Aptus Value Housing : Is valuation justified or just another HFC?

Hello all,
Aptus Value Housing listed recently in the IPO rush and the valuation is not different from many other hot IPOs. But as a method of investing, it is importatnt to understand the business first and then look at valuation in conjecture.
Aptus is a South India focussed HFC/NBFC operating in two segments, housing loans and Small business loans. It was incorporated in 2010 in TN and had since then spread to other parts of South India. It was founded by Mr Anandan, who is a CA and has worked in Murugappa group for 3 decades at leadership levels. Post his retirement he started Aptus. Salute to his entreprenuership at this stage of life. The current branch network and % AUM split is as below:

State No. of branches % AUM
TN 79 50%
AP 69 29%
TEL 29 11%
KAR 21 10%

The company has guided to move into Maharashtra, Orissa and Chhatisgarh market to reduce geographic concentration risk

Total AUM is around 4500 Cr. and recent quarter disburesements were around 420 Cr. Below is the lending profile:

Asset Type Contribution
Housing 54%
Quasi Housing 16%
SBL 22%
Top Up 4%
Insurance Loans 4%

Moreover below are some details of customer profile:

Customer Type Contribution
LIG 73%
Self employed 72%
Rural 65%

In short we can summarize that Aptus lends primarily to underbanked community which has limited documentary evidence of income and credit profile. 93% of loans are below Rs. 10 lacs, which is expected and provides granularity to book.

Below are some key operating parameters:

Yield 17.0%
Cost of borrowing 7.9%
NIM 9.1%
ROA 7.4%
ROE 14.1%
Opex to Asset 2.7%

Considering it lends to high risk individuals the yield is high, but it is low cost of borrowing which is allowing it have NIM of 9%. For reference HDFC has 5.8% as COF(it has >30% of it through low cost deposits) compared to 7.9% for Aptus while the yield is 8.1% for HDFC compared to whopping 17% for Aptus. I understand HDFC is not the right comparison since both lend to very different type of customer but it is more to understand the high yields in comparison to COF. We will do a comparison with Aavas later which is very much in similar space.

Below is the liability mix for Aptus:

Source Contribution
Banks 50%
NHB 29%
IFC/MF 16%
Securitisation 5%

Company enjoys A+ credit rating for long term funds and intends to improve this further to reduce cost of borrowing.
As we see a large part of funding is long tenure funding from banks (SBI,Axis,HDFC etc.) and NHB, it has decent liability franchise. No funding is from short term commercial papers. Management has guided to maintain securitization at <5% which in my opinion is a good sign, people may have differing view, which is absolutely fine.
The company has gearing of just 0.9 which allows it to grow significantly from here without any capital raise, to me this is huge positive.
The company has demonstrated good return ratios and capital efficiency. Below are key figures:

ROA 7.4%
ROE 14.1%
Opex to Asset 2.7%
Cost to Income 24%

The company has brilliant RoA aided by good spreads and low credit cost. The opex to asset ratio is also good for the nature of business. As a reference HDFC has opex/asset of 0.21 and cost to income of 8% which is quite understanble since the average ticket size is 3X of Aptus and sales/branch is also significantly higher due to matured network. Since Aptus is opening new branches at fast pace, it takes time for these to generate optimum sales. This should definitely improve in future as branches season.

Now coming to most important parameters for any financial institution, risk management. The company has multiple sources of lead generation but all loan approvals are done by central team only. This avoids the practice of bad underwriting to show growth and earn incentives by field team. The entire collection and legal recovery team is also inhouse and not outsourced to have better control. The underwriting performance has been good.

Data In Cr
Gross St 3 36
% portfolio 0.8%
ECL provision st 3 9
Net St 3 27
PCR 25%
NNPA 0.60%
30+ DPD 10%

Gross NPA are 0.8% of book and with ECL provision PCR is at 25% which is inadequate in my view, i would like this to be >50%. But if we look in absolute terms for this to reach 50%, only 9 Cr more needs to be provisioned which is quite insignificant comapred to 69 Cr reported profit for Sep’21 quarter. Maybe management is confident of this getting out of St 3. Also 30 days DPD is at 10% while 90 days is at 0.8% which shows that the company has good followup team which makes sure 30 DPD does not move into 90 DPD, also considering the customer profile(40% are new to credit) it is quite possible a lot of this is unintentional and owing to a miss in payment rather than genuine cash flow challenges or fraud.
The company has increased sales at rate of 47% and profit 66% CAGR in last 5 years.

Aavas is the right benchmark to compare Aptus against. It also started at similar time of 2011 in Jaipur. It is predominately North and West focussed compared to Aptus which is South focussed. It is double in AUM and have 300 branches. Liability mix is also similar, but there is good difference in profitability.

