That’s obvious and I’m not trying to understand how dividend payment helps ROE of a company.
My point was that dividend payment should the last option for the companies when they don’t have any use for the capital. So it’s fine for a company, generating loads of operating cash flows, to give dividends for lack of better opportunity for that capital.
For financial companies, capital is the key raw material and continuous supply of it is key to their operations. So if Aptus is raising capital from the market, market would expect them to put that to work and generate interest income and not pay dividend to boost ROE. If they didn’t have opportunity for that capital then why raise it in the first place and expand their balance sheet?
And the most importantly, improve ROE to what end? Such inorganic tactics to improve ROE are not lost on the market and won’t benefit stock prices if company is not delivering on core operating metrics.
I think this issue started with IPO. They raised capital at a higher multiple than what they needed. Now, their growth of 25-30% don’t need all this capital. So other avenues are being used.
In other words, I believe they are ahead of the P/BV. If they continue to grow at the same stage, there will be time correction as its happening now. The growth have to outpace the given multiple. Correct me if I am wrong, they are the highest or in top 3 of thier peers in terms of PBV valuation.
These are very good and valid questions to ask. As someone tracking dividend growth, have a slightly broader view of this (not getting into why they raised capital etc.). While its fine to debate why they went for capital raising, i see it as a positive signal that they are giving dividends. Will have to see whether its a short term thing or a sustained company policy
Dividends keep a company honest and accountable on efficient deployment of capital. Pro dividend companies are generally more shareholder friendly and deploy their capital efficiently and not chase growth for the sake of growth
You can read more about it here How Dividends Keep Companies Honest and Investors Wealthy
Aptus is not the first Financial co that came with an IPO and started distributing dividends. HDFC Bank is another example. HDFC Bank’s IPO was in 1995. They gave their first dividend in 1996. They could have very well utilized that for growth however it is something in the DNA of the firm Dividend History
I am not suggesting Aptus is the next HDFC bank and of course there is a difference, one is a bank with deposits while other is a NBFC. Even the parent firm HDFC was dividend friendly
Net net i see it as a positive provided they continue with the dividend policy. (PS: Just a limited biased view, others viewpoints may be equally valid and make sense)
I understand that dividends are a key metric for the company’s authenticity. However, that is not in question here given the past track record of sizeable PE investment.
Clearly, they have more capital than they need. This is why, the RoE is not justifying such a good RoA. One should also understand that giving out dividends will lower book value while improving RoE. Price to book multiple will also become more expensive.
However, the recent mild correction in stock price is due to Westbridge reducing their stake and general negative sentiments for NBFC. I feel that this stock will only perform after the complete PE exit. And for that to happen, valuations must be right for other large institutions to get into.
Otherwise, the company is demonstrating predictable AUM growth with an above-average RoA. This is just a case of a Quality business at an unfavorable price. I personally see limited downside by price, but potential downside with time.
Results for Q3 FY24-25…
AUM - 10226Cr (+27% yoy , +6% qoq)
NIM - 12.94%
GNPA - 1.28% (+0.09bps yoy, +0.03bps qoq)
ROE - 18.54%
QOQ Revenue - 450cr vs 421CR
QOQ PBT - 245cr vs 205cr
10 New Branches added in new states Maharashtra and Odisha
(2) Additional 26 Branches in Tamil Nadu, Telangana, Karnataka & Andhra Pradesh
(3) 36 new branches become operational in FY25
GNPA to be tracked. The company is stepping footprint into Orissa & Maharastra. Good Operating Margin and NIM compared to peers. overall, negative MFI sentiment drives the value down. Can be a value buy for long term.
Management says large headroom available for growth especially in tier 3 and tier 4 cities
Employee costs have been flat despite increase in branches as disbursement growth has been slow but management says bunched employee costs will come in Q4
Next year, the branch network will be growing mostly in the Odisha and Maharashtra and
Telangana and Karnataka.
Management does not believe that yields would be lower in Maharashtra because of competition
RBI has not raised concerns on interest rate being charged
There is a chance of BT out rates increasing as Aptus is fixed rate lender and others can entice borrowers if rates reduce going forward but management says historically such things have not much to impact them
In November, Tamil Nadu was affected by floods in some parts. And, there were spate of holidays in October. So because of that, some impact was there, but I’m not seeing on-ground problem in terms of collections. So definitely, like what you told, in the fourth quarter, there will be good improvement both in the collection efficiency and also in the Stage 2 assets and in the NPA.
Opex to assets guidance is 2.7%
Credit costs guidance is 0.35-0.4%
Rate cuts can increase spreads but without them there would 0.1% impact on NIMs
AUM to grow by 30% and target of 25K Cr AUM target by FY28
RoAs to reduce going forward and RoE to increase with leverage beyond 22%. Management verbatim on this - “If you look at it, see, if I’m going to reach a Rs. 25,000 crores loan book, obviously, the ROA cannot be at 7% because the leverage is going to come in because we have a capital
adequacy ratio and a low leverage. With the result, we will not come into the market for any
So, the borrowings will be the sourcing thing for the purpose of growth that we are
contemplating up to FY 2028. So, what does that mean? The 7.7% ROE may fall down to 6% or 6.5% at that point in time. But the 18.54% ROE is likely to go beyond 22% at that point in time. So, this is the broad path with which we’ll be growing.”
Summary: Aptus is guiding for 25K Cr AUM by FY28 at 6-6.5% RoA which implies ~1500 Cr PAT by FY28. The PAT would double from current base of 708 Cr. Management is saying the RoE would go beyond 22% by FY28. I am wondering why would Aptus not get 4-5 P/B for such high RoE. Current book value is 4000 Cr and borrowings is 6100 Cr+. If the leverage is 3.5-4x by then equity could be 6200-7000 Cr and at 4x P/B the MCAP could be 25-28K Cr.
