India Shelter Finance is well placed to benefit from affordable housing opportunity

ET Intelligence Group: Haryana-based India Shelter Finance Corporation (ISFC) plans to raise ₹800 crore through a fresh issue of equity to augment its capital base and another ₹400 crore through an offer for sale by some of its investors. The shareholding of the promoter and key investor WestBridge, which is not selling any stake, will reduce to 47.9% after the IPO from 56.9%. The company focuses on the affordable home loan segment. It has shown impressive loan growth over the past few years with high asset quality. Given the strong potential of the affordable housing segment amid the government's thrust on housing for all, investors may consider the IPO.

Business
ISFC offers home loans and loan against property (LAP) to salaried and self-employed people in tier-II and tier-III regions. It has 203 branches across 15 states. The lender's loan book is concentrated in three states including Rajasthan, Maharashtra, and Madhya Pradesh which account for nearly 63% of the assets under management (AUM) and 58% of the branches.


Of the total AUM of ₹5,180.7 crore as of September 2023, the self-employed formed 71% while salaried individuals accounted for the rest. The average loan ticket size was ₹10 lakh. Home loan and LAP constituted 58.2% and 41.8% of the total disbursement of ₹1,220.3 crore as of September 2023. The economically weak section and low income category formed 22.1% and 49.3% of the AUM, respectively while the mid-income group accounted for 26.6%; the remaining 2% was the high-income group. Over 98% of the loans are sourced in-house. The company maintains a conservative loan-to-value proportion of 55.1% in the home loan category and 45.3% in the LAP segment.

Financials
Between FY21 and FY23, AUM grew by 40.8% annually to ₹4,359.4 crore. Revenue from operations increased by 35.9% to ₹584.5 crore while net profit rose by 33.3% to ₹155.3 crore during the period. The gross non-performing asset (GNPA) ratio fell to 1.1% in FY23 from 2.1% in the previous year. The return on asset (RoA) was 4.1% in FY23.

Valuation
Considering the equity after the IPO, the company demands a price-book (P/B) of up to 2.4. Among larger home finance peers, Aavas Financiers, Aptus Value Housing Finance, and Home First Finance Company trade at a P/B of 3.4, 4.5 and 4.7 respectively.