Verdict: Rising NPA plays spoilsport

Rs. 2,780 cr IPO:

• Rs. 2,280 cr OFS, mainly by 4 PE funds, of which, 2 are making a complete exit
• Rs. 500 cr fresh issue for growth capital

IPO Date: Tue 10^th Aug to Thu 12^th Aug 2021

Price band: Rs. 346-353 per share

Mcap: Rs. 17,500 cr, implying 16% dilution

Listing: 24^th Aug 2021

South Indian Housing Finance Company

Of the Rs. 4,267 cr AUM, only 52% is home loans, while balance 48% is higher risk business loans and loan against property (LAP), taking company’s overall yields to +17%. As against this, peers Aavas and Home First have a higher share of home loans, at 74% and 92% of AUM respectively, yielding ~13% on advances.

Moreover, 72% of Aptus’ loans are to self-employed and only 28% to salaried borrower, vis-à-vis 60% and 74% salaried borrowers for Aavas and Home First respectively. Thus, while Aptus’ yields and margins are higher than peers, its borrower profile is also much riskier and AUM more prone to asset quality swings due to higher lending towards LAP and business loans and lower mix of salaried borrowers.

Rising NPAs

Post second wave, Aptus’ net NPA jumped over 3x to 1.69% (10.7.21) from 0.46% (31.3.21), bearing the maximum brunt. Rise in net NPAs for Aavas was lower from 0.71% (31.3.21) to 0.86% (30.6.21), and also Home First, from 1.20% to 1.40% respectively.

Peer Comparison

Despite Aavas’ loan book being 2x Aptus, net NPAs nearly half (0.86%) and a better credit rating (AA-), Aavas’ mcap is at Rs. 20,400 cr, as against expected mcap of Rs. 17,500 cr for Aptus. Since Aavas’ PBV of 8.3x is not comforting, Aptus’ valuation is literally asking for the moon!

Coming to Home First, both Aptus and Home First have similar AUM size and same credit rating of A+. But Aptus’ incremental cost of borrowing of 8.5%, is 90 bps higher than Home First’s 7.6%, while it’s PBV multiple of 7.1x is double Home First’s 3.3x.

When there is industry-wide stress, due to uncertain cash flows at borrower end, preservation of asset quality takes precedence over yields and growth rates. While Aptus’ founder pedigree (ex-Cholamandalam) is good, along with post-IPO holding of 24% and another 35% with investor-promoter Westbridge, valuation of 7x post-money PBV is sky-rocketing, especially since loan book stress will not decline overnight.

Conclusion

Preferring asset quality over growth, we do not advise applying in expensively-priced IPO of Aptus Value Housing Finance.

Grey Market Premium (GMP) of Aptus Value Housing Finance: Grey Market Premium of Aptus Value is an unofficial figure, against guidelines of SEBI and we are strongly against it. To know how it operates, read our article ‘grey market premium’.

Disclosure: No Interest.