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Review By Dilip Davda on December 8, 2023

•    ISFCL is specializing in affordable housing in Tier-2, Tier-3 and rural regions.
•    The company has marked steady growth in its top and bottom lines for the reported periods.
•    Based on annualized FY24 earnings, the issue appears fully priced. 
•    The company is poised for bright prospects under "Aavas for all" move of GoI. 
•    Investors may park funds in this rising star for the medium to long-term rewards. 

ABOUT COMPANY:
India Shelter Finance Corporation Ltd. (ISFCL) is 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 its business operations and throughout the loan life cycle. Between Financial Year 2021 and Financial Year 2023, it witnessed a two year CAGR growth of 40.8% in terms of assets under management ("AUM") (Source: CRISIL Report). 

ISFCL's 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 size lower than Rs.  0.25 cr. as per the criteria set out in the Refinance Scheme under Affordable Housing Fund for the Financial Year 2021-22 issued by the National Housing Bank, read with the Master Directions - Reserve Bank of India (Priority Sector Lending - Targets and Classification) Directions, 2020 (Source: CRISIL Report).

It has also adopted an end-to-end in-house approach to key aspects of lending operations including customer acquisition, underwriting, collateral valuation, legal assessment, and collections. This allows it to directly connect with customers, minimize turnaround times, increases customer retention, and mitigate the risk of fraudulent activities.

Its 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. As of September 30, 2023, it obtained long-term funding from a diversified lender base comprising over 37 counterparties, including 24 scheduled commercial banks. It has a healthy credit rating of ICRA A+ (stable) from ICRA Limited and CARE A+ (Positive) from CARE Limited, as of September 30, 2023.

As of September 30, 2023, 97.9% of its loans had one or more borrowers as women. Lending to women has much significance including their involvement in financial decisions leading to better management of household expenses and disciplined approach towards credit. It has been able to maintain consistently high yield of more than 14% on portfolio driven by commitment to deliver strong financial performance during the last three Financial Years.

As of September 30, 2023, the company operates in 15 states with a network of 203 branches and 2997 employees. Its AUM growth stood at 43.3% and has AUM worth Rs. 5180.69 cr.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route combo IPO worth Rs. 1200 cr. (approx. 24340770 shares at the upper cap) that includes fresh equity shares issue worth Rs. 800 cr. (16227180 shares at the upper cap) and an Offer for Sale (OFS) worth Rs. 400 cr. (8113590 shares at the upper cap). It has announced a price band of Rs. 469 - Rs. 493 per share of Rs. 5 each. The issue opens for subscription on December 13, 2023, and will close on December 15, 2023. The minimum application to be made is for 30 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 22.74% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity share issue, it will utilize Rs. 640.00 cr. for future capital requirements for onward lending, and the rest for general corporate purposes.

The four joint Book Running Lead Managers (BRLMs) for this IPO are ICICI Securities Ltd., Citigroup Global Markets India Pvt. Ltd., Kotak Mahindra Capital Company Ltd., and Ambit Pvt. Ltd. while KFin Technologies Ltd. is the registrar of the issue. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 5.85 - Rs. 218.50 (based on Rs. 5 FV) between March 2010 and November 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 52.41, Rs.58.89, Rs. 77.03, Rs. 126.46, Rs. 173.90, Rs. 236.37, Rs. 237.21, and Rs. 237.27 per share. 

Post-IPO, its current paid-up equity capital of Rs. 45.41 cr. will stand enhanced to Rs. 53.53 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 5277.62 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company posted a total income/net profit of Rs. 322.80 cr. / Rs. 87.39 cr. (FY21), Rs. 459.81 cr. / Rs. 128.45 cr. (FY22), and Rs. 606.23 cr. / Rs. 155.34 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 107.35 cr. on a total income of Rs. 398.58 cr. Thus the company has posted steady growth in its top and bottom lines for the reported periods. 

For the last three fiscals, the company has reported an average EPS of Rs. 15.27 and an average RoNW of 12.60%. The issue is priced at a P/BV of 3.23 based on its NAV of Rs. 152.70 as of September 30, 2023, and at a P/BV of 2.43 based on its post-IPO NAV of Rs.203.17 per share (at the upper cap).

If we annualized FY24 earnings and attribute it to post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 24.58. Thus the issue appears fully priced. 

For the reported periods of the offer document, the company has posted RoA margins of 4.1% (FY21), 4.5% (FY22), 4.1% (FY23), 4.7% (H1-FY24), and RoE margins of 9.8%, 12.8%, 13.4%, 8.2% respectively for the said periods. 

DIVIDEND POLICY:
The company has not paid any dividend for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Aptus Value, Aavas Fin., Home First as their listed peers. They are trading at a P/E of 34.98, 25.35, and 34.36 (as of December 08, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The four BRLMs associated with the issue have handled 72 public issues in the last three fiscals, out of which 20 issues closed below the issue price on listing date. 

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