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Affordable housing to take a hit in the upcoming Budget
Business, Equities, Markets, Real Estate - January 16, 2025

Affordable housing to take a hit in the upcoming Budget

Affordable housing to take a hit in the upcoming Budget

By 2030, the Indian real estate market is expected to reach the $1 trillion mark. The government established a strong foundation for the nation’s real estate industry by allocating Rs 11.11 lakh crore for infrastructure development in the Union Budget 2024. India’s real estate industry anticipates a more growth-oriented and inclusive approach from the government in the 2025 budget. On February 1, Finance Minister Nirmala Sitharaman will deliver the Union Budget 2025–2026.

However, there are differing opinions in the housing industry. Due to increased demand over the past two to three years, the upmarket segment, which includes premium and luxury residences, has seen a strong upturn in sentiment. Nonetheless, the Modi government’s goal of providing inexpensive homes is turning out to be problematic.

Affordable home sales have been declining sharply and consistently over the years, according to recent statistics from real estate research firm ANAROCK Property Consultants. The percentage of this group in total housing sales has decreased from 40% in the calendar year 2018 to 20% in 2024 among the seven largest cities from which data was gathered. Now, all eyes will be on the annual Union Budget 2025, which will include tax reductions and incentives related to the housing sector, such as interest subvention schemes or subsidies.

Some suggestions from the housing segment
The industry’s recommendations include a much-needed reinterpretation of what “affordable housing” is. There is an urgent need to update the current definitions of affordable housing, which are based on factors like size, cost, and buyer income. Most people agree that the 60 square meter carpet area needed to be eligible for incentives is reasonable, however, the INR 45 lakh price restriction is unachievable. Land prices have skyrocketed due to the increased demand for housing.

Additionally, experts believe that there is a transition from low to mid-income housing, especially among the paid class. According to the ANAROCK document, in order to reflect market realities, the cap should be increased to at least INR 85 lakh in Mumbai and INR 60–65 lakh in other major cities. The range of projects and purchasers who can take advantage of reduced goods and services taxes and other incentives will increase as a result.

Boosting Housing in Rural Regions
Implementing initiatives like first-time buyer incentives or even loans that allow people to transform “kaccha” homes into “pucca” ones is essential to increasing housing in rural areas.

In 2022, the PMAY’s CLSS for Low-Income Groups (LIG) and Economically Weaker Sections (EWS) came to an end. In order to encourage first-time homebuyers, experts are advocating for its restoration. Adding basic amenities like kitchens and bathrooms to existing homes or expanding incentives to loans for new development are other ideas. Subsidies could assist in transforming temporary dwellings into permanent constructions under PMAY (Rural), which would benefit a larger segment of the population.

Market Commentary on Budget Expectation
Elan Group’s Executive Director of Finance and Group CFO, Sandeep Agarwal, is hopeful that the next budget will offer a chance to address some of the industry’s most urgent issues. He asserts that in order to restore confidence among homeowners, the long-standing problem of stalled projects needs to be addressed first. reducing the impact of ineligible GST inputs on residential developments, redefining the criteria for affordable housing, and fixing discrepancies in the GST input credit for commercial buildings. Operational efficiency would be greatly increased by implementing a single window-clearing system for regulatory approvals within a specified timeframe.

According to Aman Sharma, Managing Director of Aarize Group, incentives and streamlined rules are anticipated to boost India’s economic trajectory and draw in foreign investors in the commercial real estate (CRE) sector. Measures like lower stamp duties and more tax breaks would be extremely beneficial to the luxury housing market, which is driven by changing lifestyles and expectations. With their expanding potential, Tier-2 cities need to strategically prioritize industrial and infrastructure development in order to open up new doors for investors and developers.

As stated by Saurabh Runwal, Director of Runwal Realty, it is imperative to implement legislative measures that improve liquidity, such as lowering long-term capital gains taxes, simplifying REIT rules, and raising interest rebates for home loans. With the luxury market experiencing a 51% increase in demand, these reforms will encourage both local and foreign investments, giving developers more competitive access to money and allowing homebuyers to fulfill their aspirations of becoming property owners.

Lower loan interest rates are necessary to make homes affordable for low- and middle-income households, according to BRIC-X INFRA founder Vijay Kamboj.

