HomeFirst Finance: High Growth, High Valuation – Is the Premium Justified?

HomeFirst Finance: Fulfilling India’s Dream of Homeownership

Owning a home is a lifelong dream for every Indian. It’s more than just an investment—people put their hard-earned savings and years of effort into building a good house. For many, a home is not only a place to live but also a valuable long-term asset.

Yet, despite this strong aspiration, a large section of India’s population still rents or lives in inadequate housing. Currently, only about 69% of Indian households own their homes. This number is much higher in rural areas (~95%), but in cities, it drops sharply—well below the national average. This urban-rural gap highlights the huge unmet demand for affordable housing in urban India.

Big cities like Mumbai, Bangalore, Kolkata, and Delhi face severe housing shortages. A government study from 2012 estimated an urban housing shortfall of around 18.78 million units. This became the foundation for the “Housing for All” mission. In response, the government launched the Pradhan Mantri Awas Yojana (PMAY). By the end of 2022, over 107 lakh homes were sanctioned and 61 lakh completed under this scheme. The second phase—PMAY-U 2.0—was launched in 2024, targeting 1 crore (10 million) new affordable homes over five years. Still, despite these efforts, the shortage remains significant, especially for poor and middle-income families.

Housing is a basic need, regardless of income level. For most people, a major part of their earnings goes into building or buying a home. Credit plays a crucial role here—helping bridge the gap between aspirations and savings. Housing finance in India is booming. The total outstanding home loans rose by ₹10 lakh crore over just two years, reaching a record ₹27.22 lakh crore by March 2024. Experts predict 12–14% annual growth in this sector in the near future.

However, India’s mortgage-to-GDP ratio is still just around 12%—much lower than that of developed nations. This shows the immense growth potential in India’s housing finance market, driven by rising incomes, rapid urbanization, and strong government support.

In this growing landscape, HomeFirst Finance Company (HFFC) has emerged as a specialized player focused on affordable housing for underserved segments.

Carving a Niche in Affordable Housing

HomeFirst was founded in 2010 as a technology-driven housing finance company (HFC). It specifically targets first-time home buyers in under-served cities (Tier 2/3) who have moderate, mostly salaried incomes. According to company reports, HomeFirst’s “primary focus” is on salaried families earning under ₹50,000 per month. About 85–86% of HomeFirst’s loan book consists of home loans (as opposed to loans against property or other lending), and the average loan size is quite small – roughly ₹11.5 – 11.6 lakh (₹1.15 – 1.16 million). This reflects its affordable-housing focus: it lends for home purchase, self-construction, resale, renovations, shops, etc., typically helping low- and middle-income families buy modest homes.

HomeFirst operates a distributed network: by March 2025 it had 155 branches plus 361 total touchpoints including satellite offices (a branch of a company that’s physically separate from the organization’s main office) across 13 states. Its “hub-and-spoke” model (a system where the central hub is connected to several peripheral locations) uses centralized underwriting backed by data analytics and local market expertise. For example, HomeFirst builds detailed understanding of local land prices and borrower profiles. It also leverages technology aggressively – 91% of its loan approvals happen within 48 hours of application, and 95% of customers use its mobile app (HomeFirst Customer Portal). Over 70% of loans are processed via fully digital channels (e-agreements, e-NACH, etc.), and 90% of service requests come through the mobile application. This digital orientation keeps operating costs low and turnaround times fast.

HomeFirst demonstrates robust capital and liquidity management. The company holds top-tier credit ratings, including a “AAA” rating and an “AA–” from leading rating agencies. Its funding base is well-diversified, with relationships spanning over 35 lenders. Importantly, HomeFirst maintains a positive asset-liability profile with no dependence on short-term commercial paper. As of March 2025, it held a substantial liquidity buffer of approximately ₹2,468 crore. The capital adequacy ratio (CAR) stood at a strong ~39.5%, while the gearing level remained moderate at ~4.2x — comfortably supporting its high-growth trajectory.

HomeFirst also taps government subsidy schemes. The company has started offering loans under the PMAY credit-linked subsidy scheme (CLSS) for low-income buyers, passing on interest subsidies for EWS/LIG homebuyers. (For context, PMAY-U 2.0 provides up to ₹1.8 lakh in subsidy to very low and low-income families buying homes under ₹35 lakh.) HomeFirst has disclosed it disbursed ~₹966 crore of such subsidized loans in FY25 and plans to scale this to 5–10% of its portfolio. In short, HomeFirst is well-aligned with India’s affordable housing push.

Financial Performance and Key Metrics

HomeFirst’s financials have been strong. The company crossed ₹12,712 crore in Assets Under Management (loan book) in FY2025, a 31.1% jump from ₹9,697 crore a year earlier. The company is targeting to reach 20,000 Crore AUM by 2027 with 25-30% AUM growth and 35,000-40,000 crores by 2030. Disbursements (new loans granted) reached ₹4,805 crore in FY2025 (up 21.2% YoY). Growth continues helping AUM surpass the ₹10,000-cr mark.

Profitability is healthy. FY2025 net profit was ₹382.1 crore (25% YoY), yielding a return on equity (ROE) of ~16.5%. The return on assets (RoA) for FY 2025 was about 3.5%. These are strong metrics for a high-growth HFC. Net interest spreads remain wide (around 5.2% in FY2025) and NIM (net interest margin) is roughly 5.8% in FY2024. HomeFirst’s non-interest income (fees, etc.) is small, so nearly all revenue comes from interest. Overheads are tightly controlled: operating expenses are just ~2.7% of average assets (down 20 bps YoY).

