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True North to part-exit as housing lender HFFC files for IPO
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True North-backed Home First Finance Company India Ltd (HFFC) has filed its draft prospectus with the Securities and Exchange Board of India (SEBI) for a Rs 1,500 crore initial public offering (IPO).

The public offering comprises the fresh sale of shares worth Rs 400 crore ($ 76 million at current exchange rate) besides a secondary market sale of shares worth Rs 1,100 crore by True North, Bessemer India along with individual shareholders.

As part of the offer for sale, True North is looking to sell shares worth Rs 830.6, and Rs 176.4 crore shares by Bessemer India Capital Holdings II, Rs 56 crore shares by PS Jayakumar, Rs 35.9 crore shares by Manoj Viswanathan and Rs 1.1 crore shares by Bhaskar Chaudhry.

The company is also considering a pre-IPO placement of up to Rs 160 crore. If the pre-IPO placement is undertaken, the amount will be reduced from the fresh issue.

Investors and valuation

US-based Bessemer Venture Partners became HFFC’s first institutional investor in 2010. Tata Capital Growth Fund came in as a PE investor three years later.

In 2017, Tata Capital secured an exit when True North bet Rs 652 crore ($100 million then) to buy a 71.5% stake in HFFC, valuing it at Rs 912 crore.

True North valued HFFC at over 100 times its net profit for 2016-17 and 36 times its net earnings for 2017-18. Overall, HFFC’s valuation increased by more than tenfold between 2010 and 2017.

Currently, True North owns about 76.6% in the company. Bessemer owns about 16.2% and the rest is owned by individual shareholders.

Through the OFS, True North is expected to take its principal out. According to the prospectus, the investment from True North came in multiple tranches.

In 2016-17, True North invested about Rs 150 crore, followed by Rs 150 crore in 2018-19 and another Rs 249.5 crore in the same fiscal year.

Based on the last allotment price, the company is valued at Rs 8,400 crore as of October 2019.

The company intends to utilise the net proceeds from the fresh issue for augmenting its capital base to meet requirements arising out of the growth of business and assets.

The book running lead managers to the issue are Axis Capital, Credit Suisse Securities (India), ICICI Securities and Kotak Mahindra Capital Company.

The company demonstrated its ability to scale up its business while maintaining a good asset quality (gross NPA of 0.86% as on June 30, 2019, and 0.65% as on March 31, 2019), according to an ICRA August 2019 rating.

However, it noted a caution with a high proportion of loans originated through builder tie-ups where risks are associated with the completion/delivery of the project.

It also noted the geographical concentration of the company’s loan portfolio with Maharashtra and Gujarat accounting for 69% of the assets under management (AUM) as on March 31, 2019.

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