Home First Finance Company IPO review: Motilal Oswal recommends subscribe to the issue for Long Term

Home First Finance Company IPO review: Home First Finance (HFF) is a technology driven affordable housing finance player with over 44k customers and an AUM of over Rs 373 bn. Home First Finance Company issue size is of Rs 11.5 bn, IPO consists of fresh issue of Rs 2.7 bn and OFS of Rs 8.9 bn (by promoters and investors) which would result in promoter’s stake reducing from 52.9% pre-IPO to 33.7% post-IPO. Home First Finance Company funds raised via IPO will be utilized to augment the capital base.

Home First Finance Company - Affordable housing (AF) finance player:

Home First Finance targets first time home buyers with average loan ticket size of Rs 1 mn. It has built a wide distribution network of 70 branches spread across 11 states with Gujarat and Maharashtra contributing 60% share in loans. Home First Finance has invested deeply in digital and analytical capabilities, enabling effective credit underwriting. Extensive deployment of digital technology across processes- customer acquisition, loan applications, client service, risk management enables it to sanction loans with TAT of 48 hours.

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Home First Finance Company Rising share of salaried customers:

Home First Finance predominantly serves low and middle-income group salaried customers (73% of loans) who are typically employed by small firms or work in junior positions in large firms. Over the past few years, it focused more on customers with existing credit history, whose share rose to 67% by first half of FY21. Home First Finance Company majorly finances completed homes (89% of portfolio), that helps Home First Finance maintain asset quality.

Home First Finance Healthy Financials:

Home First Finance Company disbursements quadrupled to Rs 15.7 bn over FY17-19, while it was stable in FY20. Home First Finance delivered a loan book CAGR of 56% over FY17- 20 and increased to Rs 37.3 bn by first half of FY21. Over this same period, the share of home loans declined from 97% to 92% while that of LAP rose from 3% to 5%. Home First Finance improved its spreads to 4.5% in FY20, driven by improvement in yield to 13.2%. With strong underwriting, Home First Finance experienced healthy asset quality with GNPL ratio at sub-1%. RoA of 2.7% (FY20) is healthy v/s peers.

Home First Finance Valuation & View:

With the government's focus on 'Housing for All' by 2022, Affordable housing has seen strong growth over the last six years. Smaller players like Home First Finance Company have created a niche in this space and are capitalizing on this multiyear opportunity.

Motilal Oswal likes Home First Finance given its:

1) leverage on digital technology
2) wide distribution network
3) high quality housing finance portfolio
4) robust expansion plans

Home First Finance Company showed resilience during Covid-19 with >96% collection efficiency. The issue is valued at 4.8x FY20 P/BV which is comparable to peers. Motilal Oswal recommends Subscribe for Long Term. Further given the current buoyant market, the issue could see listing gains as well.