Home First Finance Company India Limited (HOMEFIRST) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Home First Finance Company India Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sunil Anjana, Head, Treasury and Investor Relations of Home First Finance Company India Limited. Thank you, and over to you, sir.

Thank you, Alwyn. Good evening, ladies and gentlemen, and welcome to Home First Finance Company's earnings conference call to discuss the financial results for the quarter ended June 30, 2026. We hope you have had the chance to review our investor presentation and press release, both of which are available on our website and the stock exchanges. As per our practice, we have also uploaded an Excel fact sheet containing historical data on our website for your easy reference. From the management, we have with us today Mr. Manoj Viswanathan, MD and CEO; and Ms. Nutan Gaba Patwari, CFO. With that, I now invite Mr. Viswanathan to share his insights on overall performance and outlook. Over to you, sir.

Thank you, Sunil. Good evening, everyone, and thank you for joining us. We have begun FY '27 on a strong note with healthy growth in disbursements and assets under management, robust earnings growth, stable asset quality and continued investment in our distribution and technology capabilities. I'll start with the business and financial performance. AUM stood at INR 16,938 crores as of June '26, growing 25.7% year-on-year and 6.7% sequentially. Disbursement at INR 1,628 crores is up 31% year-on-year and 3.6% sequentially. Profit after tax increased by 7% sequentially and 34.5% year-on-year to INR 160 crores, supported by 38.2% growth in net interest income. Return on assets improved by 10 basis points sequentially to 4.2%, while ROE improved by 50 basis points to 14.5%. With respect to distribution, people and portfolio mix, during the quarter, we added 4 branches, 1 each in Gujarat, AP, Tamil Nadu and Madhya Pradesh, taking our network to 175 branches and 373 touch points. We made a net addition of 133 employees, largely in customer-facing roles, taking the total headcount to 1,988. Our origination yield remained healthy at 13%. Individual housing loans continued to account for 83% of the portfolio, underscoring the granular secured nature of our core franchise. Asset quality remained stable during the quarter. Our 1+ DPD remained flat at 4.7%, 30+ DPD remained flat at 3.2% and gross Stage 3 remained flat at 1.8%. The branch network continued to deliver strong performance during the quarter. Maharashtra, Gujarat and MP remained our largest markets, leading overall business contribution while maintaining healthy growth and portfolio quality. In TN, a strengthened team is building growth momentum while maintaining stable asset quality. Rajasthan, UP and southern states gained further traction, reflecting encouraging business momentum. The remaining markets continued to deliver consistent AUM expansion with stable asset quality. Overall, the network remains well positioned to sustain profitable growth while preserving portfolio quality. Technology remains one of Home First's key differentiators, central to how we source, underwrite, service and scale the business. Our digital DNA built consistently since inception has created a strong foundation for accelerated AI adoption across the value chain. The same digital-first approach has given us clean, structured data going back to day 1, the high-quality training ground that modern AI systems demand. Our AI strategy is anchored on 3 outcomes: elevating customer experience, enhancing employee productivity and driving structural cost efficiencies. In line with this, we have operationalized [ Q ] our in-house AI-orchestrated omnichannel customer communications platform. We have also deployed in production a bureau analyzer and a contextual bank statement analysis model, which have improved underwriting efficiency and reduced turnaround. AI-led interventions and lead qualification, legal and technical valuation, income analysis are currently in pilot and will progressively move to production as we scale our intelligent underwriting stack. Under our Green Homes initiative, we have certified a further 100 homes during the quarter, taking the cumulative number of certified homes to 550 as of June 2026. The affordable housing opportunity remains compelling. Demand across our markets is healthy, and our growth is supported by disciplined underwriting, a granular portfolio, stable asset quality and scalable operating platform. We remain confident of delivering 25% AUM growth while maintaining our focus on profitability, portfolio quality and operating efficiency. As disclosed to the stock exchanges, Nutan will step down from her executive responsibilities effective from August 31, 2026. Over the past 8 years, Nutan has played an integral role in Home First's evolution from a growth stage affordable housing finance company to a scaled, publicly listed institution. Her contribution has helped strengthen our financial architecture, governance standards, capital position and organizational capabilities. On behalf of the Board, the management team, and everyone at Home First, I would like to place on record our sincere appreciation for her leadership, commitment and contribution to the company. The Board is evaluating candidates and will conclude the CFO reappointment -- appointment soon. With that, I will now hand over to Nutan to take you through the financial performance for the quarter. Over to you, Nutan.

