Home First Finance Q1 growth supports stable margins and lower credit-cost outlook

Investment View and Valuation

In its July 28, 2026 Q1 FY27 result update, PL Research upgraded Home First Finance Company India to BUY from ACCUMULATE and raised its target price to Rs 1,385 from Rs 1,325. The positive view is based on healthy loan-book growth, a stable margin outlook and an expected benign credit-cost environment.

PL raised its FY27E and FY28E estimates as follows:

PL’s target price is based on an increased valuation multiple of 2.6 times, compared with the prior target of Rs 1,325. The report shows FY27E P/ABV of 2.6 times.

Strong Q1 FY27 Operating Performance

Home First Finance reported a strong Q1 FY27 operating performance. Disbursements rose 31.0 per cent year on year and 3.6 per cent quarter on quarter to Rs 1,628.4 crore, while AUM increased 25.7 per cent year on year and 6.7 per cent sequentially to Rs 16,937.9 crore. About half of disbursement growth came from volumes and half from higher average ticket sizes.

Housing loans accounted for 83 per cent of AUM, loans against property for 16 per cent and shop loans for 1 per cent. The salaried and non-salaried customer mix remained 68:32.

Q1 FY27 NII of Rs 253.5 crore, PPoP of Rs 223.5 crore and PAT of Rs 159.9 crore were 4.4 per cent, 5.4 per cent and 4.9 per cent above PL’s estimates, respectively. PAT rose 34.5 per cent year on year.

Growth Outlook and Co-Lending

Management has guided for around 25 per cent AUM growth in FY27. Growth is expected to be supported by expansion in Uttar Pradesh, Tamil Nadu, Andhra Pradesh and Telangana; sustained traction in Rajasthan and the southern states; co-lending scale-up; and technology and AI investments intended to improve turnaround time. PL builds AUM growth of 25 per cent in FY27E and 24 per cent in FY28E.

The co-lending book was approximately 3.6 per cent of AUM. There were process and policy-related hiccups in this portfolio during Q1, although management expects improvement as partner banks align with the revised process.

Margins and Operating Efficiency

Q1 reported yield declined around 10 basis points quarter on quarter to 13.0 per cent after a 10-basis-point PLR cut effective January 2026. Cost of funds improved to 7.8 per cent from 7.9 per cent in Q4 FY26, while reported spreads were broadly stable at 5.2 per cent. Management’s long-term spread guidance is 5.0-5.25 per cent.

PL expects calculated NIM to remain broadly range-bound at about 6.1 per cent in FY27E and FY28E. This reflects the fully floating-rate loan book, which allows funding-cost increases to be passed through, while utilisation of the unutilised NHB drawdown, expected in Q4, should support funding costs.

Management expects operating expenses to assets of 2.6-2.7 per cent in FY27, compared with 2.8 per cent in Q1, aided by productivity improvements.

Asset Quality and Credit Costs

Asset quality remained steady. Q1 FY27 GNPA and NNPA were 1.77 per cent and 1.37 per cent, respectively. The bounce rate increased to 16.3 per cent from 15.9 per cent sequentially, but early July data showed moderation to 15.2 per cent. One-plus DPD and 30-plus DPD were stable at 4.7 per cent and 3.2 per cent.

Credit cost was about 40 basis points in Q1. PL estimates credit cost of 34 basis points for FY27E and 32 basis points for FY28E. Management said tariff-related stress in Tamil Nadu had eased and saw no meaningful impact from geopolitical tensions on collections.

Key Watch Items

• The elevated bounce rate.
• Declining credit-bureau scores among new-to-credit customers.
• Unchanged competitive intensity.
• The planned step-down of CFO Nutan Patwari from executive responsibilities effective August 31, 2026.

FY27E Financial Forecasts