IGI Logo

We initiate coverage on Indian Housing Finance with a constructive stance, on structural, demographic, and operational tailwinds. Our investment case rests on 3 themes we believe are structural vs cyclical: i) highly underpenetrated mortgage market with long credit growth runway; ii) urbanization and policy creating first-time homebuyer demand at scale; iii) resilient, secured business models with asset mix strategy and operational efficiency softening yield compression and helping sustain strong profitability. HFCs offer the cleanest exposure to such expansion. Bank competition in Prime segment is intensifying, but specialized HFCs operate in niches where incumbency, origination depth, and underwriting expertise create defensible franchises. We initiate (Jun-27E TP) with BUY on PNB Housing (Rs1,400), Home First (Rs1,400), Aptus Value (Rs360), and Aadhar Housing (Rs600); and ADD on Aavas Financiers (Rs1,600), Bajaj Housing (Rs90), Can Fin Homes (Rs1,000), and LIC Housing (Rs580).

Demography, underpenetration, urbanization, etc provide long growth runway

At ~12% mortgage-to-GDP, India is among the most underpenetrated housing finance markets globally. Rapid urbanization generates first-time homebuyer demand at scale, with transition of myriad households to the formal credit ecosystem. The majority still rely on informal channels or savings, with formal credit largely inaccessible outside urban centers/salaried employment. HFCs are uniquely placed to bridge this gap, with ability to underwrite thin-file and informal-income borrowers that banks structurally struggle to finance. Rising incomes, expanding financial infrastructure, and sustained government commitment to housing (social priority) create a durable, non-cyclical growth runway.

Universal Housing all about scale and stability; Affordable about profitability

Universal Housing focuses on building scale with stability via a diversified approach to products, geography, customers; but the biggest prerequisite is a top-notch credit rating and a strong promoter that ensure competitive COF from diversified sources. By design, Universal Housing will see moderate ROA and, with higher leverage, deliver a respectable ROE. Affordable Housing aims to build moat in the focused product, customer, geographic segments – the specialized approach allows higher returns, but scaling up business AUM past Rs250-300bn is challenging. The real franchise value for HFCs lies in A-Housing and LAP segments where specialist underwriting commands meaningful yields and borrower stickiness is strong; prime housing has become a COF game. Even prime-focused HFCs are increasingly pivoting toward Affordable and near-prime segments to safeguard blended yields. Finally, Housing as an asset class carries intrinsic behavioral advantage: borrowers prioritize home loan repayments above all else, resulting in credit losses that are structurally lower and more predictable than in any other retail lending segment.

After past years’ underperformance, shares are now affordable and attractive Adverse interest-rate cycle, policy/regulatory changes, expensive valuation, and playerspecific issues all led to HFCs’ shares underperforming NBFC peers’ in last 1-2Y. Valuation correction, likely stable interest-rate cycle, addressing management/promoter issues, and policy actions aimed for sector growth, placing HFC stocks at favorable risk-reward, with stable growth and high-quality secured lending business available at an attractive price. Based on the risk-reward proposition (reflected in growth, profitability, and valuation), PNBHOUSING and APTUS are our favored picks. Also, we like HOMEFIRST and AADHAR for their well-established and proven high-growth profitable models.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354