Jefferies retains ‘buy’ call on Home First Finance; sees nearly 20% upside – key reasons

On the back of robust September quarter (Q2FY24) results, strong EPS growth expectations, and healthy ROE expansion potential, global brokerage house Jefferies has retained its ‘buy’ call on Home First Finance (HFF) and raised its target price to 1,120.

Pranati Deva
First Published31 Oct 2023, 02:33 PM IST
Jefferies has retained its ‘buy’ call on Home First Finance (HFF).
Jefferies has retained its ‘buy’ call on Home First Finance (HFF).

On the back of robust September quarter (Q2FY24) results, strong EPS growth expectations, and healthy ROE expansion potential, global brokerage house Jefferies has retained its ‘buy’ call on Home First Finance (HFF) and raised its target price to 1,120 from 1,020 earlier. The new target price implies an upside of almost 20 percent.

The stock remains among Jefferies' preferred affordable housing finance (AHFC) picks.

"For Q2FY24, profit grew 37 percent YoY to 74.3 crore, 3 percent ahead of our estimate. Loan growth was strong though balance transfers inched up in Q2. Distribution expansion should continue to drive strong loan growth. It can also gain from a potential renewed interest subsidy scheme. We see some pressure on NIMs, but NII growth should still be healthy. We expect strong EPS growth and ROE expansion to 17 percent over FY23-26E," said the brokerage.

A potential renewed interest subsidy scheme could also be a catalyst as Home First was among the bigger beneficiaries of the earlier interest subsidy scheme, it added.

Earnings

Home First Finance India reported a 37 percent YoY rise in its net profit at 74.3 crore in Q2 as against 54.3 crore in the year-ago period. Meanwhile, its interest income rose 44 percent to 249 crore while total income grew 47 percent to 278 crore.

The lender's asset under management (AUM) rose 33 percent YoY to 8,365 crore with housing loans contributing 87 percent of it.

Its gross non-performing assets ratio came in at 1.7 percent in Q2FY24 versus 1.6 percent in the previous quarter.

Its average NIM fell 16 basis points (bps) QoQ to 7.7 percent (-40bps YoY) while spreads fell 16 bps QoQ to 5.5 percent led by lower yields (-8 bps QoQ) and rise in cost of funds (+8 bps QoQ). Multiple factors including repricing of existing borrowers considering balance transfers, downward repricing of loans as and when NHB funding is received (due to spread cap), and increase in co-lending (lower yielding) likely contributed to a slight dip in yields, noted the brokerage.

In the September quarter, Home First added 7 branches and 13 touch points (295 total touch points). It plans to add 20-30 branches per annum and 100-150 touch points in the next two years to drive growth and deepen distribution in its core states and expand distribution in central and northern states (MP, UP, Rajasthan), Jefferies further informed.

Stock Price Trend

The stock has advanced 28 percent in the last 1 year and over 24 percent in 2023 YTD, giving positive returns in 6 of the 10 months so far this year. The stock has rallied over 12 percent in October so far on the back of strong results for the quarter ended September 2023. Before this, it was in the red in the previous two months September and August, down 3 percent and over 4 percent, respectively.

Earlier this month, the stock hit its 52-week high of 984.80, hit on October 17, 2023, but then consolidated a bit. Currently trading at 936, the stock is still 7 percent away from its record high of 1,004.55, hit in August last year.

Meanwhile, it has jumped over 43 percent from its 52-week low of 652.00, hit on November 14, 2022, and surged 113 percent from its record low of 440.00, hit in April 2021.

Estimates

The brokerage has raised its FY24-26 EPS by 2-4 percent, factoring slightly better loan growth. It sees the firm delivering 33 percent loan CAGR and 27 percent EPS CAGR over FY23-26E, predicted Jefferies.

It also expects ROE to improve to 17 percent over FY24-26E from 13 percent in FY23. HFF trades at 4.0x FY24e BV and 3.4x FY25e BV.

Investment Thesis:

1) The brokerage believes network expansion and strong branch productivity will drive 33 percent loan CAGR over FY23-25e.

2) NII growth should be strong despite some fall in NIMs due to strong loan growth. Average NIMs of 7.3 percent over FY24-26e.

3) Asset quality metrics should improve further driving lower credit costs. GNPA 1.5 percent and NNPA 1 percent in FY24e.

4) It believes EPS growth should be strong and ROE should expand over FY23-25e, supporting its valuation multiples.

Bull and Bear Case Scenarios

In the bull case scenario, the brokerage has a target price of 1,240, implying an upside of over 32 percent. In this, the brokerage assumes: 1) Loan CAGR of 36 percent (over FY23-26e), 2) Average NIMs of 8 percent over FY24-26e, 3) GNPA 1.3 percent and NNPA 0.9 percent in FY24e, and 4) Valuation at 4.0x P/BV Sept 2025.

Meanwhile, in the bear case scenario, the brokerage has a target price of 765, indicating a downside of over 18 percent. In this, Jefferies assumes: 1) Loan CAGR of 30 percent (over FY23-26e), 2) Average NIMs of 6.6 percent over FY24-26e, 3) GNPA 1.7 percent and NNPA 1.3 percent in FY24e, and 4) Valuation at 2.5x P/BV Sept 2025.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.

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First Published:31 Oct 2023, 02:33 PM IST
HomeMarketsStock MarketsJefferies retains ‘buy’ call on Home First Finance; sees nearly 20% upside – key reasons

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