India Shelter Finance Corporation Limited IPO – Get Date, Price, Review and Details

In this article, we will discuss

• About the Company
• Investment Rationale
• Key Risks
• Conclusions

About the Company

India Shelter Finance Corporation, established on October 26, 1998, is a dedicated affordable Housing Finance Company (HFC) with a strong emphasis on retail segment. The company primarily targets the self-employed individuals within the low- and middle-income brackets in Tier II and Tier III cities. With a widespread presence, the company operates through 183 branches across 15 states and boasts a substantial employee base of 2,997.

As of the fiscal year 2023, the company's loan book stands at INR 3,609.1 crore. India Shelter Finance Corporation predominantly focuses on financing the purchase and self-construction of residential properties, catering specifically to first-time home loan buyers. Its financial products include home loans, constituting 57.6% of Assets Under Management (AUM), with a notable 70.7% of customers being first-time home loan recipients. Additionally, the company offers loans against property (LAP), representing 42.4% of AUM.

A key aspect of the company's lending profile is that a significant portion, 75.7% of the loan portfolio, consists of ticket sizes below Rs 15 lakh, and a substantial 95.0% is below Rs 25 lakh. This reflects the company's commitment to serving a broad segment of the population with affordable housing solutions.

Investment Rationale

• Robust Growth and Portfolio Focus: India Shelter Finance Corporation has demonstrated impressive growth in Assets Under Management (AUM), driven by a granular, retail-centric portfolio with high yields. The company's strategic emphasis on Tier II and Tier III cities, constituting 89.8% of its portfolio, positions it well to benefit from rising urbanization, increasing disposable income, and favorable demographics, indicating potential for higher mortgage penetration in the future.
• Innovative Phygital Distribution Network: The company boasts an extensive and diversified phygital (physical + digital) distribution network, strategically positioned in Tier II and Tier III cities. This forward-thinking approach aligns with modern consumer trends and contributes to the company's market presence. Leveraging technology and analytics, the scalable operating model enables efficient expansion, revenue growth, heightened productivity, and reduced transaction costs.
• Empowering Women in Financial Decisions: An impressive 97.9% of the loan book has one or more women as borrowers, showcasing their increasing role in financial decisions. This involvement translates to improved household expense management and a disciplined credit approach. The company's commitment to empowering women in financial matters not only contributes to societal progress but also strengthens its portfolio management.
• In-House Loan Origination and Strong Asset Quality: In H1FY2024, a noteworthy 98.5% of disbursed loans were originated in-house, providing the company with pricing power, healthy margins, reduced turnaround time, and enhanced asset quality. The strong asset quality is evident in the Gross Non-Performing Assets (GNPA) at 1.00% and Net Non-Performing Assets (NNPA) at 0.72% as of end September 2023.
• Robust Financial Position and Growth Potential: With a capital adequacy ratio of 48.7%, including a Tier I ratio at 47.9%, the company maintains a strong financial position. This not only supports a substantially lower leverage ratio at 2.4 times but also provides ample headroom for future growth. The combination of financial strength, technological innovation, and a focus on asset quality positions India Shelter Finance Corporation for continued success in the dynamic housing finance market.

Key Risks

• Customer Profile and Default Risks: The company's predominant focus on first-time home loan takers in Tier II and Tier III cities, constituting 70.7% of its customer base, exposes it to heightened default risks. Individuals in the low and middle-income category face potential defaults due to factors such as business failure, insolvency, lack of liquidity, unemployment, or personal emergencies, posing challenges to the company's loan portfolio.
• Credit Risk Associated with Self-Employed Customers: With self-employed customers representing a substantial 70.6% of Assets Under Management (AUM), the company encounters increased credit risk. The nature of self-employment exposes these borrowers to cash flow fluctuations during adverse economic conditions, making them more susceptible to challenges in meeting loan obligations, contributing to the overall credit risk profile of the institution.
• Concentration Risk in Key States: The concentration of 62.7% of Assets Under Management (AUM) and 57.6% of branches in three states—Rajasthan (31.3%), Maharashtra (17.5%), and Madhya Pradesh (13.9%)—presents a notable concentration risk. Any adverse developments in these states could have a significant impact on the company's business, emphasizing the importance of monitoring and managing risks associated with regional economic and regulatory factors.

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Conclusion

India Shelter Finance Corporation Ltd operates in a segment that is highly underpenetrated and has sufficient legroom to grow. This is evident from the fact that the company has been growing its loan book by 32.4% & 37.6% in FY22 and FY23 respectively. The NBFC operates in a niche segment both geographically and in product category making it less prone to be disturbed by bigger banks. It generates handsome yields of 14.9% and Spreads of 6.6% as of FY23.

On the bottom line, the ROA of the NBFC stands at 4.1% as of FY23.

At its upper price band, the company demands price to book of 2.75x as on FY24E. We are optimistic about the industry and the ability of the company to growth their book while keeping the asset quality in check. We ascribe a SUBSCRIBE rating to this IPO.