To maintain the sector’s pace, Mohit Goel, Managing Director of Omaxe Limited, argued for more funding under PMAY as well as financial incentives for both developers and customers.

Conclusion
Critics believe that with the real estate cycle in its upswing, rising land prices, and high interest rates, it may be difficult to meet the affordable criterion on the value of the dwelling units and the income profile of buyers. However, some industry experts believe that a tax holiday for developers of affordable housing may be beneficial.

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Affordable housing to take a hit in the upcoming Budget
Business, Equities, Market News, Markets, Real Estate, Real Estate News - January 13, 2025

Upcoming Budget: Real estate Industry seeks Stamp duty cuts and revised home loan limits

Upcoming Budget: Real estate Industry seeks Stamp duty cuts and revised home loan limits

The Indian Real Estate Industry is seeking stamp duty cuts, revised home loan limits and improved affordable housing norms in the upcoming Union Budget 2025-2026. The realtors are seeking these changes through Pradhan Mantri Awas Yojana (PMAY), eco-friendly policies, single-window clearance, and more.

Some of the industry leaders and consultancy firms in India such as Raheja, Gaurs, Kanodia, Anarock, Justo, Reach, Urban Space and Eros have put forth their expectations for changes to real estate sector norms in the upcoming budget.

Affordable housing
President of CREDAI-NCR and Chairman and Managing Director of Gaurs Group, Manoj Gaur stated that one of the crucial demands of the real estate sector is adjustment of stamp duty. The reason for this is that the stamp duty rate has increased significantly in recent years. It is adversely affecting home buyers giving them financial pressures. He also emphasised on considering changing the current tax deduction limit of Rs. 1.5 lakh under Sector 80(c) to Rs. 5 lakh as it will help in easing home ownership.

He recommends changing the affordable housing criteria of price limit of Rs. 45 lakh to carpet area-wise criteria. In this, the focus should be on the carpet area of 60 square metres in metro areas and 90 square metres in non-metro areas. He also advocates reintroduction of the 100 percent tax holiday for affordable housing projects before 31st March 2022. This will promote both affordable housing and also India’s mission of ‘Housing for all’.

Commercial Real-estate Sector
The vice-president (Sales) of Raheja, Mohit Kalia stated that the needs for reforms in the commercial real-estate sector. The government’s actions to encourage entrepreneurship promotes the start and growth of business. It not only helps in boosting economic growth and creation of job opportunities but also aids in thriving the business of commerical real-estate sector. Along with this, the sector requires policies that will support in sustaining the growth and success of the sector. He also states that the adjustment in interest rates in a way that makes advances affordable will help in increasing demand in the sector. Also, the implementation of the single-window clearance system can make approval processes faster and easier. These steps will help in strengthening the overall real estate ecosystem.

Tax Relief on Construction Materials
The Kanodia of Delhi-NCR advocates tax relief and GST reduction on construction materials in order to achieve lower project costs and also encourage developers to initiate new ventures with better efficiency.

The Kanodia Group’s founder Gautam Kanodia stated that the upcoming Budget 2026 has a strong prospect to strengthen the real estate industry and also to play a more crucial role in the development of the country’s economic framework.

Revision of Home Loan Limits
The founder and Chairman of Reach, Harinder Singh Hora advocated raising the deduction limit in home loans to Rs 5 lakh from the current Rs. 2 lakh in order to encourage investment opportunities and to attract more investors.

Changes in PMAY
The chairman of Anarock Group, Anuj Puri recommends reintroduction of Credit-linked subsidy Scheme (CLSS) under the PMAY scheme for economically-weaker section (EWS) households, which has ended in the year 2022. This would give financial incentives to first-time homebuyers to purchase affordable homes by providing subsidies on loans for construction of new houses or essential addition to existing properties.

As per the eligibility criterias of PMAY for rural regions provide subsidies to convert ‘kaccha’ into ‘pucca’ homes. The real estate industry players believe that there is a need to update the definition of affordable housing needs, particularly in high-cost cities such as Mumbai. They also advocate raising of current price caps reflecting the higher cost of living and property prices prevailing in these areas.

Given data from Anarock, the sales share of affordable housing decreased to 18 percent in 2024 compared to 38 percent in 2019. This significant decline indicates the pressing need for government intervention. He further stated that there is a need to be more focused on affordable housing and targeted benefits, which was not given much attention for the past two years.

