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A technology-driven niche player in HFC….

Home First Finance Company India Limited (HFFC) is a technology driven affordable housing finance company that targets first time home buyers in low and middle-income groups. Incorporated in 2010, HFFC is backed by private equity funds Warburg Pincus (WP), True North and Singapore’s sovereign wealth fund GIC. As of September 30, 2020, they had a network of 70 branches covering over 60 districts in 11 states and a union territory in India, with significant presence in urbanized regions of Gujarat, Maharashtra, Karnataka and Tamil Nadu

* According to CRISIL, the 60 districts in which HFFC has a presence accounted for approximately 48% of the affordable housing finance market in India in FY19.

* Housing loans comprised 92.1% of the Gross Loan Assets of HFFC, as of September 30, 2020.

* HFFC's Gross Loan Assets have grown at a CAGR of 63.4% between FY18 and FY20 and increased from Rs. 1,356 cr as of March 31, 2018, to Rs. 3,730cr as of September 30, 2020.

* The company intends to increase the number of branches to 90 by the end of FY22.

* For FY18-20, Net interest income grew at a CAGR of 59% while PAT grew by 123% CAGR. In FY20, HFFC reported PAT of Rs.79cr on interest income of Rs.355cr.

* In FY20, the total borrowings were Rs.2,494cr and the interest spread was at 4.5%. HFFC reduced average cost of borrowings from 9.8% in FY17 to 8.7% in FY20, due to improvement in credit ratings and financial performance.

* During the pandemic, management focused more on improving collection efficiency rather than fresh disbursements. This strategy meant that, loan disbursements fell by 66.6% in Q2FY21 while collection efficiency was at 93% in Q2FY21.

* At the upper price band of Rs.518, HFFC is available at a P/BV of 3.6x on its FY21E BV of Rs. 143.4(annualized), which is fairly priced. In spite of short to medium term concerns like COVID-19 and moratorium, we expect HFFC to maintain good growth trajectory in affordable housing market. We recommend Subscribe with a long term perspective.

Purpose of IPO

The offer comprises of fresh Issue and an Offer for Sale by the Selling Shareholders. The Net Proceeds of the Fresh Issue will be utilized to increase its capital base to meet the future capital requirements. The company shall not receive any proceeds from the Offer for Sale and each of the Selling Shareholders will be entitled to the proceeds of the Offer for Sale.

Key Risks

* Adverse effects of COVID-19 pandemic on business may continue in future.

* Concentration of business in the states of Gujarat and Maharashtra(60% of gross loan assets).

* Lack of credit histories of customers (32.8% of Gross Loan Assets from customers new to credit)

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