Thank you, Manoj, for the kind words. As always, let me now go through the financial performance for the quarter. With respect to income, yields and margin, total income for the quarter was INR 540 crores, up by 18.6% on a Y-o-Y basis and 7% Q-o-Q basis. Portfolio yield ex co-lending stood at 13.1%, while disbursement yields was at 13%. This reflects continued pricing discipline and quality of new customer acquisition. On the liability side, proactive management of our borrowing mix led to a further 10 basis point sequential reduction, bringing cost of borrowing down to 7.8%. Incremental borrowing costs during the quarter remained favorable at 7.6%. Consequently, spread, excluding co-lending, remained healthy at 5.3%. Net interest margin was 6%, up from 5.9% in the previous quarter. Coming to operating efficiency and profitability. Cost to income was at 32.7%, an increase of 70 basis points sequentially. The marginal increase in OpEx is owing to increments and fresh hiring, supported by a slight reduction on account of lower administrative expenses. Reported operating cost to assets was 2.8%. As we continue to invest for growth, we expect this ratio to broadly remain range bound within 2.6%, 2.7%. Pre-provision operating profit was INR 224 crores, up 32.9% year-on-year. The growth in pre-provision profit demonstrates the operating leverage in the franchise as the balance sheet scales. Profit after tax increased to INR 160 crores, up by 34.5% year-on-year and 7% sequentially. Return on assets was 4.2% and return on equity of 14.5%. Moving to provisions and asset quality. Credit cost for quarter 1 was 40 basis points. Provision coverage on Stage 3 assets was 23.4% as of June '26 compared to 23.9% in quarter 4. We continued to maintain management overlays over and above expected credit loss requirements. Including these overlays, total provision coverage was 45.3% as of June, providing prudent balance sheet protection. Regarding borrowings and funding profile, our funding profile continues to be diversified and cost effective. As of June '26, 57% of the funding was from private and public banks, 14% from NHB, 21% from assignment and co-lending, the balance from NCDs, ECB and NBFC. During this quarter, we executed a direct assignment transaction of INR 285 crores. Co-lending disbursements were INR 46 crores, taking co-lending book to INR 617 crores, 3.6% of the AUM. We remain focused on scaling this channel by strengthening the enabling infrastructure. Co-lending broadens our customer reach and supports capital-efficient growth and productivity. Coming to capital adequacy and liquidity. As of June '26, our capital adequacy ratio was 42.6% with Tier 1 at 42.2%. This compares with total capital adequacy of 44.1% and Tier 1 of 43.8% as of March '26. Net worth stood at INR 4,483 crores, and book value share was INR 429 as of June '26. With a strong capital position, a diversified funding franchise, and a scalable operating platform, we believe Home First is well positioned to sustain profitable growth and create long-term value for all stakeholders. This concludes our opening remarks. We will be now happy to take your questions.

[Operator Instructions] The first question comes from the line of Kunal Shah with Citigroup.

So firstly, encouragingly, if we look at it like this quarter, the growth has been primarily led by home loans. So that's growing at almost 7-odd percent quarter-on-quarter vis-a-vis LAP that would have grown at 5-odd percent. So even in terms of the disbursements, have we seen the shift more towards the home loan? And just a related question, if we look at it in terms of the ticket sizes, that proportion has been rising maybe almost like, say, more than 320-odd basis points over the last 2 quarters. So is it more on the home loan side or this is more on the LAP side?

Yes, origination of home loans has been higher and disbursal has also been higher. So yes, there has been a slight shift towards more home loans in this quarter. And ticket sizes also it's largely to do with home loans only. So LAP ticket sizes -- LAP has not been a very strong focus area for the company in any case. We are very focused on originating housing. So LAP ticket sizes remain the same. Housing loan ticket sizes have moved up marginally.

