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Home First reported a productive quarter in terms of disbursements, asset quality, and profitability along with AUM growth. AUM at Rs169.38bn grew 25.7% yoy, led by strong disbursement and lower BT-out of 4.5%. Overall asset quality was stable (despite the 1Q seasonality) and credit cost clocked around the guided ~40bps on assets. Margins are expected to uphold, while Management guided for spreads at 5.00-5.25%, backed by its fully floating rate book and pass-on of any rate increase. Also, ATS is increasing due to rising property value and aspiration of home buyers, which will support growth. Operating cost-to-assets remains slightly elevated (~2.8%) due to ongoing investments in branch network expansion and front-loaded hiring, but is expected to normalize to 2.6-2.7% as AUM scales. Overall, Home First was on track in 1Q to achieve the ~25% AUM growth target, driven by steady disbursements and moderated prepayments. With strong capital adequacy ratio of 42.6%, the company remains well positioned to sustain its profitability. We maintain BUY and Jun-27E TP of Rs1,400, implying FY28E PBV of 2.6x

Healthy business and earnings growth

Hoe First logged a strong 1QFY27, with disbursements up 31.0% yoy (Rs16.28bn) and PAT growing 34.5% yoy to Rs1.60bn. AUM growth was robust at 25.7% yoy (Rs169.38bn), aided by lower BT-out of 4.5%. Reported spread (ex co-lending) expanded by 20bps yoy to 5.3% (with NIM at 6.0%), supported by 10bps sequential improvement in COF to 7.8%. Cost-to-income stood at 32.7%, marginally elevated due to branch and employee additions, while credit costs were contained at ~40bps. Asset quality was firm, with GNPA flat qoq at 1.8% and NNPA at 1.4%, alongside a stable 1+ DPD of 4.7%

Growth outlook intact, supported by expansion and operational efficiency

Management remains confident of achieving its ~25% growth target, supported by further customer addition, increasing ticket size, BT-out contained at 5-6%, and expanding into high-growth markets like UP and the southern states (TN, AP, TG). Overall margins are expected to be stable, with medium-term spread target of 5.00–5.25%. Further, co-lending with partner banks will pick up pace once banking processes are fully aligned (faced some challenges in 1Q), while continued use of AI and digital tools will improve the company’s method of approving loans and collections; this will also help keep cost-to-assets steady at 2.6-2.7%. With credit costs expected to be steady in the near term (guidance of ~40bps), the company is focused on delivering profitable, sustainable growth while keeping a strong capital buffer.

Estimates largely unchanged; maintain BUY

Considering the 1QFY27 developments and management commentary, we retain our FY27-29 estimates. We maintain BUY and Jun-27E TP of Rs1,400, implying FY28E PBV of 2.6x. We expect AUM growth to remain robust, and the company to achieve the guided ~25%, as balance transfers (BT-outs) normalize and disbursement momentum stays healthy. ROA and ROE are expected to remain strong at ~3.8-4% and ~15-16% over FY27-29E, supported by the successful rollout of the company's AI and digital initiatives driving operational efficiencies, along with stable asset quality and contained credit costs.

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