Warburg to Invest US$95M in Indian Housing Finance Company Home First

With Warburg among its marquee investors, Home First plans to go public by Q4 of the current fiscal year

New York-headquartered global private equity (PE) firm Warburg Pincus LLC, through its affiliate Orange Clove Investments BV, has entered into an agreement to invest US$95 million (INR 700 crore) for a 25% stake in affordable housing financier Home First Finance Company India Ltd, Warburg announced in a press statement today.

The fresh investment is a combination of a primary fund raise from Warburg of approximately $10.2 million (INR 75 crore) and secondary sales by existing shareholders, the statement noted. Warburg’s investment in House First comes weeks after CEO Charles Kaye announced plans to invest $1 billion or more in India.

According to an Times of India (TOI) report, all existing shareholders including venture capital firm True North Fund and its subsidiary Aether (Mauritius) Ltd, Bessemer Venture Partners, and former Managing Director (MD) and Chief Executive Officer (CEO) of Bank of Baroda and Home First Co-founder P.S. Jayakumar, have proportionately sold 25% of their stakes in Home First.

Prior to this transaction, True North held 45.97%, while Aether (Mauritius) and Bessemer held 30.65% and 16.28% respectively, the TOI report added.

Founded in 2010, Home First is a technology driven, affordable housing finance company that offers home loans to customers from low and middle income groups who are looking to build or buy their first homes. Home First’s target customers are usually salaried and employed in small firms or self employed.

Commenting on the deal, True North Partner Divya Sehgal said, “We are proud of the way the company has utilized technology to its advantage, adopting a digital first approach in navigating COVID-19. We welcome Warburg Pincus and look forward to partnering with them in the upcoming journey of Home First.”

According to the statement, since its inception, Home First has issued home loans to over 50,000 customers across more than 11 states in India. While the company became profitable in 2014, as of March 31, 2020, Home First has $480 million (INR3,618 crores) in loan assets under management (AUM), with a net worth of $124 million (INR933 crores), and gross non-performing assets amounting to 0.87%, the statement added.

Moreover, TOI reported that the company bagged $10.8 million (INR79.55 crores) in profit after taxes during the last fiscal year ended March 31, 2020, compared to $6.2 million (INR45.72 crores) last year.

“Home First has had a remarkable journey to become a leading affordable housing finance company in a relatively short span of 10 years,” said Warburg Pincus Managing Director Narendra Ostawal. “It is helmed by a very talented team and robust operating processes that continue to steer the company to do well through the pandemic and to leverage the growth potential of the affordable segment.”

According to Ostawal, the housing finance sector in India has seen a stronger recovery compared to other asset classes.

“We concluded that through the pandemic, the asset class that is most resilient is housing. As we have been tracking monthly information across each of asset classes, we could very clearly see, and which is very evident in Home First, that the asset quality improvement is quite material and significant,” Ostawal told Livemint.

While the company had received approval from the Securities and Exchange Board of India for an initial public offering to raise over $200 million (INR1,500 crores) in March this year, it halted its plans in light of the global pandemic.

However, with Warburg joining its list of marquee investors, the lender plans to go public by early next year, although it will look at raising only $136 million (INR1,000 crores) post Warburg’s investment, Livemint reported. An IPO can help lenders like Home First in terms of branding, governance, and credit rating, Sehgal told Livemint.

“We felt if we can onboard a high-quality, long-term investor like Warburg, then it will give significant confidence to the markets. Listing a company with strong long-term anchor shareholders is always a big plus,” she added.

According to a report by credit rating agency ICRA, the COVID-19 pandemic is likely to impact housing finance companies, whose credit growth is expected to be between 9% and 12% in FY21, lower than the last 3 years’ growth rate of 16%.

Ostawal, however, believes that the pandemic is likely to enhance the underlying growth of the housing finance sector in India.

“People living together in larger families will likely consider if there is merit in buying a larger house or more houses, depending on how large the families are. And this trend we will see playing out a lot more in the affordable segment,” he told Livemint.

Home First CEO Manoj Viswanathan said in the statement, “Home First is excited to partner with Warburg Pincus in this new phase of its journey. True North has been a great support as we scaled from a small to a mid-sized company.”

“Our shared passion for tech, belief in sustainable growth and strong governance has seen us thrive through several disruptive events,” he added.

Header image by Nattanan Kanchanaprat from Pixabay

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