Broking firm sees 51% on Reliance Home Finance; initiates coverage with buy

Citing good capital position, better asset quality, as well as increasing share of low cost sourcing, among others, Sunidhi Securities has initiated coverage on Reliance Home Finance with a buy call and target of Rs 92. This implies an upside of 51 percent from the current price trends.

The brokerage house highlighted that the lending institution has assets under management (AUMs) worth Rs 16,380 crore in ten years and is the seventh largest housing finance company in the listed space. In fact, its AUMs grew at the second fastest pace at 41 percent CAGR over FY15-18.

It also expects the loan book to grow at a healthy CAGR of 34.1 percent over FY18-20. “NIM is estimated to remain healthy at 3.7%, due to 70% of its loan book towards higher yielding self-employed segment,” the brokerage house said in a report.

Going forward, the brokerage also expects better cost to income ratio as well. “This is due to increasing share of in-house sourcing, digital channels and more low cost branches being added. Branch expansion happens at a lower rate as compared to asset growth and productivity levels improve, the cost to income ratio is expected to improve from 42.4% in FY18 to 33.5% in FY20,” the report added.

Sunidhi Securities also highlighted the healthy asset quality of the NBFC. “It has stringent risk management policies in place with proper due diligence of clients during credit appraisal. Its team gets more involved in the collection process once an account reaches 30-60 days bucket,” the report added.

With Reliance Communications’ debt resolution finally happening, the sentimental impact on the company’s valuations should fade away, it said, adding that the firm should enjoy valuations at par or better than other HFCs due to its robust growth prospects ahead.