Home First Finance on Tuesday set the price band for its forthcoming IPO in the Rs 517-518 range. The Rs 1,153.71-crore IPO, which will open on Thursday, comprises of a fresh issue of Rs 265 crore, and an offer for sale of Rs 888.72 crore by promoters and existing shareholders. Its shareholders include True North Fund V LLP, Aether (Mauritius) and Bessemer India Capital Holdings II, besides certain individuals.
Home First Finance company India limited is a mortgage finance company that offers instant home loans. Company claims that it would process home loans within 48 hours.
Should you invest in Home First Finance IPO?
Find the details as below-
About Home First Finance Company India Limited
Home First is in the business of providing housing loans to low- and mid-income affordable home buyers. Home First is a registered HFC and operates from its head office situated in Mumbai. As at March 31,2020, the company has presence across 11 States and a union territory of the country with a network of 68 branches across 60 districts.
Company offers customers home loans for the purchase or construction of residential properties and for the extension and repair of existing housing units.
The Company has grown its Asset Under Management (AUM) from Rs 2,443.57 Crores in the previous year to Rs 3,618.36 crs as at March 31, 2020 recording a growth of 48.1%. This growth has come in mainly from growth in the markets of Bangalore, Chennai, Hyderabad and Jaipur. These markets have grown by 78.7% over last year. This has helped diversify its portfolio and reduce concentration in the States of Gujarat and Maharashtra. They are achieving scale by driving presence in its core states of Gujarat and Maharashtra while also creating new moats in Tamil Nadu, Andhra Pradesh, Telangana and Rajasthan. This has also enabled the business to strengthen its presence in the self-construction business within the housing finance industry. With this, the company now has the knowledge and capability to grow in builder led and self-construction markets.
What are the key strengths of Home First Finance Limited?
1) Technology driven company with scalable operating Model
2) Customer centric organizational commitment
3) Deep penetration in the largest housing finance markets, with diversified sourcing channels
4) Centralized, data science backed underwriting process
5) Technology driven collections system
6) Well-Diversified and cost-effective financing profile
7) Experienced management team with qualified operational personnel and marquee investors
Why to invest in this IPO?
1) Home First Finance is one of the fastest growing mortgage finance company in India.
2) It has generated strong revenue growth in the last 4 years (CAGR 66%).
3) Its margins have improved in the last 4 years (CAGR 128%). It was generating 7.3% margins in FY2017 Vs 19% in FY2020. Its margins for 6 months ending Sep-2020 were further improved to 21.8%.
Risk Factors of investing in this IPO:
1) Disruption in the sources of funding could affect its business
2) Default by borrowers and delay in repayment of loans can affect company business
3) Company would get affected by volatility in interest rates in both lending and treasury operations, which in turn affects the profitability of the company
4) In case credit rating agency downgrades company credit ratings, it would increase the company borrowing costs and this could impact the profitability
5) Company relies significantly in its IT Systems and any failure or security breach can affect its business
6) Company may face asset-liability mismatches which can affect its liquidity and profitability
7) Company major operations are concentrated in Gujarat and Maharastra. Any adverse developments in these states can affect the business.
8) Inside the case company cannot full value of the collateral or cannot collect amounts outstanding for defaulted loans on time, it can affect its business and financials.
Our View
The company has posted growth in its top and bottom lines for the last three and a half fiscals which are indicative of likely trends going forward with its niche play. The company is asking the issue price of Rs 518 of the upper price band in the P/E range of 39x to 48x. As per offer documents, HFFC has shown Aavas Financiers as its listed peer which is trading at a P/E of around 61.8 (as on January 19, 2021 closing). While one cannot take single company for comparison, one can assume that Home First Finance IPO Share price at Rs 518 is fully priced.
Its issue price is fully priced. High risk investors can invest for listing gains as well as for medium to long short term.
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