Newly listed Indian shelter finance also growing ver well. But itโs trading at less valuation compare to Aavas, Home first and Aptus.
Why Aptus are getting high valuation and all? How we should decide what valuation we can give as all these companies want to grow 25-35%
What other company is giving you an roa of 8% and roe of 16%+ with a gearing of just over 1x, while growing over 20% yoy? when gearing tends towards 3-4x roe will easily surpass 20% while roa remains relatively stable at 5-6%.
Hey guys just a quick question, I was going through the transcript for Q4 FY24, and when it comes to the Asset Quality Part, what does Mr. Balaji mean by โUndrawn Sanctionsโ?
Undrawn sanctions are loans approved but not disbursed.
In HFCs, these could be lines of credit approved from NHB, Banks or other financial institutions.
Iโm not sure if this has any correlation with Asset quality, as you mentioned. You might want to elaborate a bit.
Thank you bud.
Also, when it comes to disbursement numbers (Asked by Mr. Nidhesh, Investec), Mr. Balaji wants to answer the question offline, pretty weird no?
Regarding the earlier question, the โUndrawn Sanctionsโ were mentioned along the lines of Asset Quality.
Earnings Concall
Few of my takeaways from Q1 FY25 of Aptus Value Housing Finance
๐๐จ๐ซ๐ฉ๐จ๐ซ๐๐ญ๐ ๐๐ซ๐๐ฃ๐๐๐ญ๐จ๐ซ๐ฒ:
Aptus Value Housing Finance demonstrated strong performance in Q1 FY25, with 27% YoY AUM growth to Rs. 9,072 crores and 21% PAT growth to Rs. 172 crores. The company maintains a positive outlook on growth opportunities in Tier 2-4 cities, driven by low mortgage penetration and significant housing shortage. Management expressed confidence in achieving their 30% disbursement growth guidance for FY25.
๐๐ญ๐ซ๐๐ญ๐๐ ๐ข๐ ๐๐ฅ๐ฎ๐๐ฉ๐ซ๐ข๐ง๐ญ:
๐๐๐ซ๐ค๐๐ญ ๐๐ฒ๐ง๐๐ฆ๐ข๐๐ฌ:
๐๐ง๐๐ฎ๐ฌ๐ญ๐ซ๐ฒ ๐๐๐ข๐ฅ๐ฐ๐ข๐ง๐๐ฌ:
๐๐ง๐๐ฎ๐ฌ๐ญ๐ซ๐ฒ ๐๐๐๐๐ฐ๐ข๐ง๐๐ฌ:
๐๐ง๐ฏ๐๐ฌ๐ญ๐จ๐ซ/๐๐ง๐๐ฅ๐ฒ๐ฌ๐ญ ๐๐ฎ๐๐ฌ๐ญ๐ข๐จ๐ง๐ฌ:
Concern: Slowdown in Tamil Nadu growth
Response: Management acknowledged issues but expects 20% growth in FY25 with corrective measures in place
Concern: Rising 30+ DPD
Response: Attributed to seasonality and elections; expect improvement in coming quarters
Concern: NIM compression
Response: Expect 10-15 bps NIM compression due to rising borrowing costs
๐๐จ๐ฆ๐ฉ๐๐ญ๐ข๐ญ๐ข๐ฏ๐ ๐๐๐ง๐๐ฌ๐๐๐ฉ๐:
Aptus faces competition from other affordable housing finance companies and small finance banks targeting similar customer segments in Tier 2-4 cities.
๐ ๐ฎ๐ญ๐ฎ๐ซ๐ ๐๐ซ๐จ๐ฃ๐๐๐ญ๐ข๐จ๐ง๐ฌ:
๐๐๐ฉ๐ข๐ญ๐๐ฅ ๐๐๐ฉ๐ฅ๐จ๐ฒ๐ฆ๐๐ง๐ญ:
The company maintains a strong capital position with a net worth of Rs. 3,800 crores. No specific capital raising plans were discussed, indicating sufficient capital for near-term growth.
