IPO Note
Home First Finance Company India Ltd.
Issue Opens: Jan 21, 2021; Issue Closes: Jan 23, 2021; Price Band: ₹517 - 518
Recommendation Home First Finance Company (HFFC) is a niche HFC with an AUM of
`3,730 cr as of 1HFY21. It focuses on the affordable housing
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segment for salaried/self-employed segments in tier 2-5 towns, with
Issue Details largest exposure in Gujarat, Maharashtra and Tamil Nadu.
Face Value ₹2
Small size, niche market sets it up for growth: At `3,730 cr of AUM,
Public Issue ~2.23 Cr shares
Price Band ₹517 - 518 HFFC has a huge growth runway ahead of it. Further, individual
Issue Size# ₹1,154 Cr categories like LAP (`190 cr) and developer loans (`70 cr) are even
Bid lot 28 Equity shares smaller, providing HFFC a very low base to start with. Small size,
Issue Type OFS & Fresh Issue
Post Issue M. Cap: ~₹4,527cr; # - at upper band
strong parentage, low NPAs and a tier 1 CAR of 50.4% (with additional
capital to be added through the IPO) would mean that HFFC will not
% Shareholding Pre IPO Post IPO find funding to be a constraint. At its current size, NHB funding would
Promoter group 52.85 33.70 also provide a meaningful form of support.
Public 47.15 66.30
Post Issue percentage is at upper price band
Strong pricing power in its customer segment: HFFC’s home loan
yields at 12.9% are among the highest across listed peers. This is
Share Reservation % of Net Issue primarily due to focus on a customer base which is unserved/under-
QIB 50 served and which faces difficulties in accessing credit at a quick TAT.
NII 15 Such a customer base provides HFFC healthy pricing power in a
Retail 35 highly competitive market.
Company Management High core profitability and low credit costs set-up its strong RoAs:
Mr. Manoj Founder, M.D. & High growth, strong NIM (pricing power + free funds benefit due to
Viswanathan CEO high Tier 1 CAR), and operating leverage are contributing to PPoP
Ms. Nutan Gaba
Patwari
CFO RoAs at 4.2/5% as of FY20/1HFY21. As the COVID related provision
phase passes, overall RoAs could be in the 3-3.5% range.
Issue Managers
Outlook & Valuation: The key advantages of HFFC are small size and
Axis Capital, Credit
Suisse, ICICI Securities niche positioning which sets it up for growth as well as provides
BRLMs
and Kotak Mahindra pricing power in its customer base, its ability to leverage technology
Capital for better service delivery, funding availability with competitive cost of
KFin Technologies Pvt.
Registrar funds, strong parentage and high capitalisation (Tier 1 CAR of 50.4%
Ltd.
Source: RHP as of 1HFY21). Risks, in the form of an unseasoned loan book and
relatively riskier customer base, are also present. However, in the
medium to long term, HFFC should be able to take advantage of
IIFL Securities Research strong underlying growth momentum in the affordable housing space.
E-mail: research@[Link] This, coupled with its own strong core operating metrics (2.5-3% RoA)
January 21, 2021 would help it lever up the current capital. While the pricing is a tad
expensive at 3.4x 1HFY21 P/BV, we believe its strong metrics and
high growth would lead to healthy EPS growth and therefore, healthy
returns from the issue price. We recommend Subscribe.
Home First Finance Company India Ltd.
