IPO Analysis: India Shelter Finance Corporation Ltd

IPO Rating: Apply for the long-term

About the Issue 

The company is a finance company that specialises in affordable housing for retail customers. It is gearing up to launch its Initial Public Offering (IPO) for equity shares, each having a face value of Rs 5. The IPO price range is set between Rs 469 and Rs 493 per equity share, resulting in a total issue size of Rs 1,200 crore at the upper price band. The IPO is scheduled to commence on December 13, 2023, and will conclude on December 15, 2023. The market lot size for the IPO is 30 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 390 shares or a total investment of Rs 1,92,270 assuming the upper price band.  

Objects of the Issue 

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes: 

1. To meet future capital requirements towards onward lending 
2. General corporate purposes 

Promoter holding 

Anil Mehta, WestBridge Crossover Fund, LLC, and Aravali Investment Holdings are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 56.75 per cent in the company.  

Company profile 

The company is a finance company that specializes in affordable housing for retail customers. The company extends loans for various housing needs, including construction, expansion, renovation, as well as the acquisition of new homes or plots. Additionally, the company offers services such as on-boarding, underwriting, asset quality monitoring, collections, and customer support. 

The primary target segment comprises self-employed individuals, with a specific emphasis on first-time home loan applicants within the low and middle-income brackets in Tier II and Tier III cities across India.  

As of September 30, 2023, it boasts a robust and widely distributed network of 203 branches spanning 15 states. It holds a substantial presence in key states, including Rajasthan, Maharashtra, Madhya Pradesh, Karnataka, and Gujarat. This strategic positioning covers states that collectively account for 94 per cent of the affordable housing finance market in India as of March 31, 2023. 

Financials  

The company has showcased a steady upward trend in both its top-line and bottom-line growth in recent years. Notably, the figures for Q2FY24 were particularly impressive, with a robust year-on-year growth of 45 per cent in revenue and 72 per cent in net profit. 

Over the span of FY21-FY23, the company experienced a remarkable two-year CAGR of 40.8 per cent in terms of assets under management. According to the CRISIL report for the FY23, the company achieved a noteworthy yield to advances of 14.9 per cent, ranking as the third highest in India for that specific period. 

Valuation and outlook 

The issue is priced with a P/BV ratio of 3.23 times, calculated using its Net Asset Value (NAV) of Rs 152.70 as of September 30, 2023. At the upper price cap, it is priced at a P/BV ratio of 2.43, considering its post-IPO NAV of Rs 203.17 per share. 

When we calculate the PE ratio for the company by considering the FY23 earnings relative to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at 28. As per its official documents, the company has referenced several listed peers, including Aptus Value Housing Finance, Aavas Financiers Ltd and Home First Finance Company which are currently trading at PE ratios of 30, 26 and 33, respectively.  

Taking into account the valuation of listed peers, the offering appears to be attractively priced. Additionally, the return on equity (RoE) for the company stands at 13 per cent, aligning with the figures observed among its listed peers. 

Considering the risks inherent in the business, it relies on its ability to secure debt and equity from external sources on favorable terms, taking into account associated costs. Any decline in credit quality or an increase in non-performing assets (NPAs) could potentially impact the business in the future. Additionally, there is a risk of concentration due to a significant portion of assets under management (AUM) being concentrated in selected states.  

However, being one of the fastest-growing assets under management among housing finance companies in India, the company boasts several strengths, including an extensive and diversified phygital distribution network with a significant presence in Tier II and Tier III cities. It also employs an in-house origination model to ensure efficient and seamless operations across various key functions, as well as robust underwriting, collection, and risk management systems. Hence, we recommend investors to subscribe to the issue with a long-term perspective.