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Exceeds expectations on growth and asset quality

Our view

Home First surprised pleasantly on growth momentum as well as on the extent of asset quality improvement in Q4 FY22. Disbursements at Rs6.4bn (estimate of Rs6bn) were higher 12% qoq/42% yoy and drove a stronger-than-estimated AUM growth of 8% qoq/30% yoy. Portfolio run-off was materially higher qoq on stronger collections (sizeable correction across delinquency buckets) and seasonally higher BT out (annual trend largely unchanged). While NII was impacted by lower DA income, it still grew by 7% qoq/30% yoy. Portfolio spread was stable at 5.6% with incremental lending yield at 13% and marginal CoB at 5.8%/7.5% with/without NHB refinance. Opex grew 14% qoq on account of significant branch addition in H2 FY22, 24% growth in employee base and higher ESOP charges.

There was a material reduction in delinquency buckets with 1+ dpd decreasing to 5.3% from 6.5% qoq (6.2% as of March 2021) and 30+ dpd declining to 3.7% from 4.7% qoq (4.1% as of March 2021). GS3/GNPL declined from 2.6% to 2.3%, within which <90 dpd pool stood at 1% (0.9% as of Dec). The improvement in GS3/GNPL was largely underpinned by recovery/SARFAESI actions, as write-offs were marginal at Rs20-30mn (mainly recovery shortfall). Credit cost was marginal at Rs27mn (lowest since Covid), but ECL cover on Stage-2 assets and GS3/GNPL stood enhanced. Bounce rates are normalizing towards pre-Covid level, in-sync with the reduction in delinquent pool

Management has guided for 30% AUM growth and 30-50 bps credit cost in FY23. Home First is reasonably confident about maintaining loan spread around 5% aided by 90% portfolio being on floating rate, ability to pass-on increase in CoF, significant headroom to improve product mix (LAP share) and impending benefits of recent credit rating upgrade.

Consistent strong execution on growth and asset quality reinforces our conviction on Home First. We raise FY23/24 earnings/ABV estimates by 7-10%/2-3% and hike 12m PT to Rs975 (earlier Rs910). We see strong growth prospects for the co. underpinned by low-to-moderate market share in most large affordable housing markets, validated policies and processes during Covid, constant investments in resources/distribution and accelerating business traction in maturing branches. The scaling-up of co-lending partnership with UBI would bring additional growth and profits. Stock trades at 3.4x FY24 P/ABV, palatable for a franchise with long-term growth visibility and high profitability

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