India Shelter Finance IPO: Should you invest in this housing finance firm?

Here's what brokerages recommend investors should do, with this Rs 1,200 crore IPO which closes for subscription on Friday, December 15.

India Shelter Finance Corporation Initial Public Offer (IPO) opened for subscription today, on Wednesday, December 13, 2023. The retail-focused affordable housing company aims to raise up to Rs 1,200 crore from the share sale. 

Out of the total issue size of Rs 1,200 crore, the company will be issuing fresh equity shares worth Rs 800 crore, and the balance would be through offer for sale. The IPO price band is Rs 469 - 493, in multiples of 30 per lot. The offer closes on Friday, December 15, 2023.

50 per cent of the net issue if reserved for qualified institutional buyers, while 15 per cent and 35 per cent are reserved for non-institutional bidders and retail investors. 

The promoter group currents holds 56.93 per cent, which will get reduced to 48.30 per cent post IPO. 

From the net proceeds of the IPO, the company intends to utilize Rs 640 crore to meet future capital requirements towards onward lending. Residual funds will be used for general corporate purposes.

As of 1 PM, the IPO had garnered close to 65 per cent subscription, with retail portion fully subscibed on Day 1 of the offer period. Non-institutional segment was subscribed 62 per cent.

Meanwhile, here's what brokerages recommend to do:

Geojit

Rating: Subscribe

The company is backed by marquee institutional investors such as West Bridge Capital and Nexus Venture Partners. It has an AUM (Assets Under Management) of Rs 5,181 crore in H1FY24, up from Rs 2,199 crore in FY21, which grew at a CAGR (Compounded Annual Growth Rate) of 41 per cent, indicating its growing financial position.

The company's average cost of borrowing reduced to 8.3 per cent in FY23 from 8.7 per cent in FY21, primarily due to its improved financial performance and credit rating.

Net interest income rose to Rs 293 crore in FY23 reflecting a 32 per cent CAGR between FY21-23 while net profit increased from Rs 87 crore to Rs 155 crore at a 33 per cent CAGR during the same period.

Gross NPA ratios for FY22, FY23, and H1FY24 were 2.1 per cent, 1.1 per cent, and 1.0 per cent, and their respective Net NPA ratios were 1.6 per cent, 0.9 per cent, and 0.7 per cent indicating an improvement in asset quality.

Geojit has assigned a 'Subscribe' rating as India Shelter Finance at the upper price band of Rs 493 is available at a P/B of 2.4x (FY24 annualized), which appears to be fairly priced as per industry peers' valuations.

Among the key risks, the brokerage firm highlights that three states contribute 62.7 per cent AUM, andy adverse developments here could have an adverse effect on business. Secondly, self-employed customers account for 70.6 per cent of the AUM, which in general are considered as higher risk customers.

Swastika

Rating: Subscribe

The company has witnessed one of the fastest growing AUM among Housing Finance Companies. It intends to diversify its distribution network to achieve deeper penetration in key states and drive sustainable growth. It leverages technology stack to achieve scalabiltiy and improve the efficiency and productivity of its existing branches.

The company's P/BV of 3.48x and P/E of 27.7x reflect a fair valuation that aligns with its growth prospects and risk profile. Consequently, based on its solid fundamentals, attractive valuation, and long-term growth potential, Swastika recommends a 'Subscribe'rating for the IPO.

Among the key concerns, the brokerage firm says India Shelter Finance had negative cash flows in the past and may continue to have negative cash flows in the future primarily due to the inherent nature of its business.

Choice

Rating: Subscribe with caution

India Shelter Finance has demonstrated robust growth in its loan portfolio, achieving an impressive CAGR of 35 per cent. The portfolio surged from Rs 1,981.20 crore in FY21 to Rs 3,609.10 crore in FY23.

As of September 30, 2023, the company's AUM has witnessed a substantial increase,

reaching Rs 5,180.70 crore. However, it is noteworthy that the Capital Adequacy Ratio (CAR) experienced a decline from 71.5 per cent in FY21 to 52.7 per cent in FY23. In the same fiscal year, the company's borrowing escalated to Rs 2,988.9 crore from Rs 1,491.30 crore in FY21.

Consequently, there was a marginal increase in the debt-to-equity ratio, rising from 1.6x to 2.4x. The RoE has shown improvement, rising to 13.4 per cent in FY23 from 9.8 per cent in FY21.

Thus, even though the company's valuation is favourable, its financial ratios are not too impressive. Hence, Choice has a 'Subscirbe with caution' rating on the IPO.

About the company

Incorporated in 1998, India Shelter Finance Corporation provides loans for house construction, extension, renovation, and the purchase of new homes or plots. The company specializes in the affordable housing segment, mainly in Tier-2, Tier-3 and rural regions. It has a network of 203 branches spread across 15 states.