home first finance ompany india ltd

Home First Finance Company India Ltd

Issue Opens Thursday, January 21, 2021

Issue Closes Monday, January 25, 2021

Price Band (in Rs) 517/518

Bid Lot 28 shares and multiples thereafter

SNAPSHOT

Issue Opens Thursday, January 21, 2021

Issue Closes Monday, January 25, 2021

Price Band (Rs) 517/518

Bid Lot 28 shares and multiples thereafter

Face Value Rs2

Listing BSE & NSE

Type of Issue Offer for Sale & Fresh Issue

Offer Size (Rs Mn)

Fresh Issue 2,650

OFS 8,887

Total 11,537

*Implied Market Cap (Rs Mn)

45,266

P/E (based on FY21 Earnings Annualized)*

42.7

*Note: Implied Market Cap & P/E are calculated at upper price band of Rs518

Issue Allocation

Reservations % of Net Issue

QIB 50

NIB 15

Retail 35

Total 100

Object of the Offer

Net proceeds of the fresh issue are proposed to be utilised for increasing our Company’s Tier I capital base to maintain the minimum capital adequacy ratio

Listing gains

Please Turn Over Page No 1

IPO UPDATE

Home First Finance Company India Limited

Indian Housing Industry Overview: As per Census of India, 2011, the number of households increased from 192 million in 2001 to 247 million in 2011, at a CAGR of 1.3%. During the same period, housing stock increased from 187 million (2001) units to 245 million (2011). Out of these 245 million houses, approximately 61 million houses are obsolescent or congested or non-serviceable. With increased urbanisation, India is also moving towards higher nuclearisation leading to smaller family sizes. This is also reflected in the steady reduction in average household size from 5.5 members per household as of 1991 to 5.3 members in 2001 to 4.8 members, as per Census 2011. Furthermore, according to the Census of India, 2011, majority of the Indian households live in a one-room or two-room house. Despite the constant focus on the housing segment, housing in India is far from adequate. GoI, in its 12th Five Year Plan (2012 to 2017), accorded this issue utmost importance and focused on increasing the amount of housing units available both in the urban as well as the rural sector. As per the estimates of the 12th Five Year Plan, the shortage of housing in the urban segment stood at 18.78 million. India’s Mortgage Penetration Lower than Other Economies: As of March 2019, the total outstanding retail housing loans in India was Rs18.7tn, translating into a mortgage-to-GDP ratio of 12.4%. While the ratio has improved over the last few years, it is still lower than several other emerging and developed economies. CRISIL Research analysis indicates the mortgage penetration in India is 9 to 11 years behind other regional emerging markets such as China. Going forward, CRISIL Research expects a steady and gradual increase in mortgage penetration due to various structural drivers, such as a young population, smaller family sizes, increased urbanisation and rising income levels.

Exhibit 02: Average Household Size vs Urban Housing Shortage

Source: Company RHP, Progressive Research

Exhibit 01: Mortgage-to-GDP Ratio in India Compared With Other Countries (2017)


IPO UPDATE


Page No 2 Please Turn Over

Industry: (contd.) Housing Finance: Growth drivers for housing finance include rising urbanisation, favourable demographics, rising nuclearisation, changing floor space requirement, rising demand for independent houses and declining age of home loan borrowers. GoI has initiated various steps to improve the housing sector in India which include affordable housing, interest subsidy under PMAY, relaxation of ECBs guidelines, tax incentives, Real Estate (regulation and development) Act, 2016, facility of corpus withdrawal by Employees' Provident Fund Organisation. Housing finance market is witnessing a healthy growth as HFCs are transitioning their product mix towards higher-yielding assets and as they also have better asset quality than overall market. India’s mortgage market can broadly be divided into two segments by ticket size of the housing loan at the time of disbursement: loans with ticket size of more than Rs2.5mn (normal mortgage loans), and loans with ticket size of Rs2.5mn and below (affordable housing loans). India is witnessing growth of the affordable housing loans outstanding, while disbursal in the segment is also growing.

