As you said it is losing market share, do you think it’s due to Lending becoming popular and new players entry?
Reliance with no business in lending entered via Jio Financial
Pidilite which is an Adhesive company also recently announced to setup a lending business.
I see this business as highly competitive and only players with well established disbursement network like Bajaj Finance and Jio Financial can survive in case of any headwinds.
Growth points:
GOI new 60K Crore housing scheme
Realty sector showing growth, Rural housing to follow through
Quite beaten down and ignored in term’s of stock price, since majority is focused on Hot sectors like Railway, NBFC, Renewable Power. This would correct sooner or later.
My thought process is that the kind of lending they’re doing is in either less salaried or self employed so they can’t go aggressive or they risk higher NPA.
On a side note, point me if I’m wrong, technically the stock may be forming a cup and handle pattern. The handle’s base is forming.
Cup and Handle. Maybe. All financials and NBFCs are out of favour due to RBI warnings on unsecured loans. AAVAS assets are mostly mortgage based loans. Hopefully when the industry turns, it catches some bids
I was relooking at my thesis in light of the market correction, and I am not very concerned.
My expectation: 2X every 3-5 years
Can they pull it off? My guess is yes. Guidance and delivery have been spot on at about 20-25% growth which meets my objective. They have displayed a rare combination of being patient (ex: with MSME products) and nimble (providing loans to returning customers at lower interest rates)
My concerns: The broader market is very attractive, with a YoY growth of 21% (wow!). However, I am concerned about the segment/proposition that Aavas caters to - ‘banking for the unbanked’. A few open questions (1) * What % of HFC market is represented by the unbanked? (2). Is (1) increasing or decreasing? While for Aavas, I hope it is increasing, but the Government’s objective is the exact opposite. Unless Aavas has a strong moat - execution, loyalty, low opex, risk models, they will be run over by the big banks.
I won’t be surprised if, in a few quarters, they operate like any other HFC, which may mean lower margins for high-quality customers.
Next steps: Convinced on the macro story. Have to build conviction from a customer’s POV which is a little difficult given that Aavas primarily operates in Tier-2 cities (If anyone has advice here, I will owe you one!)
If you listen in to the latest concall Q2 fy24 results, the question on growth for this year was asked.
Mr. Bhinder the current ceo was evasive on his answer and asked everyone to expect the recently achieved growth rate till the new Salesforce system and the Oracle fusion and LMS stabilises at least for the next two quarters.
Last quarter q on q growth was weak on revenue, yoy was 18percent. Pat growth was fine.
So I expect that this financial year 20-25 percent will not be met. It will be lower.
Jan. Feb March this year their guidance was that q1 will be slow because of new tech and then they are back on track.
After the exit of mr. Sushil, there has been a lot of negative sentiment on the stock.
Other home finance companies like aptus and home first have grown significantly faster.
I like aavas, but they have not earned the confidence back yet. Maybe they are under promising.
Aavas will do well in the long term but with other hfcs doing really well it is difficult to be patient.
All fair points. I am not sure about the relative underperformance of Aavas - unwilling to compromise on risk (positive) or execution issues (negative). Blaming tech issues for the recent growth makes me uncomfortable <tech change should not come at the cost of tens of crores and losing market share, they could have just run a pilot to stabilise the system before 100% rollout>
I would prefer a company that is willing to sacrifice revenue to limit risk, which is what Aavas seems to be doing. But I agree with you that there are so many good options in the sector, albeit at a higher valuation?
I think aavas is in radar from Marcelleus for possible dump for same disbursement slowness. Another quarter fumble will get them kicked out of the PMS entirely
Marcellus has decreased their position size in aavas to 4 percent (??) from a higher number.
Aavas will probably fix the new tech and grow as per their goal of 20 percent.
The other reason for slower growth was attrition at lower levels( don’t know where I heard it) of the organisation. Apparently someone checked many branches and they were trainings everyday on the new system
The promoters are private equity firms and they need an exit sooner or later so growth will come back eventually.
The question is how soon is eventually.
OND Quarter? JfM quarter ? In a market that is bidding up anything related to real estate aavas has trended down.
The PE firms will want to do this quickly so growth may come sooner than expected for their exit.
The overhang on the price will also come due to supply from the pe firms itself.
In today’s market large promoter blocks are getting sold with no impact on price or sentiment
This window of opportunity will not last long.
Valuation wise at 3-3.5 times book it’s not cheap. The only solution is SUSTAINABLE growth. That will take two quarters of solid performance for the market to start believing them again.
Is this a head and shoulder pattern forming in the weekly chart and even the growth isn’t in the same pace with its peers. So can we see a small correction from here?. Or is it the right entry point start accumlating in this?
It does look like a head and shoulder pattern, but the reversal will be confirmed only when the neckline that you have pointed out is materially breached. If it does, it should make for a great buying opportunity
Disc: Invested at ~1600 levels. Looking to add more.
Huge block deal today (1400 Cr odd) as promoters Kedaara capital sold off ~12% of the company with SBI MF and Amansa Holdings picking up almost the entire stake. Stock price fell 5%.
Not very experienced in the market so unsure how to read this. Typically, promoters selling is a red flag but these aren’t really the typical family promoters and the buyers are big houses so it’s sort of like 1 institution selling it to another.
Should this be read as a sign to offload the stock or does it not change much? Advice appreciated, thanks.
Disc - Don’t hold it personally but have it in a family member’s portfolio.
Kedaara has been invested for many years and they need to give their investors an exit. So their selling was due anyway.
Kedaara and promoters group have always said they will sell in a planned way and are committed but their fund will need to return money so they will have to sell at somepoint in time even if they don’t get the price they like.
That said SBI MF and Amansa are strong hands and this could possibly see a positive change in the sentiment.
The company itself has been hiding their below industry growth rates behind a tech platform rollout that is delayed by a few quarters. They expect to complete it by q4. It could get delayed for a quarter or more easily.
Disc:invested at different levels and tracking. No transactions in last 30 days
