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Incorporated in 2010, Home First Finance Company India Limited is a Housing Finance Company. It is primarily engaged in the business of lending of housing loans to first time home buyers in low and middle-income groups, loans for the purpose of purchasing commercial property, loan against property and construction finance.

Positives:

(a) A technology driven affordable housing finance company that provides housing loan to first time home buyers in low and middle-income groups (b) The company has a strong network of 70 branches covering over 60 districts in 11 states and is strategically placed in geographies with high economic growth and substantial demand for affordable housing finance (c) Capital adequacy ratio of 51.7% at the end of 1HFY2021 which will allow the company to maintain high growth rates high growth rates given untapped potential in the affordable housing segment.

Investment concerns:

(a) Given that the company primarily caters to customers in the low and middle income group there is a probability that customers may default in their repayment obligations due to various reasons (b) Any disruption in the sources of funding could have an adverse effect on the business, results of operations and financial condition (c) Any downgrade in credit ratings could increase our borrowing costs, and affect the company’s ability to obtain financing, and have an adverse impact on the business.

Outlook & Valuation:

Home First has posted strong growth in NII of 58.6% CAGR between FY18-20 while net profits have grown at a CAGR of 122.6% during the same period. Despite the Covid-19 crisis the company’s asset quality has remained largely stable with GNPA and NNPA largely stable at 0.7% and 0.5% respectively at the end of 1HFY2021. The company had a CAR of 51.7% at the end of 1HFY2021which provides comfort. At the higher end of the price band the stock would be trading at P/BV of 3.6x fully diluted post issue book value of `143.4 per share. We expect the company to post strong growth driven by strong demand for affordable housing. Given the growth prospects, we recommend a SUBSCRIBE rating on the issue.

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SEBI Registration number is INH000000164

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