Sir, in terms of disbursements, if you look at it, like, say, 31% year-on-year, 3.6% quarter-on-quarter, how much would be home loan within this in terms of the growth?

Primarily made up by home loans only because as you can see, the LAP growth has been lower than home loans. So this largely is coming from the home loan only.

Okay. Okay. Got it. And second question on the employee side. So we would have added, say, almost like 10-odd branches over last 2 quarters. Employee count is still going up by almost like more than 280 or so. So obviously, there would be some branch related, but then any of the -- maybe any of the, I would say, the operating centers wherein we have staffed the higher number of employees, either on the collection side, underwriting side, if you can just highlight that, yes.

In our case, the structure of the branch is basically there is a branch manager and the relationship managers. They carry both sales as well as collection responsibilities. So it is not -- there is no specific function as such. So the number of people whom we have added mostly about 130 people we have added in the last quarter. Largely, they will be in the branch function only. So origination as well as collections, both.

Okay. So more to see to it in terms of maybe the few branches which will get added have we recruited some people, maybe estimating that there will be new branch additions also which will happen? So is it like more of a front-loading of the employee at the branches?

Not entirely, Kunal. So if you were to look at the data, on the basis of 2 quarters that you talked about, we've added 10 branches, and we have added [indiscernible] people. But employee per branch in quarter 3 was 10 and employee per branch last quarter was 11. One new employee per branch is itself 165. And then we've added 4 branches. So that takes it to 44 people. So just by -- just the sheer addition at 1 person per branch and 4 new branches itself is about 200 people.

Yes. So in fact, at every branch, we would have added one more guy, be it on the RM and the collections.

On an average.

On an average. Okay. Got it.

The next question comes from the line of Renish with ICICI Bank.

Congrats on a good set of numbers. Sir, just first a thing on the spread side, right? So incremental spread is now running at 5.2% largely driven by lower cost of funds at 7.6%. So just wanted to understand how do you see the incremental spread moving going ahead? I mean, in a sense, whether this 7.6% incremental cost of fund is sustainable? Or is there any one-off in this quarter?

No, no, there is no one-off, but the cost of borrowing has come down to some extent in the last couple of quarters. But we are in a fully floating rate book. So if there is any increase in cost of borrowing, we will increase the pricing accordingly. So -- see, we are committed to maintaining that 5% to 5.25% basis points spread. So depending on how the cost of borrowing moves, we will move the rate to the customers as well.

Do you expect PLR cut in maybe next couple of months?

PLR cut.

PLR cut is unlikely, I think, at this point because the whole West Asia crisis, et cetera, is still uncertain. So I don't think there will be a cut. At least that's not our expectation.

Got it. Okay. So in that sense -- so then the book spread ideally should converge towards incremental spread, right? I mean, so then the imprint trajectory should continue if we are not intend to cut PLR. I mean, is that the right understanding? Or am I missing something here?

Renish, just to add, you talked about one-off first. So when you look at the marginal cost of borrowing at 760, it is a one-off -- not a one-off because we have not taken any NHB drawdown. If you see our NHB outstanding was INR 354 crores at the end of March. It's INR 354 crores at the end of June also. We actually plan to take that drawdown in Q2. So there is no one-off in that. However, there has been -- of course, the market has moved a lot on the borrowing side, and we will need to keep track of this. So over time, on a book basis, the right way to look at it is the spreads will remain range-bound between 5% to 5.25%, which is our long-term guided number.

Between 5% to 5.25% is what you've been always guiding. Okay. Got it. So in a sense, then this spreads are not sustainable.

5.40% is incremental. Even today the book spread is 5.30% and our long-term guidance has always been 5% to 5.25%. So the question of sustainable is a bit unfair.

Got it. Okay. Got it. Sir, my second question is on the BT out rate, right? So 4.5% in Q1, of course, is lowest in past many quarters. So how one should read this data point? I mean, is this just a 1-quarter phenomenon? Or do you see sort of competition is rationalizing the disbursement plan and also not trying to gain market share at the cost of spread? I mean, how does one should look at this BT out rate?

