Overall housing finance companies (HFCs) posted decent numbers in the September quarter (Q2FY23). In an earnings review note by domestic brokerage house ICICI Securities, HDFC; Repco It noted that Aavas and HomeFirst’s earnings beat expectations. Only LIC Housing posted disappointing earnings due to a decline in its net interest margin (NIM).
Among stocks, After posting Q2 earnings; The broker expects volatility of over 100 per cent in Repco Home Finance, while Aavas and Home First have fluctuated over 40 per cent.
Repco Home Finance (Repco) submitted PAT. ₹71.2 crore in Q2FY23 – beat expectations. ₹61.3 crores, installment notes. “Encouragingly, the entire revised pool was deferred and while Tier-3 met the revised NPA norms, Tier-3 assets rose just 6.5 percent by 10 bps QoQ. Supported by continued leverage. ₹20 crore from emergency services created in Q1; Debt cost settled at 63 bps. Disbursements exceeded our expectations – up 16 percent QoQ and 54 percent YoY ₹750 crores. Yield on assets improved by 30 bps QoQ to 10.5 percent, supporting 20bps NIM expansion to 4.8 percent,” informed the broker.
The company’s business is currently undervalued – the stock trades below its FY23E book and at 3.4x FY23E earnings, and is available at <0.15x AUM, the broker added. There is a target price. ₹470 for stock; indicating 104 percent upside.
for Home first, The broker has a target price. ₹995 indicates 40 percent.
“The economic momentum seen in H1FY23 has enabled HomeFirst to register over 35% AUM CAGR over FY22-FY4E. We expect the company to deliver stable to moderate decline in spreads and RoAs of 3.8-3.9% with credit cost and 13-14% of RoEs by FY24E. Maintain buy with unchanged target price.” ₹995 (4.25x FY24E book). Key risks: i) Sourcing and collections managed by the front-end team; and ii) high operating costs,” it said.
for Ava, The broker has a target price. ₹2,845 (6.0x FY24E BV), implying a rise of 49 percent. But key risks include competitive pressures on yield and opex, which are weighing on RoA growth.
“Aavas Financiers’ (Aavas) Q2FY23 earnings beat our estimates due to higher assignment income and lower-than-estimated cost of debt. Disbursement pace sustained 23.6 percent YoY and 5.5 percent QoQ AUM growth. Revenue and earnings are expected to compound at >25 percent. CAGR and RoAUMs in FY22-FY24E to sustain at >7.5 percent in FY24E;
However, the installment was downgraded. LIC Housing Finance Revised disappointing earnings from ‘buy’ to ‘add’ and to its target price. ₹From 415 ₹490 earlier. The new target points to a downside of just 12 percent.
“LIC Housing’s erratic NIM behavior makes it difficult to predict its NIM trajectory during the quarter with any reasonable degree of confidence. Q2FY23 was also disappointing. NIM > 70bps QoQ to 1.8 per cent (contrary to growth expectations). A miss. The stock is trading at an inexpensive valuation of 0.7x FY24E P/B, but Due to volatility and lack of flexibility/visibility in earnings,” ICICI said. Key risks include lagging NIM growth and higher stress from the restructured pool.
for HDFCThere is a target price of the installment. ₹3,205, It means 19 percent growth. “We expect NII growth to gain further traction in coming quarters with repricing likely to reap its full potential. Maintain BUY with SoTP target price of Rs3,205 (2.7x to FY24E core mortgage book). Risks: i) NIM growth lagging, ii) Non-individual growth It’s a transition to integration,” he said.
What worked and failed?
The broker also chalked out some notable trends in the operation of HFCs.
Continuous payout and AUM growth momentum: The payout momentum continued in Q2FY23, with players registering a steady rise in payouts in the 5-15 percent range, the broker said. He added that housing loans have seen growth in both the affordable housing sector and high-end real estate. Growth in HDFC’s individual loan book improved to 20 percent YoY on better-than-expected disbursal trend; 36 percent YoY AUM growth at HomeFirst; Aptus 32 percent YoY; Aavas had 24 percent YoY, and encouragingly, Repco also registered 1.7 percent. Notify installment for QoQ progress.
The rate of decline is further assessed quarterly: For Repco, Balance transfer (BT)-out is 12 percent and regular repayments are 6 percent, totaling 18 percent. This is QoQ but down from 22 per cent in Q4FY22, Aavas’ momentum broker said. Out pointed to a monthly reduction of 0.5 percent of AUM openings, while HomeFirst’s BT-out rate was steady at 5.6 percent.
Aggregate stress in Q2FY23 was better managed within delinquency bins.Tier-3 assets are HDFC; LIC Housing, HomeFirst, ICICI reported that QoQ for Aptus and PNB Housing improved while QoQ for Repco and Aavas remained broadly stable.
General provisions as a percentage of mixed AUM trend (QoQ) among players: For Q2FY23, PNB Housing has the highest credit cost of 224bps; followed by LIC Housing at 131 bps; 95 bps on Aptus; 63 bps at Repco; 49 bps on Home First; HDFC has 42 bps and Aavas just 5 bps; .
Compared to the increase in loan interest rates, the rescheduling of loans is slow.: Recent credit enhancements and optimized loan profiles for a few affordable HFCs have helped fund costs to be well managed. HFCs raised rates in Q2FY23 and are planning to raise rates in Q3FY23 as well. However, The rise in quantum is not directly proportional to the repo rate, the broker explained. Aavas increased its prime lending rate (PLR) by 75bps in H1FY23 and by another 50bps on 5th Oct’22. Aptus has yet to raise its lending rates. HDFC has increased its benchmark lending by 50bps wef 1st Oct’22 in addition to the rate hikes made in H1FY23. HomeFirst raised PLR by 25 bps in Q2FY23 and is considering a further 50 bps hike in Q3 or Q4. LICHF further raised PLR to 115bps from 60bps on July 22. It informed that Repco raised its lending rate by 35bps in Q2FY23.
Opex for assets saw A continuous uptick: Opex trend is Aavas; HomeFirst and Aptus are much the same for affordable HFCs, which have seen a 30-45 percent YoY rise. Repco LIC Housing and HDFC saw a rise of 10-20 percent YoY, while LIC Housing was the only outlier with a 5 percent YoY decline in opex, the broker said.
Disclaimer: The above opinions and recommendations are not those of MintGenie, but of individual reviewers or brokerage firms.
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