Strong growth prospects justify higher valuations, say analysts
Home First Finance is an affordable housing finance company which targets homebuyers in the low- and middleincome group. Nearly three-fourths of its employees are in the salaried category; self-employed people account for the rest. While the company has a presence in 11 states and a network of 70 branches, it has the biggest exposure to Gujarat, Maharashtra and Tamil Nadu.
Most analysts believe the company has a long growth runway given its small size and the niche market it caters to. In addition to this, analysts at IIFL Securities believe its strong parentage, low nonperforming assets (NPA), and a tier-1 capital adequacy ratio of 50.4 per cent (with additional capital to be added through the IPO) mean that the company will not find funding to be a constraint. Further given its underserved customer base, its pricing power is strong; its home loan yield at 12.9 per cent was the highest across listed peers, they add.
It has also posted strong growth in recent years, while maintaining its asset quality. The company’s gross loan assets have increased at a compound annual growth rate of 63.4 per the portfolio, and focus cent over FY18-20 — on customers with from ~1,355.9 crore as of existing credit history. March 31, 2018, to Share of these customers ~3,618 crore at the end rose to 67 per of FY20. Despite the cent in the first half of Covid-19 crisis, the company’s FY21. Further, its asset quality Price band (~) investments in technology has remained largely and analytics stable with gross NPA and net NPA at 0.7 enable effective underwriting and per cent and 0.5 per cent, respectively, at improve efficiencies across customer the end of H1FY21, say analysts at Nirmal acquisition, processing and approval Bang Research. stages. While the pricing of the issue at
What has helped the company maintain 3.4x post issue net worth is slightly asset quality is its financing of completed expensive, its track record and growth homes, which is at 89 per cent of prospects justify the same.