Another interesting IPO is here. Home First Finance, founded in 2010 by PS Jayakumar, Jaithirth Rao and Manoj Viswanathan, is a technology-driven affordable housing finance play. The IPO opened for subscription on January 21 and will close on January. Shares are being offered at Rs 517-518 apiece, valuing the company at a market cap of Rs 4,500 crore. There is a lot of buzz for Home First Finance given that it is backed by marque private equity players like True North, Warburg Pincus, Aether Mauritius and Bessemer India. Read on to know more about this offering.
Business strategy
Home First Finance targets first time home buyers with average loan ticket size of Rs 10 lakh. Over the past few years, it has focused more on customers with existing credit history, whose share rose to 67% by 1HFY21.
The company has built a wide distribution network of 70 branches spread across 11 states with Gujarat and Maharashtra contributing 60% share in loans. The company claims to have invested deeply in digital and analytical capabilities, enabling effective credit underwriting and sanctioning loans with a Turn Around Time of 48 hours.
Financials
Disbursements quadrupled to Rs 15.7 billion over FY17-19, while it was stable in FY20. Home First Finance delivered loan book CAGR of 56% over FY17-20 and increased to Rs 37.3 billion by 1HFY21. Over this same period, share of home loans declined from 97% to 92% while that of LAP rose from 3% to 5%.
With strong underwriting, Home First Finance experienced healthy asset quality with GNPL ratio at sub-1%. RoA of 2.7% (FY20) is healthy v/s peers, according to MOSL.
IPO size and details
The Rs 11.5 billion Home First Finance IPO consists of fresh issue of Rs 2.7 billion and OFS of Rs 8.9 billion (by promoters and investors). This would result in promoter’s stake reducing from 52.9% pre-IPO to 33.7% post-IPO. The funds raised will be utilized to augment the capital base.
At the offer price of Rs 517 to 518, you can bid for a minimum lot of 28 shares. This means a minimum investment of Rs 14504. Home First Finance shares have a face value of Rs 2.
| Home First IPO details | |
| Company | Home First Finance |
| Open date | Jan. 21 |
| Close date | Jan. 25 |
| Probable allotment date | Jan. 29 |
| Approx. listing date | Feb. 3 |
| Face value | Rs 2 per share |
| IPO band | Rs 517 to 518 |
| Minimum order | 28 shares |
Valuation
At the IPO price band, Home First Finance is valued at 4.8 times FY20 Price to Book Value which is comparable to peers.
Another way to look at valuation is post issue. At the higher end of the price band of Ra 518 per share, the stock is available at a Price to Book Value of 3.6 times on H1FY21 book (post issue), as per ICICI Securities.
Risks
Watch out for pandemic impact on Home First Finance’s books. The company’s customers are primarily in the low and middle-income groups and have less financial wherewithal than other borrowers.
Monitor the concentration of business operation. The company’s operations are concentrated in the states of Gujarat and Maharashtra.
Lastly, the Indian housing finance industry is highly competitive. Home First Finance competes with banks, other HFCs, small finance banks and NBFCs in each of the geographies in which it operates.
