India Shelter Finance Corporation Ltd.
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IPO Note 12th December 2023
Company Overview
Headquartered in Haryana, India Shelter Finance Corporation Ltd. (ISFC) is a retail-focused afforda- Issue Details
ble housing finance company with an extensive distribution network comprising 203 branches as of 13th Dec, 2023 -
Offer Period 15th Dec, 2023
September 30, 2023, and a scalable technology infrastructure across its business operations and the
loan life cycle. The company’s target segment is the self-employed customer focusing on first-time Rs. 469 to Rs. 493
Price Band
home loan takers in the low and middle-income group in Tier II and Tier III cities in India, and afforda-
ble housing loans, i.e., loans with ticket sizes lower than Rs. 2.5 million as per the criteria set out in Bid Lot 30
the Refinance Scheme under the Affordable Housing Fund for the Financial Year 2021-22 issued by
Listing BSE & NSE
the National Housing Bank. The company primarily finances the purchase and self-construction of
residential properties by first-time home loan takers through home loans and also offers loans Issue Size (no.
of shares in 24.3
against property. Its main focus is serving low and middle-income, salaried, and self-employed indi-
mn)
viduals, catering to their financial needs. With over 13 years of operations as a housing finance com-
pany, the company has a significant presence in the states of Rajasthan, Maharashtra, Madhya Pra- Issue Size
12
desh, Karnataka, and Gujarat’s affordable housing finance market in India. (Rs. in bn)
Objects of the issue Face Value
5
(Rs.)
The net proceeds from the fresh issue will be used towards the following purposes:
Issue Structure
to meet future capital requirements towards onward lending; and
QIB 50%
for general corporate purposes.
NIB 15%
Investment Rationale
Retail 35%
Fastest growing AUM among Housing Finance Companies in India, with high yields
along with granular and retail-focused portfolio
ICICI Securities,
ISFC achieved AUM growth of 40.8% between FY21-23, registering the highest growth among hous- Citigroup Global
ing finance companies in India. The strong growth rate reflects the effectiveness of its operational BRLM Markets, Kotak
model and the ability to underwrite and serve customers in the targeted segments in Tier II and Tier Mahindra Capital,
III cities in India. The company maintains a focus on serving low and middle-income, salaried, and Ambit Private Ltd.
self-employed individuals, catering to their financial needs. They have gained domain knowledge and
understanding of the specific financial circumstances and challenges faced by the low and middle- KFin Technologies
Registrar
income customer segment, and their underwriting process is tailored towards assessing their credit- Ltd.
worthiness. As of September 30, 2023, 100% of their loans catered to the retail segment. ISFC re-
ported the second-highest total income-to-advance ratio at 16.8% compared to its peers and during
Pre Issue Post Issue
the same period, it also reported the third-highest yield on advances at 14.9%. The company has Particulars
% %
been able to maintain a consistently high yield of more than 14% on its portfolio, driven by its com-
mitment to deliver strong financial performance during the last three financial years.
Promoter 56.93% 48.30%
Diversified borrowing profile with a demonstrated track record of reducing financing
costs Public -
43.07% 51.70%
Others
The housing finance company focuses on maintaining a long-term and diversified borrowing profile
by engaging with multiple lenders to ensure timely funding throughout the year. This approach miti- Total 100.00 100.00
gates the risk of relying on a single funding source and enables them to negotiate favourable borrow-
ing costs. ISFC demonstrated the ability to improve its borrowing costs, even in environments char-
(Assuming issue subscribed at higher band)
acterized by rising interest rates. Their average borrowing costs reduced to 8.3% as of March 31,
2023, from 8.7% as of March 31, 2021. The company leverages its NHB borrowings to support its
lending activities, ensuring a reliable and cost-efficient source of funding. In line with its commitment
to diversification and innovative financing models, it has also embraced co-lending initiatives that
involve partnering with other financial institutions to provide joint lending solutions. Furthermore, as a
portion of its portfolio is eligible for priority sector lending, it has carried out securitization and direct
assignment transactions, thereby transferring credit risk and ensuring the optimization of its results of
operations.
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India Shelter Finance Corporation Ltd.
Valuation and Outlook
The housing finance sector of India comprises Public Sector Banks, Private Sector Banks, Housing Finance Companies, NBFCs, and oth-
er players (including foreign banks, Small Finance Banks, etc.), Of the total Rs. 31 trillion credit outstanding of the housing loans market,
HFCs had the second highest market share of 34% in FY23. Within the player groups, HFCs are expected to register strong growth due to
their higher market share, deeper penetration in tier-II and tier–III cities, and adequate liquidity support. ISFC’s profitability increased in
FY23 owing to improved credit costs and an increase in interest yields. Going forward, borrowing costs are expected to stabil ize in FY24
and the overall profitability of housing loans is still expected to be sustained, on account of higher interest income. The company plans to
expand its branch staff, extend the branch network within existing geographical areas, and explore opportunities in adjacent markets for
diversification. Their credit and risk management policies which is backed by technology and data analytics have helped them to maintain
asset quality, leading to a fall in its GNPA to 1.0% as of September 30, 2023, compared to 2.8% as of September 30, 2022. Amongst its
peer set, ISFC had the second-highest annualized RoA of 4.7% for the six months ended September 30, 2023. Furthermore, the company
has posted steady growth in its top and bottom lines. As the lender will utilize the net proceeds of the fresh equity shares issue to
meet future capital requirements towards lending, we are positive about the IPO. At the current adjusted P/BV multiple of 2.5x,
we believe the company is attractively valued and advise investors to “Subscribe” to the issue from a long-term perspective.
