Home First Finance Company India Ltd

16th September 2021 By Edelweiss

Home First Finance India Company (HFFC) is a technology driven affordable housing financier focused on salaried customers (74% of total AUM) and home loans (92% of total AUM) with strong presence in markets like Gujarat and Maharashtra (57% of total AUM).

HFFC delivered robust 49% AUM CAGR over FY17-FY21 despite FY21 being majorly impacted by the Covid-19 pandemic. While asset quality was impacted in FY21 due to the pandemic, it is expected to improve (with the exception of a third wave) as its early deliquencies in terms of 1dpd+ remains best in class.

With AUM growth expectations of ~26% CAGR over the medium term, technology usage ensuring further optimisation of operating costs and normalisation of credit costs, we expect HFFC to deliver RoA/RoE of 3.4%/12.7% by FY24E with both operating and financial leverage kicking in.

We initiate coverage with a ‘BUY’ recommendation, valuing the company at ~4x FY23E ABV of INR191, resulting in a target price of INR763, implying 33% upside from current levels.

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Key Highlights
  • We believe HFFC is well placed to capitalise on the high growth yet underpenetrated affordable housing market (projected to register ~20-25% CAGR over the medium term). Operating efficiencies and lower credit costs should ensure both RoA/RoE expand to 3.3%-3.4%/12-13%, respectively.
  • Also, we expect asset quality to improve and the early delinquency numbers in terms 1dpd+ should provide comfort on the underwriting mechanism. We initiate with a ‘BUY’ recommendation and a target price of INR763, valuing the company at 4x FY23E P/ABV of INR191.

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