India Shelter Finance IPO: Apply Or Avoid?

India Shelter Finance Corp., a retail-focused affordable housing finance company, is set to open its initial public offering to raise around Rs 1,200 crore.

The maiden offering, in the price band of Rs 469-Rs 493 per share, opens on Dec. 13 and closes on Dec. 15.

The public issue is a combination of fresh issue of 16,227,181 shares for Rs 800 crore and an offer for sale of Rs 81,13,590 shares aggregating to Rs 400 crore.

Catalyst Trusteeship Ltd., Madison India Opportunities IV, MIO Starrock, Nexus Ventures III Ltd., and Nexus Opportunity Fund II Ltd. are among those offering shares in the OFS.

The company aims to utilise the net proceeds from the fresh issue to meet future capital requirements towards onward lending and general corporate purposes.

Valuation Metric

On the valuation front, the issue is valued at a P/BV (price-to-book value) of 3.2 times on the upper price band, with an implied market capitalisation of Rs 5,277.6 crore.

"At the upper price band, the IPO is priced at P/BV of 3.2 times based on September 2023 (V/s 3.6x-4.6 times for peers) with an ROA of 4.7%. We recommend Subscribe for long term," said IDBI Capital in a note.

The brokerage said the company has a robust underwriting process, which involves specialised and independent teams dedicated to credit evaluation, and it also boasts of a demonstrated track record of reducing its borrowing cost.

The company's assets under management at the end of the first half of FY24 stood at Rs 5,181 crore, which has compounded at an annual rate of 41%, from Rs 2,199 crore witnessed over the same period in FY21.

"The company has one of the fastest growing AUM among housing finance companies in India, high yields and granular, retail-focused portfolio... We believe that (the) issue is fairly priced and recommend 'Subscribe–Long Term' rating to the IPO," a note from Anand Rathi said.

The firm's asset quality improved, with its gross non-performing assets coming down to 1% as of Sept. 30, from 2.79% over the same period in 2022.

"Book value per share represents a discount compared to its peer group’s average P/BV of 4.2 times. However, even with this apparent discount, ISFCL's financial ratios do not appear as impressive as those of its competitors," said Choice Broking in a note.

According to the brokerage, though the company's return ratio do not quite match the steady growth seen in both revenue and profit, it has suggested a 'Subscribe with Caution' rating for the issue.

The India Shelter Finance IPO—which is backed by Westbridge Capital and Nexus Venture Partners—specialises in housing finance, offering loans for house construction, extension, renovation, home or plot purchase, and loan against property.