India Shelter share price jumps 5% after Kotak initiates coverage on stock with a buy call

India Shelter share price continued witnessing strong traction for the second consecutive session as it jumped about 6 per cent in morning trade on BSE on Thursday, March 28, after brokerage firm Kotak Institutional Equities (Kotak Securities) initiated coverage on the stock with a buy recommendation. India Shelter share price opened at ₹608.65 against its previous close of ₹585.60 and soon rose about 5.7 per cent to hit the level of ₹618.75. Around 10:15 am, the stock traded 5.07 per cent higher at ₹615.30.

Kotak initiated coverage on the stock with a buy call, with a residual growth model-based fair value (target price) of ₹685, implying an upside potential of about 17 per cent.

"We initiate coverage on India Shelter with a buy and residual growth model-based (RGM)-based fair value of ₹685 (18 times earnings and 2.4 times book FY2026E)," Kotak said.

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Kotak is optimistic about India Shelter Finance Corporation, a housing finance company that targets self-employed people in smaller cities. The brokerage firm believes its quick expansion into new areas will keep its growth high in affordable housing finance.

"India Shelter, with its small base, focus on self-employed individuals in tier-II and tier-III cities and rapid footprint expansion is well-placed for sustaining high growth (33 per cent) in affordable housing finance," Kotak said.

"High yield in the self-employed/LAP (loan against property) segment drives strong RoAs (return on assets), despite higher (though improving) opex ratios; lower leverage constrains RoE (return on equity). The newness of the setup (lower seasoning and vintage of the management team) drives a lower multiple than peers," said Kotak.

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Kotak expects India Shelter to deliver 35 per cent CAGR in core earnings over FY2023-27E, driven by AUM growth (33 per cent CAGR) and improving operating leverage.

The brokerage firm underscored a sharp increase in branch count in FY23 (up 41 per cent) has led to a skewed vintage mix. It expects productivity to improve as branches mature which may lead to improvement in cost ratios (down to 3.7 per cent by FY27E from 4.9 per cent in FY2023), reducing the impact of NIM compression.

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Excess capital will keep RoE suppressed at 13-15 per cent, even as RoA remains moderate to 3.7-4.1 per cent, said Kotak.

India Shelter share price hit its 52-week low of ₹519 on December 28, 2023 and a 52-week high of ₹723 on February 2, 2024 on BSE.

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