Update On Home First Finance Company Ltd By Emkay Global
Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel
https://t.me/InvestmentGuruIndiacom
Download Telegram App before Joining the Channel
Structural tailwinds
We met management of Home First Finance (HFF) to get insight into the company’s growth plans, competitive landscape, and differentiation strategy. Here are the highlights of our discussions:
* Focus on increasing presence in very competitive urban market: HFF is focused on increasing penetration in an extremely competitive urban housing market. Gujarat, Maharashtra and Tamil Nadu, which are well-serviced states, form 70% of HFF’s loan book. The company’s existing book clearly demonstrates the opportunities available in the urban mortgage market and the variation in the risk-taking appetite of mortgage lenders. New-to-credit customers account for ~40% of HFF’s loan book, with ~75% of them being salaried customers (Exhibit 4).
* Low-ticket salaried home loan remains key product; spreads remain healthy: The current loan book profile carries ~92% home loans, ~6% LAP and ~2% developer loans (Exhibit 3). The company also provides top-up loans to existing customers once the credit record with HFF is established. The company plans to largely maintain this mix going forth, with a heavy tilt toward home loans. The average yield for HFF is ~13% and the average cost of funds is ~8%.
* Operational flexibility and quicker TAT are key features: In the highly competitive home loan market (especially in urban India), HFF differentiates itself by demanding relatively fewer documents, identifying the undocumented/informal sources of income as well as family income, and offering loans in short TAT (~48 hours). On account of this, HFF’s overall customer base expands within the same geography and within similar credit profile customers.
* Healthy capital adequacy to ensure consistency in growth without need for nearterm dilution: HFF directly sources its customers and does not rely on DSAs. HFF banks on its 70+ branches across states to source loans. The company also has tie-ups with builders, masons, contractors, furniture retailers, etc. to incrementally source loans. With a CAR of ~63% and leverage of 2.5x, HFF believes that it has adequate capital to grow at a rate of ~30% per annum for the next 3-4 years.
* Promoters and valuation: HFF is promoted by True North and Aether, holding 20.3% and 13.4%, respectively. HFF is also backed by Warburg Pincus (28.8%) and Bessemer (7.8%) (Exhibit 9). Strong ownership provides the required comfort in the company’s ability to achieve its mid- to long-term goals. HFF trades at 4.2x FY20 P/B, whereas peers Can Fin Homes trades at 3.2x FY20 P/B, LICHF at 1.1x FY20 P/B and HDFC at 2x FY20 P/Standalone book. We remain structurally positive on the housing landscape in the wake of all-time low interest rates, high affordability, favorable demographics and support from the government in terms of lower stamp duty.
To Read Complete Report & Disclaimer Click Here
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
Above views are of the author and not of the website kindly read disclaimer
