About the company
Summary: Aadhar Housing Finance Ltd. (AHFL) has a history involving mergers and acquisitions, ultimately becoming a leading player in the affordable housing finance sector in India. It focuses on providing home loans to the economically weaker and low-to-middle-income groups, particularly in underpenetrated states. Key milestones include significant AUM growth, branch expansion, and a recent successful IPO. The company operates with a diversified business model, emphasizing a strong branch network and increasingly, a digital presence.
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History and Inception:
- The company’s origins trace back to Vysya Bank Housing Finance Ltd. (VBHFL), incorporated in 1990.
- VBHFL was taken over by Dewan Housing Finance Corporation Limited in 2003 and renamed DHFL Vysya Housing Finance Ltd (DVHFL).
- The erstwhile Aadhar Housing Finance Ltd was established in 2010 and commenced operations in February 2011.
- Aadhar Housing Finance Ltd merged into DVHFL on November 20, 2017, and the combined entity was renamed Aadhar Housing Finance Limited on December 4, 2017.
- In June 2019, an affiliate of Blackstone, BCP Topco, acquired a 98.7% stake in the company.
- The company launched its IPO in May 2024, including a fresh issue and an offer for sale, which was oversubscribed 27 times. The shares were listed on NSE and BSE on May 15, 2024.
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Key Milestones:
- Opened its 100th branch and reached a customer base of 49,000 in FY17.
- Merged with DHFL Vysya Housing in FY18.
- AUM crossed INR 100 billion in FY19.
- Customer base crossed 0.15 million, and the company was acquired by Blackstone in FY20.
- Customer base crossed 0.2 million, reaching ~INR 148 billion AUM in FY22.
- Branch network crossed 520, reaching ~INR 211 billion AUM in FY24.
- Successful IPO in May 2024, raising INR 30,000 million.
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Key Business Segments:
- Primarily focused on providing affordable housing finance.
- Offers retail home loans, which comprised 75% of the AUM as of June 2024.
- Provides Loans Against Property (LAP), accounting for the balance of the AUM.
- Targets the economically weaker and low-to-middle-income groups (EWS/LIG).
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Operating Model:
- Focuses on underpenetrated states in northern and eastern India initially.
- Emphasizes diversification across states, with Maharashtra accounting for only 14% of AUM as of March 2024.
- Maintains an extensive distribution network with 536 branches across 21 states and union territories as of June 2024.
- Increasingly focusing on improving digital presence to expand operations with lower incremental costs.
- Strategic approach to branch expansion, categorizing branches to ensure high efficiency.
- Offers small ticket sizes of an Average Ticket Size (ATS) of INR 1 million.
- Borrowing book is diversified across banks, NHB, and NCDs.
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Key Management Personnel:
- Board of Directors includes Independent Directors (including a Non-Executive Chairman and women directors), Non-Executive (Nominee) Directors, and the Managing Director and Chief Executive Officer. As of August 7, 2024, Dr. Punita Kumar Sinha was appointed as an Independent Director.
- The Management team is led by the Managing Director and Chief Executive Officer, who reports to the Board. Mr. Rishi Anand holds this position.
- The company has a full-time Chief Risk Officer who leads the risk management framework.
- Ms. Harshada Pathak is the Company Secretary and Compliance Officer.
- Mr. Rajesh Viswanathan is the Chief Financial Officer.
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Partnerships and Collaborations:
- Resorts to refinancing from the National Housing Bank (NHB).
- Engages in direct assignment and co-lending to banks and financial institutions to optimize borrowing costs, funding, liquidity, and capital management.
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Business Details:
- Provides housing finance to the lower income segment of society.
- Operates in 21 states and union territories of India.
- Has a network of over 534 branches.
- As of June 2024, the company had an AUM of INR 217 billion, making it the largest among listed peers focusing on the low-income housing segment.
- The company’s book is 100% secured retail, with a mix of salaried (57%) and self-employed (43%) customers as of June 2024.
Strengths of the company
Summary: Aadhar Housing Finance is well-positioned to capitalize on the significant opportunities in the Indian affordable housing finance sector due to its focus on underpenetrated markets, diversified geographical presence, strong growth and profitability metrics, and efficient operating strategies. The company’s proactive approach to technology adoption and risk management further strengthens its competitive edge for future growth.
