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    Home First Finance IPO kicks off: Should you subscribe?

    Synopsis

    On the block is an offer for sale (OFS) of shares worth Rs 888.72 crore and a fresh issue worth Rs 265 crore.

    ThinkStock Photos
    Analysts said Home First Finance has reported a strong set of numbers over the last couple of years.
    NEW DELHI: The Rs 1,153.71-crore Home First Finance IPO kicked off on Thursday, a day after the housing finance company (HFC) raised a little over Rs 346 crore from 25 anchor investors.

    On the block is an offer for sale (OFS) of shares worth Rs 888.72 crore and a fresh issue worth Rs 265 crore. The price band for the issue is fixed at Rs 517-518. Investors can bid for a minimum of 28 equity shares and and in multiples thereafter.

    Analysts said the HFC has reported a strong set of numbers over the last couple of years. Asset quality for the company that caters to first time home buyers in low and middle income groups has remained strong so far despite the Covid crisis. Valuation-wise as well, the issue is available at modest price-to-book value (P/BV) multiples compared with the listed peers Aavas Financiers.

    "Aided by its high growth momentum on a smaller base, superior underwriting standards, and efficient collections management, Home First Finance has delivered a healthy RoA of 2.7 per cent in FY20. RoE of 11 per cent looks modest owing to lower leverage at 4 times in FY20. The issue is priced at post-money P/BV of 3.4 times compared to its nearest competitor Aavas Financiers which trades at 6.8 times on September book value," said YES Securities in a note.
    RoA stands for return on asset and ROE return on equity.

    Over FY17-20, Home First registered loan and disbursements growth of 56.7 per cent and 56.2 per cent, respectively. It managed to tweak its housing loans’ share to 92 per cent in FY20 from 96.7 per cent in FY17 and share of loan against property (LAP) to 5.1 per cent from 2.1 per cent. Lending spread for the HFC has improved to 4.5 per cent in FY20 from 3.3 per cent in FY17.

    Home First operates with average housing loan ticket size of Rs 10 lakh and has a strong presence in the economically healthier states like Gujarat (39 per cent of gross loan portfolio), Maharashtra (21 per cent), Tamil Nadu (10.5 per cent), Karnataka (9.3 per cent) and Rajasthan (5.1 per cent).

    Angel Broking said that despite the Covid-19 crisis, the company’s asset quality has remained largely stable with gross non-performing assets (NPAs) and net NPAs largely stable staying at 0.7 per cent and 0.5 per cent, respectively, at the end of H1FY2021.

    "The company had a CAR of 51.7 per cent at the end of H1FY2021, which provides comfort. At the higher end of the price band the stock would be trading at P/BV of 3.6 times fully diluted post issue book value of Rs 143.4 per share. We expect the company to post strong growth driven by strong demand for affordable housing. Given the growth prospects, we recommend a subscribe rating on the issue," the brokerage said.
    .
    Home First has posted strong growth in net interest income (NII) of 58.6 per cent compounded annually over FY18-20 while net profits have grown at a growth of 122.6 per cent during the same period.

    At higher price band, the stock valued at 4.1 times Q2FY21 price to book value, said LKP Securities. This brokerage said that the IPO is worth subscribing, citing strong return ratios with RoA of 11 per cent and RoE of 3 per cent.
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    4 Comments on this Story

    Raman Lal Gupta38 days ago
    there is already a glut in home financing sector with all the banks,FIs,small banks NBFCs vying for the same pie.
    Does not look great!
    Ajay Gupta41 days ago
    The ROE and Price to book are not appealing when compared to those of LIC Housing or Canfin and the euphoria on applying for IPO might be just to encash on listing. Don't think that the Home First issue is a long term story. The only rationale is on basis of Aawas financiers which too has a short history.
    Raj Sharlan41 days ago
    good advt news
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