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Home First - Q1 FY22 first cut - YES Securities

Posted On: 2021-08-01 06:04:49 (Time Zone: UTC)

Stronger-than-expected execution on growth and asset quality

- Disbursements at Rs3.05bn were higher than our estimate of Rs2.5bn - thus AUM growth performance was better at 3.7% qoq and 18.5% yoy

- Beat of 10%+ on core NII (excl. DA income) due to Portfolio Spread expansion of 10 bps qoq and limited stress flow to 90+ dpd

- Cost of Borrowing fell by 20bps to 7.2% - Co. continues to carry high BS liquidity of Rs14.8bn (nearly 50% of borrowings)

- Opex was well-controlled as it declined by 7% qoq - Co. has not added many branches in recent quarters

- 90+ dpd increased 10 bps qoq and 30 bps qoq including write-off of ~Rs100mn

- 60 bps of portfolio is restructured (lower than management guidance of 1-1.5%) which is in the current bucket (0 dpd) as these customers have resumed repayment

- 1+ dpd increases to 8.9% from 6.2% as of March (in-line with expectations) - 30+ dpd increase was also under control (from 4.1% to 5.8%)

- Collection efficiency improved to 97.6% in June after dipping in April and May to 94-95% (stood at 98.5% in March)

- Bounce rate which had increased to 18.3% in Q1 FY22 from 17.3% in Q4 FY21, declined to 16.1% in July (though higher than pre-Covid 10-11%)

- Credit cost was higher qoq on a) adverse bucket movement, b) stage-2 provisioning done on restructured portfolio (0 dpd) and c) write-off related provisions - overall ECL coverage on AUM was maintained at 1.4%

- RoA improves to 3.1% v/s 2.9% on qoq, notwithstanding much higher provisions, underpinned by spread increase and operating efficiency

- Resilient execution (better than Aavas) on growth and asset quality in a testing period should inspire investors' confidence on Home First's operations, underwriting and collections. Consistency of such performance will re-rate the stock. We hold a high-conviction BUY with a 12m PT of Rs700.

Source: Equity Bulls

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