Buy Home First Finance Ltd for the Target Rs. 1,500 by Motilal Oswal Financial Services Ltd
Sustainable growth through expansion and digital innovation
AUM CAGR of ~26% over FY25-27E; credit costs to remain benign
Home First Finance (HomeFirst), in its FY25 Annual Report, highlighted its digital-first approach to making home ownership more accessible by offering innovative housing finance solutions and leveraging technology to streamline processes. HomeFirst positions itself as a foundation for change, a vision expressed in this Annual Report through a powerful metaphor: Every remarkable structure begins beneath the surface, hidden yet essential. This reflects the company’s belief that a home is the cornerstone of stability, fuelling family aspirations and nurturing growth.
* In Apr'25, HomeFirst successfully completed its maiden QIP, raising INR12.5b. The strong investor participation reflects sustained confidence in the company’s differentiated business model, robust governance, and longterm growth potential. This capital infusion is expected to further strengthen the balance sheet by enhancing CRAR and reducing leverage.
* The company recently received a credit rating upgrade from both ICRA and India Ratings. ICRA upgraded the rating from AA- (Stable) to AA (Stable), while India Ratings upgraded it from AA- (Positive) to AA (Stable). This is expected to further lower the company's cost of borrowing while supporting NIM expansion.
* HomeFirst is sharpening its focus on emerging states such as Rajasthan, UP, and MP, which are witnessing rapid infrastructure development across transportation, ports, energy, and industrial corridors. In FY25, the company expanded its presence to 10 additional districts and added 40 new touchpoints, including 22 branches. Seven of these branches were located in emerging states, which reflects its commitment to deepen penetration in high-growth regions.
* With a strong focus on early bucket collections, the company has effectively managed initial delinquencies, resulting in stable GS3 at 1.7% as of Mar’25.
* Technology remains a key differentiator for HomeFirst, with over 50% of new sourcing now fully digital and ~75% Account Aggregator penetration as of FY25. The company’s selective, value-driven tech adoption has streamlined processes, reduced turnaround times, and enhanced customer experience.
* HomeFirst trades at ~2.7x FY27E P/BV, which is attractive for an AUM/PAT CAGR of ~26%/30% over FY25-27E, with RoA/RoE of 3.8%/14.2% in FY27E. HomeFirst is our preferred pick in the AHF segment and we reiterate our BUY rating on the stock with a TP of INR1,500 (based on 3.2x Mar’27E P/BV).
Widening geographic footprint for sustainable growth
* HomeFirst follows a contiguous branch expansion strategy, concentrating on high-potential affordable housing markets. It has built a robust physical footprint across India, with a distribution network spanning 155 branches and 361 touchpoints across 13 states.
* The company aims to strengthen its local presence and deepen market penetration by adding 30-40 additional phygital touchpoints in FY26, combining digital capabilities with physical outreach.
* Additionally, the company is intensifying its focus on emerging states—Uttar Pradesh, Madhya Pradesh, and Rajasthan which are witnessing significant infrastructure development, particularly in key sectors such as transportation, ports, energy, and industrial corridors. We model a disbursement CAGR of ~21% over FY25-27, leading to an AUM CAGR of ~26% during the same period.
NIMs to benefit from a decline in leverage and potential CoB benefit
* HomeFirst reported a spread of 5.2% in FY25 (excluding co-lending), slightly down from 5.5% in FY24. Lending yields (excluding co-lending) remained stable at 13.6%, supported in part by a ~35bp PLR hike in Aug’24. However, tight liquidity conditions in the banking system throughout FY25 kept deposit rates and MCLRs elevated, resulting in a ~20bp increase in the company’s cost of borrowing from 8.2% in FY24 to 8.4% in FY25.
* The company recently received a credit rating upgrade to AA (Stable) from both ICRA and India Ratings. This upgrade is expected to reduce its cost of borrowing, thereby supporting NIM expansion. Additionally, the recent equity raise of INR12.5b through QIP is expected to further support NIM expansion, driven by a decline in leverage. We project NIMs (as a % of avg. assets) of ~6.6% each in FY26/FY27 (vs. ~5.9% in FY25).
Asset quality stable; robust collections framework
* HomeFirst has established a robust collections management framework, with ~96.9% of collections in FY25 being non-cash, thereby reducing cash handling risk and simplifying transaction monitoring.
* The company has maintained a strong focus on early bucket collections, ensuring sustained attention on managing initial delinquencies. GNPA has improved from ~2.3% in Mar’22 to ~1.7% as of Mar’25. Moreover, its GNPA has remained largely stable over the past six quarters, reflecting the company's resilience and strong asset quality even amid tough macroeconomic conditions.
* Beyond prudent customer selection and underwriting, the company’s focused collection strategy—driven by its front-end teams and emphasizing early delinquency containment—has been instrumental in maintaining stable asset quality and consistently low credit costs. This has led to an improvement in collection efficiency from ~99.1% in Mar’24 to 99.4% in Mar’25.
Technology and digital penetration bring new opportunities and challenges
* Technology serves as a strong moat for HomeFirst. Over half of its new sourcing is now done through fully digital processes, including Account Aggregator data, e-Sign, and digital stamp duty, resulting in a significantly lower turnaround time. Account Aggregator penetration stood at ~75% as of FY25.
* This shift enables frontline staff to prioritize customer engagement over administrative tasks. Additionally, the company is actively exploring the use of generative AI to enhance communication and collection strategies while maintaining robust cybersecurity and ensuring human oversight remains integral to all processes.
* The company has enhanced its underwriting by integrating digital customer and property data with physical home visits, enabling an industry-leading loan approval TAT of 48 hours.
Valuation and view
* HomeFirst’s disciplined cost management and strong capital base are expected to drive healthy growth in the loan book. The company’s robust fundamentals, healthy return ratios (even as RoE may decline in the near term due to lower leverage), and superior execution relative to peers reinforce its position as a high-quality franchise in the AHF segment. We believe HomeFirst is in a sweet spot to deliver scalable loan growth along with strong risk-adjusted returns.
* HomeFirst currently trades at 2.7x FY27E BVPS, which is at a slight discount to some of its peers in the AHF segment. The company has a strong governance framework, a validated business model led by a seasoned and transparent management team, a robust AUM growth outlook (two-year CAGR of ~26%), and superior asset quality. For a PAT CAGR of ~30% over FY25-27E and RoA/RoE of 3.8%/14.2%, we reiterate our BUY rating with a TP of INR1,500 (premised on 3.2x Mar’27E P/BV).
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