Detailed Analysis of Home First Finance Company IPO
Home First Finance Company is an affordable housing finance company. The company primarily caters to the low and middle income groups by offering them housing loans to construct and buy homes. It further offers other loans like loans against property, developer finance loans, and loans to buy commercial property.
Currently, the grey market is offering juicy premiums of 25%-30%. However, one must exercise caution as this premium might either vaporize in the event of an unfavorable budget or proliferate upon a favorable budget.
Home First Finance Company IPO Analysis
- The total issue size of the IPO is Rs. 1,154 Crore. Out of which, fresh issue accounts for Rs. 265 Crore and offer for sale is Rs. 889 Crore.
- In the OFS, venture capital and PE investors like True North Fund V LLP, Aether (Mauritius) Ltd and Bessemer India Capital Holdings II Ltd are offloading equity shares . The founder, Mr. PS Jayakumar (Founder) as well as the MD & CEO Mr. Manoj Viswanathan are also reducing their holdings in the following proportion :
- Hence, post-issue the promoter stake will drop to 34% from 53% pre-issue. This does raise skepticism; however NBFC and HFCs promoters are often required to lower their holding to meet RBI/SEBI regulations.
- Proceeds of the fresh issue will be utilized for augmenting its capital base to meet future capital requirements, arising out of the growth of business and assets. Also, to achieve share listing benefits
- HFFC Reduced Fresh Issue to Rs.265 Cr from Rs.344 Cr due to Pre-IPO Placement on a preferential allotment basis to Orange Clove Investments BV (an affiliate of Warburg Pincus) and to their employees at an offer price of Rs. 334.72. Total funds raised through preferential allotment in pre-placement are Rs. 79 Crore.
- HFFC Raised Rs.346.11 Cr from 25 Anchor Investors i.e. 66.81 Lakh equity shares at upper price band Rs.518 Crore per share. These include prominent DIIs as well marquee investors like –
- IPO is open to apply from 21st January’21 to 24th January’21. The details of the IPO are as follows:
- Home First Finance Company is an affordable housing finance company Incorporated in 2010. Today, it is the fastest growing, technology-driven affordable Housing Finance Company.
- The company primarily caters to the low and middle income groups by offering them housing loans to construct and buy homes. It further offers other loans like loans against property, developer finance loans, and loans to buy commercial property. Loan Amount typically ranges from Rs.5-50 Lakh.
- Their key product offerings include home loans, loan against property, home construction/ renovation/ improvement loans, home loans for NRIs as well as construction finance.
- The company has a diverse lead generation source channel including connectors, contractors, architects, affordable housing developers, and others. As on Sep 30, 2019, it has serviced a total of 37,086 active loans.
- As on Sep 30, 2019, the business has a strong branch network of 65 branches across 60 districts in 11 different states and a union territory in India with key presence in market such as Maharashtra, Karnataka, Tamil Nadu, and Gujarat.
- The firm currently focuses on leveraging technology benefits in the area such as processing loan applications, risk management, and managing customer experience. It offers quick and transparent loan transactions through its mobile app.
- HFFC’s focus is on building a granular business. As of Sept-20, the Average Ticket Size of housing loan: Rs.10.1 Lakh. Average Loan-to-Value Ratio stands at 48.8%. They are offering lower competition intensity versus peer housing finance companies where LTV ranges from 60-80%
Branch Network : AUM Mix State-wise
- HFFC branch network is relatively in a nascent stage as compared to its peers. They have 20 branches in Gujarat, 15 in Maharashtra and 11 in Tamil Nadu. They are widening their horizons in North India especially in Uttar Pradesh, Chhattisgarh and Haryana (NCR).
- Talking about Affordable Housing Credit Mix Maharashtra & Gujarat reported the highest demand for Affordable housing credit. HFFC services about 79% of the market in these areas and therefore is well-positioned to utilize & capitalize the growing opportunity.
- In H1 FY21, HFFC has an AUM of Rs. 3,730 Crore and 44,796 active loans. Over the last 3 years AUM has had a robust CAGR of 63.3%. AUM Mix (as on Sept-20) exhibits that 92.1% of AUM constitute of Housing Loans and the remaining 7.9% account for their other offerings.
- AUM Mix based sound business profile indicates 73.1% for Salaried, 25% for Self Employed and 1.9% others. This is a well spread mix and company takes of lesser default risk as majority of the loans are sanctioned to salaried individuals.
- Over the last 3 years, HFFC’s net profit has had a phenomenal CAGR of 122.6%. For FY20, net profit stands at Rs. 79 Crore, we can expect it reach Rs. 100 Crore in FY21. The net profit had soared by 43.2% from Rs. 37 Crore in H1 FY20 to Rs. 53 Crore in H1 FY21.
- The company’s Net Interest Income has extended by a CAGR OF 55.3% in the last 3 years and stands at Rs. 151 Crore for FY20. HFFC’s annualized cost of borrowing and Net Interest Margin has been steady at 8.6% and 4.8% respectively.
HFFC Peer Comparison
- HFFC has a PE Ratio of 47.9 based on EPS of FY20, which is relatively expensive when compared to its peers – Can Fin Homes, Repco Home Finance as well the bigger players like HDFC, LIC Housing Finance and PNB Housing Finance.
Home First Finance Company is a small cap company and once listed will have a market capitalization of Rs.4000-5000 Crore. It is still in its nascent stages but offers a good proposition with solid fundamentals, stable asset quality, profound penetration in largest housing finance market and backed by Marquee Private Equity Firms like Warburg Pincus.
One should keep an eye on it for the long term as well, for this is just the beginning and what happens ahead might surprise you.