Home First Finance Company India Limited — Q2 FY25 earnings call

Call held 25 Oct 2024

Management summary

Home First Finance delivered a strong Q2 FY25, characterized by robust AUM growth of 34% and record disbursals. Despite broader concerns in the financial sector regarding unsecured lending, the company maintained stable asset quality with GNPA at 1.7% and credit costs at the lower end of guidance (20 bps). Management expressed high confidence in sustaining a 30% growth trajectory through aggressive branch expansion and deeper penetration into emerging markets like UP and Madhya Pradesh.

Highlights

  • Assets Under Management (AUM) grew by 34.2% YoY to ₹11,229 crores.

  • Highest ever quarterly disbursals of ₹1,177 crores, maintaining a track record of QoQ increases.

  • Profit After Tax (PAT) stood at ₹92 crores, an increase of 24% YoY.

  • Gross Stage 3 (GNPA) remained stable at 1.7% on a QoQ basis.

  • Return on Equity (ROE) improved to 16.5%, up 20 bps compared to Q1 FY25.

  • Spreads were maintained at 5.3%, with a cost of borrowing at 8.3% (excluding co-lending).

  • Digital adoption remains high with 95% of customers registered on the mobile app and 89% of service requests raised digitally.

  • Employee strength increased significantly to 1,642 in Sept '24 from 1,249 in March '24 to support expansion.

Key financials

  1. AUM ₹11,229 Cr +34.2%YoY
  2. PAT ₹92 Cr +24%YoY
  3. GNPA 1.7% 0%QoQ
  4. NIM 5.2%
  5. ROE 16.5% +1.2%QoQ
  6. Credit Cost 20 bps -50%YoY

What they filed

Q1 FY27: revenue up 18.5%, net profit up 34.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue373 406 415 454 477 +28%482 +19%501 +21%538 +19%
Net profit92 97 105 119 132 +43%140 +44%149 +42%160 +34%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

AUM

  • AUM Growth AUM · FY25 · High confidence 30%+
    We want to grow by 30% and all other activities in terms of employee hiring, branch expansion, new location expansion, etc. have been planned on that basis only.

    — Manoj Viswanathan, MD & CEO

Volume

  • Disbursals Volume · H2 FY25 · High confidence ₹2,500 - ₹2,600 crores
    The plan is that in the next two quarters, we should get our disbursement to about INR 2,500 - INR 2,600 cr.

    — Manoj Viswanathan, MD & CEO

Profitability

  • Credit Cost Profitability · FY25 · Medium confidence 20 to 30 bps
    Our annual guidance for credit cost is around 20 to 30 bps, being conservative here.

    — Nutan Patwari, CFO

Margin

  • Spreads Margin · Steady State · High confidence 5.2% - 5.3%
    But on a steady state basis, 5.2% - 5.3% is something that we should be able to maintain.

    — Manoj Viswanathan, MD & CEO

Other

  • Opex to Assets Ratio Other · FY25 · Medium confidence 2.7% to 2.8%
    We expect the opex ratio to remain range bound within 2.7% to 2.8% as we focus on expansion.

    — Nutan Patwari, CFO

Debt

  • Debt-to-Equity Leverage Debt · Next 12-18 months · Medium confidence 5x
    We think that we can increase it for a fair bit, perhaps closer to 5x. We have about 12 – 18 months before we need to look at a capital raise.

    — Nutan Patwari, CFO

Risks & concerns

  • Rising Employee and Operating Expenses

    medium

    Employee expenses grew 20% sequentially due to front-loaded campus hiring and new ESOP grants.

    Analyst acknowledged

  • Increasing Leverage

    low

    Debt-to-equity is inching up (3.9x), though management views 5x as the comfortable peak before needing capital.

    Analyst acknowledged

  • Ticket Size Inflation

    low

    Average Ticket Size (ATS) is increasing due to property price inflation and customer aspirations for larger homes.

    Analyst downplayed

Q&A highlights

3 direct
Sharp rise in October bounce rates Direct
The Bounce rate as on Oct’24 is 15.6%, if you see the collection figure 6 days post the bounce, about 5.6% of the people have paid and the bounce rate after 6 days is 10%, which is in line with what has been happening in the last several months.

Addresses investor concerns about deteriorating asset quality in the current month; management clarifies it is a timing issue rather than a trend.

Asked by Renish, ICICI Securities

Sustainability of 30% growth on a larger base Direct
The plan for the next 2 years is that we get to an INR 500 cr run rate next year and an INR 600 cr run rate the year after. So, the expansion and employee base increase are on par with that.

Provides specific monthly disbursal targets required to maintain high growth as the AUM base crosses ₹10,000 crores.

Asked by Renish, ICICI Securities

Impact of PLR hike on yields and retention Direct
Almost 93% of the customers actually underwent only a tenure change. They did not undergo any EMI change. To that extent, they did not get disturbed.

Explains how the company manages interest rate transmission without triggering customer defaults or excessive balance transfers.

Asked by Raghav Garg, AMBIT Capital

2 min read 5 chapters

Detailed narrative

Sustained Growth Momentum and Market Expansion

Home First continues to outpace the industry with 34.2% YoY AUM growth, reaching ₹11,229 crores. The company achieved its highest-ever quarterly disbursal of ₹1,177 crores in Q2 FY25. Management is aggressively expanding its footprint, adding 9 new branches this quarter to reach a total of 142, with a focus on high-growth states like Uttar Pradesh, Rajasthan, and Madhya Pradesh. They aim to maintain a 30% growth rate by increasing monthly disbursal run rates to ₹500-600 crores over the next two years.

Resilient Asset Quality and Conservative Provisioning

Asset quality remains a core strength, with GNPA stable at 1.7% and 30+ DPD improving by 10 bps to 2.8%. Credit costs were maintained at a low 20 bps, which is at the bottom of the management's 20-30 bps guidance range. The company continues to follow a conservative provisioning approach, maintaining a Stage 3 provision coverage ratio of 48% (64% before RBI reclassification). Management noted that housing loan customers remain disconnected from the current stress seen in the microfinance (MFI) sector.

Strategic Human Capital Investment

The company saw a significant 20% sequential increase in employee expenses, driven by a strategic decision to front-load hiring. Employee strength grew to 1,642 from 1,249 in just six months. This 'connector model' relies on employees to consolidate leads and close loans, and management believes this larger base is essential to support the planned 30% AUM growth over the next 2-3 years. Attrition has also improved, falling below 30% this year.

Diversified Funding and Margin Stability

Home First maintains a well-diversified borrowing profile with 60% from banks, 16% from NHB, and 13% from direct assignments. During the quarter, they added a $35 million 10-year fully hedged ECB from DFC. Spreads were maintained at 5.3% following a PLR hike in August, which management expects to fully reflect in Q3 yields. The company's cost of borrowing remains competitive at 8.3%, enabling stable NIMs of 5.2% despite the rising interest rate environment.

Digital Transformation and Fee Income Drivers

Technology remains central to operations, with 95% of customers registered on the mobile app and 75% of fulfillments handled digitally. A new driver for profitability is the reworked insurance partnership following the receipt of a corporate agency license, which is expected to contribute approximately ₹4 crores in commission income per month. This shift is expected to provide a net delta of ₹9-10 crores in fee income annually as marketing income is replaced by higher-margin commissions.

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