Home First Finance Company IPO (HFFC IPO) envisages to rais up to Rs. 1,153.71cr comprising of fresh issue amounting to Rs. 265cr and offer for sale (OFS) valuing to Rs888.71cr which will be carried by promoters and existing shareholders. Under the offer for sale, the promoter True North Fund V LLP will offload stakes to the tune of Rs. 435.61cr, while promoter Aether (Mauritius) Ltd will sell shares worth Rs. 291.28cr, investor Bessemer India Capital Holdings II Ltd about Rs. 120.46cr and also ndividual shareholders — PS Jayakumar and Manoj Viswanathan are set to sell shares worth Rs. 41.3cr.Home First Finance IPO comes amidst the Indigo Paints IPO and just concluded Indian Railway Finance IPO.
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Home First Finance Company IPO Details
| Issue Period | 21 -25 January, 2021 |
| Face Value | ₹ 2/- |
| Issue Details | Fresh Issue upto ₹ 265 Cr |
| + Offer for Sale upto 888.72 Cr | |
| Issue Size (₹ Cr) | ₹ 1,153.72 Cr |
| Price Band | ₹ 517 – 518 |
| Bid Lot | 28 Shares |
| Issue Structure : | |
| QIB | 50% of the offer |
| NIB | 15% of the offer |
| Retail | 35% of offer ( 7,795,395 Shares- ₹ 403.80 cr) |
| Applications 1x Retail | 2,78,407 |
| BRLMs | Axis Capital, Credit Suisse, ICICI Securities, Kotak Mahindra Capital |
| Registrar | KFin Technologies Pvt. Ltd. |
Updates:
Home First Finance Company (HFFC) raised Rs 346 crore from anchor investors, ahead of its IPO. The shares were allotted to 25 anchor investors at Rs 518 per share, the upper end of the price band. The anchor investors include Nomura, Fidelity International, Morgan Stanley, Goldman Sachs (Singapore) Pte, Sundaram Mutual Fund, ICICI Prudential Mutual Fund (MF), Nippon India MF, Tata AIA Life Insurance Co Ltd and Max Life Insurance Company Ltd, Bharti AXA Life etc.
About Home First Finance Company:
- Home First Finance Company was incorporated on February 3, 2010.
- It is a is a technology driven affordable housing finance company and targets first time home buyers in the low and middle-income groups.
- True North Fund V LLP and Aether (Mauritius) Ltd are the promoters of the company. Further other investors like Bessemer invested in the company since 2011 and Warburg Pincus, through its affiliate of has acquired a stake in the company in October 2020.
- Home First Finance Company offers customers housing loans for the purchase or construction of homes which and this accounted for ~ 92% of its Gross Loan Assets, as of September 30, 2020.
- Home First Finance Company, as on Sept 2019, had a network of 70 branches covering over 60 districts in 11 states and a union territory in India, with a significant presence in the states of Gujarat, Maharashtra, Karnataka and Tamil Nadu.
- Salaried customers account for 73.1% of the company’s Gross Loan Assets while self employed customers account for 25% of Gross Loan Assets as of September 30, 2020.
- Home First Finance Company has serviced 44,796 active loan accounts, as of Sept. 30, 2020.
Home First Finance Company: Financials
| Particulars / Rs Cr. | 2020(6) | 2019(6) | 2020 | 2019 | 2018 |
| Revenue from Operations | 237.15 | 183.89 | 398.64 | 259.88 | 132.09 |
| Revenue Growth (%) | 28.96% | – | 53.39% | 96.74% | – |
| EBITDA as stated | 185.55 | 145.36 | 308.35 | 196.32 | 92.7 |
| Profit Before Tax | 70.36 | 50.29 | 107.28 | 65.2 | 24.27 |
| Net Profit for the Period | 52.95 | 36.74 | 79.25 | 45.2 | 16 |
| Net Profit as % to revenue | 22.33% | 19.98% | 19.88% | 17.39% | 12.11% |
| Equity Share Capital | 15.68 | 15.66 | 15.66 | 12.67 | 10.32 |
| Reserves as stated~ | 972.51 | 873.64 | 917.98 | 510.47 | 314.89 |
| Net worth as stated | 988.19 | 889.3 | 933.64 | 523.14 | 325.22 |
| RoNW (%) | 5.50% | 5.20% | 10.90% | 10.70% | 5.10% |
| Net Asset Value ((₹) | 126.06 | 113.58 | 119.24 | 82.59 | 63.01 |
| ROE as stated | 5.50% | 5.20% | 10.90% | 10.70% | 5.1% |
| ROA as stated | 1.50% | 1.30% | 2.70% | 2.40% | 1.4% |
| FV | 2 | ||||
| EPS – Basic (₹) | 6.76 | 5.33 | 10.77 | 7.82 | 3.10 |
| EPS – Diluted (₹) | 6.59 | 5.21 | 10.53 | 7.65 | 3.02 |
| Equity Post IPO | 17.48 | ||||
| IPO Price | 518 | ||||
| EPS (Post IPO) FY20 | 9.07 | ||||
| PE | 57.13 | ||||
| Price to Adj BV | 3.4 | ||||
| EPS TTM sep’21 | 12.12 | ||||
| PE | 42.75 | ||||
| Market Cap | 4527 | ||||
| Market Cap / Sales | 9.5 |
Pros
- Home First Finance Company is a Technology Driven Company with Scalable Operating Model.
