India Shelter Finance IPO - Play On Affordable Housing Segment: IDBI Capital

IDBI Capital's IPO Report

India Shelter Finance Corp. is set to launch its initial public offering today and the issue will close on Dec. 15. The minimum bid lot is 30 equity shares and in multiples thereafter.

The retail focused affordable housing finance company aims to raise Rs 1200 crore.

The IPO will be a combination of a fresh issue of 1.62 crore shares for Rs 800 crore and offer for sale will have 0.81 crore shares for Rs 400 crore.

Key Investment Rationale

• One of the fastest growing assets under management among housing finance companies in India, high yields, and granular, retail focused portfolio:

• Extensive and diversified phygital distribution network with significant presence in tier II and tier III cities.

• Underpenetrated housing segment.

• Diversified financing profile with a demonstrated track record of reducing financing costs.

Competitive strength

• In-house origination model to ensure efficient and seamless operations across various key functions.

• Technology and analytics-driven company with scalable operating model.

• Robust underwriting, collection and risk management systems.

• Experienced management team supported by qualified and experienced personnel.

Strategies:

• Further grow and diversify its distribution network to achieve deeper penetration in key states and drive sustainable growth.

• Leverage its technology stack to achieve scalability, improving efficiency and productivity of its existing branches.

• Enhance brand equity and foster sustainability.

About the company

Indian Shelter Finance Corporation is retail focused affordable housing finance company with an extensive distribution network comprising 203 branches as of September 2023 and a scalable technology infrastructure across its business operations.

It achieved assets under management growth of 40.8% compound annual growth rate between FY2021 and FY2023, second highest among the compared peers in India.

Further, the company has robust underwriting process which involves specialized and independent teams dedicated to credit evaluation. It also boasts of a demonstrated track record of reducing its borrowing costs (average cost of borrowing ~8.3% in March 2023 versus 8.7% in March 2021).

At upper price band, IPO is priced at price/book value of 3.2 times based on Sep-23 (versus 3.6 times-4.6 times for peers) with an return on asset of 4.7%. We recommend 'Subscribe' for long term.

Key risks

• The business requires substantial amount of capital to operate. Any disruption in financing channels could harm the business prospects.

• The business faces risk from the inability to transmit the changes to the borrowers when the same has been received from the lenders.

• Since the business is heavily reliant on technology, it faces the risks arising from loss of data, system failures, cyber-attacks and reliance on third-party service providers.

• Non-compliance with financial and other covenants under debt financing arrangements could adversely affect the business, its financial condition, and results of operations.

• The business faces a credit risk pertaining to deterioration of its asset quality due to uncertainty regarding its customers’ ability to repay the loans.

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