INDIA SHELTER FINANCE CORPORATION LIMITED IPO: ALL YOU NEED TO KNOW

The second IPO that opens with DOMS this week for subscription is India Shelter Finance Corporation Limited (ISFCL). The company specializes in financing affordable housing in Tier-2, Tier-3, and rural areas. ISFCL opens for subscription on the 13th and closes on the 15th of December. 

In this article, we will look at the various aspects related to ISFCL business. It will help you decide whether to subscribe or invest in the IPO for the long term.

India Shelter Finance Corporation IPO: Key Details

Below are the key details related to the ISFCL IPO:

• Issue Size: Rs 1,200 crore
• Price Band: Rs 469 - Rs 493
• Issue Details: Fresh Issue of Rs 800 crore + Rs 400 crore Offer For Sale (OFS)
• Market Cap: At the upper price band, Rs 5,277 crore
• Minimum Investment: Rs 14,790

India Shelter Finance Corporation IPO: Business Details

The company was incorporated on October 26, 1998, as 'Satyaprakash Housing Finance India Limited'. Subsequently, Mr. Anil Mehta, the company's Individual Promoter, acquired control of the company in 2009, and the name was changed to India Shelter Finance Corporation Limited.

They are a retail-focused affordable housing finance company with an extensive distribution network comprising 203 branches as of September 30, 2023, and a scalable technology infrastructure across business operations and throughout the loan life cycle. 

Between FY21 and FY23, the company witnessed a two-year CAGR growth of 40.8% in terms of assets under management (AUM). Their target segment is the self-employed customer with a focus on first-time home loan takers in the low and middle-income group in Tier II and Tier III cities in India, and affordable housing loans, i.e., loans with ticket sizes lower than Rs 25 lakh. 

They have also adopted an end-to-end in-house approach to key aspects of its lending operations, including customer acquisition, underwriting, collateral valuation, legal assessment, and collections. Their debt financing requirements have been historically met from diverse and long-term sources, including public and private sector banks, refinancing from the NHB, external commercial borrowings, and the issuance of nonconvertible debentures.

India Shelter Finance Corporation IPO: Industry Overview

CRISIL MI&A projects NBFC credit to grow at 12%-14% between FY23 and FY25. The credit growth will be driven by the retail vertical, including housing, auto, and microfinance segments. Rapid revival in the economy is expected to drive consumer demand in fFY24, leading to healthy growth in NBFCs. Moreover, organic consolidation is underway, with larger NBFCs gaining a share. Further, the growth of the non-banking industry will be driven mainly by NBFCs with strong parentage who have funding advantages over other NBFCs.

With continued support from the government, the central bank, and increase in demand for housing, and deeper penetration in tier-II and -III cities, the affordable HFCs are back on a healthy double-digit growth trend with an estimated growth of 14-16% during the financial year 2023, outpacing the credit growth in retail housing segment. Going ahead, CRISIL MI&A expects affordable HFCs to grow at 15-17% during FY24.

The Indian housing finance market clocked a healthy ~13.5% CAGR (growth in loan outstanding) over FY19-2023 on account of a rise in disposable incomes, healthy demand, and a greater number of players entering the segment. Housing Finance to log a CAGR of 13-15% in the long term between FY23 and FY26.

India Shelter Finance Corporation IPO: Listed Peers

The companies operating in the affordable housing finance segment with AUM greater than Rs 3000 crore and average ticket size of loans less than Rs 15 lakh have been identified as ISFCL's peer group companies by the Securities and Exchange Board of India Regulations, 2018. The listed peers include names like Aptus Value Housing Finance India Limited, Aavas Financiers Limited, and Home First Finance Company India Limited. Let us look at the financials of ISFCL and listed peers to get an idea of where the company stands against its peers. We will compare the crucial parameters for FY23. Here is the comparison:

• In terms of total income, Aavas Financiers is the largest player and ISFCL is the smallest player. 
• If we compare the earnings per share (EPS), Aavas Financiers tops the table with an EPS of 54.38. ISFCL is third on the list, with an EPS of 17.75.
• Return of Net Worth (RoNW) is highest for Aptus, while ISFCL is at the bottom of the table.

India Shelter Finance Corporation IPO: Financials

Let us now look at the most crucial part that one needs to consider while evaluating a new company. Below are the financial numbers of ISFCL over the last three financial years:

• The company has reported a total income of Rs 322.80 crore, Rs 459.81 crore, and Rs 606.23 crore for FY21, FY22, and FY23, respectively. Revenue has grown at a healthy rate of 37% CAGR in this period. The total income for H1FY24 was Rs 398.58 crore.
• ISFCL's Asset Under Management (AUM) has grown at a good rate. For FY21, FY22, and FY23, the company has reported AUM of Rs 2,198.53 crore, Rs 3073.30 crore, and Rs 4,359.43 crore, respectively. As of September 30, 2023, 89.8% of their portfolio is concentrated in Tier II and Tier III cities.
• The net profit (PAT) reported by the company for FY21, FY22, and FY23 was Rs 87.39 crore, Rs 128.45 crore, and Rs 155.34 crore, respectively. The profit has nearly doubled in this period.
• Profit after Tax to Average Total Assets (ROA) has remained constant in the last three financial years at around 4.1%. On the other hand, Profit after Tax to Average Net Worth (ROE) has increased from 9.8% in FY21 to 13.4% in FY23.
• For the last three financial years, ISFCL has reported an average EPS of Rs 5.27 and an average RoNW of 12.60%. 
• If we annualized FY24 earnings and attribute it to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 24.58.