Target: ₹1,020
CMP: ₹887.25
Home First Finance (HomeFirst) is a retail affordable housing financier, which operates mainly in the peripheries of urban centres/tier-1/tier-2 cities.
The company primarily targets the informal salaried segment, which is underserved by banks and large HFCs. It 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 about 34 per cent) and Warburg Pincus (about 29 per cent), HomeFirst delivered an AUM growth of about 45 per cent along with robust asset quality over FY17-22.
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 per cent by FY25 (FY20: 3.4 per cent).
We initiate coverage on HomeFirst with a BUY rating. Key downside risks include: high business concentration in India’s best affordable housing States; vulnerability to external shocks restraining access to liquidity; and likely sharp contraction in spreads/margins due to its inability to pass on higher borrowing costs and continued aggressive approach by banks and HFCs.