Home First Finance Company

Company Background:

The company was started by 3 ex-Citi bank employees Jaithirth Rao, PS Jayakumar, Manoj Viswanathan
Manoj Vishwanathan is the MD and CEO of the firm
Board has some well-experienced people like Chairman-Deepak(ex-MD HDFC and ex-MD and CEO HDFC Life), Sakthi prasad Ghosh(ex-ED NHB), Sujatha Venkatraman(Current Global head of credit bureau management, HSBC)
The company focus on the affordable housing market with an average loan size of 10 Lakhs
Predominantly an urban-focused and salaried class-focused company. (Company focuses on bigger markets where bigger HFCs and banks actively operate and do not focus on rural side unlike their affordable space peers like Aavas, Aptus…)
Company highly focused on digital and has a good rating for their apps in play store
The company has a very good TAT for loan disbursal.

Company products:

The company majorly do home loans(92%) and LAP(6%) and have less exposure to shop loans(1%) and developer finance(1%)
Customers are salaried class(74%) and self employers(25%) and corporate(1%)
Company finance both under construction and purchase home loans. Under-construction project loans will be dispatched in tranches and purchase home loans are disbursed at one go
They provide pre-payment without any penalty. There might be some conditions to it, but they are providing this to customers to pay some small prepayment

Market Area:

The company market area is highly serviced areas, unlike their peers. The company selects states and districts where market size is high and does not focus on areas where market size is less even though that area is untapped. This is evident, as 3/4th of the company’s loan book is concentrated in 4 highly penetrated states - Gujarat, Maharashtra, Karnataka, Tamilnadu

Even districts covered in the above states are concentrated around the bigger cities of the respective states

In Quarterly Investor call also highlighted, they will choose high market size areas and will serve nearby areas by having digital branches(yellow dots on the map)

Key Metrics

The company has a CRAR ratio of around 50% and the company wishes to maintain this in near future, as this will have positive effects on credit ratings.
Debt to equity is maintained around 2x.
Spread is currently at 5.5%(Q1 FY22), Elevated spread is because of lower borrowing cost but this is not sustainable, once we see a rise in bank repo rates, the spread will reduce and management is confident of maintaining it around 4.75%

All the operational metrics ROE, ROCE, Opex, cost to income are low but are consistently improving
Opex to Asset will be around 3%, current lower opex of 2.5% may not be sustainable, since due to covid restrictions opex is less, this will move higher in normal days

Digital and Loan TAT:

All their apps for Customers, RMs, Connectors in the play store have very good ratings.
The company has a very diversified lead generation.
93.7% of connectors are registered in the connector app
67% of customers are registered in the customer app
The company digitized loan approval processes and having more focus on reducing the TAT.
91% of loans disbursed in Q1 FY22 are having less the 48 hours of TAT.
The company makes sure a customer will interact with only one RM for counseling, loan approval, disbursement, collection. Other firms, they maintain separate people for these(Evident if you see employee reviews in AmbitionBox, that they don’t like being asked to handle all those). But by keeping a single point of contact, their TAT is significantly improved.
All the customers will have e-NACH debit to their bank account for EMI, But the company making effort to make sure all their customers are enrolled in their app and do prepayment or even EMI payment in their app and handling queries of the customers.

Asset and Liability:

ALM has no mismatch and the company is confident of maintaining a 4.75% spread.
No commercial paper borrowings
Consistently able to raise money from securitization route and constitutes for 20% of funds.
Having a low debt to equity ratio of around 2x enables the company to raise debt efficiently
The company takes credit life insurance plans for the customers which will pay the company outstanding loan amount in case of death of the customer. And this is a non-commission product and the company will not earn any income from it.

Key Questions:

Can they sustain competition from banks and bigger HFCs with a difference in the interest rate of 5%
How do these affordable home loans go without PMAY benefits?

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