'Structural Compounders': Morgan Stanley bets on three HFCs, highlights six reasons why

Brokerage firm Morgan Stanley has highlighted Aptus Value Housing Finance, Home First Finance, and PNB Housing Finance as its key "overweight" recommendations from within the Housing Finance space, in its latest note on Monday, July 13.

The brokerage has raised its price target on Aptus Value to ₹405 from ₹395 earlier, on Home First Finance to ₹1,650 from ₹1,585 earlier, and on PNB Housing Finance to ₹1,405 from ₹1,250 earlier.

Aptus Value's revised price target implies an upside potential of 42% from last Friday's closing levels, while for Home First and PNB Housing, it implies an upside potential of 35% and 26% respectively.

Why Is Morgan Stanley Bullish On HFCs?

First, the brokerage expects disbursement growth to pick up in financial year 2027 for these companies. Multiple factors such as US trade tariffs, state-specific issues, microfinance, MSME stress, irregular weather appear largely resolved and are factored into their base case. Morgan Stanley expects AUM growth to sustain or pick-up to 21% to 25% year-on-year from an already good base.

Second, asset quality remains healthy despite concerns, which, according to the brokerage, is also largely resolved. Credit costs for these companies have also remained within their long-term guided ranges.

Third, the brokerage has raised its Earnings Per Share (EPS) forecast by 1% to 5% across its coverage on higher loan growth assumptions and expects EPS to grow at a Compounded Annual Growth Rate (CAGR) of 17% to 20% between financial year 2027-2029 and Return of Equity (RoE) expansion between 16% to 21% from last year.

Fourth

, Morgan Stanley believes that these stocks have de-rated sharply on supply and concerns over growth and asset quality, even as their PAT and Book Value Per Share CAGR has remained strong. Therefore, its "overweight" recommendations have an upside potential of up to 40% as their valuations are still below their historical five-year average, particularly for Aptus and Home First.

"These are high quality, secured, proven, crisis-tested businesses with a potential for long-term secular growth being greater than the overall system credit growth," the brokerage said, adding that their bull case sees these stocks rising between 90% to 110%.

Lastly, unlike other NBFCs, investors could take a multi-year call on these stocks, according to Morgan Stanley, as the next move in Repo rates is more likely to be higher.

Macro downturn, slowing loan growth and deep asset quality cycle are some of the key concerns highlighted by Morgan Stanley for these companies.

Shares of Aptus Value Housing Finance are trading 2.6% higher on Monday at ₹291.2. The stock is up only 3% so far this year.

Shares of Home First Finance are trading 3.5% higher on Monday at ₹1,265. The stock is up 15% so far this year.

PNB Housing shares are trading little changed at ₹1,112. The stock is also up 13% so far this year.