See, BT out, as we have been talking about it for the last few quarters, we have actually put in place a set of internal processes to control the BT out. So right from branch manager meeting up with the customers who want to do BT out, pitching a top-up to them and things like that. So there is a protocol and a waterfall of activities that we carry out with each customer, and that has started giving us good results. But whether it will sustain at 4.5%, difficult to say. Of course, it has been an extraordinarily good quarter in that sense. But yes, we should be able to control it in that 5% to 6% kind of a range. Because it will be the first quarter where we have actually brought it below 5%. So difficult to say whether that will sustain. But definitely, we should be able to -- I mean, we have got traction on this process. So we should be able to kind of control it in that 5-ish range.

Got it. So nothing to read from an industry landscape perspective. I mean, these are all internal initiatives, which is helping us.

Yes. Competitive intensity remains the same in terms of BT out, the interest in taking out BT outs, et cetera.

The next question comes from the line of Nidhesh Jain with Investec.

My first question is on the ticket size increases. The share of more than INR 25 lakh ticket size has increased from 14% to 18% now over the last 1 year. How do you see sustainability of spreads and ROA from a medium-term perspective? That is the first question. Second is what is the guidance for OpEx to AUM for the full year? Because this quarter, I think on a Y-o-Y basis, we have not seen material improvement in cost ratios. So what is the guidance for full year? Third question is, the co-lending momentum has been weak. What are the reasons for that? And how do you see in coming quarters on co-lending disbursements?

Yes. Thanks, Nidhesh. See, on the first question regarding ticket size increase and spreads, so what we have been always saying is that the customer segment that we are addressing remains the same. It's just that incomes are going up and aspirations are going up. So as a result, the ticket sizes are going up. So we don't expect too much of a spread compression because of increase in ticket size, because at the end of the day, we are addressing the same customer. And if we see our ticket size-wise spread distribution, so we don't see too much of a difference between, say, a 25-plus versus less than 25 %. So that is point number one. So we are committed to maintaining the spreads, the 5% spread on an overall blended basis. Second is on the OpEx to assets, yes, it has -- this quarter, there was a slight uptick. But again, there, we should expect year-on-year 5 to 10 basis point reduction. So I think full year guidance would be in the region of 2.6% to 2.7%. And on co-lending, again, I think the first quarter because of change in process and change in the policies of co-lending, there were certain hiccups. But I think those are getting addressed gradually. We are seeing more and more banks, partner banks now aligned to the process. And I think those numbers should stabilize going forward.

Sure. And the last question is, what is the count of active connectors for quarter 1?

Around 4,100. Just a moment.

4,200.

4,187.

Yes, around 4,200.

4,200. Okay.

The next question comes from the line of Rajiv Mehta with Yes Securities.

Congrats on good numbers. So just wanted to understand this disbursement growth and momentum in the last couple of quarters and when I see even Y-o-Y number, the growth is very good. You just said that it's coming largely from home loan, and we are also moving towards higher ticket sizes. So is there a volume versus value split available? Is it purely driven by value migration towards higher ticket sizes, the average ticket size of disbursement going up is driving this disbursement growth? Or is there also volume-led improvement, which is your productivity improvement on a per RO basis?

Lot of productivity improvement, but there is obviously increase in units as well. So I would say -- I would put it at around 50-50. There is 50% of the growth is coming from increase in units and 50% is coming from ticket size.

Okay. So we are seeing that execution on the ground in terms of volume productivity per month, per branch officer or per branch or per loan officer, that is improving, right, for us?

Marginally, yes. Marginally improving.

And when I look at your origination spread, so despite the shifting segments incrementally every quarter by quarter, your origination spread for the origination yield is actually stable. So how should we understand the competitive environment from a yield pressure point of view? Because the way we are moving towards a slightly higher ticket size, generally compression -- a marginal compression should have been expected, but it is pretty much holding on.

