One sector that has constantly grabbed the investor attention are stocks from the housing finance sector. Most of these stocks have doubled in value in the last 1 year to 18 months. Valuations of some of them have peaked. However, one stock that is yet to hit the limelight is Reliance Home Finance.
Why Reliance Home Finance Is A Great Stock To Own?
Reliance Home Finance is trading at Rs 91, and hit a 52-week low of Rs 85 on Friday. It was carved out of Reliance Capital, which wanted to list the company to unlock value for shareholders.
Most analysts had predicted the stock to list anywhere between Rs 115 to Rs 135, based on price to book value assumptions. It did get listed at Rs 111, but, has fallen to Rs 92 since, on account of poor sentiments after a group company, RCOM's deal with Aircel did not sail through.
The deal of course is of a group company and should not have any other bearing on other group stocks.
Valuations of Reliance Home Finance are cheap
When compared to peers, Reliance Home Finance is a stock that is very cheap from the fast growing housing finance sector. At an estimated book value of Rs 40, the stock trades at 2.3 times book value. Look at how some other peer compares.
Canfin Homes trades at 5 times, Gruh Finance at near 17 times, while India Bulls Housing, PNB Housing and HDFC trade at 4 times book.
Even in terms of p/e, the stock is not very expensive, especially considering the solid growth potential ahead. The promoters continue to have a very large holding of almost 75 per cent in the company.
Strong growth in loan book seen
The housing finance sector is growing at an average rate of 20 per cent each year, thanks to the solid demand for affordable housing.
This in turn is likely to see a surge in the loan portfolio of the company. Reliance Home Finance is targeting a loan book of Rs 50,000 crores in the next 4-5 years. Currently, Reliance Home Finance has assets under management to the tune of Rs 13,000 crores.
Bulk of the loans are home loans and affordable loans. Loan against property on the other hand also constitute a significant part of the loan book at around 22 per cent.
Other fundamentals of Reliance Home
One key parameter to watch for banks and NBFCs is the non performing assets, which is the amount of loans that have gone bad or not returned by housing loans takers. Here again, this stood at just 0.8 per cent of total advances, which is good.
Net interest margins in the last few years are down a tad bit. With the housing finance sector to grow at a whopping pace in the future, Reliance Home Finance is likely to see profitability moving in line. The stock is not a bad bet at the current price of Rs 92, considering the huge promoter holding as well. Long term stock holders of 2-3 years could see smart gains.
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