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Strong operating performance

Home First reported strong AUM growth of 33.3% YoY and 7.6% QoQ to Rs 83.7bn driven by healthy disbursements of Rs 9.6 bn (up 36.6% YoY and 7.1% QoQ) during the quarter. NIMs on AUM (calculated) stood at 7.3% and has largely remained around this levels over the last 6 quarters. This supported strong NII growth of 32.8% YoY. Operating profits increased at a faster clip (up 41% YoY) driven by NII growth and controlled opex (up 2.2% QoQ). C/I ratio stood at 35.1% as against 37.3% in 2QFY23 and 36.1% in 1QFY24. Credit costs (on BS loans) stood at 47bps (stable QoQ) while stage 3 assets increased 10bps QoQ to 1.74%. Spread (reported) are down 20bps QoQ to 5.5% however, remains above management guidance of 5.25%. RoA/RoE for the quarter stood at 3.8% and 15.6%. We remain watchful of NIMs trajectory going ahead due to spread compression, however increase in share of LAP and penetration in Tier 1 to Tier 3 cities could be yields accretive. Overall, 2QFY24 performance has exceeded our expectations with NII/PPOP/PAT being 2%/6%/6% ahead of our estimates. We build in AUM/PPOP/PAT CAGR of 27%/27%/26% over FY23-26E and RoA/RoE of 3.65%/17.6% in FY26E. We have increased our earnings estimate by 3-5% over FY24- 26E. We continue to value Home First at 4x H1FY26E P/ABV to arrive at our Target Price of Rs 1150. Maintain Buy and as our top pick in HFCs

Strong business momentum continues

Home First has consistently delivered AUM growth of 30%+ over the last 7 quarters. Home Loans (87% of AUM in 2QFY24) grew at an avg of 30% while LAP (12% of AUM as on 2QFY24) grew at an avg of 92% over the same period. Disbursement for 2QFY24 stood at Rs 9.6bn, up 37% YoY and 7% QoQ. Repayment rates (calculated) have remained in the range of 4% to 5% given its target customer segment of salaried customers. Lean business model has aided faster growth than peers despite operating in two segments. Low share of LAP and granular portfolio is comforting.

Spreads contract 20 bps QoQ; Calculated NIMs stable

Portfolio yield (reported under IGAAP) declined by 10 bps QoQ to 13.6% while CoB (reported under IGAAP) increased by 10bps QoQ to 8.1%. Thus it led to 20bps spreads compression to 5.5% as against 5.7% in 1QFY24. Calculated NIMs on AUM remained stable sequentially to 7.3% (includes DA income). The company expect another 20bps increase in CoB in 2HFY24. Overall, company expects to maintain spreads over 5.25%.

Asset Quality has been resilient

Bounce rates declined 80bps QoQ to 14.2% in 2QFY24. 1+ dpd has seen slight surge however, company has been able to maintain 30+dpd at 2.9% (flat QoQ) arresting forward flows. Stage 3 increased 10bps QoQ to 1.74% driven by seasonal factors. Credit costs was stable QoQ at 47bps.

Earnings growth impressive

Earnings growth (up 37% YoY) has been ahead of AUM growth (up 33%) due to stable NIMs (calc) and slower growth in opex, which was up 28% YoY. Opex/Avg assets stood at 2.9%, however likely to inch up to 3.0%-3.2%.

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