IGI Logo

Core earnings steady; profitability buoyed by securitisation income

Home First Finance Company (HomeFirst) exited FY21 on expected lines with: 1) stage-3 assets at 1.8%, credit cost at 100bps, 1+ dpd pool at 6.2%, and zero restructuring; 2) disbursements regaining traction in Q4FY21 or H2FY21 (to be precise) supported AUM growth of 14% YoY / 5% QoQ; 3) after a pause, securitisation of Rs1.2bn of asset pool yielded income of Rs181mn (securitisation income in FY21 being at par with FY20 at 1.1% of assets); 4) Portfolio spreads drawing support of lower borrowing cost (down to 7.4% in Q4FY21) settled >5%.

With >30% AUM growth, funding cost benefit, improved cost to income ratio, and contained credit cost, we expect earnings to compound at ~40% over FY21-FY23E. However due to excessive capitalisation (tier-1 at 55%) and despite >3% RoAs, RoEs will be modest at ~12%. Maintain BUY. Key risks: i) sourcing as well as collections managed by front-end team; ii) apartment home loans showing some stress (in pockets).

* Earnings buoyed by securitised income besides growth uptick, stable credit cost and borrowing cost benefit: HomeFirst reported PAT of Rs313mn for the quarter, up 96% QoQ and 150% YoY. Overall, for FY21, PAT stood at Rs1.0bn, very much in line with our estimate of Rs0.97bn. For FY21, RoA was 2.5%, down 20bps vs 2.7% in FY20. Core PAT was supported by growth uptick, decline in borrowing cost and stable credit cost; reported PAT was buoyed by securitised income.

* Portfolio quality – stage-3 assets inch up 20bps to 1.8%; 1+ dpd at 6.2%: Despite the covid-led disruption, the company ended FY21 with 100bps credit cost (as a % of onbook advances). Compared to 0.8-1.0% stage-3 assets over past few years (1.0% in FY20), it increased in these challenging times to 1.8% (up 20bps QoQ) in line with expectations. The above has to be read in conjunction with zero restructuring for FY21 and the highyield nature of portfolio (>13%). Collection efficiency has improved to 98.5% as at Mar’21 vs 97.6% in Dec’20. With improved collection efficiency, bounce rates are steadily improving MoM to 17.3% in Q4FY21 from 20.1% in Q3FY21 and 16.3% in Apr’21 1+ dpd however settled at higher than the normalised level of 6.2% (after rising to 7.5% in Q3FY21).

With normalisation kicking in for the company in terms of collections and business momentum, 1+ dpd print should gradually approach its normalised range of 3- 4% in the medium term. This will further strengthen confidence in underwriting and credit assessment standards of the company. 30+ dpd remained sticky at 4.1% (higher than past average 1.4-1.8%). On an average 50% of 30+ dpd is generally reflected in stage-3 assets. With some further flow-through from the early delinquency buckets into stage-3, we expect stage-3 to inch up to 1.9% for FY22E and then moderate to sub-1.5% by FY23E. We therefore build-in credit cost of 55-60bps for FY22E/FY23E respectively.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer