Aadhar Housing Finance’s initial public offer (IPO) is set to open on May 8. Several brokerages have assigned a ‘subscribe’ rating to the issue as they expect operational performance to improve, led by the dominant low-income housing segment, low cost of borrowing, and higher return ratio among peers.
Offer Details
The IPO comprises a fresh issue of shares worth Rs 1,000 crore and an offer-for-sale (OFS) of Rs 2,000 crore worth of shares by promoter BCP Topco VII Pte, an affiliate of Blackstone Group. At the upper end of the price band, the valuation stands at over Rs 13,000 crore. The price band for the issue, which will close on May 10, has been fixed at Rs 300-315 per share.
The company will utilise net fresh issue proceeds for its future capital requirements towards onward lending and general corporate purposes, while the offer-for-sale funds will go to BCP Topco.
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The Business
Aadhar Housing lends to the low-income housing segment with small-ticket mortgage loans. The average ticket size of Aadhar's loans is Rs 10 lakh with an average loan-to-value of 58.3 percent as of December 2023. The salaried people segment contributed 57.2 percent to its AUM and the remaining 42.8 percent contribution came from the self-employed segment in 9MFY24. The ratio of these segments in FY23 was 58.6: 41.4.
Should you subscribe to the Aadhar Housing Finance public issue? Let's hear what analysts have to say
Anand Rathi: Subscribe for long-term
At the upper price band, the company is valuing at a P/E of 19.45x, with a P/B of 2.85 and a market cap of Rs 13,434.7 crore post issue of equity shares and return on the net worth of 16.5 percent.
“The company is an HFC focused on the low-income housing segment in India with the highest AUM and net worth among their analyzed peers with a Seasoned business model. We believe that the IPO is fairly priced and recommend a ‘subscribe-long term’ rating for the IPO.” said analysts at Anand Rathi Share and Stock Brokers.
Swastika Investmart: High-risk investors can subscribe
“Aadhar faces inherent risks associated with the creditworthiness of its low-income clientele and increases in NPAs. Additionally, the company operates in a highly competitive industry and is susceptible to interest rate volatility,” said analysts at Swastika Investmart.
Aadhar's high reliance on borrowing necessitates a cautious approach. “Therefore, we recommend this IPO only for high-risk investors seeking long-term exposure to the affordable housing sector,” analysts added.
Aditya Birla Money: Subscribe
“We believe that Blackstone’s resources, relationships and expertise as a market leader in the low-income housing segment in India can create a huge opportunity, going forward. We have a ‘subscribe’ recommendation for this issue,” said analysts at Aditya Birla Money.
Anchor Investors
The company raised Rs 897.9 crore from anchor investors on May 7. Marquee institutional investors including Morgan Stanley, Clarus Capital, Neuberger Berman Emerging Markets Equity Fund, CLSA Global and East Bridge Capital took part in the anchor book.
DFC Mutual Fund, ICICI Prudential Mutual Fund, Axis Mutual Fund, Invesco India, Whiteoak Capital, Quant Mutual Fund, Bandhan Mutual Fund, JM Financial Mutual Fund, Mahindra Manulife, and LIC Mutual Fund also made investments in Aadhar Housing.
Financials
The Bengaluru-based retail-focused housing finance company with 487 branches in 20 states in India has recorded healthy financial performance in the past as net profit grew by 22.5 percent on-year to Rs 544.8 crore for the year ended March FY23. Net interest income for the year increased by 28.6 percent to Rs 1,244.3 crore compared to the previous year, with net interest margin (NIM) expansion of 110 bps at 8 percent during the same period.
Net profit for the nine months ended December FY24 (9MFY24) jumped 35.6 percent to Rs 547.9 crore compared to the same period previous fiscal. Net interest income rose nearly 30 percent during the same period to Rs 1,170.4 crore, with NIM expanding 100 bps at nine percent.
Disbursements during 9MFY24 at Rs 4,904 crore grew by 24.3 percent over 9MFY23 and the same in FY23 was increased by 48 percent to Rs 5,902.6 crore compared to FY22.
Valuation
Aadhar Housing Finance’s price-to-earnings (P/E) ratio at 19.45 times is comparatively cheaper than Aptus Value Housing Finance (31.3x), Aavas Financiers (28.1x), Home First Finance Company India (34.9x) and India Shelter Finance Corporation (33.1x).
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