Home First Finance IPO review (May apply)

Review By Dilip Davda on Jan 19, 2021

•    Original plans for IPO by February/March 2020 delayed due to pandemic.
•    HFFC is a niche player and tapping first home buyers for its lending.
•    The company has performed well with the growing top and bottom lines.
•    Issue appears fully priced, may be considered for long term investment.

PREFACE:
HFFC originally planned its maiden float around February/March 2020 and at that time it was pegged at Rs. 1500 cr. as overall size. While it geared for the plans, pandemic strike and lockdown began from March 22, 2020, and that derailed its plan. However, it managed to garner immediate fund needs with two pre-IPO placements worth Rs. 79.08 cr. (@ Rs. 334.73 per share) with Warburg Pincus in October / November 2020. With these two placements, it is now gearing for an IPO of approx. Rs. 1154 cr. However, market men are surprised for a higher price band of Rs. 517-Rs. 518 per share compared to a placement price just about two months before. Explaining this, Merchant Bankers gave the reason for the pink mood of the secondary market with all-time high record-making benchmarks. Details of the IPO are given here below:


ABOUT COMPANY:
Home First Finance Co. Ltd. (HFFC) is a technology-driven affordable housing finance company that targets first time home buyers in low and middle-income groups. It primarily offers customers housing loans for the purchase or construction of homes, which comprised 92.1% of its Gross Loan Assets, as of September 30, 2020. HFFC's Gross Loan Assets have grown at a CAGR of 63.4% between the financial year 2018 and the financial year 2020 and increased from Rs. 1355.93 cr. as of March 31, 2018, to Rs.  3730.01 cr., as of September 30, 2020.

The company serves salaried and self-employed customers. Salaried customers account for 73.1% of Gross Loan Assets and self-employed customers account for 25.0% of Gross Loan Assets, as of September 30, 2020. It serviced 44,796 active loan accounts, as of September 30, 2020. According to the CRISIL Report, HFFC had the highest share of NHB refinance (26%) among its peers in borrowing mix as of March 31, 2020.


HFFC also offers other types of loans comprising loans against property, developer finance loans and loans for the purchase of commercial property, which comprised 5.1%, 1.9% and 0.9% of its Gross Loan Assets, as of September 30, 2020, respectively. As of the same date, 32.8% of Gross Loan Assets were from customers who were new to credit. The average ticket size of housing loans was Rs. 0.1 cr., with an average loan-to-value on Gross Loan Assets of 48.8%, as of September 30, 2020. As of September 30, 2020, and March 31, 2020, its Stage 3 Loan Assets expressed as a percentage of Gross Loan Assets were 0.74% and 0.87%, respectively.

As of September 30, 2020, HFFC 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. It has increased the scale of operations and grown branches by adopting a strategy of contiguous expansion across regions and has strategically expanded to geographies where there is substantial demand for housing finance. According to the CRISIL Report, the 11 states and union territory in which the company present accounted for approximately 79% of the affordable housing finance market in India during the financial year 2019. It 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 utilizing employee and customer referrals and branch walk-in customers. Its network of connectors has increased from over 470 connectors as of March 31, 2018, to over 800 connectors as of September 30, 2020, and it manages their leads effectively through connector mobile application. For the six months ended September 30, 2020, and the financial year 2020, the company sanctioned 2,591 and 15,591 loans on account of leads generated through 887 and 2,553 connectors, respectively.


ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for augmenting capital base as well as listing benefits and unlocking the brand value,  HFFC is coming out with a maiden IPO of Rs.1153.72 cr. ( approx 22272590 shares) consisting fresh equity issue of approx 5115830 equity shares (Rs. 265 cr.) and offer for sale of 17156760 shares (Rs. 888.72 cr.) (Based on the upper price band). The company has fixed the price band of Rs. 517 - Rs. 518 per share against face value of Rs. 2 per share. Minimum application is to be made for 28 shares and in multiples thereon, thereafter. The issue opens for subscription on January 21, 2021, and will close on January 25, 2021. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25.49% of the post issue paid-up capital of the company.