Exhibit 1: Financial Summary
(` Cr, unless specified) FY18 FY19 FY20 1HFY21
Gross Loan Assets 1,356 2,444 3,618 3,730
YoY (%) 60.0 80.2 48.1 19.8
Disbursements 746 1,573 1,618 296
YoY (%) 75.7 111.0 2.9 -66.6
Total Assets 1,365 2,482 3,480 3,722
Total Income 132 260 399 237
Net Interest Income 64 127 198 122
PAT 16 45 79 53
ROE (%) 9.8 10.7 10.9 11.3
ROA (%)
Cost to income ratio (%)
. 2.3
60.2
2.4
49.8
2.7
45.2
3.0
34.2
Gross NPLs as % of loans 1.2 0.9 1.0 0.7
Net NPLs as % of net loans 0.5 0.6 0.8 0.5
Source: RHP; IIFL Research
Exhibit 2: Key valuation metrics
Particulars FY20 1HFY21
Pre-money
Net worth (` Cr) 934 988
Net profit (` Cr) 79 106
Post money
Net worth (` Cr) 934 1,332*
Net profit (` Cr) 79 106
Per share data (post money for 1HFY21)
BVPS 119 152*
EPS 10 12
Valuation multiples (post money)
P/BV (x) 4.8 3.4
P/E (x) 57.1 42.7
Source: RHP; IIFL Research; *Includes `79 cr raised in pre-IPO placement and the fresh issue in the IPO
Offer Details
The total issue size is ₹1,154Cr which consist of Fresh Issue of ₹265Cr and Offer for sale of
~1.72Cr shares aggregating to `889Cr at the upper end of the price band. The net proceeds
from the fresh issue is proposed to be utilized towards augmenting HFFC’s capital base to
meet future capital requirements.
Home First Finance Company India Ltd.
Business Description
HFFC is a technology driven affordable housing finance company targeting first time home
buyers in the low and middle-income groups. HFFC was founded by Mr. Jaithirth Rao, Mr. P. S.
Jayakumar and Mr. Manoj Viswanathan and commenced operations in August 2010. Its
current promoters, True North Fund, Aether (Mauritius) Limited, Bessemer India, Warburg
Pincus and Mr. P.S. Jayakumar own 93.5% in the company. HFFC has now expanded its
presence to 60 districts across 11 states as of 1HFY21. Currently, the top 4 states – Gujarat
(39%), Maharashtra (20.9%), Tamil Nadu (10.5%) and Karnataka (9.3%) form ~80% of the loan
book. HFFC has reached an AUM of `3,730 cr growing at a CAGR of 50% over FY18- 1HFY21
.
and has a base of 44,467 customers as of 1HFY21.
Exhibit 3: Geographic Mix of gross loan assets
(%) FY18 FY20 1HFY21
Gujarat 38.0 39.7 39.0
Maharashtra 35.6 21.7 20.9
Tamil Nadu 8.7 9.9 10.5
Karnataka 7.0 9.0 9.3
Rajasthan 3.0 5.0 5.1
Telangana 1.0 4.9 5.0
Madhya Pradesh 1.6 3.9 4.1
Uttar Pradesh 2.0 2.6 2.6
Haryana 2.0 1.1 1.0
Chhattisgarh 1.0 0.9 1.0
Andhra Pradesh 0.1 1.3 1.4
Source: RHP, IIFL Research
Key business metrics
Affordable housing loans for purchase and construction of homes comprise 92.1% of its AUM,
followed by LAP at 5.1% while developer loans are just `70 cr or 1.9% of AUM. Housing loans
are at an average ticket size of `10.2 lk with an average loan to value of 50.4% based on Gross
loan assets. The developer portfolio is still in its nascent stages with an average ticket size of
`6.7 cr and LTV of 17.6%.
Exhibit 4: Segment-wise key metrics
Loans
AUM mix Lending Disbursement Stage 3 ATS LTV
2QFY21 a/cs
(%) Yield (%) Yield (%) (%) (` Mn) (%)
(nos)
Housing loans 92.1 42,047 12.9 13.0 0.8 1.0 50.0
Loans for purchase of
0.9 454 15.3 15.1 0.4 0.9 48.9
commercial property
LAP 5.1 25 14.2 14.1 1.6 66.8 17.6
Developer finance 1.9 2,270 15.7 15.3 0.1 0.9 26.2
Source: RHP, IIFL Research
Home First Finance Company India Ltd.
Exhibit 5: Disbursement mix
(%) FY18 FY19 FY20 1HFY21
Housing loans 95.4 88.1 89.9 94.2
Loans for purchase of commercial property 0.7 1.2 0.9 0.7
LAP 1.5 4.1 6.9 3.9
Developer finance 2.4 6.6 2.3 1.2
Source: RHP, IIFL Research
Customer profile
The retail portfolio comprises mainly salaried customers (73.1% of AUM), with self-employed
customers comprising 25.0% of AUM as of 2QFY21. Salaried customers are typically employed
.
by small firms or work in junior positions in larger companies. The self-employed customers are
small business owners. Gradually, HFFC has been increasing its focus on customers who
already have a credit history - the share of such customers has increased to 59.6% in 1HFY21
from 51.9% in FY18. The remaining 40.4% customers are new to credit customers as of
1HFY21 as compared to 48.1% in 2018. HFFC promises a 48 hour turn-around-time after it has
gathered all customer level data for its credit assessment.
