Upcoming IPO of 2021: In this IPO review on Home First Finance Company (HFFC), we have spoken about the Home First Finance Company (HFFC) Date, Price, Price Band, Lot Size, the Business mode, pros and cons of Home First Finance Company (HFFC) and its Financials.
Home First Finance Company (HFFC) IPO Review & Details
Hey friends! When we talk about lending business the first name that emerges out is -Banks that give loans to customers in different categories. For eg. Auto loan, Personal loan, and Housing loan. You also might be aware that NBFCs also operate in the lending business that give loans in different categories.
But there is a special category where (specialized) NBFCs offer loans to people. The name of this category is Housing loans. There are a lot of companies/NBFCs that trade on the stock market like LIC HFL, Indiabulls housing finance, GIC Housing finance, etc.
These companies are specialized in giving loans to customers in the housing sector. In this category, there is a new NBFC that will be live with its IPO (recently). You can bid for its IPO. Its name is Home first finance. We will discuss about its IPO in detail. We have divided this video into three parts.
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HFFC IPO Share
We will first talk about the industry, then about the company's business, financials and pros, and cons.
At the end of the article, I will talk about important dates that are important for you if you are interested in the IPO of the company. Without taking much time let's first discuss about the industry.
India's housing finance industry's worth is more than 20 lakh crore. (Exactly) The worth of this industry (housing finance) is Rs.20.7 lakh cr. Whenever we talk about the housing finance industry there are majorly two players. First are banks. You can go to any bank and fetch a loan for your house.
Second, are NBFCs. They are specialized companies that give loans only in housing. Over here I will bifurcate the Rs.20.7 lakh industry into two parts. First are banks that have the biggest share in the housing finance sector.
They have a market share of Rs.13.6 lakh cr. While housing finance companies have a 7.1 lakh cr share in the total market.
From 2015-19 the CAGR growth of this sector was 20%. CRISIL report that says that housing sector loans amount is expected to reach Rs.28.4 lakh cr by 2022.
Now let's talk about the growth drivers of the entire industry i.e. the factors that drive growth in the entire industry. Some factors are rising population and rising urbanization. When population surges and moves towards cities then the demand for affordable housing rises. Besides this, in recent times government initiatives have also emerged in this regard. Schemes like Pradhan Mantri Awas Yojana create demand in housing.
When people receive benefits from such schemes they build new houses and reap benefits. This drives growth for this industry. The entire housing finance sector's loans disbursed can be divided into two categories. The first is Affordable housing and the second is a normal housing loan.
Home first finance operates its business in affordable housing. From 2015-19 Affordable housing saw a 5% CAGR. Major growth in affordable housing was mainly through two states- Maharashtra and Gujarat. Out of the total market for the housing finance sector (i.e. affordable housing finance sector), this company is present in 79% market. So this was a discussion regarding the industry. Now let's talk about this company. This company was started in 2010.
As of September 2019, this company had 65 branches spanned across different states like Tamil Nadu, Karnataka, Maharashtra, and Gujarat. This company has its branches in these states and operates its business over there. This company has two customer bases - Salaried and self-employed. The major customer base is salaried employees. About 72% of their loans go to salaried employees. While 24% of loans are given to self-employed people. It focuses on both customers. The major focus of its loan book is on salaried employees. Let's talk about this company's business in detail.
HFFC company's business
It gives loans to customers for building houses with 91% of their loan book contribution in this regard. Besides this, the company also gives loans again properties. If you want to take a loan against a property then this company serves over there as well with more than 4% portion in their loan book. Besides this, the company also finances developers if they need money. But their major focus is on home finance which has a 91% portion of the loan book. The remaining 9% portion is bifurcated at different places.
HFFC company's financials
Now let's move towards the company's financials. let's talk about this. First, I will talk about the company's revenue and profit. After this, I will give an interesting analysis of the industry where I will compare this company with other competitors.
First, let's talk about the profit and revenue of the company. Let's see their trend in recent years.
There has been a trend in company's revenue and profit in recent years. In March 2018 the company had Rs.134 cr revenue from where it made an Rs.15 cr profit. But in 2019 company's revenue almost doubled by reaching Rs.270 cr. Its profit rose by 3 times and reached Rs.45 cr. While in March 2020 company's revenue and profit were Rs.419 cr and (almost) Rs.79.2 cr respectively. From here you can understand that company's financials, revenue and profit have seen tremendous growth in recent years. In the last three years, there has been continuous growth. (This year) As on 30 Sep 2020 the company had half-year revenue and PAT as Rs.243 cr and Rs.52 cr respectively.
Over here you can see that company's trend of last three years is still continuing. Its half-year results have emerged out to be remarkable.
The revenue CAGR growth of last year is around 60%. While the profit CAGR of the company is around 122% in the same time period. So this was the discussion regarding the company's recent financial trends. Let's compare the numbers of this company with the entire industry. The industry in which this company operates is housing finance NBFCs. Let's speedily compare this company with the industry and see its stand.
I have divided different parameters into 5 different companies. The 5 companies that we have considered are HDFC, LIC Housing finance, AAVAS Financiers, Indiabulls Housing and HFFC.
We will compare them on different parameters. Firstly the largest market cap position in this industry is held by HDFC. After this LIC, and Indiabulls follow. Indiabulls has a market capitalization of around Rs.10,000 cr. According to the price at which HFFC has brought the IPO its market capitalization is around Rs.4000 cr. Now let's talk about P/B value.