The company raised Rs. 79.08 cr. by way of pre-IPO placements at Rs. 334.73 per share (FV Rs. 2) to Warburg Pincus in the month of October and November 2020. Hence the fresh equity issue size is reduced to that extent. (Refer page 62of RHP).

The issue is jointly lead managed by Axis Capital Ltd., Credit Suisse Securities (India) Pvt. Ltd., ICICI Securities Ltd. and Kotak Mahindra Capital Co. Ltd., while K Fin Technologies Pvt. Ltd. is the registrar to the issue.

Having issued initial equity at par, the company raised further equity in the price range of Rs. 47.83 to Rs. 334.73 (based on the face value of Rs. 2 per share) between January 2011 and November 2020. The average cost of acquisition of shares by the promoters and selling stakeholders is Rs. 55.28, Rs. 95.67, Rs. 149.10, Rs. 149.73 and Rs. 152.82 per share.

Post issue, HFFC's current paid-up equity capital of Rs. 16.45 cr. will stand enhanced to Rs. 17.48 cr. At the upper price of the IPO, the company is looking for a market cap of Rs. 4526.64 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, HFFC has posted total income/net profits of Rs. 134.24 cr. / Rs. 16.00 cr. (FY18), Rs. 270.92 cr. / Rs. 45.20 cr. (FY19) and Rs. 419.66 cr. / Rs. 79.25 cr. (FY20). For the first six months ended on September 30, 2020, it has earned a net profit of Rs. 52.95 cr. on a total income of Rs. 243.19 cr. For the said periods, its cost to income has declined from 61.0 in March 2018 to 34.9 in September 2020. As on September 30, 2020, the company's net NPA stood at 0.54%.

For the last three fiscals, HFFC has posted an average EPS of Rs. 8.32 and an average RoNW of 9.8%. The issue is priced at a P/BV of 4.11 based on its NAV of Rs. 126.06 as on September 30, 2020, and at a P/BV of 3.45 based on post issue NAV of Rs. 150.07. The company has not paid any dividend in the last three and a half financial years.

If we annualize latest earnings and attribute it to post IPO fully diluted equity, then asking price is at a P/E of around 42.75.

COMPARISION WITH LISTED PEERS:
As per offer documents, HFFC has shown Aavas Financiers as its listed peer which is trading at a P/E of around 61.8 (as on January 19, 2021 closing). Based on this, HFFC IPO appears fully priced.

BRLM'S TRACK RECORDS:
The four Book Running Lead Managers associated with the offer have handled 29 public issues in the past three years out of which 9 closed below the issue price on listing date.


Conclusion / Investment Strategy

The company has posted growth in its top and bottom lines for the last three and a half fiscals which are indicative of likely trends going forward with its niche play. As affordable housing segment is set for a boom with Government of India’s drive of “HOME FOR ALL BY 2022” and HFFC focusing untapped class of first home buyers, investors may consider investing in this IPO with long term perspectives.

Review By Dilip Davda on Jan 19, 2021

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

Home First Finance IPO FAQs

  1. 1. Why Home First Finance IPO?

    The initial public offer (IPO) of Home First Finance Company India Ltd. offers an early investment opportunity in Home First Finance Company India Ltd.. A stock market investor can buy Home First Finance IPO shares by applying in IPO before Home First Finance Company India Ltd. shares get listed at the stock exchanges. An investor could invest in Home First Finance IPO for short term listing gain or a long term.

  2. 3. Home First Finance IPO what should investors do?

    Home First Finance IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Home First Finance IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  3. 4. Is Home First Finance IPO good?

    Our recommendation for Home First Finance IPO is to subscribe for long term.

  4. 5. Is Home First Finance IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Home First Finance IPO.

  5. 6. When will Home First Finance IPO allotment status?

    The Home First Finance IPO allotment status will be available on or around Jan 29, 2021. The allotted shares will be credited in demat account by Feb 2, 2021. Visit Home First Finance IPO allotment status to check.

  6. 7. When will Home First Finance IPO list?

    The Home First Finance IPO will list on Wednesday, February 3, 2021, at BSE, NSE.








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