Things to Know Before Investing in HFFC IPO

Financials of Home First Finance Company India Limited

Here is a quick look at the financial performance of Home First Finance Company India Limited over the last four years:

All amounts in INR Crore

A quick glance at the financial performance of HFFC over the last four years highlights the fact that there has been significant growth in income and profits. During this period, the total income of the company showed growth at a CAGR of 46.31%. The assets of the company grew at a CAGR of 36.96%. The profit after tax showed a phenomenal growth rate (CAGR) of 85.84%. An interesting fact about HFFC is that in the pandemic-hit 2020, the company merely had 0.7% of its total assets as NPAs (non-performing assets). 

SWOT Analysis

In a country with over 1.3 billion people, the demand for quality and affordable housing is always high. With the inflation rates being around 5% and the supply not being able to live up to the demand, houses are costly in the country. Hence, most homebuyers need to opt for housing loans to buy their dream homes. The mortgage market in India can be divided into two segments – regular mortgage loans and affordable housing finance. HFFC offers affordable housing loans to people.

While the housing finance market in India grew at a CAGR of around 20% between 2014 and 2019, the growth in the affordable housing loans segment was merely 5%. Also, in this segment NPAs are usually higher than the regular mortgage segment. However, HFFC has managed to record good growth rates and lower NPAs due to its stringent processes and credit policies. 

In recent years, the states of Gujarat and Maharashtra have shown a marked increase in the demand for affordable housing loans. With HFFC having a strong presence in these states, it is uniquely positioned to make the most out of this opportunity. However, with the RBI making it easier for housing finance companies to acquire licenses, the possibility of new entrants remains high.

1. Strengths of Home First Finance Company India Limited

• Home First Finance Company India Limited is a technology-driven company with a scalable operating model.
• The company is customer-centric and believes in developing strong relationships with its customers by addressing their key concerns in housing finance.
• It has managed to penetrate the largest housing finance markets by adopting a strategy of contiguous expansion across regions and has diversified sourcing channels.
• The underwriting process at HFFC is centralized and driven by data science. It spends a lot of time in understanding the formal and informal sources of income to make an informed decision about approving or denying the loan request.
• In 2020, around 93% of HFFC’s collections were non-cash-based. It has collection systems that use technology to the process seamless and error-free.
• The credit ratings of the company have improved from CARE A- in 2017 to CARE A+ in 2020. Also, it has a rating of A+ (stable) from ICRA.
• The company has an experienced senior management team, marquee investors, and qualified operations personnel.

2. Weaknesses of Home First Finance Company India Limited

• For any housing finance company, there is an exposure to risk in the long-run. Since HFFC caters to the middle and low-income segments, this risk is slightly higher.
• While the company has an NPA ratio of 0.7% in 2020, it has grown from 0.5% in 2018. This increases the volatility and poses a risk to its profitability.
• There has been an increasing demand for affordable housing loans in Maharashtra and Gujarat. With HFFC having a strong presence in these states, the prospects are bright. However, if the demand drops in these states or increases in other states, then the lack of diversification can hurt its revenue.

3. Risk Factors

• The coronavirus pandemic (COVID-19) has had an adverse effect on HFFC’s business and operations and the extent to which it may continue to do so in the future is uncertain and cannot be predicted.
• Any disruption in the company’s sources of funding could have an adverse effect on its business, results of operations, and financial condition.
• If the company fails to meet its obligations, including financial and other covenants under its debt financing arrangements, then its business, results of operations, and financial condition can get impacted.
• Being a housing finance company, the risk of non-payment or default by borrowers may adversely affect its business, results of operations, and financial condition.
• HFFC requires certain statutory and regulatory approvals for conducting business and its inability to obtain, retain, or renew them in a timely manner, or at all, may adversely affect its operations.
• Any downgrade in HFFC’s credit ratings could increase its borrowing costs, affect our ability to obtain financing, and adversely affect its business, results of operations, and financial condition.
• The company is affected by volatility in interest rates for both its lending and treasury operations, which could cause its net interest income to vary and consequently affect its profitability.
• HFFC’s operations are concentrated in the states of Gujarat and Maharashtra and any adverse developments in these regions could have an adverse effect on its business and results of operations.
• The Indian housing finance industry is extensively regulated and any changes in laws and regulations applicable to HFCs could have an adverse effect on its business.

4. Promoters of Home First Finance Company India Limited IPO

1. True North Fund V LLP
2. Aether (Mauritius) Limited

Things to Keep in Mind before Investing in HFFC IPO

Here are some things that you need to keep in mind before investing in the Indigo Paints IPO:

1. HFFC is a financially strong company with a proven track record of efficient financial management.
2. It has CARE A+ ratings and ICRA A+ (stable) ratings.
3. It is a technology-driven housing finance company with a scalable operating model.
4. HFFC has surpassed its peers in the growth rate of assets and disbursements.
5. Being a housing finance company, the risk of non-payment or default by borrowers may adversely affect its business, results of operations, and financial condition.

Please read the Red Herring Prospectus carefully before investing.

Happy Investing!