Home First Finance Company India Limited IPO

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About Home First Finance

(i) Founded in the year 2010, Home First Finance is the technology-driven home finance company that typically targets first time home buyers in the low and middle-income groups. 91% of the total loan book is given to purchase or construct a house.

(ii) Home First Finance targets salaried and self-employed customers and these two comprises of 73% and 25% of the loan book, respectively. As on 30.09.2020, it has 44796 active loan accounts with 3730 Cr of Gross loan book. The average ticket size of the loan is 10.2 Lakh and with an average loan-to-value on Gross Loan Assets of 48.8%, as of September 30, 2020.

(iii) They also offer other types of loans comprising loans against property, developer finance loans, and loans for the purchase of commercial property; however, it comprised only 4.7%, 2.8%, and 1.1% of total Gross Loan Assets.

Presence

As on 30.09.2020, Home First Finance has a network of 70 branches covering over 60 districts in 11 states and a union territory in India, with a significant presence in urbanized regions in the states of Gujarat, Maharashtra, Karnataka, and Tamil Nadu.

The company over the years has expanded into those territories where there is a demand for home buyers. Before setting up a new branch in a district, they conduct an in-depth study of the micro markets around the branch to assess the potential demand for housing finance and target regions with increasing urbanization and housing demand.

State Branches districts Loan
Gujarat 19 10 40.50%
Maharashtra 13 13 24.60%
Tamilnadu 9 8 9.20%
Karnataka 4 1 8.80%
Rajasthan 6 4 4.50%
Telangana 3 2 4%
Madhya Pradesh 5 3 3.20%
Uttar Pradesh 1 3 2.40%
NCR 1 10 1.20%
Chhattisgarh 1 3 0.90%
Andhra Pradesh 3 3 0.80%

Underwriting and Risk Management

The company has leveraged technology to process the loan and to manage the risk. They have developed a paperless process of the loan disbursement and they have a dedicated sales team who goes to buyer home and ensure minimal disruption to customer daily routine while disbursement of the loans.

For underwriting, Home First Finance is utilizing proprietary machine learning customer scoring models for a centralized credit underwriting process, which has led to consistent and accurate credit evaluation with quick turnaround time.

They digitally capture over 100 data points of a customer in addition to credit bureau data, observations of the front end teams, and feedback from the underwriting and management teams. They capture and store all the data on a cloud services platform. They have entered into arrangements with third-party service providers through whom they obtain additional information such as fraud-related data, banking, investment and taxation related data, and vehicle ownership of customers, which enables Home First Finance with underwriting and to identify areas of concern and take quick and accurate decisions.

Borrowing Profile

To disburse loans one needs money. Let us see how Home First Finance has borrowed money over the years.

As on 30.09.2020, the company has outstanding borrowing of 2635 Cr. They mostly borrow from the private banks, public banks, NHB (National Housing Board), a subsidiary of RBI, and through assignment transactions. 37% of borrowing is from NHB.

Credit rating is the most important parameter which all analysts should look carefully at. The highest credit rating means the company is serving its principal and interest on time. The highest credit rating is not only good for the lending institutions but also for shareholders of the company.

As on 30.09.2019, Home First Finance currently has an ‘A+ (stable) rating from ICRA Limited.

Founders and Investors

The Company was founded by Jaithirth Rao, P. S. Jayakumar, and Manoj Viswanathan in August 2010. The company is managed by professionals and the Promoters are True North Fund V LLP and Aether (Mauritius) Limited. Further, Bessemer has also invested in the Company.

Marketing Video of Home First Home Finance

Objects of the Home First Finance Company India Limited IPO:

The net proceed from the issue will be used towards following purposes. a) To augment company's capital base to meet future capital requirement. b) To achieve share listing benefits on the exchange.