Yes. So that's -- I mean, so that all goes back to the fact that we are addressing the same segment. So customers are facing the same challenges in terms of being unable to get loans from larger lenders, et cetera. So they are willing to pay that premium that we charge. So which is why there is not -- there is no major compression in the spreads or in the yield. But marginal compression, yes, over time, there would be marginal compression because we are -- I mean, these are customers who are buying larger properties. So for them, it has -- I mean interest rate is important for them. But that is something which is more longer term and which can be addressed through improvement on the OpEx side. So that is why we are seeing marginal -- marginal maybe over a longer period of time, we'll see a marginal reduction in yields. But that can be compensated through the OpEx -- on the OpEx side.

Yes. The last question is on collections. So when I look at your collections also in this quarter in terms of flow rates, they've completely normalized and they are pretty strong across all buckets. So while there's a lot of effort to improve productivity and to grow disbursements and since your relationship officers share the responsibility of business as well as collection, while the business is improving, your collection is also improving, but your bounces are pretty much similar in terms of bounce rates. So is this a lot of auto cure happening in the collections among customers? Or, I mean, is there a separate effort being put to ensure that the bucket collections are going -- becomes better and the flows are reduced?

So bounce rates have marginally improved over the last 2 quarters, as you can see. And as far as collection is concerned, yes, quarter 1 generally is a difficult quarter. And you generally see -- we have generally seen in the past a small uptick in the delinquencies. But this year, yes, it was stable or it actually improved in some of the buckets. So I think it just goes back to more data-driven collections because now we have a wealth of data on customers. We are able to also use some AI interventions, some automated calling and things like that. So which also eases up the work for the relationship managers because as we mentioned, they are carrying the load of both sales and collections. So some part of the collections, which are little softer collections, et cetera, we are able to do through automation to ease the load. So I think all these factors are contributing -- have contributed to this good quarter.

The next question comes from the line of Varun Dubey with Share India Securities.

Just wanted to understand the movement of your net interest margin in coming quarters because of late we have seen many of the banks increasing their MCLR rates. And with the tight liquidity in the system, what could be the movement of your NIMs and spreads going ahead in coming quarters? Should we see some compression of 5 or 10 basis points as some of your peers have highlighted the same?

No. So see, we are running a fully floating rate book. So if there are changes in borrowing costs, we will be able to pass it on to the customer. To the extent that we have improvement in -- we've got an improvement in the cost of borrowing, we have passed on some of that to the customers, which is why you're seeing a small reduction in our yield if you see over the last 2 quarters. So it is all back to back based on our cost of borrowing. So whatever -- we are committed to maintaining the yield of about 5% to 5.25%. Based on rate movement, we will convey the same thing to the customers.

The next question comes from the line of Shreepal Doshi with Equirus Capital.

My question was on the credit bureau score of our customers. So if you look at that score over the last 3 years has increased from 738 to almost 750 levels. And consequently, we've seen, let's say, aspects like credit history, NTC, average ticket size also moving up in the direction, let's say, credit history of -- like it is almost 88% of the customers have a credit history now versus 74% during 3 years -- I mean, prior to 3 years. New-to-credit customer is nearly 12% now versus 26%. So it indicates that we are moving toward a direction wherein the credit bureau score of our customers is only going up, or at least we are picking up those customers wherein the credit bureau score is relatively better. So incrementally, how do you see this moving? Will we stabilize here and target this customer segment only? Or will we continue to move up the bureau score? Because in that situation, while we have been able to control our BT out, we become -- I mean, with better credit bureau scores of our customers, we become easy prey to better cost of fund players also, right? So just from that standpoint, I wanted to understand the strategy on this front.

Yes. So see, on the bureau scores, new to credit customers, the numbers are diminishing every quarter. And that is more of a market phenomenon because more customers are getting access to credit. And even with small loans like consumer loans and 2-wheeler loans, they end up getting a bureau score. So by the time they are ready for a housing loan, they already have a bureau score. So that number keeps diminishing every quarter. And eventually, probably we'll have very, very few customers in the country who are first-time borrowers in that sense. As far as the improvement in scores are concerned, the 738 moving to 750, et cetera, so obviously, as a company, we would want to keep improving the profile of our customers. And the philosophy or ideology is that, yes, we should keep moving up the curve as far as credit quality is concerned, but without sacrificing the yields and spreads. So which is why if you see, we have not really sacrificed the spreads. We have been maintaining the committed spreads of 5% to 5.25%. In fact, we are slightly higher than that. So the idea is to mine the data in such a way and do analytics in such a way and capture customers in such a way that we are able to maintain the spread, but at the same time, gradually improve the credit profile of the customer. So that is the philosophy.

