Home First IPO: Should you subscribe? | Economic Times

Home First Finance Company plans to raise Rs 265 crore from fresh equity issue to augment the capital base and another Rs 888.7 crore through offer for sale. The mortgage lender operates in the country’s fast growing affordable housing segment. It has reported a sharp increase in lending activities over the past three years. Its business is concentrated in three states. The IPO valuation seems to capture its growth prospects. These factors make the IPO more suitable for investors with high risk appetite.Business and financialsThe affordable housing finance company targets first time home buyers in the low and middle income groups. Home loans comprised 92% of the total loan assets worth Rs 3,730 crore as of September 2020. This proportion is higher than 60-83% for other home loan companies. The lender’s activities are concentrated in three states including Gujarat, Maharashtra, and Tamil Nadu, which together account for over 70% of the loan book and host 46 out of the total 70 branches as of September 2020.The company’s assets under management (AUM) increased by 63.4% annually between FY18 and FY20 to Rs 3,618.3 crore. Revenue rose by 73.8% to Rs 398.6 crore while net profit surged five-times to Rs 79.2 crore during the period. The AUM of another affordable home finance company Aavas Financiers grew by 38.4% annually to Rs 7796.1 crore during the period.80377528 Affordable housing is a promising credit segment given the government’s incentives. According to CRISIL Research, the affordable home loan segment will grow by 9-10% annually between FY20 and FY23 to Rs 11.9 lakh crore.ValuationThe IPO price is at nearly 55% premium to Rs 334.7 at which the company undertook a preferential allotment to Orange Clove Investments, an affiliate of Warburg Pincus in October 2020. Considering the equity after the IPO, the company demands a price-book (P/B) multiple of 3.6. Its direct peer Aavas Financiers trades at a steeper multiple of nearly seven and has better net interest margin and higher return ratios. Some of the other home finance companies are available at P/B between one and three.