Buy Home First Finance Company; target of Rs 1100: YES Securities

YES Securities' research report on Home First Finance Company

Maintaining its RoE improvement journey (15.6% v/s 15% in Q1 FY24), Home First delivered a 4% beat on our NII/PPOP expectations (ex. of DA income) and 5% beat on PAT. The stronger performance was characterized by sustained robust disbursement/AUM growth momentum (up 37%/33% yoy) and stable asset quality performance (steady 30+ dpd). Spreads expectedly came-off by 20 bps on increase in CoF and marginal dip in portfolio yield (competitive rates on fresh loans). BT Out increased sequentially from 6.5% to 8.6% due to increased competitive intensity in larger markets and transmission of 125 bps rate hikes to customers over the past 12 months. Bounce Rates moved down during Q2 FY24 (14.2% v/s 15% in Q1 FY24), but it has seasonally spiked to 15.7% in October due to festivities (similar spike was seen in Sept-Oct 2022). Though Stage-2 bucket was stable, there was a slight decline in ECL coverage. Write-offs were around Rs50mn and credit cost for the quarter was 40 bps.

Outlook

With valuation approaching near fair levels, one needs to closely monitor future RoE drivers viz. disbursement growth momentum, trends in BT Out, movement in loan spread and ECL coverage levels. We retain BUY rating on the stock with an increased 12m PT of Rs1,100. However, our order of preference among affordable HFCs is Aptus, Home First and Aavas.