NAMO’s Budget may or may not have brought cheer to a lot of people. However, investors in housing finance companies are definitely cheering the Budget.
Since the Budget, stocks like Repco Home Finance, LIC Housing Finance, DHFL, IndiaBulls etc have notched up impressive gains because savvy investors are making a beeline for them.
The reason for the sudden interest in housing finance companies is because Finance Minister Arun Jaitley has showered heavy incentives upon the sector as a step towards the affordable housing programme of the Government.
First-time home buyers will get deduction of additional interest up to Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned in 2016-17, where the cost of the house does not exceed Rs 50 lakh.
ET has analyzed the situation minutely and also got leading experts to opine on the prospects for the sector in the foreseeable future.
Parag Thakkar of HDFC Securities was quoted as saying that if a taxpayer takes a loan of Rs 12 lakh and pays interest of Rs 1,40,000 to a NBFC, he gets a Rs 50,000 rebate. Effectively, his net interest cost comes down from 12 per cent to 8 per cent. Therefore, NBFCs financing affordable housing will do very well, he said.
Haitong Securities pointed out that housing finance is a relatively risk-free sector with low NPAs because borrowers are wary of defaulting and losing the roof over their heads.
ET collated the advice of eminent experts like Prabhat Awasthi of Nomura, Deven Choksey, Rahul Shah of Motial Oswal Financial Services and Parag Thakkar of HDFC Securities. The experts are unanimous that the sector is bound to do well. The impending cut in the interest rates will be the icing on the cake, they said.
The favourite stocks of the experts are the usual suspects like HDFC, DHFL, LIC Housing, Can Fin Home Finance and Repco Home Finance.
Rakesh Jhunjhunwala, the Badshah of Dalal Street is known to be partial to DHFL. He has spoken at length about how he bought a truckload of the DHFL stock without a second’s thought because its valuations were then so compelling.
The experts interviewed by ET pointed out that while it is difficult for Dewan Housing to raise its RoE from 16-17 per cent currently; even at this level, it deserves to trade at higher valuations than the current FY17 price-to-book value of 0.7 times and FY17 price-to-earnings of 5.0 times. The stock offers significant upside is the view.
Can Fin Home Finance has also come in for praise from the experts on the basis that the company is growing at 30 per cent year-on-year with good RoE and NPA. The valuations, at two-times book value on forward earnings, is reasonable the expert opined.
Basant Maheshwari’s favourite stock is known is known to be Repco Home Finance.
Parag Thakkar of HDFC Securities put the spot light on Repco on the basis that it is growing at 25-30 per cent CAGR. Though the stock is expensive at three times FY2018 earnings, the pedigree of the management and its growth prospects make the stock a must-buy the expert opined.
Meanwhile, Basant deserves a pat on his back for his confident assertion that Housing Finance NBFCs Are A “Blind Buy”!