Key Risks
ISFC requires substantial capital for its business and operations. Any disruption in its sources of financing could have an adverse ef-
fect on the business, results of operations, and financial condition.
Three states contributed to 62.7% and 63.4% of its AUM for the six months ended September 30, 2023, and FY23, respectively. Any
adverse developments in these states could affect its business, results of operations, and financial condition.
Their inability to recover the full value of collateral or amounts outstanding under defaulted loans on time, or at all, could adversely
affect the business, results of operations, and financial condition.
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India Shelter Finance Corporation Ltd.
Income Statement (Rs. in millions)
Particulars FY21 FY22 FY23 H1FY24
Revenue from operations
(i) Interest income 2,746 3,736 5,029 3,200
(ii) Fees and commission income 100 201 316 179
(iii) Net gain on fair value changes 29 46 61 58
(iv) Net gain on derecognition of financial in-
292 497 439 423
struments under amortised cost category
(I) Total revenue from operations 3,167 4,480 5,845 3,860
(II) Other income 61 118 217 126
(III) Total income (I+II) 3,228 4,598 6,062 3,986
Expenses
(i) Finance costs 1,053 1,483 2,099 1,397
(ii) Impairment on financial instruments 199 120 141 94
(iii) Employee benefits expenses 620 1,013 1,346 844
(iv) Depreciation and amortisation 51 65 82 43
(v) Other expenses 175 247 376 223
(IV) Total expenses 2,098 2,929 4,043 2,602
(V) Profit before tax (III-IV) 1,130 1,669 2,020 1,384
(VI) Tax expense:
(1) Current tax 248 318 465 306
(2) Deferred tax charge/(credit) 8 66 1 4
Total tax expense 256 385 466 310
(VII) Profit for the year (V-VI) 874 1,284 1,553 1,074
Earnings per equity share
Basic (Rs.) 10.19 14.8 17.75 12.13
Diluted (Rs.) 9.93 14.63 17.47 12.00
Source: RHP, BP Equities Research
Cash Flow Statement (Rs. in millions)
Particulars FY21 FY22 FY23 H1FY24
Cash Flow from operating activities -4,209 -4,953 -8,522 -5,637
Cash flow from investing activities 766 -1,858 1,625 -1,109
Cash flow from financing activities 5,600 5,918 9,068 3,216
Net increase/(decrease) in cash and cash equivalents 2,158 -893 2,171 -3,530
Cash and cash equivalents at the beginning of the period 173 2,331 1,438 3,609
Cash and cash equivalents at the end of the period 2,331 1,438 3,609 79
Source: RHP, BP Equities Research
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India Shelter Finance Corporation Ltd.
Balance Sheet (Rs. in millions)
Particulars FY21 FY22 FY23 H1FY24
Assets
(1) Financial assets
(a) Cash and cash equivalents 2,331 1,438 3,609 79
(b) Bank balance other than cash and cash equiva-
1,806 1,865 1,463 2,022
lents
(c) Derivative financial instruments 0 0 1 0
(d) Loans 19,812 26,225 36,091 42,661
(e) Investments 0 1,753 469 996
(f) Other financial assets 281 620 902 1,296
(2) Non-financial assets
(a) Current tax assets (net) 0 0 0 0
(b) Deferred tax assets (net) 93 30 30 43
(c) Property, plant and equipment 140 166 238 249
(d) Other intangible assets 11 5 5 4
(e) Other non-financial assets 117 78 82 140
(f) Assets held for sale 35 34 65 97
Total assets 24,626 32,212 42,956 47,587
Liabilities and equity
Liabilities
(1) Financial liabilities
(a) Derivative financial instruments 0 0 0 31
(b) Trade payables
(i) total outstanding dues of micro enterprises and
1 0 0 0
small enterprises
(ii) total outstanding dues of creditors other than micro
45 46 61 87
enterprises and small enterprises
(c) Debt securities 822 1,866 1,765 1,191
(d) Borrowings (other than debt securities) 14,091 18,834 28,123 31,694
(e) Other financial liabilities 239 595 534 682
(2) Non-financial liabilities
(a) Provisions 36 51 47 68
(b) Current tax liabilities (Net) 0 43 7 41
(c) Other non-financial liabilities 20 15 12 44
Total liabilities 15,254 21,451 30,551 33,837
(3) Equity
(a) Equity share capital 430 437 438 450
(b) Other equity 8,943 10,324 11,968 13,299
Total equity 9,373 10,761 12,405 13,750
Total liabilities and equity 24,626 32,212 42,956 47,587
Source: RHP, BP Equities Research
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Disclaimer Appendix
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