Star Housing Finance Limited (BSE: 539017)
Company Overview:
Star Housing Finance Limited (Star HFL) is an affordable home finance company headquartered in Mumbai, focused on serving first-time homebuyers in semi-urban and rural areas. It has grown significantly since shifting its registered office to Mumbai and listing on the BSE Main Board, after starting on the SME platform. The company’s core mission is to provide access to home loans for the economically weaker section (EWS) and lower-income group (LIG), aligning with the government’s initiative of affordable housing for all.
Star HFL operates in Maharashtra, Madhya Pradesh, Gujarat, Rajasthan, NCR, and Tamil Nadu, with plans to expand into Chhattisgarh and South India. As of March 2024, the company had over 4,300 live accounts and assets under management (AUM) of ₹426.86 crores, with a portfolio heavily skewed towards retail loans.
Key Highlights:
- AUM Growth: AUM has grown 73.5% year-on-year (YoY) to ₹426.86 crores as of March 2024. The company targets ₹700 crores by the end of FY25 and ₹1000 crores by December 2025, driven by expanding its branch network and reaching new geographies.
- Financial Performance: For FY24, Star HFL reported total income of ₹61.64 crores, a 65.5% YoY increase, driven primarily by interest income, which grew by 66.8% YoY. Net Profit After Tax (PAT) for FY24 was ₹8.88 crores, reflecting a growth of 27.2%. The company has a strong capital position, with a net worth of ₹133.01 crores as of March 2024, and modest leverage at 2.41x.
- Disbursements: For the FY24, the company disbursed ₹240.86 crores in loans. The average loan size is ₹12-13 lakhs in urban areas and ₹6-8 lakhs in rural areas.
- Asset Quality: The company has maintained good asset quality, with Gross Non-Performing Assets (GNPA) at 1.5% and Net NPA at 1.02%, as of March 2024. The early warning signal system helps manage potential risks in the portfolio.
- Borrowings: Star HFL has diversified its borrowings across banks and financial institutions, with the National Housing Bank (NHB) playing a key role in its funding mix. Borrowings have increased by 97% YoY to ₹320.30 crores.
Investment Thesis:
- Strong Growth Trajectory: The company is in a phase of aggressive expansion, as seen by its ambitious AUM target of ₹1000 crores by December 2025. With a focus on affordable housing, particularly in underpenetrated semi-urban and rural markets, Star HFL is well-positioned to capitalize on the government’s “Housing for All” mission. Additionally, with the expansion into new regions and a strong pipeline of relationships with banks, the company has access to capital necessary for scaling its operations.
- Profitability and Operational Efficiency: Star HFL’s profitability metrics are robust, with PAT growth of 27% YoY and a spread of around 500-550 basis points maintained. The company is targeting sustainable double-digit Return on Equity (ROE) while focusing on maintaining a healthy balance between growth and asset quality.
- Improving Credit Quality: Despite its rapid growth, Star HFL has successfully managed its credit risk, with GNPA consistently declining over the years. The introduction of early warning systems and close monitoring of portfolio risks have ensured stable asset quality, a critical factor for housing finance companies.
- Valuation Opportunity: Currently rated BBB (stable) by Care and India Ratings, the company expects an upgrade once it achieves its AUM target of ₹700 crores. Such an upgrade could lead to better access to cheaper funding, further enhancing profitability.
Risks:
- Interest Rate Risk: Rising interest rates could potentially squeeze margins as borrowing costs increase. While the company has kept interest rates stable for its customers, any further increase in borrowing costs may impact profitability if not managed through sustained growth.
- Geographic Concentration: Although Star HFL operates in multiple states, a significant portion of its operations are concentrated in certain regions. Any economic downturn or policy changes in these regions could impact its business.
- Competition: The affordable housing finance space is becoming increasingly competitive, with both established financial institutions and new-age fintech players entering the market. Star HFL will need to continue innovating to differentiate itself and maintain its growth trajectory
Management and Governance:
Star HFL has transitioned into a professionally run housing finance company, with a strong leadership team comprising veterans from the housing finance industry, including former executives from NHB, LIC, IDBI, and CanFin Homes. The company is focused on building robust processes and risk management frameworks as part of its growth strategy.
Conclusion:
Star Housing Finance Limited is on an aggressive growth path, with a clear focus on the underserved affordable housing sector. Its strong financial performance, disciplined risk management, and expansion plans make it an attractive proposition in the housing finance space. However, investors should monitor the company’s ability to maintain asset quality and manage interest rate risk as it scales.
This stock could be a potential multibagger, especially if it achieves its ambitious AUM and profitability targets. However, the affordable housing space remains competitive, and thus, continued operational excellence will be key to realizing the company’s growth potential.
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