Synopsis: Affordable housing finance companies are entering a key inflection point, driven by strong demand, improving asset quality, and supportive policies. Bernstein highlights Home First, Aptus, and Aadhar as top picks, citing strong underwriting, high yields, and scalable models. Attractive upside potential and secured lending nature further strengthen the sector’s investment appeal.
The affordable housing financing business is attracting investors again owing to simultaneous growth and improvement in asset quality. Bernstein sees this as a structural change driven by factors such as urbanisation, income growth, and supportive government policies. With improved recovery rates and reduced NPA levels, some HFCs have the potential to generate earnings visibility and sustained growth.
Positive Sector Outlook
According to Bernstein, affordable HFCs appear to be reaching an important inflection point for the sector, whereby growth and asset quality will improve together. This is a change from the preceding era of steady growth and prudent lending practices.
Firstly, the sector is well-supported by solid fundamentals driven by high housing demand, particularly in the affordable segment. Housing demand in this segment is fuelled by several factors, including policy push, urbanisation, and increased income. These factors provide a positive tailwind for the future.
Additionally, there is an improvement in asset quality, with improved repayments observed in this category. Fewer NPAs and stable collections will improve investor sentiment.
Finally, it is notable that HFCs engage in secured lending practices, where loans are underpinned by real estate. In conjunction with the ability to raise funds in the long term, HFCs are less risky than most other NBFCs.
Best Recommendations and Upside Potential
Out of all the stocks recommended by Bernstein, Home First Finance presents upside potential of around 32%, given the target price of Rs 1,430 against Rs 1,085. The firm is noted for its robust underwriting capabilities and stable growth rate.
Aptus Value Housing Finance leads the chart in terms of upside potential, with a target of Rs 350 against current levels of Rs 224, thus giving the upside potential of around 56%. The bank benefits from its focus on self-employed clients and high yields, which drive the bottom line.
Aadhar Housing Finance features a target price of Rs 600 against Rs 478, resulting in an upside potential of around 26%. The firm’s large-scale operations and diversified business model allow it to take advantage of the industry growth.
Other stocks, including Aavas Financiers (Rs 1,440 against Rs 1,243) and PNB Housing Finance (Rs 880 against Rs 866), are projected to perform in line with the general market trends, with the upside potential of around 16% and 2%, respectively.
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