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    Home First Finan

    HOMEFIRSTGood
    Financial Services·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

    8

    • 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

    Single quarter

    06 metrics
    1. 01AUM₹11,229 Cr+34.2%YoY
    2. 02PAT₹92 Cr+24%YoY
    3. 03GNPA1.7%0%QoQ
    4. 04NIM5.2%
    5. 05ROE16.5%+1.2%QoQ

    Guidance & targets

    6
    CategoryTargetPriority
    AUM
    AUM Growth
    30%+
    		High
    Volume
    Disbursals
    ₹2,500 - ₹2,600 crores
    		High
    Profitability
    Credit Cost
    20 to 30 bps
    		Medium
    Margin
    Spreads
    5.2% - 5.3%
    		High
    Other
    Opex to Assets Ratio
    2.7% to 2.8%
    		Medium
    Debt
    Debt-to-Equity Leverage
    5x
    		Medium

    Risks & concerns

    3
    RiskSeverity

    Rising Employee and Operating Expenses

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

    medium

    Increasing Leverage

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

    low

    Ticket Size Inflation

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

    low

    Q&A highlights

    3

    “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

    2 min read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.