The Growing Phase of Housing Finance Companies Stocks in India 2023
Introduction
In recent years, the housing finance sector in India has experienced significant growth and development. Despite facing challenges in terms of asset quality during the COVID-19 pandemic, many housing finance companies have emerged successfully. Additionally, the current interest rate cycle in India is at its peak, and it is expected to decrease in the coming quarters. This reduction in interest rates is anticipated to benefit housing finance companies even further.
The Structural Tailwind in the Indian Housing Finance Sector
The housing finance sector in India has one of the lowest mortgage to GDP ratios in the world, standing at only 11 percent. This ratio represents the percentage of home loans in relation to the total GDP. Comparatively, the mortgage to GDP ratio is 67 percent in the United States and 90 percent in the United Kingdom. Outside of the top 100 cities in India, the mortgage to GDP ratio is a mere three percent.
Considering that a significant portion of India’s population still resides in small towns and villages, there is a tremendous opportunity for companies in the affordable housing finance sector. These companies cater to the low and middle-income sectors in semi-urban and rural areas. As India’s rural and middle-class populations prosper, the demand for affordable housing is expected to increase substantially.
Promising Companies in the Affordable Housing Finance Sector
Three companies stand out in the affordable housing finance sector: Home First, Avas Financials, and Aptus Value Housing.
Home First
Established in 2010, Home First began its affordable housing business in Gujarat and Tamil Nadu. The company focuses on addressing the challenges of tediously lengthy documentation and time-consuming loan sanctioning processes. Home First leverages technology to simplify and expedite lending procedures, offering home loans within 48 hours. Over the past 13 years, Home First has experienced exponential growth, with assets under management (AUM) increasing from 2 crore to 7198 crore. The company’s market cap currently stands at around 7000 crore rupees.
Home First boasts a strong leadership team, including founding members such as Rao, who holds a master’s degree from IIM Ahmedabad and the University of Chicago. Another key founder is P.S Jay Kumar, a former MD and CEO of Bank of Baroda. Lastly, Manoj Vishwanathan, the managing director and CEO of Home First Finance Company, has played a vital role in building the branch-based consumer lending model for Citigroup in India.
Avas Financials
Established in 2011 as a subsidiary of EU Small Finance, Avas Financials focuses on technology as its core strength. The company strives to sanction loans within 10 to 12 days, with plans to reduce turnaround time to 6-7 days. Over the past 12 years, Avas Financials has grown its AUM from 120 crore to 14,170 crore, commanding a market cap of around 12,000 crore rupees. Avas Financials has recently undergone a leadership transition, with Sachin Darbinder taking over as MD and CEO.
Aptus Value Housing
Founded in 2010 in Chennai, Aptus Value Housing primarily operates in South India, particularly Tamil Nadu and Andhra Pradesh. The company has experienced remarkable growth, with AUM increasing from 29 crore to 6,738 crore in the last five years. Aptus Value Housing commands a market cap of around 13,000 crore rupees. Mr. M. Anandan, a member of the Institute of Chartered Accountants of India, founded the company and currently serves as its executive chairman.
Comparative Analysis
Now, let’s conduct a comparative analysis of these three companies based on various parameters:
Geographical Presence
Home First is predominantly present in Gujarat, Maharashtra, and Tamil Nadu, with a significant portion of its business originating from these states. Avas Financials has a strong foothold in Rajasthan, Maharashtra, and Gujarat. Aptus Value Housing focuses mainly on Tamil Nadu and Andhra Pradesh.
Financials
In terms of assets under management (AUM) growth over the past four years, both Home First and Aptus Value Housing have outperformed Avas Financials. However, Avas Financials has a higher AUM in absolute terms. When it comes to loan growth, all three companies have shown similar rates of growth.
Yield, Cost of Borrowing, and Spread
Home First and Avas Financials have comparable portfolio yields, while Aptus Value Housing boasts a higher portfolio yield due to its diversified business model. The cost of borrowing is similar for Home First and Avas Financials, but slightly higher for Aptus Value Housing. In terms of net interest margin, Aptus Value Housing has a significantly higher margin compared to the other two companies.
Return on Equity (ROE) and Return on Assets (ROA)
Aptus Value Housing leads in terms of both ROE and ROA, indicating its efficient utilization of resources. While Home First and Avas Financials have slightly lower ROE and ROA, they still maintain respectable figures.
Asset Quality
Avas Financials has the lowest gross and net non-performing asset (NPA) ratios among the three companies, indicating its superior asset quality. Home First and Aptus Value Housing have higher NPA ratios, albeit still under control.
Valuation
All three companies have similar valuations, with Home First and Aptus Value Housing having identical price-to-book (P/B) ratios. Avas Financials has a slightly lower P/B ratio, indicating potentially attractive investment opportunities.
Conclusion
Selecting the best housing finance company among Home First, Avas Financials, and Aptus Value Housing is no easy task. Each company has its strengths and unique offerings within the affordable housing finance sector. However, based on the comparative analysis, Home First and Avas Financials appear to be better positioned due to their lower cost of borrowing and focused presence in key states. Aptus Value Housing, while showing exceptional growth, should be monitored closely to assess its ability to maintain a higher yield and expand its presence in northern India.
Investing in housing finance companies requires careful consideration and research. This blog serves as educational content and should not be considered as stock advice.
Disclaimer: The information is only for information purpose only. It is always recommended to consult with certified financial experts before making any investment decisions. Follow busymoneyfreak.com