Home First Finance Company

Home First Finance Q1 FY25 Analysis: Key takeaways!!

Home First Finance continues to demonstrate strong growth momentum, with AUM crossing the Rs. 10,000 crore milestone in Q1 FY25. The company reported a 34.8% year-over-year AUM growth to Rs. 10,478 crore, driven by broad-based expansion across markets. Disbursements reached a new high of Rs. 1,163 crore, growing 29.9% year-over-year. The management remains confident in sustaining 30%+ growth rates in the near term, supported by strong demand and expansion opportunities.

Strategic Initiatives:

1. Technology-driven operations: Home First is leveraging technology to improve efficiency and customer experience. Account aggregator adoption has reached 41% for new approvals, while 95% of customers are registered on the company’s app.

2. Geographical expansion: The company is focusing on deeper penetration in existing markets and expanding into new states like UP, MP, and Rajasthan.

3. Product mix optimization: Home First is gradually increasing its Loan Against Property (LAP) portfolio to enhance yields, while maintaining a primary focus on housing loans.

4. Co-lending partnerships: The company aims to scale up co-lending to 10% of disbursements in the near term to improve capital efficiency.

Trends and Themes:

1. Increasing ticket sizes: Average ticket sizes are gradually moving up due to income growth and inflation in property prices.

2. Digitalization: Home First is seeing high adoption of digital processes, with 70%+ digital fulfillment and 90% of service requests raised through the mobile app.

3. Granular distribution: The company maintains a focus on small, individual connectors rather than large DSAs for loan sourcing.

Industry Tailwinds:

1. Strong demand for affordable housing
2. Government support for the housing sector
3. Increasing formalization of the economy, benefiting organized lenders

Industry Headwinds:

1. Rising interest rate environment
2. Increasing competition in the affordable housing finance space
3. Potential asset quality concerns in an inflationary environment

Analyst Concerns and Management Response:

1. Margin pressure: Analysts expressed concern about yield softening and cost of funds increasing. Management responded by announcing a 35 bps PLR hike effective August 1, 2024, to help maintain spreads.

2. Capital adequacy: With a high capital adequacy ratio of 36.2%, analysts questioned the need for off-book strategies. Management clarified that they are building these capabilities gradually and will scale up when needed.

3. Asset quality in new geographies: Management emphasized their risk assessment processes and centralized underwriting to maintain asset quality as they expand into new markets.

Competitive Landscape:

The affordable housing finance sector is becoming increasingly competitive, with larger players entering the small-ticket segment. Home First differentiates itself through its technology-driven approach, granular distribution model, and focus on customer experience.

Guidance and Outlook:

• AUM growth target of 30%+ for FY25
• ROE improvement of 50-75 bps annually, targeting 16.2-16.5% for FY25
• Spread (excluding co-lending) expected to remain around 5.2% in the near term

Capital Allocation Strategy:

Home First maintains a strong capital position with a total CRAR of 36.2%. The company plans to optimize capital utilization through co-lending and securitization while maintaining an internal CRAR threshold of 20%. Management indicated potential capital raising in the next 6-8 quarters.

Opportunities & Risks:

Opportunities:

1. Expansion into new geographies
2. Increasing LAP portfolio share
3. Scaling up co-lending partnerships

Risks:

1. Intense competition leading to margin pressure
2. Potential asset quality deterioration in new markets
3. Regulatory changes impacting the affordable housing finance sector

Regulatory Environment:

The company operates in a highly regulated environment, adhering to RBI and NHB guidelines. Recent regulatory changes, such as the April 2024 circular on disbursements, have had minimal impact on Home First due to its digital-first approach.

Customer Sentiment:

Management noted strong demand for affordable housing loans across markets. However, they observed some changes in customer behavior post-COVID, such as increased usage of UPI and multiple bank accounts, affecting EMI payment patterns.

Top 3 Takeaways:

1. Robust growth trajectory with AUM crossing Rs. 10,000 crore and 34.8% year-over-year growth
2. Technology-driven operations enabling efficient scaling and improved customer experience
3. Focus on maintaining spreads through PLR hike and optimizing product mix with gradual increase in LAP portfolio