India Shelter shares may rise another 17%, says Kotak Institutional

Shares of India Shelter Finance Corporation Ltd. are trading with gains of over 6% on Thursday after Kotak Institutional Equities initiated coverage on the stock with a 'buy' recommendation and a price target of ₹685, citing the company's high-growth outlook in the affordable housing finance sector.

At 2 pm, the scrip was trading 6% higher at ₹621.30 apiece on the NSE. The price target implies a potential upside of 17% from Wednesday's closing levels.

Kotak in a note said India Shelter's strong visibility of near-term growth, long runway in affordable housing finance, geographically diversified loan book and superior yields in its self-employed heavy loan book are the key drivers.

India Shelter is a small but fast-growing diversified housing finance company, recording a compound annual growth rate (CAGR) of 35% during FY2023-26. It is focused on lending to self-employed borrowers in tier-II and -III cities in the affordable housing segment.

The domestic brokerage house expects India Shelter to deliver a 35% CAGR in core earnings over FY2023-27E, driven by AUM growth at a CAGR of 33% and improving operating leverage.

India Shelter saw a sharp increase in branch count in FY2023, up 41%, which has led to a skewed vintage mix; as branches mature, productivity will improve, leading to improvement in cost ratios and reducing the impact of NIM compression, Kotak said.

Key risks to India Shelter's businesses, as per Kotak, include effective execution in new geographies and high concentration in three states; sustaining strong asset quality performance, while operating in the informal lending segment with an unseasoned book; high fixed-rate loan book versus 80% floating-rate liabilities; multiple repercussions of rating downgrades; and limited experience of select senior management personnel with the company, though they are seasoned finance sector professionals.

India Shelter trades at 15 times earnings and 2 times book for financial year 2026 estimates; however, its peers, including Aptus, Home First and Aavas trade higher at 15-18 times earnings and 2.1-2.9 times book for FY26 estimates.

India Shelter shares are trading near its IPO price. It made its stock market debut back in 2023 at an IPO price of ₹620.