India Shelter Finance IPO: 10 must-know points from RHP

The initial public offering (IPO) of India Shelter Finance Corporation will open for subscription today and remain open until December 15. The company aims to raise ₹800 crore (16,227,181 shares) via the issuance of fresh equity shares, whereas existing shareholders and promoters will offload 8,113,590 shares, aggregating to ₹400 crore. The total size of the IPO is ₹1,200 crore.

The price band for the offer has been fixed at ₹469–493 per equity share with a face value of ₹05 each. The quota for retail investors in the India Shelter Finance IPO has been fixed at 35% of the net offer. The QIB quota is fixed at 50%, while the quota for NII is reserved at 15%.

About India Shelter Finance Corporation

India Shelter Finance Corporation is a housing finance company regulated by the National Housing Bank ("NHB"), specialises in providing loans and advances for housing activities. 

The company caters to the housing finance needs of customers, focusing primarily on self-employed individuals. Its target demographic includes first-time home loan applicants in the low and middle-income groups, with a geographical focus on Tier II and Tier III cities in India.

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Extensive distribution network

With over 13 years of operations as a housing finance company, the company's distribution network has grown to 203 branches across 15 states in India as of September 30, 2023. It has a significant presence in the states of Rajasthan, Maharashtra, Madhya Pradesh, Karnataka, and Gujarat, which, as of March 31, 2023, account for 47% of the affordable housing finance market in India.

As of September 30, 2023, it has a branch vintage ranging from five to eight years in 12 states. It has a presence in states that cover 94% of the affordable housing finance market in India as of March 31, 2023, according to the company's RHP.

90% portfolio anchored in Tier 2 and Tier 3 cities

The company has strategically expanded its footprint throughout India, adopting a penetrative approach to reach regions with robust economic growth and a significant demand for affordable housing finance.

With a focused commitment to serving low- and middle-income groups, the company has concentrated 89.8% of its portfolio in Tier II and Tier III cities as of September 30, 2023, as per the RHP report. 

As of September 30, 2023, 70.7% of its customers are first-time home loan takers. Additionally, home loans contribute to 57.6% of its assets under management (AUM), while loans against property represent the remaining 42.4% of AUM, RHP showed. 

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Purpose of the capital raise

To meet future capital requirements towards onward lending and general corporate purposes. Additionally, the company anticipates leveraging the benefits of listing equity shares on stock exchanges, enhancing brand visibility among existing and potential customers, and establishing a public market for equity shares in India.

Book-running lead managers

The book-running lead managers of the India Shelter Finance IPO are ICICI Securities Limited, Citigroup Global Markets India Private Limited, Kotak Mahindra Capital Company Limited, and Ambit Private Limited. The registrar of the offering is Kfin Technologies Limited.

Opportunity for financiers well established in the Affordable Housing segment

Housing is regarded as the engine of economic growth and can give a big push to the economy through its forward and backward linkages with more than 250 ancillary industries. The sector has strong inter-industry linkages, and investments in housing can have multiplier effects on the generation of income and employment in the country.

Recognising the importance of housing as a basic human need, the government has announced multiple schemes to continue their focus on housing in the country.

Despite the constant focus on the housing segment, housing in India is far from adequate. The shortage of housing in India has been a perpetual problem, deterring the economic growth of the country.

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The majority of the household shortage is for the lower income group (LIG) and the economically weaker section (EWS), with a small proportion of the shortage (5-7%) coming from the middle-income group or above. This will create a strategic opportunity for the company, leveraging its robust foothold in the affordable housing finance market.

Rural potential

As of March 31, 2023, rural areas, contributing 47% to the GDP, received a mere 8% of the total banking credit, highlighting a significant untapped market for banks and NBFCs.

According to CRISIL, the government's growing emphasis on financial inclusion, rising financial literacy, and the expanding reach of smartphones and the internet are poised to boost credit services in rural regions.

The incorporation of alternative data for customer underwriting will further enable financiers to assess and cater to the informal segments of society in these areas.

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Key risks

The following are some of the key risks outlined by the company in its RHP report:

Capital dependency: The company relies significantly on substantial capital for its business and operations. Disruptions in its financing sources may adversely impact its business, financial condition, and operational results.

Regulatory impact: The Indian housing finance industry is subject to extensive regulations. Any changes in laws and regulations pertaining to housing finance companies have the potential to negatively affect the company's business operations.

Interest rate volatility: The company's business is sensitive to fluctuations in interest rates, impacting both lending and treasury operations. Such volatility can lead to variations in net interest income, potentially affecting overall profitability.

Brokerage views

“India Shelter Finance Corporation is a growing affordable housing finance company with a retail-focused portfolio. It has an extensive and diversified distribution network and a strong risk management system. It is a technology-driven company with a scalable operating model. The financial performance of the company has also been stable,” said domestic brokerage firm Swastika Investmart.

The company's P/BV of 3.48x and P/E of 27.7x reflect a fair valuation that aligns with its growth prospects and risk profile. Consequently, based on its solid fundamentals, attractive valuation, and long-term growth potential, the brokerage recommends a 'Subscribe' rating for the IPO.

Growth drivers of the industry

PMAY-U initiative: Addressing the housing sector's supply-demand gap, PMAY-U offers incentives for beneficiary-led housing and encourages public-private partnerships. By providing incentives such as an increased floor space index and grants for slum redevelopment, the scheme aims to bolster housing for economically weaker sections and low-income groups. Additionally, on the demand side, PMAY offers credit-linked subsidies to stimulate housing demand.

ECB guidelines relaxation: The easing of external commercial borrowing (ECB) guidelines facilitates easier access to overseas funds, injecting vitality into the housing sector.

EPF corpus withdrawal: With the provision to withdraw 90% of the Employees' Provident Fund (EPF) corpus, prospective homebuyers gain the financial flexibility to cover down payments and meet their home loan EMIs.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.