Housing finance cos correct on margin concerns

Shares prices of housing finance companies have been correcting on margin concerns due to rising bond yields.

Jefferies says shares of PNB Housing Finance Ltd posted weekly fall in the last four weeks, while Indiabulls Housing Finance Ltd posted losses in 2 out of the last 4 weeks; both stocks are set to decline this week.

Housing Development Finance Corp Ltd posted weekly losses in two out of four weeks, but looks set to gain this week. LIC Housing Finance Ltd and Dewan Housing Finance Corp Ltd declined in 3 out of 4 weeks, but are on track to gain this week.

With incremental spreads at lows, valuation multiples have likely bottomed, but stabilisation of bond yields and improvement in incremental spreads will be required to drive meaningful re-rating, it says.

With the recent repo rate hike, brokerage expects housing finance firms to raise their lending rates, but they would continue to lag funding cost increase.

Jefferies prefers PNBH as strong loan growth should offset modest spread compression and drive earnings growth; the brokerage has rated the stock at “buy”, and has kept the price target at Rs 1,700.

Spreads are likely bottoming out at LICH and valuations appear attractive, but Jefferies has retained “hold” given limited near-term triggers. Up to Thursday's close, PNBH had fallen 14.2 per cent, while LICH dropped 12.5 per cent this year.

COMMENT NOW