Home First - Attractive but pricey offer

Home First Finance Limited (Home First) is tapping the capital markets with its fresh issue of Rs 265 crore and an offer for sale of 151.57 lakh shares in a price band of Rs 517-518. The issue would raise Rs 1,153.72 crore. The issue has opened on January 21 and would close on January 25. Home First Finance Limited as the name suggests is in the business of providing loans for first time home buyers and people who would like to build their homes in the fast-growing affordable segment. Their target audience is the lower and middle-class segment. They are present in 11 States and generate about two-thirds of their business from Gujarat, Maharashtra and Tamil Nadu.

The current AUM of the company is about Rs 3,700 crore which has been growing at a brisk rate of over 60 per cent in the last three years. They manage their borrowings from banks both PSU and private, NHB or National Housing Bank and debt instruments.

They use the services of channel partners for sourcing potential customers. Their entire process is highly automated and relies on use of technology. Home First is leveraging machine intelligence in its lending activities and has made the entire process simple and through an app. The customer is visited at his place of residence and all documents scanned at one shot. No papers are to be submitted and once all paperwork is completed, a loan is either sanctioned or rejected in less than 48 hours.

The company has a net worth of Rs 988 crore and reported a profit after tax of Rs 53 crore. The GNPA (gross non-performing assets) are 0.74 per cent. The company reported an EPS on a fully diluted basis of Rs 10.53 for the period ended March 2020. Based on these earnings the PE ratio is 49.10 to 49.19. The company has fared better in the first half of the current financial year and the EPS has improved to Rs 6.59 for the first six months.

The company compares itself with Aavas Finance which has a bigger size of business than Home First and also better performance matrix. One other key differentiator is the fact that Aavas creates a charge on the land on which the house is constructed. The net asset value or NAV of the company is Rs 126.06 as at September 30, 2020.

Warburg Pincus is an existing investor in the company and in October 2020 increased its stake by 5 per cent at a price of Rs 335. Many investors believe that the company now issuing shares in just about 3 months at a price which is higher by Rs 183 or over 50 per cent to that price is unjustified to new prospective shareholders. Strange is the way stock markets work and the fact remains that there is a healthy premium to the issue price in the grey market.

Markets are in a state of euphoria and we are seeing wild gyrations that markets are experiencing. This issue would list after the budget is presented. There is every possibility that markets may not at that time remain in the same kind of mood. Allotment in this issue would be on the basis of a lottery; hence the risk in applying would get reduced to that extent. In any case, if you are lucky and get an allotment of shares, one must book profits on day one as the valuations are certainly on the expensive side.

(The author is the founder of

Kejriwal Research and Investment Services, an advisory firm)