The Rs 1,154-crore public issue of Home First Finance Company, which focuses on affordable home loans having an average ticket size of Rs 10.1 lakh, has been subscribed 26.65 times so far on the final day of bidding, January 25.
The issue has received bids for 41.64 crore equity shares against offer size of 1.56 crore shares, the subscription data available on the exchanges showed. The offer size excluded anchor book portion, through which the company already raised Rs 346 crore last week.
The reserved portion of retail investors has been booked 6.58 times and that of qualified institutional investors 52.5 times, while non-institutional investors have put in 39 times bids against their reserved portion in the IPO.
The public issue comprises of an offer for sale of Rs 889 crore by the promoter and investors, and fresh issue of Rs 265 crore which would be used for augmenting Tier 1 capital for future growth of the company.
The price band for the issue has been fixed at Rs 517-518 per share. "Home First is being offered at a 47 percent discount to Aavas' valuations and thus we recommend to subscribe to the issue," said Nirmal Bang in its note.
Upon comparing Home First with its closest listed peer, Aavas Financiers, the brokerage observed that Home First's salaried customer mix stands at a healthy 73 percent (even ahead of Can Fin Homes), far ahead of Aavas' 35 percent mix. "Also Home First's exposure to LAP+Developer loans mix is much lower at 8 percent compared to 26 percent in case of Aavas."
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The company's customers are typically salaried (73 percent of AUM) who work in small firms & self-employed (25 percent of AUM). It has an AUM of Rs 3,730 crore and gross non-performing assets (NPA) of 0.74 percent as on September 2020.
"With Home First's focus on 'core housing loans' and low-risk 'salaried segment', the business appears less risky compared to other listed peers. Home First has grown its AUM at a CAGR of 63 percent over FY18-20, one of the fastest amongst listed financials. With an AUM of just Rs 3,730 crore, the runway for accelerated growth has a long way to go," said the brokerage.
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Further, Home First has had a strong control over asset quality with one of the highest collection efficiencies post COVID at 97.6 percent as on December 2020, it added.
A technology driven affordable housing finance company has posted strong growth in 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, with strong capital adequacy ratio of 51.7 percent at the end of first half of FY2021.
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The company has a strong network of 70 branches covering over 60 districts in 11 states and is strategically placed in geographies with high economic growth and substantial demand for affordable housing finance.
Additionally, "the company has maintained a decent return on equity (ROE) of 10.9 percent as of FY20 as compared to its larger peers which have maintained ROE in the range of 11-12 percent, this shows that the company has proven its fastest growing housing finance company status," Nirali Shah, Senior Research Analyst at Samco Securities said.
But there are a few risks which cloud the company's future. "Firstly, its bounce rate has worsened from 10.5 percent in Q4FY20 to 36.4 percent in Q1FY21. Then there is the risk of deterioration of collateral and uncertainty due to moratoriums and restructuring which don't portray the real picture of asset quality," she added.
In terms of valuations, Home First Finance looks attractively priced at a P/B of 4.1x infront of its immediate peer Aavas Financier whose P/B is 6.7x, but if its compared to well established players like HDFC Limited having a P/B of 3.3x, it is overvalued and a risky bet, she said. Therefore, she recommended investors to subscribe to this IPO for listing gains only.
Post the IPO, promoter's stake in Home First would stand reduced from 52.9 percent to 33.7 percent.