๐๐ฉ๐ฉ๐จ๐ซ๐ญ๐ฎ๐ง๐ข๐ญ๐ข๐๐ฌ & ๐๐ข๐ฌ๐ค๐ฌ:
Opportunities:
Risks:
๐๐๐ ๐ฎ๐ฅ๐๐ญ๐จ๐ซ๐ฒ ๐๐ฅ๐ข๐ฆ๐๐ญ๐:
The company benefits from priority sector classification for housing finance. Management mentioned adapting to recent RBI circulars on disbursement practices.
๐๐จ๐ง๐ฌ๐ฎ๐ฆ๐๐ซ ๐๐ฎ๐ฅ๐ฌ๐:
The management indicated strong on-ground demand for both home loans and small business loans in their target markets.
Hi just started tracking Aptus. Quick question to those who are invested. Is there a risk to capital raising especially from NHB refinancing. The management mentioned there is an audit that is done by the NHB team every year to determine how much capital can be provided to Aptus.
Also Westbridge capital (promoter) has been offloading its stake. Is that a concern?
Thanks much
@Pulak I think the overhang due to the mentioned large investor sell off is bringing down the price. This generally happens with all IPOs 2-3 years into the listing. Early PE investors sell their stake.
Another reason for weakness is sector sentiment. NBFCs and all banks are going through this because the banks are going through slow deposit growth phase. I am not sure if you had followed this whole discussion on people moving from term deposits to equities. If banks face this pressure they are going to cut down on their lending to NBFCs. Aptus borrows from banks and the exposure is probably 15-20%. There was a news article as well on this issue, just google it.
Lastly, I can see concerns in unsecured lending (microfinance) as NPAs are slowly rising and RBI issued a circular few weeks back on microfinance. Though this should not apply to Aptus as much because its dominantly a HFC. Their SME financing is also collateralized probably as I remember they mentioned LTV on these loans of 42% (need to check again this).
I think once the market sentiment improves its going to be a clear value buy, aptus at 300 is super cheap. They are growing AUM at 30%.
Disclosure: invested and biased
Thanks @Shivam_Jindal for the detailed response. You are right in highlighting why the stock price has been correcting. I agree with you on the same. I am not so much focused on the stock price as long Aptus is not short on liquidity
My question was whether Aptus is likely to face any liquidity crunch as banks and nhb are big sources of capital. While Aptus is well capitalised at the moment I understand nhb refinancing happens every year after an audit exercise by the nhb team. Would that be seen as a risk going forward. It may not be so.
The management does seem seasoned and conservative in underwriting (and control over NPAs), and gearing is low as compared to others.
PS: took a meaningful position in Aptus yesterday.
Hi Pulak, their capital adequacy is 71.8%, its so high that they have been paying very high dividends to bring it down which improves ROE. Look at their ALM slide, there is surplus in every timeframe, so there is no concern on liquidity at all.
Disclosure: Invested (bought shares in last-30 days)
Thanks much @harsh.beria93 . Looks well covered. Letโs hope their expansion into new states is measured and develops well.
They have indicated they want to dominate the regional markets they are in and not stretch themselves across the country chasing growth, which is reassuring.
Never heard of a bank or NBFC paying dividend to bring down their capital adequacy ratio and I donโt think thatโs the case here. If they had too much capital they wonโt be borrowing from the market (at a higher rate) while paying dividends from retained earnings. Itโs a bad capital allocation. Why not lend excess capital which if done well can be ROE accretive? Or even better, do a buyback that tends to be more shareholder friendly than paying dividends.
One should look at other plausible explanations. I can offer a few without being sure of any but it can be always very instructive to look at such practices from several angles in a bull market.
For example company has not been paying any dividend until couple of years ago and for a profitable company it always raises flags with potential investors. So they started paying 15-16% (by no means very high) dividend which is surely healthy. It could be just coincidence but since they started paying dividend there has been significant increase in both DII and FII holding.
