Home First Finance Company India Limited (HFFC) is one of the top affordable housing finance companies in India, servicing the underserved segments of society. With technology at its core, strong distribution channels, and cautious risk management, the company has been growing impressively year after year. As of December 2024, HFFC surpassed INR 12,000 crore in Assets Under Management (AUM), marking its strong market presence.
In this article, we’ll explore HFFC’s growth strategy, future prospects, challenges, and major developments. We will also examine whether the company is a good investment for investors, presenting in-depth analysis of its financial standing and market potential.
Growth Strategy
Expansion of Distribution Network
HFFC has been rapidly expanding its distribution reach, both in old and new geographies. In the previous 11 quarters, the company has opened 69 branches, which is close to doubling its branch network from 80 branches in March 2022 to 149 branches in December 2024. The company intends to open about 10 more branches in the current quarter with emphasis on states of Uttar Pradesh (UP), Madhya Pradesh (MP), and Rajasthan, which are coming out as primary markets for affordable housing.
Emphasis on Technology and Digital Transformation
Technology continues to be at the center of HFFC’s strategy. The organization has made notable progress in digital adoption, with 96% of its customers registered on its app and 88% of service requests raised digitally. Account aggregator adoption has also grown to 61% for new approvals, facilitating the loan approval process to become more efficient.
Diversification of Product Portfolio
Though home loans continue to be the core, HFFC is slowly adding exposure to Loan Against Property (LAP), with a plan to take LAP AUM as a percentage of AUM to 20% from 15% in the near future. This diversification will lead to higher yields and lower concentration risk.
Co-Lending and Strategic Partnerships
HFFC has been vigorously pursuing co-lending opportunities from banks and other financial institutions. The company would like to leverage its co-lending business, which currently provides about 10% of disbursements. This not only diversifies the sources of funds but also helps it reach the underserved marketplaces.
Capital Raising for Future Growth
To fund its aggressive growth plans, the Board of HFFC has sanctioned raising equity capital to the tune of INR 1,250 crore. The capital so raised will be used to finance company expansion and have a good capital adequacy ratio of 33.1%.
Future Outlook
AUM Growth Target
HFFC has put an aggressive target of achieving an AUM of INR 20,000 crore by March 2027, which will mean a compound annual growth rate (CAGR) of 27% to 30%. The company’s robust distribution franchise, emphasis on technology, and diversified product book put it on a strong trajectory to meet the target.
Upgrade in ESG Score
HFFC has taken strong steps in Environmental, Social, and Governance (ESG) activities, and its S&P Global ESG score has improved from 34 in FY23 to 45 in FY24. This demonstrates the company’s focus on sustainable growth and prudent lending practices.
Margin Expansion and ROE Improvement
With the equity raise on cards and judicious utilization of capital, HFFC looks to enhance its Return on Equity (ROE) from its existing 16.6% to 17%-17.5% within the next 8 to 10 quarters. The company is also looking to achieve healthy spreads of 5% to 5.25% on account of a well-diversified borrowing book and favorable cost of funds.
Challenges
Macroeconomic Environment
The general macroeconomic setting, such as rising interest rates and inflation pressures, may affect HFFC’s growth trend. Already, the company has experienced a slight rise in early-stage delinquency, which may increase if the overall economic environment deteriorates.
Competitive Intensity
The segment of affordable housing finance is growing more competitive as bigger Housing Finance Companies (HFCs) and banks join the fray. This may drive margin compression as well as rising customer acquisition cost for HFFC.
Regulatory Changes
Any negative regulatory developments, especially in the co-lending segment, may affect HFFC’s growth strategy. The company will have to work around these challenges while preserving its asset quality and profitability.
Key Advancements
Digital Transformation
HFFC’s emphasis on digitalization has yielded tangible operational efficiencies. The adoption rate of the company’s app and integration with account aggregators are big differentiators in the affordable housing finance space.
Co-Lending and Direct Assignment
The firm’s direct assignment and co-lending strategies not only diversified its sources of funds but also enhanced asset quality. The co-lending book, in fact, is likely to perform better than the conventional affordable housing portfolio since it targets higher-income customers.
Leadership Elevation
HFFC has promoted Ajay Khetan to the rank of Deputy CEO, demonstrating the firm’s intention to build up its leadership pool for future expansion.
Is Home First Finance a Good Buy?
Strengths:
- Solid AUM Growth: HFFC has been consistently reporting 30%+ AUM growth, driven by its growing distribution network and emphasis on underpenetrated markets.
- Healthy Asset Quality: The Gross NPA (GNPA) of the company is at 1.7%, which is stable YoY and QoQ, indicating its cautious risk management practices.
- Strong Capital Position: With a capital adequacy ratio of 33.1%, HFFC is well-equipped to finance its future growth without diluting shareholder value.
Risks:
- Macroeconomic Headwinds: Inflationary pressures and increasing interest rates may affect the growth and asset quality of the company.
- Competition: Higher competition in the segment of affordable housing finance may result in margin compression.
Valuation:
HFFC’s current ROE of 16.6% is expected to improve to 17%-17.5% over the next few years, making it an attractive investment for long-term investors. The company’s focus on sustainable growth, coupled with its strong capital position, makes it a good buy for investors seeking exposure to the affordable housing finance sector.
Key Terms
AUM (Assets Under Management): The aggregate market value of assets a financial institution holds on behalf of its customers.
ROE (Return on Equity): A performance measure calculated by dividing net income by shareholders' equity.
GNPA (Gross Non-Performing Assets): The aggregate value of loans that are in default or are near default.
Co-Lending: An association between a bank and a non-banking financial institution (NBFC) to extend loans to customers, splitting the risk and returns.
ESG (Environmental, Social, and Governance): A framework of guidelines for a company's operations that socially responsible investors employ to filter out prospective investments.
LAP (Loan Against Property): A loan extended by financial institutions where the borrower uses their property as collateral.