Home First Finance IPO analysis!
Last updated: 21 Jan, 2021 | 10:27 am
Home First Finance Company is set to raise up to ₹1,154 crore via IPO which opened today for subscription. Here are the details:
About Home First Finance
- Home First Finance Company is a technology-driven affordable housing finance company that targets first time home buyers in low and middle-income groups.
- As of September 30, 2020, Home First Finance had a network of 70 branches covering over 60 districts in 11 states and a union territory in India, with a significant presence in the states of Gujarat, Maharashtra, Karnataka and Tamil Nadu. This accounted for approximately 79% of the affordable housing finance market in India.
- The company offers customers housing loans for the purchase or construction of homes, which comprised 92.1% of the Gross Loan Assets, as of September 30, 2020. The Gross Loan Assets have grown at a CAGR of 63.4% between FY18-20. It has over 43,000 customers as of Sep-20.
- In October 2020, US-based private equity firm Warburg Pincus had announced an investment of ₹700 crore into Home First Finance.
- Home First Finance operates in a highly competitive housing finance industry. It faces stiff competition from HFCs, NBFCs and small finance banks, as well as scheduled commercial banks. Their primary competitors include Aavas Financiers Ltd, Aspire Home Finance Corporation Ltd, Aadhar Housing Finance Ltd and Aptus Value Housing Finance India Ltd. Out of these companies, only Aavas Financiers is listed.
- The table below shows that Home First Finance has slightly lower return ratios as compared to peers. Capital Adequacy and Tier-1 capital are comparable, while Net NPA’s were lower in FY20.
- The company’s revenue from operations have grown at a CAGR of 73% between FY18 and FY20.
- Home First has posted strong growth in net interest income (NII) of 58.6% compounded annually over FY18-20 while net profits have grown at CAGR of 122.6% during the same period.
- The company has also expanded its margin over this period.
- The outbreak of COVID-19 resulted in slowing down of disbursements by the company from ₹ 885.75 crore for the 6 months ended September 30, 2019 to ₹ 295.95 crore for the 6 months ended September 30, 2020.
- The company also witnessed an increase in bounce rate from 10.5% during the last quarter of the financial year 2020 to 28.3% during the second quarter of the financial year 2021.
- Despite the Covid-19 crisis the company’s asset quality has remained largely stable with GNPA and NNPA largely stable at 0.7% and 0.5% respectively at the end of 1HFY2021.
- The company has been able to improve its credit ratings from ‘CARE A-’ as of March 31, 2017 to ‘CARE A+’ as of September 30, 2020 and also currently have an ‘A+ (stable) rating from ICRA Limited.
About the issue
- Issue open: 21st - 25th Jan 2021
- Price band: ₹517- ₹518
- Issue Size: ₹1,153.72 cr
- Issue Size: Fresh issue of Rs 265 crore and an offer for sale of Rs 888.72 crore by promoters True North Fund V LLP and Aether (Mauritius), investor Bessemer India Capital Holdings II Ltd, and two individual shareholders.
- Reservation for QIB - 50% , Retail -35%, Non institutional Investors -15%.
- Bid lot: 28 shares, and in multiples of 28 shares
- Post issue market cap ₹4,518 cr- 4,527 cr
At the higher end of the price band at ₹518, Home First Finance is valued at 3.6 times its fully diluted post issue book value of ₹143.4 per share. This is lower than listed peer Aavaas Financiers (at 6.9 times P/B). The issue is priced at 54.8% premium to what Warburg Pincus had paid in October for its preferential allotment. This was because Warburg was allotted shares at a distressed valuation amid a lot of uncertainty caused by the pandemic. The valuations seem justified given the company’s growth outlook and return ratios. We remain positive on the long-term prospects of the issue.