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Sectoral Opportunities:
- Low credit penetration in India compared to other developing countries presents a significant growth potential.
- Retail credit as a proportion of GDP is also relatively low in India, indicating room for expansion.
- Rising financial awareness and the government’s continuous efforts for financial inclusion are expected to drive credit penetration.
- Government initiatives like the Pradhan Mantri Awas Yojana (PMAY) provide industry-related tailwinds.
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Competitive Positioning:
- Largest and most profitable Affordable Housing Finance Company (AHFC) among peers.
- Pioneering affordable housing space as a category creator with a distinct business-scaling strategy.
- Demonstrates strong execution credentials.
- Maintains one of the highest assets yield/spread among peers.
- Has a diversified book with no single state constituting more than 15% of AUM, reducing micro-market risk.
- Deeper presence in underpenetrated markets provides a competitive advantage and higher pricing power.
- Focus on the relatively high-yield EWS/LIG segment (70% of AUM).
- Increasing share of informal customers in the AUM mix, offering potentially higher yields.
- Delivered strong profit growth of 34.3% CAGR over the last 5 years.
- Demonstrated strong growth and profitability over the past fiscals with pristine asset quality.
- RoA almost doubled to 4.2% in FY24 from 2.6% in FY21.
- Delivered a strong ROE of 18.4% in FY24.
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Specific Business Decisions and New Initiatives:
- Constantly expanding its distribution network across the nation.
- Improving its digital presence to expand operations efficiently.
- Strategic branch categorization (main, small, micro, ultra-micro) for maximized returns.
- Focus on improving asset quality by enhancing risk analytics for credit underwriting and collections.
- Increasing operational efficiencies by integrating business processes with data science.
- Automating solutions for risk-based pricing to improve approval rates and emphasize customer retention.
- Awarded for technology orientation initiatives like Aadhar MobileX.
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Future Outlook (Next 3 to 5 Years):
- Expects to continue generating strong Year-on-Asset (YoA) growth.
- Anticipates maintaining a Net Interest Margin (NIM) on average AUM of >6.5%.
- Core PPOP/AA is expected to reach 5.0%.
- RoA is projected to reach ~4.5%.
- AUM is expected to deliver a CAGR of 21.5% over FY24-26E.
- PAT is expected to deliver a CAGR of 23% over FY24-26E.
- Average RoE is projected to be around 17.3%.
Product Segments
Summary: Aadhar Housing Finance primarily operates in the affordable housing loan segment, offering home loans and loans against property with a focus on smaller ticket sizes. The company has a significant retail presence across numerous states in India, utilizing an extensive branch network for distribution and also leveraging partnerships for refinancing and loan assignments.
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Detailed Breakdown:
- Home Loans: The primary product, constituting the majority of the AUM. These are offered to individuals in the EWS/LIG segment for the purchase, construction, repair, and renovation of residential properties.
- Loans Against Property (LAP): Offered as a secured loan product, making up the remaining portion of the AUM.
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Operating Locations:
- Present in 21 states and union territories across India.
- Initially focused on low-penetrated states in northern and eastern India.
- Has a geographically diversified presence.
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Key Product Lines:
- Focuses on small ticket loans, with an average ticket size of INR 1 million as of June 2024.
- Offers 100% secured retail books.
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Retail Presence:
- Extensive branch network of over 534 branches as of March 2024, increasing to 536 branches by June 2024.
- Presence in a significant number of districts within its operating states.
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Distribution:
- Primarily through its branch network and sales offices.
- Increasing focus on digital channels for expanding reach and improving efficiency.
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Partnerships and Collaborations:
- Refinancing facilities from the National Housing Bank (NHB) to manage funding costs and liquidity.
- Engages in direct assignment and co-lending arrangements with banks and financial institutions for optimizing capital and liquidity.
Financials
Summary: Aadhar Housing Finance has demonstrated strong financial performance over the past year, with consistent revenue and profit growth across quarters. The company maintains healthy financing margins and improving asset quality. Recent quarterly results show continued positive trends, and investor presentations highlight a positive outlook with growth projections.