The reason for slowdown in the Indian real estate sector in the year 2024 is the general elections and state elections conducted in the year. The top seven cities in India observed a fall in housing sales by 4 percent which accounts to around 446,000. While, the new launches of properties declined by 7 percent which accounts to around 413,000 units. Despite this, implementation of appropriate steps taken for affordable housing in the year 2025 could lead to revival of growth and also promote the residential segment to regain the high sales and launches achieved in the year 2023.

Rental housing and infrastructure growth
In the year 2024, institutional funding in real estate registered a record of 6.5 billion dollars. It indicates strong investor confidence. The introduction of increasing liquidity measures will help to ensure that real estate projects are completed on time. This is crucial to maintain the growth momentum in the sector. The Director of Eros states that while entering in the year 2025, the policies pertaining to expansion of rental housing and infrastructural growth should be taken for driving urbanisation.

The founder and director of real estate fintech firm Justo, Pushpamitra Das advocates the adjustments in GST on under-construction residential and commercial properties, tax benefits for REITs, extension of SEZ benefits. He also stated that India’s real estate sector plays a significant role in driving economic growth by boosting GDP and employment levels.

Home decor Industry
The co-founder of Urban space, Radhika Koolwal stated that the home decor industry is positive about the measures undertaken to boost growth and innovation. The industry expects the policies undertaken will focus on encouraging domestic manufacturing such as subsidies on raw materials and machinery, tax benefits for MSMEs and startups, reduction in GST rates on home furnishings and decor items in order to achieve more accessibility to quality products to the middle class.

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The Resilient Growth Story of India’s NBFC Sector

The Resilient Growth Story of India’s NBFC Sector

India’s Non-Banking Financial Companies (NBFCs) are poised for continued growth, supported by a robust economy, sound balance sheets, and a well-diversified portfolio. Operating in one of the world’s fastest-growing economies, NBFCs play a pivotal role in addressing the credit needs of unbanked and underbanked segments through their specialized business models and innovative credit appraisal techniques.

Economic Backdrop and Strategic Positioning
India’s status as the fifth-largest and fastest-growing large economy creates a favorable environment for credit expansion. NBFCs, with their last-mile credit delivery capabilities and strong reliance on technology, have become indispensable in the Indian financial system. They hold a significant 22% market share in the credit sector and cater to various niche segments, ranging from vehicle finance to microfinance.

Strengthened by reduced leverage ratios—from 4.5x in FY20 to 3.1x in FY24—and improved asset quality, NBFCs have demonstrated resilience even through challenges like the COVID-19 pandemic. The reduction in Net NPAs from 3.4% in FY20 to 1.1% in FY24 reflects their strengthened risk management frameworks and shift toward retail lending.

Sectoral Insights and Growth Expectations
Commercial Vehicle (CV) Financing
The CV financing segment is projected to grow at 15% in FY25, up from 11% in FY24, driven by higher ticket sizes and strong demand for used vehicles post-BS-6 norms. Asset quality is expected to improve, with GNPA levels forecasted to decline to 4.6% by FY25, while credit costs stabilize at around 2.0%.

Home Loans
Housing finance continues to perform well, with AUM growth projected at 13.5% in FY25. The segment boasts low credit costs (0.5%) and improving asset quality, with GNPA levels expected to decrease from 4.1% in FY22 to 2.6% in FY25. Challenges in this space are primarily linked to high-yield wholesale loans rather than mainstream retail loans.

Affordable Housing Finance
The affordable housing segment shows robust growth potential, with AUM expected to grow at 23% in FY25. However, GNPA and credit costs are anticipated to edge up slightly to 1.3% and 0.5%, respectively, due to the relatively higher risk profile of self-employed borrowers. Policy interventions like interest subsidies could provide additional tailwinds.

Gold Loans
The gold financing sector is expected to sustain over 15% AUM growth in FY25 despite rising competition from banks. While tonnage growth remains subdued, NBFCs are mitigating asset quality concerns through flexible auction processes. GNPA levels are projected at 2.8%, with minimal credit costs.

