Home First Finance Ltd (HFFL) operates predominantly in the affordable homes funding space, which is currently less crowded and also promises higher growth. The government has also put immense faith and focus in this segment to resolve most of India’s house ownership issues.
The HFFL IPO opens on 21 January and closes for subscription on 25 January. The company was floated by persons with substantial experience in the banking and financial services field and there are also marquee global investors like True North as part of the current shareholding. The offer is a mix of fresh issue and an offer for sale to give some of the existing investors an exit.
Home First Finance IPO: What you must know
|Particulars||IPO Details||Particulars||IPO Details|
|Issue Opens on||21 January 2021||Basis of Allotment Date||29 Jan 2021|
|Issue Closes on||25 January 2021||Initiation of Refunds||01 Feb 2021|
|Nature of Issue||Book Building||Credit to Demat||02 Feb 2021|
|Price band for the IPO||Rs.517 – Rs.518||IPO Listing Date||03 Feb 2021|
|Fresh Issue Portion||Rs.265 crore||Pre issue promoter share||52.85%|
|OFS Portion||Rs.889 crore||Post issue Promoter||33.70%|
|Total Issue size||Rs.1,154 crore||QIB Allocation||50%|
|Minimum application||28 shares Rs.14,504||HNI Allocation||15%|
|Max application for Retail||364 shares Rs.188,552||Retail allocation||35%|
Data Source: IPO documents
Retail investors will have a 35% allocation and they can put applications for a minimum of 1 lot consisting of 28 shares or a maximum of 13 lots consisting of 364 shares. The capital dilution will only happen to the extent of the fresh issue of Rs.265 crore.
Business highlights of Home First Finance
Home First Finance is essentially into providing home loans to the affordable home segment. However, it also has a small 8% allocation to other lines like loan against property, developer loans and purchase of commercial properties. Here are business highlights.
- The average loan size is Rs.1 lakh and the typical loan/value ratio or LTV is around 48%, which shows a high commitment of own funds. Nearly 33% of the total asset book is to first time borrowers.
- The stage 3 assets as a percentage of gross loan assets also better known as the gross NPAs were about 0.74%.
- The company is predominantly urban player where it has most of its home loan exposure to low cost houses. It operates in Gujarat, Tamil Nadu and Karnataka.
- The company had raised around Rs.80 crore via pre-placements to major investors like Warburg Pincus at a price of Rs.334.73.
- The company’s closest peer group company is Aavas Financiers which is in the same industry group but HFFL has lower NIM spreads in comparison.
Financial Highlights of the Home First Finance IPO
For the fiscal year ended Mar-20, Home First reported total revenues of Rs.243 crore compared to Rs.419 crore in the previous year. The performance in the last fiscal did take a hit on account of the lockdown driven by the pandemic in its busy season. As a result its profit after tax or PAT also fell from Rs.79 crore in the previous year to Rs.53 crore in the year ending on Mar-20.
Home First has seen its cost to income ratio fall from 61% in March 2018 to 35% in September 2020. The net NPAs of the company stand sedate and secure at just about 0.54%. In valuation terms, the company IPO is at a price to book ratio of P/BV of 4.11 as on September 30, 2020 but that will come down to 3.45 post issue as the NAV will expand. The P/E ratio for the issue is around 43X on an annualized basis.
How to approach the Home First Finance IPO subscription?
The P/E of 43 compares favorably with that of its competitor Aavas Financiers at 61.8%. But Aavas has better traction in terms of growth and NIM margins. To that extent, the short term upsides on the IPO may be capped. However, we need to appreciate that affordable home financing is a big business in India and risks are low as the equity margins are quite high. The huge market for affordable home loans and the low risk factor should work in favor of this IPO. One should take into consideration his or her investment or holding period, whether long term, or medium term and then decide accordingly on the subscription.
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