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Latest Financial Numbers (from Screener.in):
- Market Cap: ₹ 20,937 Cr.
- Current Price: ₹ 485.
- High / Low (52 weeks): ₹ 517 / ₹ 292.
- Stock P/E: 24.1.
- Book Value: ₹ 136.
- Dividend Yield: 0.00 %.
- ROCE: 11.4 %.
- ROE: 18.4 %.
- Face Value: ₹ 10.0.
- Revenue (Mar 2024): ₹ 692 Cr; (Jun 2024): ₹ 713 Cr; (Sep 2024): ₹ 764 Cr; (Dec 2024): ₹ 798 Cr.
- Interest (Mar 2024): ₹ 262 Cr; (Jun 2024): ₹ 277 Cr; (Sep 2024): ₹ 285 Cr; (Dec 2024): ₹ 297 Cr.
- Financing Profit (Mar 2024): ₹ 264 Cr; (Jun 2024): ₹ 263 Cr; (Sep 2024): ₹ 299 Cr; (Dec 2024): ₹ 314 Cr.
- Financing Margin % (Mar 2024): 38%; (Jun 2024): 37%; (Sep 2024): 39%; (Dec 2024): 39%.
- Profit before tax (Mar 2024): ₹ 259 Cr; (Jun 2024): ₹ 257 Cr; (Sep 2024): ₹ 292 Cr; (Dec 2024): ₹ 308 Cr.
- Profit after tax (Mar 2024): ₹ 202 Cr; (Jun 2024): ₹ 200 Cr; (Sep 2024): ₹ 228 Cr; (Dec 2024): ₹ 239 Cr.
- EPS in Rs (Mar 2024): 5.11; (Jun 2024): 4.69; (Sep 2024): 5.29; (Dec 2024): 5.56.
- Gross NPA % (Mar 2024): 1.31%; (Jun 2024): 1.30%; (Sep 2024): 1.36%; (Dec 2024): - (Note: December 2024 data is not fully available in the provided excerpt).
- Net NPA % (Mar 2024): 0.90%; (Jun 2024): 0.90%; (Sep 2024): 0.95%; (Dec 2024): - (Note: December 2024 data is not fully available in the provided excerpt).
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Summary of Company’s Performance in the Last 1 Year:
- Consistent revenue growth is observed across the quarters from March 2023 to December 2024.
- The company has delivered good profit growth of 34.3% CAGR over the last 5 years.
- Financing profit has shown a positive trend, particularly in the later quarters.
- Financing margin % has remained relatively stable, indicating efficient management of interest income and expenses.
- Asset quality, as indicated by Gross and Net NPA percentages, has been generally stable, with some fluctuations across quarters. The Gross NPA stood at 1.1% and Net NPA at 0.7% as of March 31, 2024.
- The company reported a strong ROA of 4.2% in FY24 compared to 3.6% in FY23.
- The company achieved a strong ROE of 18.4% in FY24 compared to 16.5% in FY23.
- EPS has shown growth over the last year, reflecting the increasing profitability.
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Key Observations from Investor Presentation Q3F25 and Conference Call Transcript:
- Financial Performance:
- AUM reached approximately ₹24,000 crores, reflecting a 21% year-on-year growth.
- Disbursements for Q3 FY '25 stood at ₹2,094 crores, marking a significant 20% growth year-on-year.
- GNPA decreased by 4 bps to 1.36%, with stable collection efficiency maintained
- Average ticket size remains at ₹10 lakhs, with a loan-to-value ratio of 59%.
- Retail secured loans make up 100% of the loan book, with no exposure to corporate or developer loans.
- Branch Expansion: Opened 12 branches in Q3 FY '25, totaling 34 branches. Total of 140+ deeper impact branches across 545 districts and 21 states
- Digital Strategy: 00% of onboarding now paperless.
- Investments in IT and data analytics, Integrated technology platform developed by TCS, enabling scalability and flexibility with fintech offerings.
- Fee income impacted by one-off processing and admin fees; expected to stabilize at around 2% to 2.1% on a sustainable basis.