The below table highlights key ratios of peers in the affordable housing finance space for FY20:

Exhibit 03: Growth of the Affordable Housing Loans Outstanding (Rs tn)

Exhibit 04: Growth of Disbursement of Affordable Housing Segment (Rs tn)

Source: Company RHP, Progressive Research Source: Company RHP, Progressive Research

Country Gruh Finance Aspire Home Finance

Aadhar Housing Finance

Aavas Financiers Aptus Value Housing Finance

Home First Finance Co.

RoA 2.8% 0.4% 2.5% 2.8% 5.8% 2.1%

RoE 28.8% 2.8% 26.6% 10.3% 12.1% 7.9%

NIM 4.5% 4.7% 3.7% 6.0% 11.6% 5.1%

Yield on Advances 11.3% 14.4% 11.8% 14.1% 17.0% 12.1%

Cost of Borrowing 7.6% 10.6% 8.6% 8.6% 9.3% 7.9%

Operating Expense 0.7% 3.6% 2.4% 4.9% 4.2% 3.3%

Leverage (times) 9.3 5.7 8.8 2.6 1.0 2.6

Capital adequacy ratio NA 47.6% 51.4% 56.0% 82.5% 48.9%

Tier-1 capital NA 46.4% 49.1% 53.9% 82.3% 47.7%

GNPA NA 1.8% 1.3% 0.5% 0.7% 0.9%

Net NPA NA 1.4% 0.9% 0.3% 1.6% 0.8%

Credit Cost NA 1.8% 1% 0.2% 0.1% 0.6%

Exhibit 05: Market Share Based on Housing Loan Outstanding

Source: Company RHP, Progressive Research Source: Company RHP, Progressive Research


Exhibit 06: Market Share Based on Housing Loan Disbursement

IPO UPDATE


Page No 3 Please Turn Over

About the Company: Home First Finance Company India Limited (HFFCIL) is a technology driven affordable housing finance company that targets first time home buyers in low and middle-income groups. HFFCIL primarily offers customers housing loans for the purchase or construction of homes and also serves salaried and self-employed customers. The company also offers other types of loans comprising of loans against property, developer finance loans and loans for purchase of commercial property. HFFCIL has a well established network and as of September 30, 2020, it had a network of 70 branches covering over 60 districts in 11 states and a union territory in India, with a significant presence in urbanized regions in the states of Gujarat, Maharashtra, Karnataka and Tamil Nadu. According to the CRISIL Report, the 11 states and union territory in which HFFCIL is present accounted for approximately 79% of the affordable housing finance market in India during FY19. HFFCIL was founded by Jaithirth Rao, P. S. Jayakumar and Manoj Viswanathan and commenced operations in August 2010. Its promoters are True North Fund V LLP and Aether (Mauritius) Limited while entities such as Bessemer and Orange Clove Investments B.V. (an affiliate of Warburg Pincus, a global private equity investor), have acquired stake in HFFCIL.

HFFCIL utilizes a diverse range of lead sourcing channels such as connectors, architects, contractors, affordable housing developers, in addition to conducting loan camps and micro marketing activities, and utilizes employee and customer referrals and branch walk-in customers. It has leveraged technology in various facets of business such as processing loan applications, managing customer experience and risk management. The company has been able to develop a paperless process to onboard customers efficiently while its well-trained front-end teams appraise customers by conducting home and workplace visits and ensure minimal disruption to a customer’s daily routine. HFFCIL offers mobility solutions through dedicated mobile applications for its customers to enable quick and transparent loan related transactions. The company uses a combination of integrated customer relationship management and loan management system set up on a leading cloud based customer relationship platform which helps in providing a holistic view of all customers. It utilize proprietary machine learning customer scoring models to assist the centralized credit underwriting process, which has led to consistent and accurate credit evaluation with quick turnaround times.

Competitive Strengths:

Technology driven company with scalable operating model

Customer centric organizational commitment

Deep penetration in the largest housing finance markets, with diversified sourcing channels

Centralized, data science backed underwriting process

Technology driven collections system

Well-diversified and cost-effective financing profile

Experienced management team with qualified operational personnel and marquee investors

Strategies:

Leverage technology to grow business and drive operational efficiency

Expand its branch network in large affordable housing markets

Grow the productivity of existing branches

Diversify sources of borrowings to optimize borrowing costs

Focus on enhancing risk management framework

Risks & Concerns:

Being in the business of housing finance, the company is exposed to credit risk. However, the company has various frameworks in place to manage the same

