalued in short term.