It is an important parameter whenever we compare any company in the financial sector. A low P/B value is considered better for a company. The price to book value of HFFC in this sector is really high. Its P/B value is around 4. HDFC and LIC Housing finance have a P/B value of (around) 3 and 1 respectively. The highest P/B value of the entire industry is of AAVAS financiers which is around 6. Currently, the P/B value of Indiabulls is less than 1 i.e. 0.6. Now, let's compare the P/E ratio. The lowest P/E ratio in the entire industry is of Indiabulls which is around 7.75. After this LIC housing finance and HDFC have a P/E ratio of 7.86 and 26 respectively. An interesting fact over here is that the price at which home first finance brings its IPO makes its P/E ratio 48.
This is quite huge as compared to other competitors. Now let's talk about ROE percentage. This company's ROE percentage is 8.49%. This is quite low as compared to all other players. Now let's talk about net interest margin. This is the difference between revenue and cost. It is the (delta) margin earned by a company. A high Net interest margin is considered virtuous for a company. This company's Net interest margin is around 5.40%. While big players like HDFC, LIC housing finance, and AAVAS financiers have a Net interest margin of 3.30%, 2.34%, and 6.40% respectively.
An interesting point for a high net interest margin of this company is that the affordable housing sector charges high interest as compared to other players. The NBFCs that operate in the housing finance sector will have a high net interest margin as compared to other companies.
Now let's talk about NPAs.Non-performing assets are highly important for the entire NBFC sector. It tells about the asset quality of a company. Without taking much time let's talk about the company's nonperforming assets. Gross NPA of Home first finance is 1% and Net NPA is around 0.8%.
Let's talk about other companies. HDFCs, LIC and AAVAS have a Gross NPA of 2.70%, 2.86% and 0.46% respectively. From here you can see that this company is performing well in terms of Gross NPA as compared to other competitors. (leaving AAVAS financiers) The same trend is seen in the case of Net NPAs. The capital adequacy ratio of the company is around 47.70%. This number should be above 15% according to RBI guidelines. This company is quite safe in this regard and its CAR number can be considered great.
Pros and Cons of investing in this IPO
Now, let's move towards the next part of the article. Here we will talk about the pros and cons of investing in this IPO. These are the points that need your focus.
Firstly I will talk about the pros. The first pro is rising urbanization. In recent times the population has grown and a lot of people are moving towards cities. This will create a housing demand (especially affordable housing demand will rise due to urbanization). If urbanization persists the chances of growth of these companies also rise. This is an opportunity for them in the coming time.
The second pro is the initiatives taken by the government like Housing for all by 2022, Pradhan Mantri Awas Yojana, etc. Over here government's initiatives aim/try to get every family a house. The people who don't have houses generally fall in the affordable sector. If there is a push in this regard in the future then more growth will be there in this sector. But let me tell you again that it is difficult to predict/speculate about the future. This was a fact-based point that I discussed.
The next pro emerges out of the financials of the company. Its net profit margin of the company is quite brilliant. We had compared it with other players.
NPA is an important factor for the entire sector. In this regard also the company has performed well. The net NPA of the company is less than 1% and Gross NPA is around 1%. This can be considered a great number. The performance of the company in last 3 years has been quite great. A positive thing is that its graph is continuously improving and increasing. Revenue, profit, and margin have improved year on year.
Now, let's move to the next part where we will talk about (related to IPO investment) cons.
The most important con is - a major chunk of the market share held by the banks. Big players that operate over here have a great presence in the industry. Also, huge brands operate in this sector. The entry of a new player is tough. Though this company has performed well it now but its performance as compared to its other peers will be known in the coming time.
As compared to Housing finance companies Banks have a strong presence. Housing finance companies have improved their market share from 35% in 2015 to 39% in 2019 but banks still have a market share of 61%. From here you can understand that banks are in a dominating position in the entire sector. How this company challenges them and snatches their market share will be known in the future.
The next important point is- Large chunk of business with salaried employees. A lot of jobs were lost during the covid. You need to focus on the impact of the NPAs of the company in the near future. Whenever there is job loss this company's business can be impacted. You need to notice this thing.
The third important factor is the non-diversified business of the company. The company's major business as told during the article emerges out of Maharashtra and Gujarat. In the coming time diversification of this company and penetration in other states is important for you to know as an investor.
There is another important factor that I want to discuss. Earlier National housing bank regulated the housing sector. In August 2019 RBI took over this organization. RBI now regulates this sector strictly and there can be strict norms in the future. Following this, the new policies in the future becomes a vital factor that is important for you to know.
So this was the discussion regarding pros and cons.
HFFC IPO Date and Share Price
Now, let's move towards important dates of the company that you need to be aware of if you want to bid for this company.
The entire IPO size is around Rs.1,153 cr. The major chunk of the IPO is held by Offer for Sale. We have told about the Offer for sale a lot of times. It is the amount of the IPO size when promoters sell their stake. It amounts to Rs.888 cr.
The share price of this IPO is between Rs.517- Rs.518. The lot size is 28 shares.
If you bid for 1 lot then the minimum application will be for 28 shares with a price between Rs.517-Rs.518.
The opening date of the IPO is 21 January. You can bid for this IPO between 21-25 January. Its duration is long as there is a weekend falling in between when bidding doesn't take place. You can bid for this IPO on business days between 21-25 January. The tentative listing date is 3rd February. This can be changed in the coming time.
We told about the entire industry, the company's business, and financials.
We make all articles for educational purposes. We don't give any buy/sell recommendations.
Happy investing!
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