This Small Cap Firm Is Shooting Up After Analyst Says 'Buy' For 17% Upside

Shares of India Shelter Finance Corp were surging on Thursday after the home loan firm received a thumping recommendation from a domestic brokerage.

What Happened: Kotak Institutional Equities has initiated coverage on India Shelter with a “buy” rating, pointing to the company’s promising growth trajectory within the affordable housing finance sector. It set a target price of  ₹685, which suggests an upside of about 17% from last closing levels.

The brokerage firm underscores several key factors contributing to this positive outlook, including India Shelter’s robust near-term growth prospects, expansive loan portfolio and attractive returns generated from its focus on self-employed borrowers.

India Shelter predominantly serves self-employed individuals, who represent 70% of its loan portfolio, with a primary customer base in tier 2 and tier 3 cities. The average loan size for these borrowers stands at ₹11 lakh.

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Kotak anticipates India Shelter’s assets under management (AUM) to grow at a compound annual growth rate (CAGR) of 33%, accompanied by improvements in operational efficiency. In the fiscal year 2023, the company reported a profit of ₹155.3 crore, marking a 21% year-on-year increase, while revenue surged by 30.5% to ₹584.5 crore.

Risks Attached: Despite the optimistic outlook, Kotak highlights potential risks, including maintaining asset quality amid informal lending practices and effectively managing expansion into new geographical markets.

The brokerage said India Shelter’s valuation appears reasonable in comparison to its peers, with the company trading at 15 times earnings and double its estimated book value by FY2026.

Price Action: India Shelter’s share price was up 5.71% at ₹619.55 in afternoon trade on Thursday.

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Posted In: EquitiesPrice TargetInitiationMarketsAnalyst RatingsMoversTrading IdeasIndia Shelter Finance