India Shelter Finance Corp: Take a call post listing

The AUM of the company at current levels is Rs5,180 cr, while peer set sees Aptus at Rs7,603 cr, Rs8,365 cr for Home First and Rs15,319 cr for Aavas Financers. This is significantly higher for the peers and they have a track record of being listed for some time. The price to book for these companies is at 4.5, 4.6 and 3.6 respectively. In comparison India Shelters is coming with the issue at a price-to-book ratio of 3.5x

What’s Impacting?

• Business is too competitive
• Margin of safety is not adequate for investors
• Multiple issues hitting mkt in 5-10 days
• Markets are trading at lifetime highs

India Shelter Finance Corporation Ltd (ISFCL) is tapping the capital markets with its fresh issue of Rs800 crore and an offer for sale of Rs400 crore. The issue price is Rs463-493. The issue opened on Wednesday (December 13) and would close on Friday (December 15). The company is a retail focused affordable housing finance company with an extensive distribution network comprising 303 branches as of September 30, 2023. The company has a scalable technology infrastructure across the business operations and throughout the loan life cycle.

The company during the two-year period FY21-FY23 has grown at a CAGR of 40.8 per cent in terms of assets under management (AUM). The company’s target segment is self-employed customers with a focus on first time home loan takers in the low- and middle-income group in Tier-II and Tier-III cities in India. It lends in the affordable housing segment that comprises loans with a ticket size that is lower than the Rs25 lakh criteria set out in the Refinance Scheme under Affordable Housing Fund for the Financial Year 2021 issued by National Housing Bank (NHB).

The mix of the business is 58 per cent home loan, and 42 per cent loan against property. The average ticket size based on the first half financials for FY24 is Rs10 lakh. It has an AUM of Rs5,180 crore as of September 30. It has 203 branches, is present in 15 States, over 1,500 feet on the street, and gets 98 per cent business of its business, which is sourced in-house. On the collection front the collection efficiency is 99.2 per cent and NPAs are at 0.72 per cent.

The cost of borrowing is under check with the same rising from 8.3 per cent during FY21 to 8.6 per cent during first half of FY24. This is in sharp contrast to the fact that the premium paid on repo rate in FY21 was 4.6 per centm which has been reducing continuously and was down to 2.1 per cent in the current half year.

The financials of the company indicate a total revenue of Rs584.53 crore for the year ended March 2023 and Rs398.57 crore for the half year ended September 2023. Profit after tax (PAT) was Rs155.34 crore for the year and Rs107.35 crore for the half year. The EPS on a fully diluted basis was Rs17.47 and Rs12.0 respectively. Based on EPS of FY23, the PE multiples are 26.85-28.22. The company has chosen as its peer set Aptus Value, Home First and Aavas Financers. The industry PE multiple is in a range of 27.4-37.7 with average of 31.7. On this matrix, the share price band of India Shelter is quite comparable. However, housing finance companies are compared on a price to book. Here the ratios for the industry are highest 4.6 times and lowest at 3.6 times.

The AUM of the company at current levels is Rs5,180 cr, while peer set sees Aptus at Rs7,603 cr, Rs8,365 cr for Home First and Rs15,319 cr for Aavas Financers. This is significantly higher for the peers and they have a track record of being listed for some time. The price to book for these companies is at 4.5, 4.6 and 3.6 respectively. In comparison India Shelters is coming with the issue at a price-to-book ratio of 3.5 times. On this count too they are comparable, but with a significantly lower AUM.

Housing finance is a highly competitive industry and you have multiple players from different businesses who offer you loans. They are banks, housing finance companies and NBFCs. Within this wide array of choice, you have private banks and public-sector banks (PSBs), which provide loans as well. The rate of interest varies considerably. While demand for housing loan is virtually insatiable, supply also exists. The key to the business being successful is how you are able to assess the risk of the borrower and ensure that the repayment happens.

The business is too competitive for comfort and margin of safety is not adequate for investors. One may look at the issue post listing and then take a call whether to invest in the share or not. Once again over the next five to ten days multiple issues are on offer. Pick and choose your issues wisely. There is an active grey market currently for the share, but this can’t be the basis for investment. One must also keep in mind that markets are trading at lifetime highs.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)