Home First Finance Company India will open its Rs 1,154-crore public issue for subscription on January 21. The price band for the IPO has been fixed at Rs 517-518 per share.
The company already raised Rs 346 crore from anchor investors on January 20. The public issue comprises a fresh issue of Rs 265 crore and an offer for sale of Rs 888.71 crore by promoters True North Fund V LLP and Aether (Mauritius), investor Bessemer India Capital Holdings II Ltd, and two individual shareholders - PS Jayakumar and Manoj Viswanathan.
The company is going to use the net fresh issue funds for augmenting its capital base to meet future capital requirements, arising out of the growth of business and assets.
All the brokerage houses assigned a 'subscribe' rating to the issue, citing strong financials, stable asset quality, comfortable capital adequacy ratio and healthy return ratios.
"Aided by its high growth momentum on a smaller base, superior underwriting standards, and efficient collections management (GNPAs at less than 1 percent and modest credit costs), Home First delivered a healthy return on assets (RoA) of 2.7 percent in FY20. Return on equity (RoE) of 11 percent looks modest owing to lower leverage at 4x in FY20. The issue is priced at post-money P/BV of 3.4x compared to its nearest competitor Aavas Financiers which trades at 6.8x on September book value (BV)," said Yes Securities which advised subscribing the issue.
Factoring the superlative return ratios (ROA/ROE), LKP Securities also believes that Home First Finance Company is worth subscribing.
Home First, founded in 2010 by PS Jayakumar, Jaithirth Rao and Manoj Viswanathan, is a technology-driven affordable housing finance company. It focuses on first-time home buyers in low and middle-income groups, offering housing loans for purchase/construction of homes. Over the last 10 years, the company has sanctioned home loans to more than 50,000 customers in 60 districts, across 11 states and 1 union territory.
As of September 2020, the company had an AUM of Rs 3,730 crore and net worth of Rs 980 crore. It is backed by marque private equity players like True North (30.22 percent stake), Warburg Pincus (29.15 percent), Aether Mauritius (20.09 percent) and Bessemer India (10.57 percent).
Home First has posted strong growth in net interest income (NII) of 58.6 percent CAGR between FY18-20 while net profits have grown at a CAGR of 122.6 percent during the same period. Despite the COVID-19 crisis the company's asset quality has remained largely stable with gross non-performing assets (NPA) and net NPA largely stable at 0.7 percent and 0.5 percent respectively at the end of September 2020.
Home First has been notable with a fast pace of growth, and its gross loan assets have clocked a CAGR of 63.4 percent between FY2018 and FY2020. Its business profile (salaried customers account for 73.1 percent of its gross loan assets and self-employed customers account for 25 percent of gross loan assets, as of September 2020) is structurally sound, which all explains the company's low gross NPAs, Sharekhan feels.
As of September 2020 and March 2020, its Stage-3 loan assets expressed as a percentage of gross loan assets were 0.74 percent and 0.87 percent, respectively.
A granular business with average ticket size of its housing loans of Rs 10.1 lakh, with an average loan-to-value on gross loan assets of 48.8 percent, as on September 2020 places it at lower competition intensity from banks and other peers, Sharekhan feels.
It has a strong presence in economically healthier states like Gujarat (39 percent of gross loan assets), Maharashtra (21 percent of GLA), Tamil Nadu (10.5 percent of GLA), Karnataka (9.3 percent of GLA) and Rajasthan (5.1 percent of GLA).
The company had a capital adequacy ratio (CAR) of 51.7 percent at the end of September 2020 which provides comfort, said Angel Broking which expects the company to post strong growth driven by strong demand for affordable housing. Given the growth prospects, the brokerage recommended a subscribe rating on the issue.
However, there are some risks and concerns investors should keep a note of including any disruption in sources of funding, failure of customers in repayment of loans, company's inability to meet their obligations (including financials and other covenants under its debt financing arrangements), and any downgrade in credit ratings.
Home First has improved its credit ratings from CARE A- as of March 2017 to CARE A+ as of September 2020 and also currently has an A+ (stable) rating from ICRA. As of September 2020, its total Borrowings (including debt securities) were Rs 2,636.58 crore.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.