Chola Securities
RHome Finance (Buy)
CMP: ₹65.05
Target: ₹91
Reliance Home Finance’s loan book grew by 26 per cent y-o-y to ₹15,640 crore (lower than CSEC’s estimate of 47 per cent). However, the book declined by 4.5 per cent sequentially. Growth in AUM came predominantly from construction finance and individual loans segments which grew by 25 per cent and 21 per cent y-o-y respectively. The management expects its AUM to grow by 45 per cent CAGR over FY19-21E.
Asset quality remained intact, with the reported GNPAs at a healthy 0.8 per cent (same levels as FY18) and NNPA at 0.63 per cent. PCR (GS-3) stood at 23 per cent up from 19 per cent in 1QFY18. With focus on small ticket lending, and strict policy measures (with respect to credit appraisal) in place, the management expects NPAs to remain at current levels.
Valuation: The stock is currently trading at around 1.4X P/ABV and 6X P/E of FY20E. We maintain our ‘buy’ rating on Reliance Home Finance with a revised target price of ₹91, owing to the pressures on interest front, assigning a P/ABV of 1.9X.
Risks: Rising bond yields could put pressure on NIMs; asset quality deterioration as the share of riskier segment increases; rising competition in HFC space.