Data Aavas Aptus
AUM 10200 4482
Disbursement 1364 421
Gross ST 3 0.96% 0.80%
NNPA 0.72% 0.60%
NIM 7.80% 9.1%
Opex to Asset 3.2% 2.7%
ROA 3.25% 7.4%
ROE 12.20% 14.1%
Yield 13% 17.0%
Cost of borrowing 7.20% 7.9%
30+ DPD 9% 10%
Gearing 2.8 0.9
PCR 26% 25%

As we see there is big difference in yields with COB is slightly higher for Aptus and hence Aptus is better NIMs and RoA as well. Low cost is also aiding profitability.
Both the company have ALM surplus so does not seem to be a big risk from liquidity perspective. Both the cos. have survived demonetization, NBFC crisis and Covid lending demonstrating their resilience.
But purely from profitability and growth capital availability Aptus seems to be better placed. But Aavas has been in capital market and its scrutiny for longer that lends some comfort compared to Aptus. Both have some marquee investors. But what stands out is Malabar and Sequio invested in 2019 and still hold very large position in Aptus. This if they continue to hold is a big positive but if they start liquidating their position it will be a big risk to stock price considering the large chunk they hold.


  • Demonstrated high profitable growth
  • Highly experienced promoter and good management team
  • Marquee promoter-investor
  • Good underwriting and asset quality
  • Low gearing and sufficiently capitalized
  • Expanding geographical territory


  • Lending to high risk customer profile
  • SBL forms significant part of assets
  • Success in new geography needs to be demonstrated, it is here where most of regional players fail
  • Potential growth slowdown if interest rates increase
  • Regional political risks on loan waivers etc.

The company is richly valued at 7X book. As a comparison Aavas is at 9X book and HDFC is at 3.2X. Valuations leave very little room for underperformance and as true for most financials, surprises come when least anticipated.
Invested with tracking position, will wait for 1-2 quarters performance before putting meaningful capital unless there is any large correction(5X book seems decent valuation)


Good writeup
Did u compared it with recently listed homefirst finance?
Disclosure: invested in Aavas

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I just looked up homefirst briefly since it is more urban and salaried focussed . Competition is high for those segments and hence yields are low while COF are similar, margin of error is thin, not sure how they will stand out in the crowded market without compromising on customer credit profile.

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These are a couple of customer experiences from Google reviews for a Hyderabad branch, such a practice may or may not be limited to that branch, I don’t know. The sample of 2 reviews is too insignificant but nevertheless, could give a general idea of the branches, considering the fact that most of the branches are in Tier-3 cities.

“Very good housing finance company, transparent process, without income proof for business people etc”

“Good Housing Finance Company for Low income & without income proof business segment”

I don’t know about their collection efficiencies, the methods they use to collect in situations like above, or how much is the portion of such loans in their overall loans, or if such kind of loans form a part of their lending process, for growth and yield, and are common up to a level, and eventually help in becoming a big institution. But the inherent risk of lending and not able to collect is visible here.

While the unorganized and unmonitored lending is worse than this, better due diligence is expected from a listed finance company, but then again this being a lending business, many practices exist I guess.

While the pie is definitely getting bigger in our credit starved country, it will be interesting to see if the incumbents will retain their position or the changes brought by these new entrants will dent their profits.

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That is their business segment, lending to people with little documentary proof since 72% of them are self employed. But it does not mean due diligence is missing, the field team does that, it is similar to microfinance business.

If we look at historical collections and asset quality, it has been very good with GNPA < 1% even in turbulent times of demonetization, NBFC crisis and Covid. Hence unless we see these nos. changing or some data which shows otherwise we can be with peace with this. Aavas has been in similar space and done well.

Financials is a risky business, and lower end of strata is definetly much more riskier but if it is priced right the business can be profitable and hence i put numbers of HDFC as well to understand how the risk is being priced. Even though currently GNPA for Aptus is lower compared to HDFC but we all will agree that Aptus lending profile is more risky. But if we see the spreads, it seems that higher yields should be able to absorb much higher NPAs if they come through.
The real watchout for me will be how they scale up the franchise from South focus to new regions in West and East as they have guided.



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LIC Housing is in different segment basis customer profile, not the right comparison but still below are the reasons i will prefer Aptus/Aavas:

  • High growth
  • Adequately capitalized
  • Better profitability
  • Less competition
  • Good asset quality
  • Aspirational management

I just checked the gearing for LIC, it has consistently been > 10, maximum allowed is 12, could be the reason for low growth since its not adequately capitalized, and strangely they still pay dividend.

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Thats a fair assessment. No two thoughts about higher risk lending and valuation discomfort. Data on NPA does not seem correct, latest quarter net NPA is 0.6% not 1.7%

One can get similar but HFC at 0.7 book, so basically one tenth valuation of this company.

