Aadhar Housing Finance Ltd.  (Subscribe)

Highlights

Aadhar Housing Finance Limited (AHFL) backed by Blackstone, was incorporated in 1995 and is a housing finance company (HFC) targeting the lower income segment. They had the highest AUM and net worth among their analysed peers in FY23 and 9MFY24.  

The company is a retail-focused HFC focused on the low-income housing segment, serving economically weaker and low-to-middle income customers, who require small ticket mortgage loans. The average ticket size of their loans was Rs. 0.9 mn and Rs. 1.0 mn with an average loan-to-value of 57.7 pct and 58.3 pct, as of December 31, 2022 and December 31, 2023, respectively.

AHFL offer a range of mortgage-related loan products, including loans for residential property purchase and construction; home improvement and extension loans; and loans for commercial property construction and acquisition

They operate a financially inclusive, customer centric lending business and believe that their business model contributes significantly to the economic uplift of their target customers by contributing to an improvement in their standard of living. In addition to customer-facing social objectives, they have also implemented social objectives in aspects of business.

Out of the total proceeds of Rs. 30,000 mn, Rs. 7,500 mn would go to meet future capital requirements towards onward lending. ~Rs. 2,500 mn would go towards general corporate purpose and Rs. 20,000 mn would go towards existing selling shareholders of the company.

Key Highlights

• The overall size of the housing finance market focusing on low-income housing loans in India was around Rs. 4.4 trillion as of December 2023, constituting for around 14 pct of the overall housing finance market, as per CIBIL data. CRISIL MI&A expects the industry to pick up steam gradually and the loans outstanding in housing finance focused on low-income housing segment to touch Rs 5.4-5.7 trillion by March 2026, translating into an 8-10 pct CAGR between FY23 and FY26.
• In 2019 Blackstone has invested in the company and grabbed total ~98 pct stake in the company and rest by ICICI Bank. After selling some stake in this company Blackstone will hold ~77-76 pct stake in the company.
• AHFL diversified products offering allows them to cater to their retail customer base, comprising salaried and self-employed customers in both formal and informal segments. 58.6 pct and 57.2 pct of their customer base comprised salaried customers as of FY23 and 9MFY24, respectively.
• They have modelled their branches to meet the local requirements of the location they are set up in. On a regional level, they have categorized branches as main and small branches which are hubs and they further penetrate deeper through micro or ultra-micro branches under the ambit of main or small branches. Usually, they establish their presence in a new location with an ultra-micro branch based on the geography, potential and low delinquency trends, and once the ultra-micro branch becomes profitable, they upgrade it to a small or main branch to cater to a larger pool of customers.
• Over the years, they have secured financing from a variety of sources including term loans; proceeds from loans assigned; proceeds from the issuance of NCDs; refinancing from the NHB; and subordinated debt borrowings from banks, mutual funds, insurance companies and other domestic and foreign financial and development finance institutions to meet their capital requirements.
• The company also have in place effective asset liability management strategies. They aim to ensure that they do not have any cumulative asset/liability mismatches. As of FY21, FY22, FY23 and 9MFY24, they have positive asset-liability mismatch across all the maturity buckets.
• The company strategy includes (i) to expand their Distribution Network to Achieve Deeper Penetration in key states (ii) Continue to focus on their target customers and grow their customer base (iii) Continue to invest in and roll out digital and technology enabled solutions across their business to improve customer experience and improve cost efficiency (iv) Optimize their borrowing costs and reduce operating expenses further.
• The Retail AUM of the company has grown by 13.69 pct CAGR over FY21–23, while profit of the company has grown by 28.81 pct CAGR over the same period. The company has maintained its cost to income ratio within the range of 35-39 pct over FY21–9MFY24. However, the NPA of the company slightly increased by 30 bps to 1.40 pct in 9MFY24 from 1.10 pct in FY21.

Key Risk

• Any increase in the levels of non-performing assets in their AUM would adversely affect their business, results of operations, cash flows and financial condition.
• They are vulnerable to the volatility in interest rates and may face interest rate and maturity mismatches between assets and liabilities in the future, which may cause liquidity issues.
• Any negative events affecting the Indian real estate sector could adversely affect the value of the collateral for AHFL’s loans, business and result of operations.

Financial Performance

Peer comparison FY23

Valuation

Aadhar Housing enjoys a pan India presence with 498 branches. It dominates low-income housing segment amongst HFCs on major counts. At the upper end of price band, the issue quotes at PE of 18.39x its annualized FY24E earnings and P/BV of 2.56x. The issue seems to be reasonably prices. One can Subscribe from a longer-term perspective.

Also read: Evolving Landscape of Financial Advisory in India

Disclaimer: The views shared in blogs are based on personal opinions and do not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Investing using the app is the sole decision of the investor and the company or any of its communications cannot be held responsible for it.