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Niche affordable housing financier

Home First Finance Co. (HFF) founded in 2010 by Mr. P.S. Jayakumar, Mr. Jaithirth Rao and Mr. Manoj Viswanathan is a technology-driven affordable housing finance company. It focuses on first-time home buyers in low and middle-income groups, offering housing loans for purchase/construction of homes. Over the last 10 years, HFF has sanctioned home loans to more than 50,000 customers in 60 districts, across 11 states and 1 union territory. As of September 2020, the company had an AUM of Rs37.3bn and net worth of Rs9.8bn. It is backed by marque private equity players like True North (34.4%), Warburg Pincus (25.6%), Aether Mauritius (22.9%) and Bessemer India (11.5%).

Robust growth delivery over FY17-20 and improvement in spread

HFF registered loan and disbursements CAGR of 56.7% and 56.2% respectively over FY17-20. Along with strong growth, the company managed to tweak its loan mix - housing loans’ share came off from 96.7% in FY17 to 92% in FY20 and share of LAP improved from 2.1% to 5.1%. Lending spread also improved significantly from 3.3% in FY17 to 4.5% in FY20. HFF operates with average housing loan ticket size of Rs1mn and with a strong presence in economically healthier states like Gujarat (39% of GLP), Maharashtra (21% of GLP), Tamil Nadu (10.5% of GLP), Karnataka (9.3% of GLP) and Rajasthan (5.1% of GLP).

Having a digital edge

The company effectively leverages the technology to compliment its credit underwriting standards. In addition to normal CIBIL and fraud related data, the company uses data analytics on over 100 data points to screen its customers. Resultantly, benefits accrue in terms of superior client selection and lower TAT of 48 hours. Importantly, 58.7% of the customers and 93.8% of active connectors are registered with their mobile and connectors application respectively.

Rising share of salaried and credit tested customers

Apart from rising LAP and steady decline in housing loan concentration, HFF has steadily increased its salaried customer concentration with focus on clients with credit history. Concentration of the salaried customers has increased from 68.5% of GLA in FY17 to 73% in 1HFY21. Also, the share of clients with credit history has gained traction from 50.2% in FY17 to 67.2% in 1HFY21. These measures had resulted in better asset quality management as Gross Stage 3 % witnessed a spike of just 0.3% over FY18-20.

Healthy return ratios; IPO valuation palatable

Aided by its high growth momentum on a smaller base, superior underwriting standards, and efficient collections management (GNPAs at <1% and modest credit costs), HFF delivered healthy RoA of 2.7% in FY20. RoE of 11% looks modest owing to lower leverage at 4x in FY20. The issue is priced at post-money P/BV of 3.4x compared to its nearest competitor Aavas Financiers which trades at 6.8x on September BV.

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