- Increasing strategic tie-ups: The Company has established a tie-up with Airtel Payments Bank, for providing housing loans in affordable category to their customers.
- Customer Centric Organizational Commitment
- Deep Penetration in the Largest Housing Finance Markets, with Diversified Sourcing Channels.
- The company has set up a robust collections management system wherein approximately 93% of their collections
- for the financial year 2020 were non-cash based.
- Backing of Marque investors
Cons
- Covid 19 has caused a material decline in general business activity, which resulted in slowing down of disbursements by the Company.
- The customers who are primarily in the low and middle-income groups have less financial wherewithal than other borrowers and may default on their loan payments or additional interest payment obligations, in case the customers opt for the moratorium. The company witnessed an increase in the ounce rate from 10.5% during the last quarter of the financial year 2020 to 28.3% during the second quarter of the financial year 2021.
- Volatility in interest rates my have an adverse impact.
- Any disruption in funding sources or any inability to raise funds at a low cost could have a material adverse effect on business.
- Home First Finance Company could face liquidity risk if there are asset liability mismatches.,
Home First Finance Company IPO: Assessment
- Home First Finance Company IPO previous attempt was delayed by the Covid-19 pandemic last year.
- Company is increasing leveraging technology to improve collections, reach out to customers, drive expansion etc.
- Has successfully adopted a strategy of contiguous expansion across regions with high economic growth and good demand for affordable housing finance.
- The net NPA for the company stood at 0.51% at the end of Sept. 30.
- In terms of P/E, Home First Finance is offered at 42.7x, while Aavas Financiers is trading at PE of 64.2x, while Can Fin Homes is trading at 15.6x.
- The scrip is being offered at a Price/Adj BV multiple of 3.4x at the upper price band. Among peers housing finance companies with focus on affordable housing segment, Aavas Financiers is trading P/Adj BV multiple of 6.8x, Can Fin Homes is trading at P/Adj BV multiple of 3.1x.
- The company currently have an A+ (stable) rating from ICRA Limited. Aavas Financiers has a AA- (Stable) Rating.
- Due to COVID-19, the real extent of the moratorium book and extent of restructured assets is unknown. So one needs to exercise some caution.
- The company in October 2020 raised Rs 79.04 crore at Rs 334.726 per share from a Warburg Pincus affiliate Orange Clove Investments BV and employees. The IPO price of Rs. 518 per share being demand now is at a 55% premium to the last transacted price of Rs. 335 in Oct 020 i.e. in just 6 months time.
- Home First Finance Company is being offered at a quite steep price premium. Though It has backing of marque investors, has shown good growth, the valuations are definitely not cheap.
- Home First Finance Company was last commanding a premium of Rs. 170 in grey market as per some reports on SM. This should not be used as the basis for subscribing as this is unofficial markets & rates fluctuate a lot.
- Despite quite lofty valuations being demanded, the stock has some merits as well and I at this stage intend to apply in Home First Finance IPO. The scrip has its merits but a market meltdown from events like budget poses a risk to such high valuations. The high pricing may be taking advantage of the present bull market and comes with associated risks.
- Good Q3Fy21 results by AAVAS Financiers today indicate that the sector is doing well.
- Do check this page for any last minute updates
Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2) Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.