- Portfolio yield for the quarter at 13.9%, with exit spreads expected to be around 5.7%.
- Incremental cost of funds for Q3 FY '25 at 8.28%.
- Employee Metrics: On-roll employee count stands at 4,450. Projected growth in employee costs expected to be in the range of 17% to 18%.
- Financial Performance:
Key Investment Thesis
Summary: Aadhar Housing Finance presents a compelling investment opportunity due to its leadership position in the high-growth affordable housing finance sector, strategic focus on underpenetrated markets ensuring strong yield and growth, consistent profitability, and improving asset quality. The company’s recent IPO has further strengthened its capital base, and its ability to deliver returns exceeding its cost of equity makes its valuation attractive.
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Leadership in a High-Growth Sector:
- Aadhar Housing Finance operates in the affordable housing segment, which has significant growth potential in India due to low penetration and government support.
- It is the largest among listed peers focusing on this segment.
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Strategic Focus and Strong Growth Potential:
- Its focus on underpenetrated markets provides higher pricing power and reduces competition.
- The company has demonstrated a strong track record of AUM and PAT growth.
- Analysts expect a healthy AUM CAGR of over 20% in the coming years.
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Consistent Profitability and Improving Efficiency:
- The company has shown consistent improvement in RoA and RoE, indicating enhanced profitability and efficiency.
- Expects to maintain a healthy NIM due to its ability to deliver higher yields and effective asset-liability management.
- Focus on cost-efficient expansion is expected to boost productivity.
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Healthy Asset Quality:
- Has maintained contained Gross and Net NPA levels, reflecting a resilient business model and prudent lending practices.
- Credit costs are expected to remain contained due to stable asset quality.
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Attractive Valuation:
- Analysts believe the current valuation, such as the forward Price-to-Book Value, looks attractive given the company’s growth prospects and return profile.
- The ability to generate an excess return over the cost of equity further supports the investment thesis.
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Post-IPO Strength:
- The successful IPO has infused fresh capital, strengthening the balance sheet and providing resources for future growth.
Key Risks to the Thesis
Summary: Investing in Aadhar Housing Finance carries certain risks that investors should consider. These include challenges related to interest rate fluctuations, potential increases in credit risk, regulatory changes impacting the housing finance sector, competition, and broader macroeconomic factors. Additionally, certain company-specific factors like the absence of dividend payouts and a low-interest coverage ratio warrant attention.
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Interest Rate Risk:
- Fluctuations in interest rates can impact the company’s Net Interest Margin (NIM) and profitability.
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Credit Risk:
- Being in the lending business, particularly to the EWS/LIG segment and informal customers, exposes the company to potential increases in Non-Performing Assets (NPAs).
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Regulatory Changes:
- Changes in regulations governing Housing Finance Companies (HFCs) by the RBI and NHB could affect the company’s operations and financial performance.
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Competition:
- The affordable housing finance sector is competitive, with the presence of other HFCs and banks. Increased competition could put pressure on margins and growth.
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Macroeconomic Factors:
- Economic downturns, inflation, and unemployment can impact borrowers’ ability to repay loans, leading to higher NPAs.
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Stock Trading Above Book Value:
- The stock is trading at 3.56 times its book value, which might indicate a higher valuation compared to its assets.
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No Dividend Payout:
- Though the company is reporting repeated profits, it is not paying out dividends, which might be a concern for investors seeking regular income. However, FY25E and FY26E projections from one analyst report suggest potential dividend per share (DPS).
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Low Interest Coverage Ratio:
- The company has a low-interest coverage ratio, which could indicate a lower buffer in meeting its interest obligations from its earnings.
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Potential Capitalizing of Interest Cost:
- There is a concern that the company might be capitalizing the interest cost, which could potentially inflate current profits.
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Risks Related to Forward-Looking Statements:
- The Management Discussion and Analysis and analyst reports contain forward-looking statements that are subject to various risks and uncertainties, and actual results may differ materially.
Disc: Invested from lower levels. Not a Buy/Sell recommendation. Investors should carefully evaluate these risks and consider them alongside the potential growth drivers before making any investment decisions.