Asset quality is sound. Gross NPAs stood at only 1.7% of loans by Mar-25 (in line with peers), and NPA coverage (provisions) is healthy. Delinquencies are low: Q4 FY2025 “30+ DPD” loans were 3.0% of book (nearly stable), and earlier-stage delinquencies were also controlled. Credit costs have been minimal (~30 basis points in Q4 2025), with guidance to stay around 30–40 bps.

Finally, HomeFirst’s balance sheet shows strong capitalization. As of Mar-25, its net worth was ~₹2,521 crore against ₹11,559 crore of loans – a CRAR of nearly 32.8%. Management notes that internal capital can support growth for the next few years. The company also maintains prudent liquidity and a high share of secured funding (term loans, co-lending, NHB refinancing), reducing refinancing risk.

Technology and Risk Management

A hallmark of HomeFirst’s model is aggressive use of technology. Its underwriting team is supported by data science and fintech tools. For example, the Account Aggregator framework (open banking) is widely used: 41% of new approvals in FY2025 came through AA-based income data. Customer acquisition and servicing are digital-first: HomeFirst reports that 95% of customers are registered on its mobile app, and 90% of service requests are handled via the app. Sign-up, KYC, loan agreements and payments can be done electronically (e-agreements, e-NACH) in many cases, accelerating the process.

On risk management, HomeFirst focuses on salaried borrowers with stable incomes and verifies details rigorously. Loans are typically issued at conservative loan-to-value (LTV) ratios (often 50–60%) and small individual sizes, providing collateral headroom. It maintains a lean cost structure with a staff of 1634 (Mar-25) and centralized monitoring of collections. Credit appraisal is detailed: technical/legal teams assess properties, and multiple level checks (KYC, income, references) are standard. The result is a clean portfolio: Stage-3 (NPA) loans at ~1.7% (Mar-25) with ~25% provisions coverage, much better than the 7–8% GNPA industry average. In short, HomeFirst underwrites carefully and keeps costs and losses low.

Importantly, HomeFirst’s focus on the government-subsidized segment ties it to supportive policy. By originating subsidized PMAY-CLSS loans to EWS/LIG home buyers (saving them ~4% interest for 5 years), it both expands demand and gains a modest fee/income boost. Such government push programs effectively create cross-selling opportunities (HomeFirst helps a poor family get a loan with subsidy, then earns interest on it). The company’s website notes that 1.18 crore homes have already been delivered under PMAY, highlighting the scale of this market.

AAVAS and Aptus: How HomeFirst Compares

HomeFirst operates in the same niche as a few other listed HFCs, notably Aavas Financiers and Aptus Value Housing Finance. All three focus on affordable housing loans in smaller towns, so it’s instructive to compare them:

All three have similar-sized loan books (Rs10–20k Cr) and strong growth. HomeFirst’s book (₹12.7k Cr) is smaller than Aavas’s (₹20.4k Cr) but on par with Aptus (₹10.9k Cr). HomeFirst grew the fastest in FY25 (nearly +31%), exceeding Aptus’s +25% (FY25) and Aavas’s +18%. Margins vary: Aptus (with some high-yield portfolio) reports NIM ~12–13%, Aavas ~7.6%, while HomeFirst’s is ~5.2%. Operating efficiency is highest at Aptus (opex/assets ~2.63%) and lowest at Aavas (~3.32%), with HomeFirst in between (~2.9%). All maintain pristine asset quality: HomeFirst’s GNPA ~1.7%, Aavas ~1.08%, Aptus ~1.19%.

The biggest divergence is valuation. At ~₹1,398 per share, HomeFirst trades at about 37.7× P/E and 4.99× P/B. By contrast, Aavas is ~26× / 3.43× and Aptus ~21.8× / 3.8x. In other words, HomeFirst commands a steep premium – roughly 25–50% higher multiples. This reflects its exceptionally high ROE (16.5%+), rapid growth, and tech-enabled model, but also means the stock is richly priced.

Valuation and Long-Term Outlook

Is HomeFirst Finance a good long-term buy at today’s levels (mid-2025)? The fundamentals are certainly compelling: strong double-digit growth, high spreads, rock-solid asset quality and an underpenetrated market tailwind. Its niche – tech-driven loans to first-time buyers – may continue to yield above-average profitability. Management’s execution (fast disbursements, disciplined risk) suggests these metrics can be sustained.

On the other hand, much of this is already priced in. At ~38× P/E, investors are paying up for perfection. Even compared to peers, HomeFirst’s 5× price/book is lofty. Any slowdown in housing demand, rise in credit costs, or misstep in strategy could pull the valuation multiple down sharply. For conservative investors, a full valuation might warrant caution or a phased entry. More aggressive investors may judge that if HomeFirst delivers on its growth plans (say 30% CAGR ahead) and continues to maintain 15%+ ROEs, the rich valuation can be earned out over time.

Industry analysts generally remain positive. For example, Motilal Oswal recently reiterated a “Buy” call with a ₹1,500 target (vs. ~₹1,350 current). Moneycontrol’s community polls show 100% bullish sentiment on HomeFirst. However, it’s important for retail investors to balance the dream against the numbers. The structural story – the aspiration of homeownership – is powerful, but stocks move on realities.

The bottom line: HomeFirst embodies the emotional allure of “home” with the rigour of modern finance. It has built a scalable, tech-led model in a huge underserved market. But at ~38× P/E, expectations are sky-high. Investors must decide if they believe this HFC can continue to outperform peers and justify that premium. In our view, HomeFirst is a quality franchise in a vast growth market, so patient, long-term investors may consider it attractive – provided they accept that some of the upside is already in the price.