Tis’ the season to IPO, from LIC to IRFC and now Home First Finance Company are all lined up for what is expected to be a spectacular IPO. Now one thing I want to mention at the beginning is my apprehension for the real estate sector and it’s allied industries such as real estate financing in general. Home First Finance company’s core business practice does rely around providing finance for primarily first time home buyers in the low and middle income group sector. We do know that from a data centric point of view there is little leverage if any in that sector. However, let’s take a deep dive into the specifics of Home First Finance Company and if this IPO makes sense for you.
Real Estate Financing in 2021?
Companies involved in the domain of any type of lending or financing have a lot of regulatory challenges to overcome. This sets the barrier of entry for legitimate financing businesses very high. Thus, the USP for any new market player is a matter of significant importance. Home First achieves this end by being a “Technology driven affordable housing finance company that targets first time home buyers in law and middle income groups”. Founded by veteran banker P S Jayakumar who has serves as the MD and CEO of Bank of Baroda and currently headed by MD & CEO Manoj Viswanathan the company commenced operations in August 2010.
Fundamental Analysis
As of September 2020 the majority gross loan assets amounting to 92.1% was accrued to housing loans both for purchase and construction of real estate, this figure is obviously inclusive of the 44,796 active loans serviced by the company till September of last year. One of the key contribution of CEO Viswanathan appears to be the expansion of the company’s branch network which amounted to a constellation of 70 branches covering 60 districts in 11 states and one union territory in India with significant presence in urbanised areas of Gujarat, Maharashtra, Karnataka, and Tamil Nadu.
This fact in my opinion is suggestive of the company’s understanding of the specific pockets of India where real estate is still in demand, the same is reflected in the company’s records which attributes its total borrowings (inclusive of debt securities) as of September 2020 to be ₹2,636.58 Cr. The company’s growth is also indicative of the A+ (Stable) rating from ICRA in 2020 which improved from A- in March 2017.
What’s Unique About HFFC?
So what makes HFFC different from other lenders? To begin, the company uses a very technocentric approach which allows it to have a scalable operating model. Being a cusomter centric organisation with strong relationship to it’s clientele again facilitated by it’s centralised big-data backed underwriting system. Now, one of the most important aspect of any lending firm is its collection model. HFFC has set up a robust collections management system and keeping with the times, HFFC reported 93% of it’s collection for 2020 to be non-cash based. This not only eases stress on monitoring financial transactions, but reduces cash management risk as well. Finanlly, I believe the management team of HFFC is very experienced and will certainly deliver on expansionary aspects post IPO as well.