Microfinance Institutions (MFIs)
The microfinance sector faces significant challenges, with AUM growth projected at a modest 4% in FY25. Asset quality issues, rising credit costs (6.5%), and borrower over-leverage remain key concerns, potentially dragging RoA to 0.4%. Further deterioration in economic conditions could push credit costs as high as 8.5%, highlighting the sector’s vulnerability.

Evolving Funding Dynamics
The growing interconnectedness between banks and NBFCs is evident, with bank finance to NBFCs nearly doubling to 9.4% over the past seven years. However, the RBI’s push for funding diversification has prompted NBFCs to explore alternatives like domestic capital markets and external commercial borrowings (ECBs).

Future Outlook
NBFCs’ ability to innovate, leverage technology, and cater to underserved markets positions them as critical players in India’s financial ecosystem. Their resilience and adaptability ensure they remain key contributors to economic growth, enabling inclusive financial development and addressing credit demand in niche micro-markets.

With strengthened fundamentals and a customer-centric approach, NBFCs are well-positioned to navigate emerging challenges and capitalize on growth opportunities in India’s evolving financial landscape.

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HUDCO Q2FY24: Solid loan book growth driven by urban infra

HUDCO Q2FY24: Solid loan book growth driven by urban infra

Company Name: Housing & Urban Development Corporation Ltd | NSE Code: HUDCO | BSE Code: 540530 | 52 Week high/low: 354 / 74.0 | CMP: INR 216 | Mcap: INR 43,319 Cr | P/BV – 2.53

About the stock
▶️Housing and Urban Development Corporation Ltd (HUDCO) is public sector enterprise primarily engaged in the business of financing housing and urban development projects in India. The company headquartered in national capital, New Delhi and operate through 21 regional offices and 11 development offices across India.
Apart from financing business, it also provides consultancy services for government programmes and advising on urban and regional planning, design and development, environmental engineering and social development.

Healthy expansion in loan book (up 36% YoY), While Sanctions and Disbursement grew multiple fold
➡️HUDCO’s loan book has report a solid growth during quarter, growing 36% YoY (+7% Qoq) to 1,11,068 Cr led by strong growth in urban infra book. Urban infra book jumped 11% YoY (+1% QoQ) to 66,857 Cr while affordable housing segment muted at 3% YoY growth and 1% QoQ to 44,211 Cr. This lead to increased the urban infra weight to 60% in overall loan book while affordable housing reduced by same.

➡️Sanctions jump 9.8x fold YoY (+442% QoQ) to 76,472 Cr driven by pure urban infra growth. Sanction under urban infra grew 929% YoY (+442% QoQ) to 76,472 Cr. while affordable housing contribute 0% during the quarter.

➡️Disbursement report solid expansion grew 5.8x YoY (+ 72% QoQ) to 21,699 Cr supported by urban infra segment. Urban infra segment disbursement jump 538% YoY (+65% QoQ) to 20,583 Cr while Affordable housing disbursement grew 124% YoY (+752% QoQ) to 1,116 Cr.

➡️Borrowing grew higher than the loan book growth, grew 47% YoY (+43% QoQ) to 93,364 Cr. Borrowing is the mix of international and domestic sources to meet business growth and reduce the cost of borrowing.

Book Growth (As on)  Q2FY25 Q2FY24 YoY (%) Q1FY25 QoQ (%)
Loan 111068 81594 36% 1,03,815 7%
Urban Infra 66,857 38,674 73% 60,047 11%
Affordable housing 44,211 42,920 3% 43,768 1%
Sanction 76,472 7,808 879% 14,097 442%
Urban Infra 76,472 7,435 929% 14,097 442%
Affordable housing 0 373 -100% 0 #DIV/0!
Disbursement  21,699 3,723 483% 12,625 72%
Urban Infra 20,583 3,225 538% 12,494 65%
Affordable housing 1,116 498 124% 131 752%
Borrowings  93,364.67 63,318.46 47% 65,187.48 43%

NII jump 27% YoY driven book expansion; PAT boom on lower provision and higher other income
➡️Interest income grew 33% YoY (+13% QoQ) to 2,459 Cr led by book expansion while yield down 10 bps YoY to 9.24%. NII jump 27% YoY (+12% QoQ) to 797 Cr led by healthy growth in book while NIMs decline 21 bps YoY and stable QoQ to 3.01%. PPOP increased 32% YoY (+15% QoQ) to 767cr on stable OpEx growth. PAT boom 52% YoY (+23% QoQ) to 689 Cr driven by lower provision (down 749% YoY) and higher other income (up 81% YoY).

