Home First Finance Company IPO: Subscribe, Low Ticket size lending

Purpose of HFFC IPO

• Fresh Issue (Rs 268 Cr) to be utilized for augmenting equity capital base for meeting future growth requirements.
• Proceeds of Offer for Sale (Rs. 888 Cr) to be received by Selling Shareholder only (True North, Bessemer)

About the Home First Finance Company

Home First Finance Company India Limited (HFF), with Rs. 4,000 loans under management, is a technology-driven affordable housing finance company that targets first time home buyers in low and middle- income groups. It was incorporated in 2010 and completed 10 years of operations.

HFF primarily offers customers housing loans for the purchase or construction of homes, which comprised 92.1% of the Gross Loan Assets, as of September 30, 2020. The Gross Loan Assets have grown at a CAGR of 63.4% between the financial years 2018-2020 and increased to ? 3,730.01 crore as of September 30, 2020.

The company serves salaried and self-employed customers. Salaried customers account for 73.1% of its Gross Loan Assets and self-employed customers account for 25% of Gross Loan Assets as of September 30, 2020. They serviced 44,796 active loan accounts, as of September 30, 2020.

Financials of Home First Finance

HFF has grown at 60% CAGR from FY15-20.

Strengths

• HFF is a technology-driven company with a scalable operating model. To make the tech-oriented model successful it has set up a robust collections management system wherein approximately 93 percent of collections for the financial year 2020 were non-cash based.
• HFF has a well-diversified and cost-effective financing profile. Its sourcing comes from private and public sector banks and National Housing Bank.
• HFF boasts marquee private equity players as its shareholders including Bessemer, True North Fund, etc. This association helps it raise finance from bankers and investors.

Weakness

The small size might become a hindrance to refinance borrowings during times of distress.

• The cost of borrowing might rise in bad times, pressuring margins.

MoneyWorks4me Opinion

How is the business model? Good, Great, or Gruesome?

Good. Housing Finance has a structural growth over the next decade. Urbanization and nuclear families are the key drivers for housing demand.

Financial companies have four key parameters to be analyzed.

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