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Home First Finance (HFF) is a technology driven affordable housing finance player with over 44k customers and an AUM of over INR373b. Affordable housing (AF) finance player; Focused on digital adoption: HFF targets first time home buyers with average loan ticket size of INR1.0m. It has built a wide distribution network of 70 branches spread across 11 states with Gujarat and Maharashtra contributing 60% share in loans. HFF has invested deeply in digital and analytical capabilities, enabling effective credit underwriting. Extensive deployment of digital technology across processes- customer acquisition, loan applications, client service, risk management enables it to sanction loans with TAT of 48 hours.

Rising share of salaried customers:

HFF predominantly serves low and middle-income group salaried customers (73% of loans) who are typically employed by small firms or work in junior positions in large firms. Over past few years, it focused more on customers with existing credit history, whose share rose to 67% by 1HFY21. It majorly finances completed homes (89% of portfolio), that helps HFF maintain asset quality.

Healthy Financials:

Disbursements quadrupled to INR15.7b over FY17-19, while it was stable in FY20. It delivered loan book CAGR of 56% over FY17- 20 and increased to INR37.3b by 1HFY21. Over this same period, share of home loans declined from 97% to 92% while that of LAP rose from 3% to 5%. HFF improved its spreads to 4.5% in FY20, driven by improvement in yield to 13.2%. With strong underwriting, HFF experienced healthy asset quality with GNPL ratio at sub-1%. RoA of 2.7% (FY20) is healthy v/s peers.

Issue Size:

The INR11.5bn IPO consists of fresh issue of INR2.7bn and OFS of INR8.9bn (by promoters and investors) which would result in promoter’s stake reducing from 52.9% pre-IPO to 33.7% post-IPO. The funds raised will be utilized to augment the capital base.

Valuation & View:

With the government's focus on 'Housing for All' by 2022, AF has seen strong growth over last six years. Smaller players like HFF have created a niche in this space and are capitalizing on this multiyear opportunity. We like HFF given its 1) leverage on digital technology 2) wide distribution network, 3) high quality housing finance portfolio, and 4) robust expansion plans. It showed resilience during Covid-19 with >96% collection efficiency. The issue is valued at 4.8x FY20 P/BV which is comparable to peers. We recommend Subscribe for Long Term. Further given the current buoyant market, the issue could see listing gains as well

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