Buy Home First Finance Company Ltd For Target Rs.1,325 By Yes Securities Ltd
A strong show, yet again
Sustains high growth, delivers improvement in spread (excl. CL) and resilient asset quality
HFF’s performance was strong yet again characterized by 7% qoq/34% yoy AUM growth, augmented fee income (insurance distribution), 10 bps improvement in portfolio spread (excl. Co-lending) and sustained benign credit cost (20 bps) underpinned by stable PAR buckets (negligible write-offs). Opex was higher with significant employee addition (30% strength augmentation in H1 FY25) and higher ESOP cost. Home First continued its RoE expansion journey with 16.5% delivery in Q2 FY25.
Disbursements stood at Rs11.78bn, up 1% qoq/23% yoy. Portfolio run-off has been moderate in H1 FY25 with controlled BT Out rate of 6.3-6.7% (v/s 7.5-9% in preceding three quarters). Portfolio Yield (excl. Co-lending) increased by 10 bps to 13.6% aided by the 35 bps PLR hike taken from August. Origination Yield (excl. Co-lending) has stabilized at 13.4%. CoB (excl. Co-lending) was stable at 8.3% with marginal CoB steady at 8.6%. 1+ dpd, 30+ dpd and Stage-3 loans were stable qoq at 4.5%, 2.8% and 1.7% respectively
Disbursement growth to stay strong; portfolio spread has stabilized
Disbursement traction would firm-up from Q3 FY25 driven by distribution and resource addition in recent quarters. Management remains confident about delivering 30% pa AUM growth over the next few years. With the benefit of PLR hike largely behind, the Portfolio Yield (excl. Co-lending) could gradually move towards the Origination Yield, assuming product/customer mix remains largely unchanged. HFF’s funding profile has significant variability to rate/liquidity easing conditions with about 20% of bank loans linked to Repo and short-term rates and another 20-25% linked to 3m MCLRs. The co. also has NHB sanction of Rs5bn which is likely to have a blended cost of lower than bank loans. Overall, the portfolio spread (excl. CL) is expected to stabilize around the current level for next couple of quarters.
Upgrade earnings estimate for FY25;
retain BUY with increased 12m PT of Rs1325 HFF’s execution on growth and RoE has been consistently strong. The growth/RoE outlook has got comforted by 1) reduction in BT rate over past couple of quarters, 2) improved view of portfolio spread, and 3) resilience demonstrated in asset quality. We estimate 29% AUM and 26% PAT CAGR over FY24-27 with RoE reaching 18.5% in FY27. Stock trades at 16x P/E and 2.8x P/ABV on FY27 estimates. Retain BUY with an increased 12m TP of Rs1325. HFF is one of our preferred picks in the affordable housing space.
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