Motilal Oswal's research report on Home First Finance
Home First Finance (HomeFirst) is a retail affordable housing financier (ATS: INR1.1m), which operates mainly in the peripheries of urban centers/ Tier1/ Tier2 cities. It has presence across 13 states (top 5 contributing ~77% of its AUM) with a lean distribution network of ~93 branches. The company primarily targets the informal salaried segment, which is underserved by banks and large HFCs. The company is aggressively leveraging its core competencies to ride on the multi-year growth opportunity presented by affordable housing. HomeFirst’s first mover advantage in technology along with its strategic digital partnerships has resulted in robust underwriting, quicker turnaround and superior asset quality. Backed by True North and GIC (combined shareholding of ~34%) and Warburg Pincus (~29%) – HomeFirst delivered an AUM growth of ~45% along with robust asset quality over FY17-FY22. Its gross NPA (<=1%) and credit costs (<40bp) have been benign all through, except during Covid. We model an AUM and PAT CAGR of ~29% and ~24%, respectively, over FY22-FY25E. -HomeFirst has levers to mitigate the potential margin compression with a sustainable improvement in cost ratios. We expect the company to reduce its opex/avg AUM to 2.5% by FY25 (FY20: 3.4%). -HomeFirst is gradually normalizing its asset quality and we model benign credit costs of ~30bp. Further, we estimate RoA of ~3.8-3.9% over FY23-FY25, which translates into an RoE of ~16% in FY25.
Outlook
We initiate coverage on HomeFirst with a BUY rating and a TP of INR1,020 (premised on 4.0x Sep’24E P/BV). Key downside risks include: a) high business concentration in India’s best affordable housing states, b) vulnerability to external shocks restraining access to liquidity and c) likely sharp contraction in spreads/margins due to its inability to pass on higher borrowing costs and continued aggressive approach by banks and HFCs.
More Info
At 13:27 hrs Home First Finance Company India was quoting at Rs 887.65, up Rs 28.05, or 3.26 percent.
It has touched an intraday high of Rs 893.75 and an intraday low of Rs 868.00.
It was trading with volumes of 10,104 shares, compared to its thirty day average of 14,511 shares, a decrease of -30.37 percent.
In the previous trading session, the share closed down 2.86 percent or Rs 25.30 at Rs 859.60.
The share touched its 52-week high Rs 1,004.40 and 52-week low Rs 535.55 on 16 August, 2022 and 21 September, 2021, respectively.
Currently, it is trading 11.62 percent below its 52-week high and 65.75 percent above its 52-week low.
Market capitalisation stands at Rs 7,785.09 crore.
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