Companyโs stock prices has been depressed in this scorching bull market and for many promoters and executives it can be source of stress. I wonโt be surprised if they announced a QIP.
Also biggest risk with financial institutes is quality of their disclosures. For an auto company you can do several checks outside their books. For a financial company you just rely on their reporting. My rule of thumb in a bull market is to take all the numbers with a pinch of salt.
I think itโs the case with all the AHFCs like Aavas also.
Though itโs not a good practice to compare on a PE basis, they have been derated from PE around 40 to 25 currently.
None of the AHFCs have shown any price appreciation during this bull run.
Sooner or later they have to show the price appreciation reflecting the AUM growth.
In my view Avvas Financierโs poor stock performance has been mainly because of high valuations. Until 2 years ago stock used to trade at 6 times book which was clearly excessive given 13-14% ROE of the business. Stock has been in time correction.
Clearly the market is less generous to NBFCs on valuations following RBIโs restrictive policies and higher cost of funds. And none of these small-mid caps NBFCs, Aptus or Avaas, are posting spectacular numbers on your typical parameters such as ROE, NIM, AUM growth etc.
A sane investor will ask as to why they should buy an NBFC at 3-4x book for 14% ROE when they get 16-17% ROE from many dividend paying large private banks current valued at 2 times book.
Weโll have to wait till interest rate cuts and some easing in RBIโs restrictions to see some action in stock prices of these NBFCs.
Actually Aptus is not great in capital allocation. 1st they raised fresh capital in IPO rather than doing only stake offloading even though their CRAR is crazy high. 2nd, after raising fresh money at high valuation and giving 40% of profit as dividend as if they do not need money.
By giving higher dividend, they themselves are proving capital raise is wrong decision
I disagree that they might go for QIP. Capital is raised in two ways - debt and equity. Debt/equity ratio is generally over 3x for most lenders but it is < 2x for Aptus. This is also the reason they are comfortable in paying dividends as they have adequate equity buffer. Their target from here would be raise more debt from banks/NHBs instead of raising equity.
@Pulak I see your concern on NHB refinancing. But from what I understand it shouldnโt be a problem for them to secure it this year too. The government is very supportive of financing affordable housing. It was mentioned multiple times in speeches and even in โFinal Budget key noteโ.
Besides their ratings are not bad, look at the credit report. Care assigns AAA to most secure lenders and AA is second to that. Read their rationale behind it.
Yes there are concerns about self-employed borrowers who experience uncertainty in their cash flows, however I personally would take this much risk willingly, particularly given their LTV doesnโt go beyond 50% and avg LTV of whole portfolio is ~40% as most of the portfolio is for HFC where LTVs are <40%. Secondly, SMEs are expected to do good in coming years as government is strongly pushing for them, if you have noticed in this budget too there was a scheme for bank guarantees from their side for SME loans.
As far as geographical diversification goes, they have done pretty good so far and going forward their Karnataka allocation is gonna increase as this region AUM is growing at over 30% vs their traditionally dominant region Tamil Nadu which might be growing at 10-15%.
I didnโt say they will go for QIP. My statement was โI wonโt be surprised if they announced a QIPโ. So itโs just a speculation and there is nothing to disagree with :). In stock market one thing I have learnt, the hard way, is never to be sure of oneโs opinion and be ready for surprises.
Another way to look at it:
Paying Dividend is another way of bumping up the RoE nos with a few bps. So, the payout made from the Reserves decreases the Overall Book Value/Networth of the company which in turn increases the RoE %.
This logic makes sense for a company clocking decent growth (though less than its potential) but still managing to stick around a 17-18% RoE numbers. Cause when a company grows at 25-30% and they fail to show the similar kind of growth in subsequent years, its RoE decreases.
So, paying dividend is an easy way to keep the Networth under check and maintain a consistent RoE.