Home First Finance Company India Limited IPO Details:

Open Date: Jan 21 2021
Close Date: Jan 25 2021
Total Shares: 22239382
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Building
Issue Size: 1152 Cr.
Lot Size: 28 Shares
Issue Price: ₹ 517-518 Per Equity Share
Listing At: NSE,BSE
Listing Date: Feb 01 2021

Promoters And Management:

1. Deepak Satwalekar is the Chairman and Independent Director of the Company. He holds a bachelor’s degree in mechanical engineering from the Indian Institute of Technology, Bombay, and a master’s degree in business administration from the American University. Previously, he was associated with Housing Development Finance Corporation Limited as a director and HDFC Standard Life Insurance Company Limited as the managing director and chief executive officer. 2. Sakti Prasad Ghosh is an Independent Director of the Company. He holds a master’s degree in commerce from the University of Calcutta, a certificate in financial management from the University of Mumbai (earlier known as the University of Bombay), and a certificate in industrial finance from the Indian Institute of Bankers. He has over 39 years of experience in banking and financial services institutions. 3. Sujatha Venkatramanan is an Independent Director of the Company. She holds a bachelor’s degree in economics (honors) from the University of Delhi and a master’s degree in business administration from the University of Delhi. She has over 24 years of experience in retail banking functions particularly credit risk including credit risk policy, analytics, and operations, mergers and acquisitions due diligence, portfolio management, risk advisory, project monitoring, product development, business development, and marketing.

Financials of Home First Finance Company India Limited IPO:

Particulars (in Crores) 6MFY2021 2020 2019 2018
Balance Sheet
Loan Book 2972 3013 2134 1307
Borrowings 2636 2493 1925 1019
Share Capital 156.79 156.6 126.68 103.23
FV 2 2 10 10
Net-Worth 988 933 523 325
Book Value 125 119 41 31
P/L Statement
Interest Income 207 357 231 129
Other Income 2 3 3 5
Interest Expended 112 193 126 65
Employee Expense 30 61 42 24
PBT 70 107 65 24
PAT 52 80 45 15
EPS 6.59 10.53 5.75 1.92
Key Metrics of HFC
Loan Book 2972 3013 2134 1307
NIM 6.34% 6.30% 4.92% 4.90%
GNPA 0.74% 0.87% 0.70% 0.63%
CAR 51.70% 48.90% 38.50% 43.00%
IZ View: 1. Home First Finance has shown excellent loan growth in the last 3 years wherein Loan book has grown from 1300 Crores to 3000 Crores from 2018 to 6M of FY2021. 2. The interest income or revenue has grown from 129 Crores to 357 Crores from 2018 to 2020. 3. Book Value as on 30.09.2020 stands at 125 per share. 4. Asking Valuation is P/B = 4.13x 5. GNPA, the most important metric of financing companies is under 1%, which is excellent. Moratorium Update: In view of the Supreme Court interim order dated 3 September 2020 in public interest litigation (PIL) by Gajendra Sharma vs. Union of India & ANR, no additional borrower accounts under moratorium granted category have been classified as Non Performing Asset (NPA) which were not declared as NPA till 31 August 2020. However, the Company has classified such accounts as stage 3 and provisioned accordingly in the Statement of Profit and Loss for the half year ended 30 September 2020. a) Principal outstanding of loans where the moratorium deferment was extended= 811 Crores (as on 30.09.2020), so it is 26% of the loan book to whom company has extended the benefit of moratorium. b) Principal outstanding in SMA/overdue categories = 28 Crores

Comparison With Peers:

In the DRHP, the company has shown Aavas Financiers as peer and same is trading at P/B of 6.92x.

Recommendation on Home First Finance Company India Limited IPO:

Review and Recommendation of InvestorZone are 5/10 1. Home First Finance is a technology driven home loan company which mainly provide loans to salary class people and small entrepreneurs and therefore, chances of defaults are less. 2. The company is managed by professionals and the Promoters are True North Fund V LLP and Aether (Mauritius) Limited. Recently, Warburg Pincus has also invested ~30% stakes in the Company. 3. Gross NPAs are less than 1 which is excellent. 4. Asking P/B is reasonable as compare to Aavas financiers.

Registrar of Home First Finance Company India Limited IPO:

  1. Kfin Technology Private Limited

Discussion on Home First Finance Company India Limited IPO:

    Warburg Pincus has bought stakes in the company at Rs. 336 per share in Oct-2020.