Home First Finance Company India Ltd (HomeFirst) is a technology driven affordable housing finance company that targets first time home buyers in low and middle-income groups. Its AUM as on FY21 stood at Rs. 4141cr which has grown at CAGR 45% over FY17-20 which makes it one of the fastest growing HFC’s in India. The company mainly offers customers housing loans for the purchase or construction of homes, which comprised 92.1% of gross loan assets with average ticket size of Rs. 10 lakhs. Majority of customers are salaried class (~75%) who are typically employed by small firms or work in junior positions in larger companies. Around 69% of the loans are given to completely new-to-credit category of customers who have no credit history. The company operates mainly in Tier-I and II cities and its target audience is low ticket size customers which are underserved by larger corporate banks.
These are typically people looking out for home loans in the periphery of larger cities. We believe that India’s low-cost housing segment provides a huge opportunity and it is at a decadal structural upswing. Strategically the company is well placed as based on the home loans outstanding in the affordable housing segment, the top 15 states account for over 90% of the market size in this segment. Its top 3 states contribute ~68% of its total AUM which comprises of -Maharashtra 19% share, Gujarat 38% and Tamil Nadu has 11% - these are key focused markets for HomeFirst. The Company has a diverse range of lead sourcing channels and unlike other affordable housing finance companies, HomeFirst has relied more on external means for lead generation.
The company has technology at the core - right from sourcing to collections and this elevated level of focus on technology is creating an edge for the company in many ways like reducing turn-around times and transaction costs, building a scalable operating model, uniformity in operations, enhance customer experience. The company has experienced management team and has marquee investors.
Valuation and recommendation:
We have envisaged 28% CAGR for Net Interest Income and 36% CAGR for net profit over FY21-FY23E. Further, we have estimated that the AUM would grow at 25% CAGR (home loans at 25% and other loans at 21% CAGR). The initial asset quality picture, post moratorium, looks positive and collection efficiencies have also reached the pre-COVID level. Rising operating and financial leverage will result in increase in RoE and RoA. We believe that the NPAs will start to reduce from H2FY22. The stock is currently trading at a 3.1x and 2.7x FY22E and FY23E ABV. We believe that investors can buy HomeFirst at LTP and add more at Rs.461 (2.45xFY23E ABV) for the base case fair value of Rs.565 (3xFY23E ABV) and for the bull case fair value of Rs.611.5 (3.25xFY23E ABV) over the next two quarters.
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