Years  Q2FY25 Q2FY24 YoY (%) Q1FY25 QoQ (%)
Interest income  2,459 1,844 33% 2,175 13%
Interest expenses 1,662 1,217 37% 1,464 14%
NII 797 627 27% 711 12%
Other income  67 37 81% 23 196%
Total Net income 864 664 30% 734 18%
Employee expenses 66 55 19% 40 65%
Other OpEx 31 30 5% 28 14%
Total Opex  97 85 14% 67 44%
PPOP 767 579 32% 666 15%
Provision -233 -27 749% -19 1147%
PBT 1,000 606 65% 685 46%
Tax expenses  311 155 101% 127 145%
Tax rate  31% 26% 22% 19% 68%
PAT  689 452 52% 558 23%
PAT% 27% 24% 14% 25% 7%
EPS 3.44 2.26 52% 2.79 23%
No. of equity shares  200 200 0% 200 0%

Asset quality stood best in the industry – GNPA/NPNPA down 132 bps/18 bps YoY
➡️HUDCO’s asset quality stand best in the industry with GNPA and NNPA at 2.04% and 0.31% respectively. GNPA/NNPA decline 132 bps/18 bps YoY and 38 bps/2 bps QoQ. Further private sector book decline to 1.83% from 2,50% in FY24 while Government backed book increased to 98.17% from 97.50% in FY24. This will lead to decline default of loans as government book is highly secured. Provision coverage ratio decline 28 bps and 101 QoQ to stood at 85.6% as of Q2FY25.

Asset Quality Q2FY25 Q2FY24 YoY (bps) Q1FY25 QoQ (bps)
GNPA 2.04 3.36 -132 2.42 -38
NNPA 0.31 0.49 -18 0.33 -2

Valuations and key metrics
➡️Currently the stock is trading at 2.53x price to book value. NIMs contract by 21 bps YoY and remain stable QoQ to 3.01% led by the expansion in CoF and decline in yield. ROA jump by 20 bps YoY and 16 bps QoQ to 2.4% while ROE rise 315 bps YoY and 164 bps QoQ to 14.56%. Company capital position CAR down 1614 bps YoY to stood at 57.65% but still above the RBI guidelines.

Key metrics  Q2FY25 Q2FY24 YoY (bps) Q1FY25 QoQ (bps)
Yield  9.24 9.34 -10 9.06 18
CoF 7.46 7.63 -17 7.36 10
NIMs 3.01 3.22 -21 3 1
ROA 2.4 2.2 20 2.24 16
ROE 14.56 11.41 315 12.92 164
PCR 85.6 85.88 -28 86.61 -101
CAR 57.65 73.79 -1614 5765

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Budget 2024 Anticipations: Real Estate Industry's Wish List

Budget 2024 Anticipations: Real Estate Industry’s Wish List

Budget 2024 Anticipations: Real estate consultancy firm Knight Frank India reported on Wednesday that the sales of residential properties priced at Rs 50 lakh and below declined to 97,983 units last year from 1,17,131 units in 2022. Consequently, the share of affordable homes in total housing sales has decreased to 30% from 37%.

The decline in sales of affordable homes is attributed to subdued demand due to the combined impact of rising property prices, increased home loan rates, and the disproportionately adverse effects of the pandemic in this category, according to the consultant.

On the contrary, JLL, in its report, anticipates an improvement in affordability for home purchases in 2024. This expectation is based on the anticipation of a 60-80 bps repo rate cut in 2023, which is expected to keep buyers’ affordability within a comfortable range and sustain market momentum in the coming year.

During this period of various growth figures, the industry expresses its expectations, hoping for them to be addressed in the upcoming Union Budget scheduled for presentation on February 1st. The upcoming budget is an interim one, typically presented when there’s insufficient time for a full budget, often due to upcoming elections or the end of a government’s term, serving as a bridge until the new government presents a full budget.

The real estate industry routinely presents an ambitious wish list to the Finance Ministry before the annual Union Budget.

