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Healthy AUM growth of ~33% YoY; enabling resolution for equity raise

* Asset quality stable; NIM contraction of ~30bp QoQ due to negative carry ? 3QFY25 PAT grew 24% YoY to INR974m (in line). NII grew 21% YoY to INR1.6b (in line). Other income grew 42% YoY to INR517m (10% above MOFSLe), aided by higher fee and commission income during the quarter.

* Opex grew 23% YoY to INR752m (in line). PPoP rose ~27% YoY to INR1.4b (7% beat). Credit costs stood at INR98m (vs. MOFSLe of INR55m) and translated into annualized credit cost of ~35bp (PQ: ~20bp and PY: ~30bp).

* The Board of the company has passed an enabling resolution to raise equity capital of up to INR12.5b through QIP. This capital will support the company in achieving its medium-term AUM goal of ~INR200b by Mar’27. This reflects a strong confidence in HomeFirst’s ability to drive its growth plans and gain market share in the affordable housing finance segment.

Healthy AUM growth of ~33% YoY; BT-out rate inches up

* Disbursements grew 18% YoY to ~INR11.9b (+1.4% QoQ), leading to AUM growth of 33% YoY to ~INR119b.

* BT-out rate (annualized) in 3QFY25 rose to 7.3% (PQ: ~6.7% and PY ~7.5%).

NIM contracts ~30bp QoQ due to higher liquidity; CoF rises ~10bp QoQ

* Reported yield was stable QoQ at 13.6% and reported CoF rose ~10bp QoQ to 8.4%. Reported spreads (excl. co-lending) declined ~10bp QoQ to 5.2%.

* Reported NIM contracted ~30bp QoQ to 4.9%, impacted by negative carry from higher liquidity on the balance sheet. Incremental CoF and origination yield in 3QFY25 stood at 8.5% and 13.4%, respectively.

Minor increase in 1+dpd and 30+ dpd; bounce rate up QoQ

* GS3 and NS3 remained stable QoQ at 1.7% and 1.3%, respectively. PCR declined ~125bp QoQ to ~25.5%.

* 1+dpd increased ~30bp QoQ to 4.8%. Bounce rates increased ~80bp QoQ to ~16.0% in 3QFY25 (v/s ~15.2% in 2QFY25). In Jan’25, bounce rates were stable at 16%.

* Capital adequacy stood at ~33% (Tier 1: 32.7%).

Valuation and view

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. Despite a tough macro environment, HomeFirst has managed to keep its asset quality largely stable with a minor increase across its 1+dpd and 30+dpd. We expect credit costs to remain benign at ~30bp in the foreseeable future. We might revise our estimates after the earnings call on 29th Jan’24.

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