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An affordable housing finance company

India Shelter Finance Corporation Ltd. (ISFCL) is a retail-focused affordable Housing Finance Company (HFC) specializing in Tier-2, Tier-3, and rural regions. Incorporated in 1998, the company provides loans for house construction, extension, renovation, and the purchase of new homes or plots. The company also offers loans against property (LAP). The company offers loan amounts ranging from Rs. 5 lakhs to Rs. 50 lakhs for a tenure of up to 20 years. The company has a network of 203 branches spread across 15 states, with 203 branches as of September 30, 2023.

• The Indian housing finance market clocked a healthy ~13.5% CAGR growth in loan outstanding over FY19-23 period and expects to grow at ~15-16% CAGR over FY23-26.

• India Shelter Finance Corporation Ltd is backed by marquee institutional investors such as West Bridge Capital and Nexus Venture Partners.

• The company has an AUM of Rs.5,181cr in H1FY24, up from Rs.2,199cr in FY21, which grew at a CAGR of 41%, indicating its growing financial position.

• ISFCL’s average cost of borrowing has reduced to 8.3% in FY23 from 8.7% in FY21, primarily due to its improved financial performance and credit rating.

• The company’s net interest income rose to Rs.293cr in FY23 reflecting a 32% CAGR between FY21-23 while net profit of ISFCL increased from Rs.87cr to Rs.155cr at a 33% CAGR during the same period.

• ISFCL’s Gross NPA ratios for FY22, FY23, and H1FY24 were 2.1%, 1.1%, and 1.0%, and their respective Net NPA ratios were 1.6%, 0.9%, and 0.7% indicating an improvement in asset quality.

• The Net interest margin was 8.9% in FY23, while return on assets and return on equity were 4.1% and 13.4% during the same period.

• At the upper price band of Rs.493, ISFCL is available at a P/B of 2.4x (FY24 annualized), which appears to be fairly priced as per industry peers' valuations. Considering the government’s focus on housing, an increase in per capita income, ISFCL’s consistent improvement in asset quality, and robust AUM growth with high yields, we assign a “Subscribe” rating for the issue on a short-term basis.

Purpose of IPO

The IPO is a combination of a fresh issue (Rs.800cr) and an OFS portion (Rs.400cr). The net proceeds from the fresh issue will be utilised for future capital requirements towards onward lending and general corporate purposes.

Key Risks

• Three states contributed 62.7% of AUM and 57.6% of branches and any adverse developments in these states could have an adverse effect on business.

• The self-employed customers, accounting for 70.6% of AUM, are often considered to be higher credit risk customers due to their increased exposure to fluctuations in cash flows.

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SEBI Registration Number: INH200000345