Anticipations for Budget 2024: Real Estate
Anuj Puri, Chairman of Anarock Group, stated that the residential real estate market experienced extraordinary growth in 2023, with record-high new launches and home sales. In 2023, sales of housing in the top seven cities reached an all-time high of about 4.77 lakh units, while sales of newly launched homes reached almost 4.46 lakh units. Puri added that the outlook for the real estate industry in 2024 is positive, but the results of the upcoming general elections will also significantly impact the demand for and growth in residential real estate.

Industry status for the housing sector and single-window clearance for housing projects remain standard expectations this year as well. However, given the generally slow pace at which issues in the real estate sector are resolved, these expectations persist, though they remain as urgent as ever. That said, reasonable expectations are necessary for the interim budget before the general elections.

Maximum Deduction for Home Loans (under Section 24)
It is imperative to raise the Rs 2 lakh tax rebate on home loan interest rates provided under Section 24 of the Income Tax Act to at least Rs 5 lakh. This move could stimulate a more robust housing market, especially in the budget homes segment, which has seen a decline in demand since the pandemic.

Decisive Boost for Affordable Housing
The affordable housing segment has been severely affected by the pandemic, with a decline in overall sales to approximately 20% in 2023 from over 30% in 2022 and nearly 40% in the period before the pandemic, according to Anarock Research.

Several interest stimulants for developers and consumers in this market have expired in the last one to two years. To encourage developers to construct more affordable housing and enable customers to acquire such homes, it is essential to revive and extend significant benefits, such as tax breaks.

Modifying the qualifying standards for affordable housing to make more buyers eligible for additional deductions is necessary. The Ministry of Housing and Urban Poverty Alleviation defines affordable housing based on the buyer’s income, property size, and price. The government needs to reconsider the qualifying cost of properties within the affordable housing segment in cities, as the current definition of up to Rs 45 lakh makes them unaffordable for a significant share of the target clientele.

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India Shelter Finance Corporation IPO: A dive into the affordable housing champion

India Shelter Finance Corporation IPO: A dive into the affordable housing champion
India Shelter Finance Corporation Limited – IPO Note

Price Band: Rs 469-493

Issue Date: 13th Dec-15th Dec

Recommendation: Apply

Company Overview: 

India Shelter Finance Corporation Limited (ISFCL), established in 1998, specializes in housing finance, targeting the self-employed in low and middle-income groups, especially in Tier II and Tier III cities. The company provides various housing finance products, emphasizing loans with ticket sizes below Rs. 10.5 lakhs. With a presence in 15 states and a branch network of 203 as of September 2023, ISFCL focuses on affordable housing, leveraging a scalable technology infrastructure for operational efficiency. The company’s strategic approach includes generating relatively high yields on advances, contributing to financial sustainability and profitability. ISFCL’s mission aligns with promoting homeownership and addressing the specific housing needs of its target demographic.

The Objective of the Issue:

  • ISFCL aimed to raise Rs 1,200 crore through the IPO, with Rs 800 crore through a fresh issue of shares and Rs 400 crore through an offer for sale (OFS) by existing investors.
  • The fresh raised capital will be used to strengthen ISFCL’s capital base and cater to its onward lending requirements, supporting future growth and expansion plans.
  • A portion of the funds may also be utilized for general corporate purposes like debt repayment, working capital needs, and potential acquisitions.

Outlook and Valuation:

  • ISFCL’s robust financial performance, experienced management team, and focus on social impact provide a strong foundation for future growth.
  • The Indian affordable housing market is expected to grow at a healthy pace, driven by government initiatives and rising urbanization.
  • ISFCL’s extensive reach and focus on Tier II and Tier III cities position them well to tap into this market potential.
  • With a loan book standing at Rs. 4,359 Crores as of FY23, ISFCL demonstrates a substantial growth runway given its potential for accelerated expansion. The company has exhibited remarkable growth in Assets Under Management (AUM), achieving a commendable CAGR of 41% from FY21 to FY23. Additionally, ISFCL has delivered a respectable Return on Assets (ROA) of 4.1% in FY23.
  • Despite its robust performance, the company’s valuation, based on Price-to-Book (P/B), indicates a discount compared to peers, standing at 2.6x FY23 post-issue Book Value Per Share (BVPS).
  • Analyzing the company’s Price-to-Book Value (P/BV) of 3.48x and Price-to-Earnings (P/E) ratio of 27.7x, we observe a fair valuation that aligns with its growth prospects and risk profile. This balanced valuation underscores the company’s potential for sustained growth and presents a compelling investment opportunity.
    ISSUE OFFER  
    Price band (INR) Rs 469-493
    Bidding date 13-15 December
    Sector NBFC
    Total IPO size (Cr) 1200
    Fresh issue (Cr) 800
    Offer for sale (Cr) 400
    Market lot 30
    Face value (INR) 5
    Listing on NSE, BSE
    Retail Allocation 35%

