IPO Size: Rs. 3,000 cr 

• Rs. 2,000 cr Offer For Sale (OFS) by the promoter Blackstone (99% to drop to 76%). ICICI Bank holds balance 1.2% stake
• Rs. 1,000 cr Fresh Issue for onward lending

Price band: Rs. 300-315 per share

M cap: Rs. 13,435 cr, implying 22% dilution

IPO Date: Wed 8^th May to Fri 10^th May 2024, Listing Wed 15^th May 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

India’s Largest Affordable Housing Finance Company

Aadhar Housing Finance, formerly part of Dewan Housing group, was acquired by PE Blackstone in June 2019. As of 31.12.23, it had assets under management (AUM) of Rs. 19,865 cr, mainly comprising home loans, averaging Rs. 10 lakh, given 2.5 lakh low-income group (LIG) retail borrowers. Loan book is geographically diversified, with 3 largest states Maharashtra, Uttar Pradesh and Rajasthan accounting for ~13% each.  

Financial Position  

For 9MFY24, on 20% YoY AUM growth, net interest income rose 33% YoY to Rs.948 cr, with spread of 6.4% and PAT of Rs. 547 cr. On net worth of Rs. 4,249 cr, EPS stood at Rs. 13.5, with annualised RoE of 18%. While gross NPA is at 1.4%, net NPA is 1.0%, slightly on the higher side vis-à-vis 0.7%-1.1% range for closest comparable peers.

Company is well-protected from interest rate changes, as 83% of its loan book is on floating interest rate, while 79% of Rs.13,000 cr borrowings is on floating rate. However, long term credit rating of AA has not improved since FY21, despite financial growth and end-of-covid.

Valued at Discount to Peers  

Based on post-money book value per share (BVPS) of Rs. 127, price-to-book-value (PBV) multiple is 2.5x while on FY25E BVPS of Rs. 151, PBV multiple is at 2.1x. This is a discount to all the affordable home loan financiers, even Aadhar’s asset quality is accounted for:

• Aavas, with 23% YoY AUM growth during 9MFY24 to Rs. 16,000 cr (against 20% for Aadhar), also has lower net NPA of 0.8%, with a similar spread of 6%, is trading at PBV multiple of 2.9x (FY25E).
• Aptus Value clocks a spread as high as 9%, with better asset quality (0.7% net npa) and faster AUM growth (29% to Rs. 8,700 cr). Thus, Aptus’ FY25E PBV of 3.6x is due to higher growth, superior margin and better asset quality.  
• India Shelter, with Rs. 5,600 cr AUM, has similar spread of 6%, but has a good asset quality, with net NPA contained at 0.8%, is trading at a PBV multiple of 2.5x.
• Home First – rules at PBV of 3.2x, with Rs 9,000 cr AUM, rising at a fast pace of 33% YoY.

Despite the fundamental growth, barring Aptus, stock prices of all the above have either corrected or remained flat in the past 1 year.

Final Word

• Over the long term, we do not find PBV of over 2.5x sustaining for pure-play home loan companies, in relation to banks and NBFCs having larger and more diversified products. With scale, growth rates will anyways taper.
• Within housing finance companies too, Aadhar lacks competitive moats over peers, in terms of yields etc. Moreover, its asset quality is on the lower end.
• Finally, promoter being a financial investor will look to exit sometime in the future. It is already trimming holding now, in 5 years, clocking 31% IRR.