India’s 3rd IPO of 2021 opens for subscription today. Yes, we are talking about the Home First Finance Company India Ltd (HFFC). The IPO, which is worth ~Rs 1,200 cr had received SEBI’s approval in Mar last year however, it was delayed due to the economic disruption caused by COVID-19.
In this article, we analyse the business profile, financials, and IPO of HFFC.
The article covers:
Home First Finance Company IPO
HFFC IPO will allow existing investors and shareholders including True North, Bessemer Venture Partners, GIC, PS Jayakumar, and Manoj Viswanathan to partially exit their investments in the company.
In Oct and Nov last year, HFFC had issued over 22.40 lakh shares to Orange Clove Investments B.V. and 1.22 lakh shares to its employees via preferential allotment. Ergo, HFFC has slashed its fresh issue size from Rs 344.08 cr to Rs 265 cr due to its pre-IPO placement.
HFFC IPO details
The housing finance company has already raised Rs 346 cr from anchor investors on 20th Jan 2021. Additionally, HFFC is looking to raise ~1,200 cr via IPO, whose details are:
- The IPO is open for subscription from 21st Jan 2021 to 25th Jan 2021 and is to be listed on both BSE and NSE. The likely listing date is 3rd Feb 2021
- HFFC IPO consists of a fresh issue of up to Rs 265 cr and an offer-for-sale of up to Rs 888.71 cr by promoters and existing shareholders
- The minimum lot size of the subscription is 28 shares. The price band of the IPO is set at Rs 517 – Rs 518 apiece
- 50% of the IPO is reserved for Qualified Institutional Buyers, 35% for retail investors, and 15% for non-institutional investors
- While KFin Technologies Pvt Ltd is the registrar of HFFC IPO, Axis Capital Ltd, Kotak Mahindra Capital Company Ltd, ICICI Securities Ltd, and Credit Suisse Securities (India) Pvt Ltd are the book running lead managers
Objectives of HFFC IPO
- Home First Finance Company plans to utilise the net proceeds of the IPO to augment its capital base for future growth requirements
- Enjoy the benefits of listing the company on bourses
Valuation of HFFC
HFFC commands a moderate to fair valuation of 38 times its annualised PE compared to its peer Aavas Financiers, which is trading at 62 times.
Founded in 2010 by Jaithirth Rao and P S Jayakumar, Home First Finance Company India Limited (HFCC) is a non-bank lender, classified as a housing finance company. HFFC is a technology-driven financier in the affordable housing segment. Today, it has a presence in the urbanized regions of Gujarat, Maharashtra, Karnataka and Tamil Nadu.
HFFC focuses on first-time homebuyers in the low- and middle-income groups and offers home loans to salaried and self-employed professionals for constructing or purchasing homes. While salaried customers account for 72.6% of HFFC’s gross loan assets, self-employed customers account for 24.6%. Over the last 10 yrs, the company has offered over 50,000 home loans to borrowers in 60 districts of 11 states and 1 union territory.
HFFC is a rapidly growing company. The deployment of technology in its day-to-day operations and going paperless in its processes have aided the company’s growth trajectory. HFFC is backed by private equity funds Warburg Pincus (WP) and True North, and Singapore’s sovereign wealth fund GIC. Earlier this month, Warburg Pincus raised its stake in HFFC by 5.03% to 30.62%.
HFFC has strategically expanded to geographical regions with substantial demand for housing finance. It has diverse lead sourcing channels including architects, connectors, affordable housing developers, loan camps, micro marketing activities, contractors, employee and customer referrals, and branch walk-in customers. HFFC’s is known for efficient collections management, superior underwriting standards, and a high growth momentum on a smaller base.
