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Firmly placed to sustain solid growth

Home First is well positioned to deliver 27-30% AUM CAGR over FY24-27 and reach Rs200bn AUM. Despite increase in BT Out and competition, HFF’s AUM growth is expected to remain brisk aided by 1) large and growing low-ticket affordable housing market (AHFCs, SFBs and NBFCs reporting strong growth in Rs0.5-2mn HL segment), 2) demonstrated execution rigor by the Management, 3) persistent Branch/RO addition anchored on market potential, deeper penetration, and regional diversification, 4) continuous expansion of connector network with active engagement, 5) improved throughput from other sourcing channels with growing recognition of HFF brand, 6) further headroom to increase the share of LAP and 7) calibrated scaling-up of colending AUM. From the perspectives of funding, underwriting and tech capability, scaling the book to Rs200bn is unlikely to be an issue for HFF. Key monitorable would be employee management/attrition and portfolio spread.

Portfolio spread can calibrate further in near term

Given prevailing dynamics in new loan pricing, NHB refinancing, BT activity and funding cost/system interest rates, HFF’s portfolio spread is expected to further come-off over the next couple of quarters. Even as the co. is negotiating for finer loan pricing/credit spread, the upward re-pricing of bank borrowings is expected to continue with majority linked to 1-year MCLR. Availment of NHB sanctions (Rs2.5bn unavailed as of Dec) and increase in its share within borrowings would impact portfolio yield/spread. BT activity has increased in recent quarters triggered by significantly extended loan tenors after effecting 125 bps rate hike in this rate cycle. BT Out in recent quarters was at 7-9%, and some of the BT requests may have been retained through reducing rates (likely by 100-150 bps) which also would have impacted portfolio yield by a marginal extent. Notably, the new loan pricing/origination yield (without co-lending) has been gradually improving in recent quarters and currently stands slightly above the portfolio yield. Disbursement yield in HL and LAP is similar to portfolio yield now. Consequently, portfolio spread would be largely driven by expected hardening of funding cost.

RoE improvement trajectory intact

HFF has improved its RoE by ~200 bps over the past four quarters aided by sustenance of 33-34% AUM growth, steady asset quality/credit cost, increase in DA activity/income and stable cost metric notwithstanding growth & tech investments. While strong growth is expected to continue, the pressure on portfolio spread (till CoF peaks out) can likely moderate the pace of incremental RoE expansion. We estimate RoE breaching the 17% mark in FY26 when portfolio spread could partially recover aided by calibrated transmission of funding cost decline.

Re-iterate BUY, valuation reasonable after recent price correction

Home First has been among the few companies under our coverage where growth and earnings downgrade has been negligible through FY24. From growth and RoE standpoint, the co. has consistently met expectations. The growth outlook remains solid and RoE improvement trajectory appears intact, and hence the recent price correction makes the valuation attractive. The stock trades at 17x PE and 2.8x PABV on FY26 estimates for estimated earnings CAGR of 27-28% over FY23-26. We retain BUY and maintain 12m PT of Rs1140.

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