With this year’s budget, the government needs to do more to revitalize spending and announce sops that can give more money in the hands of the salaried class.
Coming after the year of a pandemic which hurt the global economy, this Union Budget should aim to put more money in the hands of the common man.
IPO Rating - (Invest with limited exposure) About the Issue Home First Finance Company (HFFC), a technology-driven affordable housing finance company that targets first time home buyers in low and middle-income groups is hitting the primary capital market with open the initial public offer (IPO) of equity shares of the face value of Rs 2 each. The issue has already opened and will close on 25th January 2021. The price band of the offer has been fixed at Rs 517 to Rs 518 per equity share. The IPO consists of the equity shares of the company aggregating up to Rs. 1153.72 crore comprises of a fresh issue aggregating up to Rs 265 crore and an offer for sale aggregating up to Rs 888.72 crore at upper price band. Bids can be made for a minimum of 28 equity shares and in multiples of 28 equity shares thereafter. The fresh issue of Rs 365 crore will be utilized towards augmenting its capital base to meet future capital requirements. The equity shares are proposed to be listed at both BSE and the National Stock Exchange of India Limited. Home First Finance Company IPO Details IPO Date Jan 21, 2021 - Jan 25, 2021 Issue Type Book Built Issue IPO Issue Size* 22272556 Equity Shares of Rs 2 (aggregating up to Rs 1,153.72 crore) Fresh Issue* 5115830 Equity Shares of Rs 2 (aggregating up to Rs 265.00 crore) Offer for Sale* 1,71,56,734 Equity Shares of Rs 2 (aggregating up to Rs 888.72 Cr) Face Value Rs 2 Per Equity Share IPO Price Rs 517 to Rs 518 Per Equity Share Market Lot 28 Shares Min Order Quantity 28 Shares Listing At BSE, NSE Market Cap (Rs crore)* 4527 *at higher price band About the company HFFC was founded in 2010 and is a technology-driven affordable housing finance company that targets first time home buyers, which currently comprises 33 per cent of its AUM, in low and middle-income groups. The company primarily offers customers housing loans for the purchase or construction of homes, which comprised 92.1 per cent of the gross loan assets, as of September 30, 2020. They also offer other types of loans comprising loans against property, developer finance loans and loans for the purchase of commercial property, which comprised 5.1 per cent, 1.9 per cent and 0.9 per cent of its gross loan assets, as of September 30, 2020, respectively. As of the same date, 32.8 per cent of the gross loan assets were from customers who were new to credit. The average ticket size of its housing loans was Rs 10.1 lakh, with an average loan-to-value on gross loan assets of 48.8 per cent, as of September 30, 2020. Its Stage 3 loan assets expressed as a percentage of the gross loan assets were 0.74 per cent and 0.87 per cent for September 30, 2020 and March 31, 2020 respectively. It saw an improvement of 13 basis points sequentially. Over the last ten years, the company has established its presence in 60 districts across 11 states and a union territory. Company has a significant presence in the states of Gujarat, Maharashtra, Karnataka and Tamil Nadu. This accounted for approximately 79 per cent of the affordable housing finance market in India during the financial year 2019. The company’s customers are typically salaried (73 per cent of AUM) who work in small firms or self-employed (25 per cent of AUM) who run small businesses. HFFC deploys proprietary machine learning & customer scoring models for underwriting and delivers quick turnaround time of two days. The gross loan assets have grown at a CAGR of 63.4 per cent between the financial years 2018-2020 and increased to Rs 3,730.01 crore as of September 30, 2020. Financials HFFC has posted strong growth in net interest income (NII) of 58.6 per cent CAGR between FY18-20. During the same period, the company’s advances grew at a whopping pace of 51.8 per cent CAGR to Rs. 3,014 crores at the end of FY20. Over the same period, its income grew at a CAGR of 65.2 per cent to Rs.354.7 crores while the net profit grew at a CAGR of 122.6 per cent to Rs.79.2 crore Despite the Covid-19 crisis, the company’s asset quality has remained largely stable with GNPA and NNPA largely stable. Since inception in 2010, HFFC’s GNPA has never crossed the one per cent mark despite undergoing demonetization which severely impacted most of the company’s in the same segment. The company had a CAR of 51.7 per cent at the end of 1HFY2021which provides comfort. Particulars FY20 NII (Rs Cr) 354.7 NIM (%) 5.1 Net Profit (Rs Cr) 79.2 GNPA (%) 0.9 NNPA (%) 0.7 CAR (%) 48.8 BVPS (Rs) 119.2 RoAA (%) 2.7 RoAE (%) 10.9 P/E 48.1 P/B 4.4 Valuation and our take At the higher end of the price band of Rs 518, the issue is asking a valuation of price to book value of 3.7 times after fully diluted post issue book value. This looks expensive on an absolute basis, however, if we compare it with other listed player that is into similar business such as Aavas Financiers, it is trading at price to book value of 6.81 times. Even if we consider better RoA of 3.8 per cent of Aavas Financiers and better asset quality, the current issue (HFFC) looks attractive given it is available at almost half the valuation at which Aavas Financiers is available. Looking at the HFFC’s business model, higher growth, controlled asset quality and healthy contribution of low-risk customers in its portfolio, you can invest in the IPO with limited exposure.