Products of HFFC
- Home Loans for Salaried Professionals
- Home Loans for the Self Employed
- Home Construction Loans
- Home Extension & Renovation Loan
- Loan Against Property
- Home Loan for NRIs
- Home Loan for Senior Citizens
- Home Loan Balance Transfer
- Home Loan Top Up
- Shop Loans
- Developer Finance Loans
- Loans for purchase of Commercial Property
Milestones of HFFC
- 2011: Received Series A funding by Bessemer Venture Partners
- 2012: Started operations in Tamil Nadu and Gujarat
- 2013: Achieved their first milestone of approving 1,000 loans. Their loan book crossed Rs 68.95 cr
- 2014: Became profitable with Gross Loan Assets of Rs 162.91 cr
- 2015: Established a customer base of 5,000
- 2016: Expanded presence to 25+ and customer base to 10,000
- 2017: Gross Loan Assets touched Rs 847.316 cr. HFFC also received Series C funding from TrueNorth and a credit rating of A+ from ICRA
- 2018: Net worth reached Rs 488.577 cr
- 2019: Gross Loan Assets crossed Rs 2,443.57 cr, customer base surpassed 29,000 and branches 60
- 2020: Received investment from Warburg Pincus and its AUM crossed Rs 3,500 cr
State-wise contribution to Gross Loan Assets
Financials of HFFC
- As of Sep 2020, HFFC had registered an AUM of Rs 3,730 cr with a net worth of Rs 988 cr and gross NPA of 0.74%
- The housing financier reported a 44.1% growth in profit for the 6-mth ended Sep 2020 y-o-y and 36.9% rise in their revenue
- In FY 2019-20, HFFC’s profit zoomed by 75.3% and revenue by 45.4% y-o-y
- HFFC was growing at ~50% last financial year however the figure dipped to 16% this year due to a drastic drop in loan disbursements induced by the nation-wide lockdown in the first quarter
- Although HFFC’s collection efficiency had dropped due to COVID-19, it has now recovered to 96%, almost reaching the pre-COVID level of 98%. To be specific, HFFC’s loan disbursements, which had fallen to Rs 51 cr in the quarter-ended Jun recovered to Rs 350 cr in the quarter-ended Dec
- As against the initial 24% loans under moratorium, HFFC now has only about 3% to 4%
- The housing financier expects their gross NPAs to increase from 0.90% during pre-COVID to 1% – 2% of total loans
- As of 2020, home loans for the construction/purchase of homes comprised 92.1% of HFFC’s gross loan assets. The company’s gross loan assets have been growing at a CAGR of 63.4% between FY 2018 to FY 2020
- While its NII grew at a CAGR of 58.6% between FY2018 and FY2020, HFFC’s net profits clocked a CAGR of 122.6% during the same period
- Despite the impact of COVID-19, HFFC’s asset quality has remained stable. At the end of H1 FY 2021, its GNPA and NNPA were 0.7% and 0.5%, respectively
- It HFF delivered a healthy RoA of 2.7% and RoE of 11% in FY 2020
- HFFC’s average ticket size of home loans is Rs 10.1 lakh and average loan-to-value on gross loan assets is 48.8% as of Sep 2020
- HFFC’s capital adequacy ratio is 51% as against the requirement of 13%
|H1 FY 2021||H1 FY 2020||FY 2020||FY 2019||FY 2018|
|Net interest income Rs cr||133.2||103.4||228.4||146||69.5|
|PAT (Rs cr)||53||36.7||79.3||45.2||16|
|Net interest margin %||2.4||2.2||5.1||5.4||5.3|
|Gross Loan Assets (Rs cr)||3730||3113.4||3618.4||2443.6||1355.9|
|Net NPA (%)||0.5||0.7||0.7||0.5||0.5|
Prospects of HFFC
HFFC’s strong financials, comfortable capital adequacy ratio, stable asset quality, and healthy return ratios make the IPO an attractive investment avenue. Following are its prospects
- Further, increased focus on government initiatives such as ‘Housing for all’ aid HFFC’s growth.
- The company is optimistic and is confident of clocking a growth rate of 30% in the next financial year on the back of higher disbursements
- HFFC is looking to expand its geographical coverage by focusing on areas having significant housing finance demand
- The company seeks to leverage technology to grow business and drive operational efficiency
- HFFC looks to expand its business operations in regions witnessing rising urbanization, rapid commercial activity, and increasing household incomes
- HFFC intends to diversify its sources of funding to optimise capital costs and minimise dependence on term loans
- HFFC also intends to enhance its risk management framework to maintain the credit quality of its loan portfolio
Strengths of HFFC
- HFFC is a technology-driven, customer-centric organization that focuses on developing strong relationships with customers
- It has diversified sourcing channels and a centralised, data science-backed underwriting process
- HFFC has a robust collections management system. ~93% of collections for FY 2020 were non-cash based, which reduces the risk of cash management
- The company has marquee investors and an experienced management team
Risks of HFFC
Although HFFC’s financials have exhibited a strong growth trajectory over the years, NPAs accumulating post moratorium could be a dampener. Further, any issues in the housing sector would also impact HFFC.