India Shelter Finance Corporation IPO: 5 Things You Should Know

1. IPO Details:

The IPO of India Shelter Finance Corporation is scheduled to open for subscription on December 13 and conclude on December 15.

The IPO price band is set at Rs 469 to Rs 493 per equity share.

The company is planning to raise Rs 1,200 crore through fresh issue of equity shares worth Rs 800 crore and an offer-for-sale (OFS) of Rs 400 crore.

The objects of the IPO offer are to utilize the net proceeds from the fresh issue in meeting future capital requirements towards onward lending; and for general corporate purposes.

With that out of the way, let’s move on to understanding the industry and the company’s business.

2. Industry and Business Overview:

The Housing Finance Sector: The housing finance sector of India comprises public sector banks, private sector banks, housing finance companies, non-banking financial companies and other players.

The overall size of the affordable housing finance market in India in terms of loan outstanding was around Rs 11.5 trillion as of March 2023, constituting around 37% of the overall housing finance market.

The Indian housing finance market recorded a CAGR of approximately 13.5% (growth in loan outstanding) over the financial years 2019-2023 on account of a rise in disposable income, healthy demand, and a greater number of players entering the segment.

About the Company: India Shelter Finance Corporation Limited is a retail-focused affordable housing finance company with an extensive distribution network of 203 branches as of September 30, 2023.

The company primarily caters to self-employed customers, with an emphasis on first-time home loan applicants within the low and middle-income groups in Tier II and Tier III cities in India. It also specialises in affordable housing loans, defined as loans with a ticket size below Rs. 2.5 million.

The company has an extensive and well-established network of branches spread across 15 states with a significant presence in the states of Rajasthan, Maharashtra, Madhya Pradesh, Karnataka and Gujarat wherein their branch vintage is five year and above, as of September 30, 2023.

Between Financial Year 2021 and Financial Year 2023, the company witnessed a two-year compounded annual growth rate (CAGR) growth of 40.8% in terms of assets under management (AUM).

On the cost front, the company has been able to reduce its average cost of borrowings to 8.3% as of March 31, 2023 from 8.7% as of March 31, 2021.

The company has an integrated customer relationship management and loan management system set up on a cloud-based platform. This provides it with connectivity and access to real time information with a holistic view of the profile of all its customers, throughout the loan lifecycle.

During the six months ended September 30, 2023 and September 30, 2022, 92.4% and 92.2%, respectively, of the company’s collections were made through digital modes.

So, that was a quick look at the housing finance industry and the company’s business in it.

Let us now have a look at some strengths and risk factors of India Shelter Finance Ltd.

3. Strengths and Risks:

Strengths:

One of the Fastest Growing AUM: The company achieved asset under management (AUM) with a growth of 40.8%, among housing finance companies in India, between FY 2021 - 2023. These growth rates reflect its operational model's effectiveness and ability to underwrite and serve customers in the targeted segments in Tier II and Tier III cities in India.

Diversified Phygital Distribution Network: With over 13 years of operations, the company’s distribution network has grown to 203 branches across 15 states in India, as of September 30, 2023. Moreover, the “phygital” model of business, which is a blend of physical presence across 15 states through 203 branches and digital interface, assists the company in accessing a wider customer base.

Diversified Financing Profile: The company maintains a diversified financing profile, driven by a disciplined approach to asset liability and liquidity management. One of the key aspects of its financing profile is a diversified mix of credit. This approach not only mitigates the risk of relying on a single funding source but also enables them to negotiate favourable borrowing costs.

Technology and Analytics-Driven: It is a technology and analytics-driven affordable housing finance company. It has built a scalable operating model that enables it to expand operations and drive growth in revenue.

Risk Factors:

• Any disruption in the company’s sources of financing could have an adverse effect on business.
• The Indian housing finance industry is extensively regulated and any changes in laws and regulations applicable to housing finance companies could have an adverse effect on the business.
• The company requires substantial capital for the business and operations.
• The risk of non-payment or default by customers may adversely affect the business.

4. Competitive Analysis:

The housing finance industry in India is highly competitive and the company faces competition from other housing finance companies (HFCs), non-banking financial companies (NBFCs), small finance banks, as well as scheduled commercial banks. The company’s primary competitors include Aadhar Housing Finance Limited, Aavas Financiers Limited, Home First Finance Company India Limited and Aptus Value Housing Finance India Limited.

India Shelter Finance Corp. generally competes on the range of product offerings, interest rates, fees and customer service, as well as for skilled employees, with its competitors.

Furthermore, the demand for housing finance has increased as a result of reduced interest rates, higher income levels, and enhanced financial incentives for customers. Technological advancements and internet-based lending platforms have further improved accessibility to housing finance products and services, leading to increased competition.

Given the relatively low barriers to entry in the housing finance sector, competition is anticipated to further intensify due to regulatory changes and liberalization.

5. A Quick Look at the Numbers: Here are the key financials for India Shelter Finance Corporation Limited:

In Conclusion

The Indian financier industry presents a huge opportunity for growth. As of March 31, 2023, rural areas, which accounted for 47% of GDP, received just 8% of the overall banking credit, which shows the vast market opportunity for banks and NBFCs to lend in these areas. With increasing focus of government towards financial inclusion, rising financial awareness, increasing smartphone and internet penetration, the delivery of credit services in rural area is to increase.

Moreover, the shortage of housing in India has been a perpetual problem, deterring the economic growth of the country. The shortage of overall house is much higher at 62.5 million (as per twelfth five-year plan 2012-17) due to changing social and demographic pattern in India such as nuclearization of families and rapid growth of urbanisation.

As per the report of RBI-appointed Committee on the Development of housing finance securitisation market (September 2019), the total value of units to fulfil the entire shortage is estimated at ₹149 trillion, out of which ₹58 trillion is estimated to be the aggregate loan demand for housing.

Over the past two financial years, housing finance segment has seen favourable affordability on account of stable property rates and improved annual income of individual borrowers. Going ahead, housing finance is expected to log a CAGR of 13-15% in the long term between Financial Year 2023-2026.

All of these points give India Shelter Finance Corporation a good opportunity to grow its financing and penetrate to new geographies in the coming years.

Going forward, the company is looking to grow and diversify their distribution network to achieve deeper penetration in key states and drive sustainable growth.

It also plans to leverage its technology stack and also diversify its borrowing profile and optimise borrowing costs.

Overall, the time for India Shelter Finance Corporation couldn’t have been better.

However, as we have highlighted in the past, one should have a close look at the valuations before making a decision to subscribe to any offering.

Investors and traders should subscribe to them after evaluating the risks and rewards and the individual investing profile.

It will be interesting to see how the above IPO performs on the listing day on the bourses.

We will keep you updated on all the developments from this space. Stay Tuned!