Company Update : HomeFirst Finance by Motilal Oswal Financial Services Ltd
Earnings in line; seasonal deterioration in asset quality
NIM improves ~5bp; disbursements dip for the first quarter since Covid-19
* HomeFirst’s 1QFY26 PAT grew 35% YoY to INR1.2b (in line). NII in 1QFY26 grew 33% YoY to INR1.9b (in line). Other income grew 60% YoY to INR609m (vs. MOFSLe of INR395m). This was aided by higher assignment income for the quarter, which stood at INR247m (PY: ~INR195), higher fee income, and investment income from proceeds of the equity raise in Apr’25.
* Opex grew 33% YoY to INR868m (~8% higher than MOFSLe). PPoP rose ~41% YoY to INR1.7b (~5% beat). Credit costs stood at INR177m (vs. MOSLe of INR90m) and translated into an annualized credit cost of ~36bp (PQ: ~25bp and PY: ~22bp).
* In Apr’25, HomeFirst successfully raised INR12.5b through QIP. Post-capital raise, the CRAR of the company stood at ~49.6%, and the credit rating of HomeFirst was upgraded to AA (Stable) by ICRA, India Ratings, and CARE.
Healthy ~29% YoY AUM growth; BT-OUT rate dips YoY
* Disbursements grew 7% YoY to ~INR12.4b, and this led to an AUM growth of 29% YoY to ~INR135b. 1QFY26 was the first quarter, post-Covid, wherein the disbursements exhibited a minor sequential decline.
* BT-OUT (annualized) in 1QFY26 declined to ~6% (PY ~6.3% and PQ: 7.5%).
Reported NIM improves ~10bp QoQ; yields stable sequentially
* Reported yield was stable QoQ at 13.5%, and the reported CoF was also stable QoQ at 8.4%. Reported spreads (excl. co-lending) were stable QoQ at 5.1%.
* Reported NIM rose ~10bp QoQ to 5.2%. NIM (calc.) rose ~30bp QoQ to ~5.9%. Incremental CoF and origination yield in 1QFY26 stood at 8.5% and 13.4%, respectively.
1+dpd rises ~90bp QoQ; minor increase in bounce rates
* GS3 rose ~15bp QoQ to 1.85%, and NS3 rose ~17bp QoQ to 1.4%. PCR declined ~310bp QoQ to ~22%. GS2 rose ~30bp QoQ to 1.6%.
* HomeFirst’s 1+dpd rose ~90bp QoQ to 5.4%. Bounce rates increased ~40bp QoQ to ~16.8% in 1QFY26 (v/s ~16.4% in 4QFY25). However, in Jul’25, bounce rates declined to 15.8%.
Valuation and View
* HomeFirst’s performance during the quarter was a mixed bag. While the AUM growth continues to remain healthy, there was a seasonal deterioration in asset quality (with 1+ dpd rising ~90p QoQ) and an increase in the overall credit costs. In our view, this was primarily because of a weak macro and slow economic activity. Despite rising competition in a declining rate environment, reported yields have remained stable, reflecting a balanced pricing strategy. Additionally, the company experienced ~5bp sequential improvement in NIM.
* HomeFirst has made strategic investments in establishing a franchise, positioning the company effectively to capitalize on the strong growth potential of affordable housing finance. The company continues to expand its distribution network in a contiguous manner across Tier I, II, and III cities within its existing states.
* We expect cost efficiencies to kick in and drive a sustained improvement in its operating cost ratios over the medium term. We expect credit costs to remain benign at ~28-30bp in the foreseeable future. We might revise our estimates after the earnings call on 28th Jul’25.
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