Exhibit 6: Loan account details
(%, unless specified) FY18 FY19 FY20 1HFY21
Salaried loan accounts 72.7 74.5 74.4 74.6
Self-employed loan accounts 27.3 25.5 25.6 25.4
Total 100.0 100.0 100.0 100.0
New to Credit loan accounts 48.1 45.8 41.8 40.4
Account with existing credit History 51.9 54.2 58.2 59.6
Total 100.0 100.0 100.0 100.0
Total Loan accounts (nos) 15,723 29,372 43,094 44,796
Source: RHP, IIFL Research
Exhibit 7: Borrowing mix
(%) FY18 FY19 FY20 1HFY21
Banks 75.9 69.5 71.3 62.7
NHB 24.1 30.5 26.2 26.3
NCDs - - - 9.1
Other parties - - 2.4 2.0
Source: RHP, IIFL Research
Home First Finance Company India Ltd.
Exhibit 8: AUM growth trends
Particulars FY18 FY19 FY20 1HFY21
AUM Mix (%)
Housing loans 96.0 92.0 91.8 92.1
Loans for purchase of commercial property 0.5 1.0 1.0 0.9
LAP 2.1 3.5 5.1 5.1
Developer finance 1.3 3.4 2.1 1.9
% YoY growth
Housing loans 72.7 47.8 20.6 72.7
Loans for purchase of commercial property 238.3 39.1 6.8 238.3
LAP
Developer finance
. 198.6
377.9
114.8
-9.3
29.6
-18.9
198.6
377.9
Total AUM 80.2 48.1 19.8 80.2
Source: RHP, IIFL Research
Exhibit 4: Valuation comparison (based on FY20 metrics)
Mcap
ROA ROE BVPS EPS P/B P/E
(` Cr)
HDFC 4,84,293 3.6 21.7 497.4 44.7 5.4 59.6
LICHSGFIN 21,792 1.2 13.9 360.3 47.6 1.2 9
PNBHOUSING 6,261 0.8 8.3 475.5 38.4 0.8 9.7
REPCOHOME 1,677 2.4 16.9 285.6 44.8 0.9 5.9
AAVAS 15,086 3.8 12.7 267.9 31.5 7.2 61.3
HFFC 4,527 2.7 10.9 119.2 10.1 4.3 51.3
Source: Company, IIFL Research
Key Risks
Untested customer base, informal income category: The biggest risk for HFFC is that
~40% of its customer base is new to credit and therefore untested. Further, despite
having 72.6% of its customers from the salaried segment, most of these are customers
who lack formal income proofs. That is why a surrogate income assessment is needed.
Therefore, unlike a typical salaried customer employed in the mid-income segment,
these customers would be relatively risky due to the combination of being new to credit
and being in the informal income category.
Unseasoned loan portfolio: The loan book has expanded more than 4x in the last 2.5
years and clearly, is unseasoned. As the loan book seasons, the following effects will
show up:
Home First Finance Company India Ltd.
o Growth will moderate as balance transfer (BT) increases,
o Pricing pressure from customers who are new to credit today but will have some
credit history in future and therefore will be candidates for BT,
o GNPAs will start growing faster, putting pressure on NIMs, risk appetite and
provisions,
o ECL models will have to evolve and factor in higher structural credit costs,
lowering RoAs
Structurally low RoE due to muted leverage: HFFC already has a 50.4% Tier 1 CAR and
will be adding to this through the listing process. Given low risk weighted assets, the key
RoE driver for HFCs is usually the leverage. Levering up the capital will take time and
.
therefore, RoEs could hover at 12-13% in the medium term.
DISCLAIMER
Recommendation Parameters for Fundamental/Technical Reports:
Buy – Absolute return of over +10%
Accumulate – Absolute return between 0% to +10%
Reduce – Absolute return between 0% to -10%
Sell – Absolute return below -10%
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