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Home First Finance Company (HFFC) reported a strong AUM growth of (+8% QoQ, +35% YoY) at INR 105bn led by healthy disbursements of INR 11.6bn (+5.5% QoQ, +30% YoY). NII grew (+17.5% YoY, +7% QoQ) as NIMs remained stable at 5.3%. CoFs remained steady at 5.3% and yields were down -10bps QoQ. C/I ratio moved up to 35.5% (+151bps) on account of higher employee hiring during the quarter resulting in PPoP of INR 1.19bn (+22% YoY, +4.9% QoQ). Credit costs stood at INR 56mn (22bps of total AUM vs 12bps QoQ) which led to a PAT of INR 878mn (+27% YoY, +5.2% QoQ; -2% JMFe). Asset quality was largely stable with gross stage 3 at 1.74% (+4bps QoQ) and net stage 3 at 1.26% (+7bps QoQ). PCR was down -219bps QoQ at 27.6%. In terms of growth, HFFC plans to go deeper into geographies (central and north) from here-on which would aid in consistent growth of 35%+ in the near term. Though focus on increased co-lending and NHB borrowings restricted a material increase in CoFs to a certain extent, mgmt expects CoFs to rise +10bps in the near term. This warranted to increase its PLR rates by +35bps (effective 1Aug’24) in order to consistently maintain NIMs at ~5%+. Company is also in discussion with ratings agencies to improve its credit rating as it crossed INR 100bn AUM mark, which would provide strong tailwinds to its CoFs in the long-term. With consistent efforts to retain its customers, mgmt laid out a clear action plans for its employees which have effectively resulted in lower BT-outs (6.3% vs 8.3% QoQ). Despite lower provision requirements as indicated by ECL model on the back of improved collection efficiencies, company has also prudently maintained an additional overlay of INR 150mn. We believe that the management's capacity to predict potential deviations from its strategic plan and to proactively implement countermeasures sets HFFC at a superior position to its peers. The company’s sustained excellence across all key metrics viz. margins, profitability, productivity and asset quality positions HFFC to trade at a premium valuation thus valuing the stock at 3.8x FY26E BV in return for consistent RoAs of 3.5%+ with a revised TP of INR 1,250. Maintain BUY. 

* Consistent and robust AUM growth: HFFC disbursements stood healthy at INR 11.6bn (+5.5% QoQ, +30% YoY) which led to a strong AUM growth of (+8% QoQ, +34.8% YoY) at INR 105bn. The concentration of HL book now stands at 85% of total AUM (vs 87% YoY) on account of higher focus towards LAP. The HL book grew (+7% QoQ, +32% YoY) while LAP grew (+12% QoQ, +59% YoY). Mgmt. guides LAP to constitute 20% of total AUM (currently at 14%) in next 3 years. The growth from commercial property purchase loan was also strong at (+4% QoQ, +34% YoY). Mgmt guided growth to sustain as the company grows deeper into geographies in next 3 years. We expect HFFC AUM to grow at 34% CAGR over FY24-26E. 

* Continued strong profitability: NII grew (+17.5% YoY, +7% QoQ) as NIMs remained stable at 5.3%. CoFs remained steady at 5.3% and yields were down -10bps QoQ. C/I ratio moved up to 35.5% (+151bps) on account of higher employee hiring during the quarter resulting in PPoP of INR 1.19bn (+22% YoY, +4.9% QoQ). Credit costs stood at INR 56mn (22bps of total AUM vs 12bps QoQ) which led to a PAT of INR 878mn (+27% YoY, +5.2% QoQ; -2% JMFe). RoA remains steady at 3.6% while RoE moved up further to 16.3% (+20bps QoQ) during the quarter. Mgmt anticipates a ~10bps hike in CoFs from here and guided for PLR hike of +35bps (effective Aug’24). This would limit any further NIMs compression from here and thus remains confident to maintain NIMs  of 5.5%+. In addition, the company also started discussion with rating agencies to upgrade its credit ratings as it crossed 100bn AUM. We forecast earnings CAGR of 28% over FY24-26E to deliver avg RoA/RoEs of 3.5%/18.4% over FY25-26E. 

* Steady asset quality: Asset quality was largely stable during the quarter with gross stage 3 at 1.74% (+4bps QoQ) and net stage 3 at 1.26% (+7bps QoQ). PCR was down -219bps QoQ at 27.6%. 1+DPD was up +30bps QoQ at 4.5% while 30+DPD was up +10bps QoQ at 2.9%. Overall ECL cover for the company remains steady at 0.8% of total AUM (-3bps QoQ). We do not see any major asset quality headwinds going forward while the management also maintains additional overlay of INR 150mn over and above ECL provisions to prevent any major shocks going forward. We build avg. credit costs of 30bps over FY25-26E. 

 * Valuation and view: We believe that the management's capacity to predict potential deviations from its strategic plan and to proactively implement countermeasures sets HFFC at a superior position to its peers. HFFC’s sustained excellence across all key metrics viz. margins, profitability, productivity and asset quality positions the company to trade at a premium valuation thus valuing the stock at 3.8x FY26E BV in return for consistent RoAs of 3.5%+ with a revised TP of INR 1,250. Maintain BUY. 

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