India Shelter’s share price continued to witness strong traction for the second consecutive session as it jumped around 6 percent 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’s share price opened at ₹608.65 against its previous closing of ₹585.60 and soon rose around 5.7 percent to hit the level of ₹618.75. Around 10:15 am, the stock was trading 5.07 percent 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 additional potential of approximately 17 percent.
“We are initiating coverage on India Shelter with a purchase and residual growth model-based (RGM)-based fair value of ₹685 (18 times revenue and 2.4 times FY2026E book),” Kotak said.
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Kotak is optimistic about India Shelter Finance Corporation, a housing finance company that targets the self-employed in smaller cities. The brokerage firm believes that its rapid expansion into new areas will keep its growth high in affordable housing finance.
“India Shelter, with its small base, focuses on self-employed individuals in tier-II and tier-III cities and rapid expansion of footprint is well placed to sustain high growth (33 percent) in affordable housing finance,” Kotak said. .
“High performance in the self-employed/LAP (loan against property) segment drives strong RoAs (return on assets), despite higher (albeit improving) leverage ratios; lower leverage limits RoE (return on equity). The novelty of the setup (lower seasoning and vintage of the management team) drives a lower multiple than peers,” Kotak said.
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Kotak expects India Shelter to deliver 35% CAGR in core earnings over FY2023-27E, driven by AUM growth (33% CAGR) and improvement in operating leverage.
The brokerage firm pointed out sharp growth in branch numbers in FY23 (up 41 percent) led to a murky vintage mix. It expects productivity to improve as branches mature, which may lead to improvement in cost ratios (down to 3.7 percent in FY27E from 4.9 percent in FY2023), reducing the impact of NIM compression.
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Excess capital will keep RoE suppressed at 13-15 percent, even as RoA remains moderate at 3.7-4.1 percent, Kotak said.
The share price of India Shelter 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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Published: 28 Mar 2024, 10:44 IST