The company manages concentration risk by consciously trying to diversify its portfolio

With investments, it is exposed to market risk. This is managed by investing in liquid funds or fixed deposits of bank

Liquidity risk arises primarily due to asset-liability mismatch caused by a difference in the maturity profile of HFFCIL assets and liabilities. This risk may arise from the unexpected increase in the cost of funding on asset portfolio at the appropriate maturity and the risk of being unable to liquidate a position in a timely manner and at a reasonable price

To mitigate operational risk, the management has an operational risk management policy in place, which sets out processes and controls that are required to be monitored at different points of time in relation to people, systems and processes

Non-compliance with regulatory and statutory requirements, including the NHB and RBI regulations could result in stringent actions and penalties from the regulatory and statutory authorities, thus making it essential to manage regulatory risk

HFFCIL manages reputation risk by training and instructing its employees to adhere to company’s Fair Practices Code

The company is a technology driven company and thus is exposed to IT risk

IPO UPDATE


Page No 4

About the Company (contd.):

Financials: HFFCIL has reported robust performance over the years and is in the scaling-up phase. Revenue from operations for FY20 was Rs4,196.6mn as compared to Rs2709.2mn in FY19, the same stood at Rs2371.9mn for H1FY21. Profit after tax has also witnessed exponential growth (5x) from Rs160mn in FY18 to Rs792.5mn in FY20. The company reported Rs529.5mn as profit after tax for H1FY21. NAV per share as on 30th September, 2020 was Rs126.06. Collection efficiency of the company has also been improving post the covid-induced impact, and has almost reached pre-covid levels as collection efficiency stood at 97.6% in December, 2020, while bounce rate has also witnessed downtrend. Outlook and Recommendations: The company is one of better performers in its peer group owing to the technological edge that it possesses. Being technologically advanced, the company’s cash collection is only 3-4% of the total collection and takes pride in its 48hour TAT from meeting the customer. HFFCIL generates leads through contractors, vendors etc. via a customised mobile app. The company has marquee promoters and investors which include True North Fund V LLP and Aether (Mauritius) Limited. HFFCIL is foraying into co-lending and also extending its presence in the digital space via collaborations with Airtel Payments Bank, No Broker etc. HFFCIL has seen good growth over the years with improvement in all verticals with increase in scale of operations and it has strong penetration in the largest affordable housing finance markets of India. HFFCIL raised Rs790.8mn, in pre-IPO placement at Rs335 per share as the discussion were held during initial stages of the pandemic. However, compared to the pre-IPO placement, the issue seems to be fairly priced with PE at 42.7x (annualized FY21 earning) and at a book value of 4.11x (at upper price band of Rs518) . The company has one listed peer Aavas Financiers, which is trading at P/E of 61.96x as on 20th January, 2021. The document is for information purpose. We do not have any rating on the IPO and keep it at the discretion of the investors with regard to investment in the IPO.

Particulars (Rs mn) FY18 FY19 FY20 H1FY21

Share Capital 103.2 126.7 156.6 156.6

Net worth 3,252.2 5,231.4 9,336.4 9,881.9

Total Borrowings 10,198.8 19,256.4 24,938.1 26,365.8

Interest Earning Assets 13,216.1 21,529.3 32,494.9 32,746.8

Revenue 1,342.4 2,709.2 4,196.6 2,371.9

Profit after tax 160.0 452.0 792.5 529.5

EPS (Rs) 3.1 7.8 10.8 6.8

Key Ratios: FY18 FY19 FY20 H1FY21

RoNW 5.10% 10.70% 10.90% 5.50%

RoA 1.40% 2.40% 2.70% 1.50%

CRAR (Basel-III norms) 43.00% 38.50% 49.00% 51.70%

DPD 30+ /Gross Loan Assets 1.30% 1.50% 1.60% 1.10%

DPD 90+ /Gross Loan Assets 0.60% 0.70% 0.90% 0.70%

Spread 4.40% 4.70% 4.50% 2.20%

Net NPA 0.49% 0.60% 0.77% 0.54%

Cost of Borrowing 7.70% 8.50% 8.70% 4.30%


Exhibit 07: Financials Snapshot

IPO UPDATE


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home first finance ompany india ltd

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