Broker’s Call: Home First Finance (Add)

Home First Finance Company (HFFC) was the subject of a recent discussion, as we engaged with its top management to gain insights into the potential impact and direction of the IRDAI's draft circular. While the company indicated that it may be premature to conclude the effects of such changes, it is possible that disruptions or reductions in insurance policy issuance could lead to higher credit costs. HFFC noted that customers could still secure properties through mortgage guarantees, among other alternatives.

The firm observed no significant disruptions in pricing and demand, acknowledging that potential job losses in IT services were partially offset by increased employment in Gulf countries (GCCs). Its management highlighted the company's focus on the top 6 cities, which comprise a low double-digit percentage of assets under management (AUM) but offer significant untapped potential, contingent upon a sharp expansion in loan ticket sizes to accommodate larger homes.

Despite the possibility of a policy rate hike, HFFC maintained a spread of 5-5.25 percent, thanks to its fully floating loan book, which enables a more immediate transmission of higher funding costs. The company also expressed optimism about potential improvements in branch productivity, with management anticipating further scope to enhance productivity beyond current levels.

Based on these observations, we project a return on equity (RoE) of approximately 16 percent in FY28F for HFFC and believe that its valuation remains attractive. We continue to hold a high-conviction Add rating on the stock, with a stable target price of ₹1,500, which corresponds to a valuation of 2.9 times FY28F book value and 19 times FY28F earnings per share.