There has been a whole lot of doubt around the company because of change in management. That’s why the stock has been consolidating for a long time. But this quarter has turned out to be excellent. Hope it continues the moment.
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So since they own a combined 26.47 percent stake, selling this stake would necessitate an open offer to acquire another 26 percent from public shareholders. Was reading up on this SEBI rule and this is done to ensure that public shareholders have a fair opportunity to exit the company during substantial ownership changes, protecting the interests of minority shareholders. So if this goes through, will the new entity do a buy back? Does anyone know how this works and what is the potential impact during such scenarios?
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Hi All , Any one having the idea for Q1 2025 , Business update.
In the latest Credit rating by ICRA, they mentioned the following
Going forward, the NIMs are likely to be under some pressure on account of the higher gearing.
Can someone please explain why NIMs is related to gearing?
From my understanding, gearing is the debt that the company can take, which implies that they can take more debt (according to the statement), which means that either the ROA reduces or they can give out more loans as they’ve more leverage.
How does NIMs come into the picture? Is it because of the ROI at which the new gearing have been given to the company?
Thanks
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If the interest expenses on borrowed funds is high, it might compress the NIM if the increase in interest income is not proportionate to the increase in interest expense. So need to understand where the new funds are going to be deployed into. If it is for high-yielding loans, NIMs can improve also.
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Its simple, whenever leverage increases, NIM will decrease, even if yield, cost of funds, spread remains constant.
Its because when leverage is low majority of source of fund is equity component for which there is no interest payment, but as and when leverage increase, % of equity component in source of funds decreases and % of borrowed money increases which increase the interest paid which automatically decreases NIM. Same happens in RoA also. Its just mathematics, nothing to do with business ability or inablity, high yield or low yield, high or low cost of borrowing.
Now when a company is raising money at 9% when leverage is 2, then in most case very same company will raise money at few basis point higher, say 9.2%, when leverage is 3. When you add this to above calculation NIM will further contract
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Results:
Results don’t look great but if someone can review and provide their insights as well. Asset quality definitely deteriorated and NIMs also shrunk QoQ (from 7.9% to 7.3%). Also, assuming that the rate cuts will happen soon, in the medium term, is Aavas likely to face headwinds? I remember reading on this forum that companies like Aavas and Baja Finance are best bought when interest rates go up since they tend to outperform peers when the going gets tough.
I think this might be the reason for the reduction in nims.
I was looking at their previous results. I saw that the Q4 is stronger than Q1 atleast for the past 3 years on screener.
Also, elections and code of conduct might have affected them.
I think more clarity will come with the concal.
Link to Concall
Q1FY25 Concall Summary
Business Updates
- The AUM was up by 22% yoy and this aligns with the company’s guidance of 20-25% yoy
- In terms of liability the company continues to maintain a diverse mix and have started exploring co lending
- The borrowing rates have peaked out and incremental borrowing costs went up by 17 bps yoy
- 30 million additional houses will be included in the PM Aawas scheme which was announced in the recent budget
- The overall borrowing costs went up by 1 bps qoq during the quarter
Participants
Equirus
Elara Capital
Ambit Capital
B&K Securities
Philip Capital
Citigroup
Oxbow
Dolat Capital
MSA Capital Partners
QnA
- The growth was lower because disbursements were lower than sanctions
- The sanctions to disbursements ratio will pick up to the earlier ratio of around 87% in the next few quarters which will lead to disbursements picking up
- A lot of borrowings is linked to repo rates so as the rates start to come down it will also have a downward impact on cost of borrowings
- The guidance will remain at the earlier stated target of 20-25% on the AUM going forward as well
- There is a one time setoff and the ESOP cost has gotten reversed which led to the decline in employee costs
- In last few years the company has gone through a technology transformation through both Salesforce and then Oracle changing the whole experience for the company and customer
- The company has upgraded and changed some peripheral softwares as well and this will lead to a total capitalization of around Rs 45 crores and this will benefit over the next decade
- This is the final year of capitalization and combined amount over 2 years is Rs 45-50 crores
- There is no change in the way NIM is being reported and in Q1 the reason why NIM is lower is because of muted assignment income and higher incremental cost of borrowings and a consequent fall in spreads
- The company has never had the objective of building a loan book based on subsidy scheme announcements by the government and idea will be to go for the same customer profile of those building homes for self usage
- The clear focus remains on self construction in Tier 3-5 towns and the growth projections are not based on any subsidy scheme
- The four main states are Rajasthan, Gujarat, Madhya Pradesh and Maharashtra and of the 371 branches there are 108 branches in Rajasthan
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seems to be good going for the company
I’ve a question related to the fixed vs floating book. Since their borrowing book also follows similar percentage of distribution, can we say post rate cuts, they won’t be getting a lot of benefit of the fixed loan book?
Also, can someone shed some light on the equity part of the borrowing. Is it like loan against pledged shares?
Adding some more points which may have been missed in the concall summary.
- Four new branches were opened in Q1 FY '25 in existing states to expand reach.
- Loan management system and Oracle FLEXCUBE implementation is in advanced testing stage and will go live in coming quarter
- Mention of co-lending being explored and tie up with a PSU bank for the same
- The Credit Linked Subsidy Scheme (CLSS) under the PMAY has positively influenced their growth and loan quality by making homes more affordable for borrowers. They’re waiting for more fine prints to come out and then may talk more about any guidance related to PMAY.
- Bank money is borrowed in this quarter at 8.40% which was 10% cheaper last quarter.
- The company expects its AUM to grow by 20% to 25%, driven by more branch count increase and less workforce increase (in comparison) over a period of time. Efficiency lead growth.
- Part of less disbursal was due to RBI circular which required more formalities from the customers.
I hope I’ve not made any mistakes in interpreting any point. Feel free to correct me. Also, @karu_lamborghi_ did a good job in covering most of the points.
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Open Offer by Aquilo House Pte Ltd and PAC to public share holders of Aavas Financiers Ltd to buy 20.739 Mn shares @ Rs 1766.69 (7.3% premium over Friday closing price).
Detailed offer will be announced on Aug 19, 2024.
B47AA04C-B965-4CD6-BCB9-C5C42F181D3A-221501.pdf (bseindia.com)
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The entire open offer process will end up taking 2 months from now. Does the share have a ceiling of ₹1766 until then?
Don’t have any idea as to why anybody will wait for the open offer. Just noticed that the the present market price has already exceeded the offer price. At this rate a revision in offer price is inevitable
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