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Getting stronger

Home First started the year with yet another strong quarter, with 33% loan growth and 34% core PBT growth. The transmission of rate hikes led to sequentially stable margins. Early delinquencies increased in line with seasonal trends, and we expect catch-up over time. We raise estimates and retain BUY with a Fair Value of Rs1,100 (Rs1,000 earlier).

Solid earnings print

Home First’s performance remains strong, with outperformance on the growth and margin fronts. PAT was up 35% yoy to Rs691 mn, with 34% growth in NII and core PBT. This was underpinned by 33% yoy and 8% qoq growth in AUM, with NIM compression at 30 bps yoy to 7.96%, almost flat qoq. Growth in operating expenses was elevated at 43% yoy; cost-to-AAUM ratio increased to 3.0% from 2.7% in 4QFY23 and 2.8% in 1QFY23. Stressed loans were up 27 bps qoq, driven by a 19 bps increase in the gross stage-2 ratio; these loans were up 28% qoq. Gross stage-3 loans were up 11% qoq; gross stage-3 ratio was up 3 bps qoq to 1.6%. 1+dpd and bounce rate inched up 30 bps and 140 bps qoq, respectively, to 4.3% and 15.0% in 1QFY24.

Going strong, upgrades continue

Home First continues to deliver quarter after quarter, gradually allaying fears of the execution risk of consistent compounding, competition from banks/HFCs in large affordable housing markets and ability to maintain margins. The company aims to deliver 30% loan growth in FY2024E, following 33% growth. Scale-up in co-lending can provide upside and become RoE-accretive over time. The company has smartly maintained NIM qoq as a consequence of raising home loan rates by 50 bps in 1QFY24, 50 bps in 3QFY23 and 25 bps in 2QFY23; while BT-outs increased to 6.5% from 5.6% in 1QFY23 and 6.1% in 4QFY23, the ratio is not alarming. For now, it appears that the company may improve its spread/NIM compression guidance for the year; we are building in a 20 bps reduction in spreads for the year to 6.3%.

Early delinquencies increased

Home First’s early delinquencies increased 11% qoq (28% yoy); gross stage-2 loans inched up 19 bps qoq to 1.3% and gross stage-3 loans were up 3 bps qoq to 1.6%. The ratios appear in control. Its strong execution track record in the last few quarters provides conviction of pulling through over the year; we will nevertheless watch the trend.

Raise estimates; BUY

We are raising our estimates by 5-7%, reflecting the marginally higher loan book and margins (while NII estimates remain unchanged, other interest income estimates are realigned/upgraded), offset by higher expenses and lower credit costs. We expect the company to deliver 20-23% earnings growth in the next three years; near-term RoE should remain at 15-16%.

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