Competitive Strengths:

  • Extensive and Diversified Physical Distribution Network with Significant Presence in Tier II and Tier III cities.
  • Targeting this underserved segment aligns with their social mission and creates a loyal customer base.
  • A track record of steady growth in loan portfolio, revenues, and profitability inspires investor confidence.
  • Strong loan book with low non-performing assets (NPAs) minimizes risk and ensures financial stability.
  • Established by the government of India, ISFCL benefits from a stable shareholder base and potential access to cheaper funds.
  • Over 200 branches across 17 states provide a strong physical presence and customer access.
  • Deep knowledge of Tier II and III markets and local lending practices allows for customized solutions.
  • Efficient Technology Adoption: Leverage digital platforms for loan processing and customer service, improving speed and cost-effectiveness.
  • Commitment to affordable housing promotes financial inclusion and poverty alleviation, boosting brand image.
  • Implement green practices and ethical lending policies, further enhancing positive perception.

Key Strategies:

  • Expand and diversify the distribution network to achieve deeper penetration in key states.
  • Strengthen market presence through strategic expansion in targeted regions.
  • Utilize the existing technology stack to achieve scalability.
  • Enhance efficiency and productivity across branches through innovative technological solutions.
  • Diversify the borrowing profile to optimize borrowing costs.
  • Explore a mix of funding sources for financial stability and risk mitigation.
  • Focus on optimizing borrowing costs for improved financial performance.
  • Strategically manage expenses related to borrowing to enhance overall financial efficiency.
  • Invest in initiatives to enhance brand equity in the affordable housing finance sector.
  • Build a strong and reputable brand to foster customer trust and loyalty.
  • Prioritize sustainability initiatives in business practices.

Key Concerns:

  • Economic downturns increase the risk of non-payment or default by borrowers, particularly from the low-income segment.
  • Customers in the low and middle-income strata, especially first-time home loan takers in Tier II and Tier III cities, may face challenges in meeting repayment obligations during economic uncertainties.
  • ISFCL’s customer base comprises 30% salaried and 70% self-employed individuals.
  • Intense competition, especially in the context of expansion into new geographies, may impact ISFCL’s financials in the long term.
  • Differing market dynamics, regulatory landscapes, and customer needs in new geographies may pose challenges.
  • A major proportion of ISFCL’s Assets Under Management (AUM) is concentrated in three states, posing geographic concentration risk.
  • Over-reliance on specific regions increases vulnerability to localized economic conditions.
  • Historical negative cash flows and the potential for future negative cash flows are inherent to ISFCL’s business model.

Comparison with Listed Industry Peers: 

FY23 FIGURES ISFCL Aavas Aptus Home first finance
FY21-23 AUM CAGR (%) 41 22 29 32
AUM (Rs Cr) 4,359 14,167 6738 7198
Yield 14.9% 13.1% 17.1% 13.1%
Spreads 6.6% 5.5% 8.9% 5.7%
Credit cost 0.5% 0.1% 0.5% 0.3%
GNPA 1.1% 0.9% 1.2% 1.6%
ROA 4.1% 3.5% 7.8% 3.9%
ROE 13.4% 14.1% 16.1% 13.5%
P/E 34 28.8 26.7 32.6
NAV 141.38 67.05 413.58 206.48
PARTICULARS FY23 FY22 FY21
Equity share capital 437.65 437.07 429.78
Other equity 11967.63 10324.20 8942.91
Net worth 12405.28 10761.27 9372.69
Total Borrowings 28123.35 18834.11 14090.67
Revenue from Operations 5029.46 3736.16 2745.72
EBIDTA 4188.31 3208.59 2226.3
PBT 2019.52 1669.01 1129.57
Net profit 1553.42 1284.47 873.89

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RBI Charts Course for Sustainable Growth: Inflation Control as the Key

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