Star Housing Finance Valuation Shifts Highlight Price Attractiveness Amid Market Challenges

Valuation Metrics Reflect Changing Market Perception

Star Housing Finance currently trades with a price-to-earnings (P/E) ratio of 21.72 and a price-to-book value (P/BV) of 1.21. These figures indicate a transition from previously elevated valuation levels to a more moderate stance, described as 'fair' in recent evaluations. This contrasts with some peers in the housing finance industry, where valuations range widely from very attractive to very expensive.

For context, GIC Housing Finance is positioned with a notably lower P/E of 6.15, categorised as very attractive, while companies such as India Home Loans and Sahara Housing exhibit P/E ratios of 275.28 and 65.86 respectively, reflecting very expensive valuations. This spectrum underscores the diversity in market pricing within the sector and highlights Star Housing Finance’s relative repositioning.

Enterprise Value Multiples and Profitability Indicators

Examining enterprise value (EV) multiples, Star Housing Finance’s EV to EBITDA stands at 8.35, with EV to EBIT at 8.50, and EV to capital employed at 1.06. These multiples suggest a valuation that is more aligned with operational earnings and capital utilisation compared to some peers, many of which report loss-making statuses or elevated multiples. For example, Reliance Home and Ind Bank Housing show negative EV to EBITDA figures due to losses, while others like SRG Housing trade at an EV to EBITDA of 10.52.

Return on capital employed (ROCE) and return on equity (ROE) provide further insight into operational efficiency and shareholder returns. Star Housing Finance’s ROCE is recorded at 12.50%, while ROE is at 5.59%. These returns, while modest, indicate ongoing profitability and capital effectiveness, which are critical factors in valuation considerations.

Price Movement and Market Performance

The stock price of Star Housing Finance closed at ₹12.67, marking the 52-week low and reflecting a sharp decline from its 52-week high of ₹36.80. The day’s trading range was between ₹12.67 and ₹15.91, with a significant day change of -19.96%. This price behaviour is consistent with the company’s broader market performance, which has lagged behind the Sensex across multiple time horizons.

Specifically, Star Housing Finance’s returns over the past week and month were -20.61% and -27.14% respectively, while the Sensex recorded positive returns of 0.50% and 1.66% over the same periods. Year-to-date, the stock has declined by 63.69%, contrasting with the Sensex’s gain of 9.56%. Over one, three, and five-year periods, the stock’s returns remain negative, whereas the benchmark index has delivered positive growth, highlighting the challenges faced by the company in regaining investor confidence.

Comparative Analysis Within the Housing Finance Sector

When compared to its sector peers, Star Housing Finance’s valuation parameters suggest a middle ground between riskier and more expensive stocks. Several companies in the housing finance space are currently classified as risky due to loss-making operations, including Reliance Home, Ruparel Food, and Ind Bank Housing, which show negative EV to EBITDA multiples. Conversely, some peers maintain very expensive valuations, such as Apex Capital & Finance with a P/E of 71.04 and Sahara Housing at 65.86.

This positioning may reflect a recalibrated market assessment of Star Housing Finance’s prospects, balancing its operational performance against sector-wide challenges. The company’s PEG ratio stands at 0.00, which may indicate limited growth expectations priced into the stock, or a lack of reported earnings growth data for the calculation.

Dividend Yield and Investor Returns

Star Housing Finance offers a dividend yield of 0.44%, which is modest but provides some income component for investors. This yield, combined with the company’s returns on equity and capital employed, contributes to the overall valuation framework and investor appeal, particularly in a sector where profitability and capital efficiency are closely scrutinised.

Market Capitalisation and Liquidity Considerations

The company’s market capitalisation is graded at a level indicating a smaller market cap relative to larger peers, which can influence liquidity and trading dynamics. The recent day change of nearly -20% underscores the stock’s volatility and sensitivity to market sentiment, which investors should consider alongside valuation metrics.

Historical Performance Contextualised

Over the longer term, Star Housing Finance’s stock performance has been mixed. While the 10-year return of 95.33% shows positive growth, it remains significantly below the Sensex’s 229.79% return over the same period. The five-year return of -22.22% further illustrates recent challenges, contrasting with the Sensex’s 93.43% gain. This divergence highlights the importance of valuation adjustments in reflecting the company’s evolving market position and investor expectations.

Outlook and Considerations for Investors

The recent revision in Star Housing Finance’s evaluation metrics, particularly the shift in P/E and P/BV ratios towards fairer levels, suggests a market reassessment of the company’s price attractiveness. While the stock has experienced notable price declines and underperformance relative to broader indices, the valuation parameters now present a more balanced picture compared to both historical levels and peer valuations.

Investors analysing Star Housing Finance should weigh these valuation changes alongside operational metrics such as ROCE and ROE, dividend yield, and sector dynamics. The company’s position within a sector marked by a wide range of valuation and profitability profiles underscores the need for careful comparative analysis.

Given the stock’s recent price volatility and market cap considerations, potential investors may find value in monitoring ongoing developments and broader sector trends to better understand the company’s trajectory and investment potential.

Summary

Star Housing Finance’s valuation parameters have undergone a notable shift, moving from expensive to fair territory in terms of P/E and P/BV ratios. This adjustment aligns the company more closely with certain peers while distinguishing it from riskier or very expensive counterparts. Despite recent price declines and underperformance relative to the Sensex, the company’s operational returns and dividend yield provide a foundation for reassessing its market appeal. As the housing finance sector continues to evolve, these valuation changes offer a fresh perspective on Star Housing Finance’s price attractiveness and investment considerations.

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