Emkay met management of Home First Finance to get insight into the company’s growth plans, competitive landscape, and differentiation strategy. Emkay remains structurally positive on the housing landscape in the wake of all-time low interest rates, high affordability, favorable demographics and support from the government in terms of lower stamp duty. Home First Finance share price today is Rs 463, down Rs 5 or 1.25%.

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Home First Finance is focused on increasing penetration in an extremely competitive urban housing market. Gujarat, Maharashtra and Tamil Nadu, which are well-serviced states, form 70% of Home First Finance’s loan book. The company’s existing book clearly demonstrates the opportunities available in the urban mortgage market and the variation in the risk-taking appetite of mortgage lenders. New-to-credit customers account for 40% of Home First Finance’s loan book, with 75% of them being salaried customers.

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Home First Finance Low-ticket salaried home loan remains key product; spreads remain healthy:

The current loan book profile carries 92% home loans, 6% LAP and 2% developer loans. The company also provides top-up loans to existing customers once the credit record with Home First Finance is established. The company plans to largely maintain this mix going forth, with a heavy tilt toward home loans. The average yield for Home First Finance is 13% and the average cost of funds is 8%.

Home First Finance Operational flexibility and quicker TAT (Turn Around Time) are key features:

In the highly competitive home loan market (especially in urban India), Home First Finance differentiates itself by demanding relatively fewer documents, identifying the undocumented/informal sources of income as well as family income, and offering loans in short TAT (48 hours). On account of this, Home First Finance overall customer base expands within the same geography and within similar credit profile customers.

Healthy capital adequacy to ensure consistency in growth without need for near term dilution:

Home First Finance directly sources its customers and does not rely on DSAs. Home First Finance banks on its 70+ branches across states to source loans, the company also has tie-ups with builders, masons, contractors, furniture retailers, etc. to incrementally source loans. With a CAR of 63% and leverage of 2.5x, HFF believes that it has adequate capital to grow at a rate of 30% per annum for the next 3-4 years.

Home First Finance Promoters and valuation:

Home First Finance is promoted by True North and Aether, holding 20.3% and 13.4%, respectively. HFF is also backed by Warburg Pincus (28.8%) and Bessemer (7.8%). Strong ownership provides the required comfort in the company’s ability to achieve its mid- to long-term goals. Home First Finance trades at 4.2x FY20 P/B, whereas peers Can Fin Homes trades at 3.2x FY20 P/B, LIC Housing Finance at 1.1x FY20 P/B and HDFC at 2x FY20 P/Standalone book.