Prabhudas Lilladher has maintained its target price of ₹1,400 for Home First Finance Company India, following a strong second quarter with 27% growth in assets. However, the brokerage lowered its FY28 earnings estimates by 1.7%, citing upcoming insurance regulations and potential increases in funding costs.
Prabhudas Lilladher has kept its target price for Home First Finance Company India at ₹1,400, pointing to the lender's solid operational results despite facing some industry-wide headwinds. The brokerage’s outlook remains firm, even as it slightly reduced its earnings projections for FY28 by 1.7% to account for changing regulatory conditions and the rising cost of borrowing money.
The company reported a healthy second quarter, with total assets under management rising 27% to reach ₹180.1 billion. Disbursement growth was even stronger, rising 32% compared to the previous period. Management continues to guide for annual asset growth of around 25% through FY27, backed by consistent team productivity and a recovery in business volumes from the Tamil Nadu region.
While the growth outlook remains positive, the company is preparing for potential pressure on its profit margins. The brokerage expects the net interest margin—the difference between the interest income the company earns on loans and the interest it pays to banks—to compress by 14 to 17 basis points by FY28. This potential tightening is linked to how the company passes on repo-rate changes, a common challenge in the housing finance sector where funding costs can fluctuate based on broader interest rate trends.
To manage these pressures, Home First Finance is adjusting its business strategy. The company aims to increase the share of its loan-against-property product, which typically offers different risk and return profiles compared to pure home loans. Additionally, it plans to optimize its fee structures to offset the impact of the rising cost of funds and the effects of new draft regulations on insurance distribution. The brokerage noted that these strategic shifts are designed to protect profitability in a changing regulatory environment.
Asset quality appears stable for now. Credit costs, which represent the money a lender sets aside to cover potential loan losses, were recorded at 43 basis points for the second quarter. The company expects these costs to improve gradually to 33 basis points by FY28, suggesting a steady management of its loan book. Investors may monitor how the company executes these fee optimizations and how it manages the cost of funds in the coming quarters, as these factors will influence the actual impact on the bottom line. The ultimate effect on earnings will depend on the final version of the insurance distribution rules and how the company balances its loan mix between traditional housing and property-backed products.