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Home First Finance – West-Based Affordable Housing Finance Company

Company Name – Home First Finance Company India Ltd (Home First)

Current Share Price – INR 722 (December 20, 2022)

Market Cap – INR 6,341 cr


1. What is interesting about the stock?

“I would give a thousand furlongs of sea for an acre of barren ground.”


Urban Housing shortage exists due to a big gap between demand and availability of housing in the cities, both in terms of number and quality. As per the technical study conducted by MHUPA (Ministry of Housing and Urban Poverty Alleviation), the urban housing shortage in India is currently estimated at ~19 mn. This gap is expected to further widen to an estimated 38 million homes by 2030 largely due to the rising population and increased urbanization.

The Indian housing market continues to struggle with supply-side management for housing. The scarcity of developed and encumbrance-free urban land, increased cost of construction, absence of a viable rental market and master-plan restraints have lowered the potential growth of the formal housing market in India.

Affordability can be achieved by adjusting factors like land cost, construction cost, and financial support. A lot of new Housing Finance companies like Aavas, Aptus, and Home First are trying to address financial support to improve affordability.

Home First Finance Company India Limited (Home First) is a housing finance company founded in February 2010. Home First was founded by former Citibank professionals — Jerry Rao (who also founded Mphasis), PS Jayakumar, and Manoj Viswanathan. While Rao has exited the venture, Jayakumar and Viswanathan collectively hold less than a 4 percent stake. Manoj Viswanath is the MD & CEO of the company. It obtained a license to carry on the business of a housing finance institution from NHB in August 2010. The company primarily provides housing loans, loans for the purpose of purchasing a commercial property, and LAP.

The Company has penetration in the housing finance market with a network of 101 branches across 112 districts in 13 states/UT, with a significant presence in urbanized regions in the states of Gujarat, Maharashtra, Telangana, Andhra Pradesh, Karnataka, and Tamil Nadu. The Company has lead-generating channels with 101 digital branches and a network of ~ 2000 connectors. Connectors are third-party agents who generate business for the Company on a part-time basis. They are paid about 20 to 50 basis points and generate ~75% of the leads.

Home First’s portfolio mix has been largely stable through the years with the company mainly lending towards retail housing which constitutes 89% of the total AUM, while Loan Against Property (LAP) comprises a 10% as of September 2022. Company is growing its LAP portfolio with a target mix of Housing Loan: LAP at 85:15. Customer profile for the Company is:

  • 71% salaried; rest are self-employed. However, even salaried are typically employees in proprietorships or SMEs

  • Average ticket size of ~INR 11 lakh with LTV of 55-60%

  • Portfolio yield of 13%

Home First’s shareholders comprise established private equity funds - True North Fund (20.2%), Aether Mauritius (13.4%), Warburg Pincus (28.7%), and Bessemer India Capital (7.8%). Home First got listed on stock exchanges on February 8, 2021.

Why invest in Home First?

  • Experienced management team and marquee shareholder

  • Focus on the untapped market segment

  • Healthy leverage of ~3.5x

  • Loan-to-value (LTV) ratio of less than 55-60% typical level of 70-80% partly compensates for a weaker customer profile

2. Key Historical Financials

  • Revenue is growing ~20% since FY20 with strong RoA

  • Cost to income ratio of ~34% - compared to large banks

  • RoE of 13%

  • Company carries ~80% of loans generated on its books with 20% given out on direct assignment and co-lending

  • Gross NPA of ~1.9% and Net NPA of 1.4%

3. What is my view on company valuation?

Home First IPO was subscribed ~27x – significantly oversubscribed by institutional and non-institutional investors but relatively less from the retail investors (6.6x). Company issued shares at INR 518 and the share has traded mostly above the issue price. The current price is ~40% above the IPO price.

Home First trades at a P/BV of 3.8x and P/E (TTM) of 30x. Aavas Financiers trades at a P/BV of 5.2x and P/E (TTM) of 39x & Aptus trades at a P/BV of 4.7x and P/E (TTM) of 33x. Home First’s valuation is in line with other retail-focused housing finance companies.

However, on a fundamental basis, a P/BV valuation of 3.8x is very high for any financial services company. Additionally, significant ownership is with private equity players who would want to exit and hence an overhang on the stock price.

4. What are the risks to the investment analysis?

Risks to the analysis are:

  • Exposure to borrowers with modest credit profiles

  • Limited portfolio seasoning

  • Geographically concentrated operations make the company vulnerable to political interventions

  • Private sector banks like HDFC (post merger) and ICICI Bank are increasing their focus on this segment which could lead to lower portfolio yield and riskier portfolio for affordable housing finance companies if they want to maintain current growth momentum


About the Author

I have over 17 years of experience in equities with a detailed focus on autos, auto components, and media. I am an engineer and have an MBA from a premier institute in India.


I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.

I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.

I have used publicly available information while writing this article.



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