Check thread on Repco

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Yes thats a value play, but need to think twice why it trades at discount to book. It has NIMs of 4.5% with GNPA in range of 3-4%. It has struggled in past on both asset quality and scaling out of TN. If i remember correctly even Mohnish Pabrai was once invested in it during last HFC bull run.

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Yes , wealth destruction was such it’s yet to cross it ATH of 2013 . Not only repco, PNB housing, indiabull housing, DHFL all are super wealth destroyers … LIC has hardly reward in last 10 years .

So Investment in this space require caution .


Great write up @Akshat_PI! Indeed, Aptus seems very similar to Aavas.

We will need to monitor whether they will be able to achieve this while maintaining asset quality. Historically lending has been a very geographically-focused business e.g. Aavas in Rajasthan, MAS in Gujarat etc. and very few companies have been able to achieve pan-India presence.

Aptus is entirely focused on retail- zero builder loans and zero commercial RE loans. The loan to value is <40%. Self employed is 72.5%, salaried is 27.5% of AUM. Home loans was 51.76% (average ticket size of Rs 0.70 million), LAP (loan against property) was 21.12% (average ticket size of Rs 0.70 million) and business loans were 27.12% (average ticket size of Rs 0.62 million) of Aptus’ AUM as of 31 Dec 2020 (figures from DRHP). Tier I CAR has been around 75-80%

Couldn’t agree more. Credit rating report said that Aptus can do loan book growth of about 35% over the next two years and would not require external capital to achieve this.

Yes, this will be a key monitorable. Though, if they invested in 2019 only, I feel it is unlikely they will sell so quickly. PE funds have a life cycle of 7 to 10 years typically. Also, I doubt they will start selling all at once in bulk/block deals. I think they will sell slowly and gradually. Do share your views on this.

Can you please share the source where they have given DPD segmentation?

Thank you!
Disc- no holdings in Aavas or MAS. No holdings in Aptus yet but researching and tracking closely.


My analysis does not show any red flags. It is just investor fatigue. It has played out so many times. Listed companies are under valued whereas if you bring out an IPO of exactly same company you can get a valuation of multiple times.

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It is in investor presentation and same was mentioned by management on Q2 concall as well when asked about collection efficiency.

Current valuation are far too stretched for a high risk lending business, let us see how business pans out.

I am also looking for some information on any locking period data or similar but could not find any. It is largest position for Malabar as per disclosed investments, generally they invest for long period and stay put even during long periods of underperformance (ex- Safari & Neuland)

The target segment (self employed, first time borrowers, no income proof, low and middle income) seems high risk. But if the GNPA is <0.8-0.9%, it shows they are extremely prudent in risk management. In fact the big NPAs always come from builder/developer loans, which they are not doing at all. In my opinion the business model of Aptus and Aavas is not high risk.

Disc- no holdings in Aavas. No holdings in Aptus yet but researching and tracking closely.

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They have been able to maintain asset quality till now, but i am always very cautious about financial institutions, it is easy to hide and fudge nos. most easily in financial institutions and we have multiple examples of it not only in India but worldwide.
I look at risk more from nature of assets and customer profile. For Aptus a large part is small business loan which is similar to microfinancing and housing loans are to self employed with no fixed income stream, i will classify this in high risk and thats the reason they have yields of 17% else they could have gone to HDFC and got a loan at 9%.


Agreed. Will need to monitor surely. Couple more questions:

They have mentioned data analytics in AR and investor presentation- what exactly is this? Is it similar to Bajaj Finance?

What is the average turnaround time for loans (if they are giving this anywhere)?

Disc- no holdings in Bajaj Finance. No holdings in Aptus yet but researching and tracking closely.

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Expecting Bajaj Finance level of analytics will be unfair. Since the company IPOed recently, not much info available, but they do have some Apps for lead generation, payment and credit profile monitoring. They also mentioned that they do extend top up loans basis payment history(you may call this analytics :)) but they try to keep cross selling limited to reduce exposure to one customer which is just opposite of Bajaj Finance which promote it. But important to note Aptus avg loan size is 50X of Bajaj Finance and it makes sense to keep book as granular as possible.
If i remember correctly TAT is 13 days.

Of course. I meant to ask whether the building blocks are similar. The perfection and accuracy will only come with time.

This is a good policy in my opinion, given 40% of their customers are new to credit. Can you please share the source for this?

Though this is rational in my opinion, since Bajaj Finance is into consumer durable and self-employed white collar loans with much smaller ticket size v/s home loan

Can you please share the source for this?

Disc- no holdings in Bajaj Finance. No holdings in Aptus yet but researching and tracking closely.

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Source for all information is concall/Pre IPO call and investor presentation+ AR. Limited information otherwise.