Got it. And the second question was on the employee efficiency aspect. So while the ticket sizes have gone up, at the RM level, the KRAs include the number of files also that they originate and get sanctioned? Or is it purely on the, let's say, the amount that gets disbursed at the RM level?

So at RM level, there are both factors in the KRA. The number of transactions that they are doing, number of loans that they are originating, plus the value -- total value of disbursals they are doing. So both aspects are there in the KRA.

Got it. Sir, could you give some color on that? Like has that moved up over the last 3 years?

Not really. It is fairly stable. So we have not managed to improve that too much. It's broadly in that -- I mean if you see at an employee level, which we track at an employee level, it is around INR 3.5 crores per year at an overall employee level. At a sales employee level, that number would be probably more like INR 5 crores -- INR 5 crores to INR 5.5 crores a year.

The next question comes from the line of Divyansh Gupta with Latent PMS.

The first question was, you mentioned that for the higher ticket size customer segment, they are facing challenges to get loans from other lenders and that's where, let's say, Home First is coming in. So what would be those -- given that, let's say, CIBIL score is also good and income and given that the ticket size they are also targeting is higher, so I'm guessing more formal income. So what are the challenges that, let's say, these guys are facing? And does it lead to a situation that, let's say, 1 or 2 years down the line that they are ripe for a BT out to be targeted by a bigger lender because now there is a repayment track?

No. So just to explain that a little better. So if you were to -- let us say, go back to when we started the business, that threshold level of higher -- what we -- what was called as higher ticket size used to be INR 15 lakhs, right? And less than INR 15 lakhs was seen as the sweet spot for lenders like us, affordable housing lenders. But gradually, that threshold -- so at that point, the banks were offering loans to customers above INR 15 lakhs. So if we were to access a customer in that ticket size, then yes, this question would come up that he is a bank customer, how are you able to lend to him, et cetera. But slowly, that threshold has moved up is what we are trying to convey. So it reached INR 25 lakhs at some point, and now it is going further up. So banks have also raised their threshold for lending to customers. So they are more interested in customers who are maybe INR 50 lakh plus, INR 75 lakh plus because there are enough numbers of them, and that portfolio is also growing. So we have access to a lot of customers in that INR 25 lakh to INR 40 lakh to INR 50 lakh range who are struggling to get loans from the banks because of various factors. The same factors that existed for customers below INR 15 lakhs 10 years ago. For example, let's say, fragmented salary slips or salary slip is not being issued or let's say, the person has misplaced his Form 16, salary credit in the bank is there, but the documentation is not there or one person is formally employed in the family, but other people are not formally employed. So a combination of things. Maybe 20, 30, 40, 50 combinations which would be there, which make them ineligible in a bank or not even ineligible, it makes them -- makes it more difficult for them to get a loan from a bank. I mean they'll have to go frequently. They'll have to spend more time trying to get the loan. Whereas we are able to provide it more seamlessly and in a more convenient way for the same customer.

Got it. Understood. The second question was that the CIBIL score that we have mentioned in that deck. Is it at the origination time or is it at the AUM because after the home loan anyway, CIBIL score will go up.

Yes, it's origination time. This is at the time of origination.

Got it. And the last question would be the NPA for home loans and LAP, if you can separately mention.

NPA for home loans and LAP are broadly in the same range. It's not very different. Our LAP portfolio is fairly small. It's about 13%, 14% of the portfolio. So broadly it's in the same band only.

Understood. And sorry, just one last question. How much of our borrowings are, let's say, floating rate linked or they are completely floating linked?

It's all -- on the borrowing side?

Yes, borrowing side.