Subscribe to Aavas Financiers: Aditya Birla Money

Aavas is a slightly differentiated housing finance company, primarily serving low and middle income customers with self-employed constituting ~63.4% of total loan accounts. This segment requires strong underwriting skills which makes it a relatively low competitive space. This is enabling Aavas to grow at a sturdy pace. Aavas is mainly focusing on continuously acquiring new customers which we believe is the right strategy for sustainable credit growth. The company has historically grown credit at a staggering 67.2% CAGR to Rs 31.72 bn over FY14-18. We believe the company is well-poised to deliver strong credit growth going ahead owing to low base, Govt’s focus on Housing for all, improving rural income, etc.

We believe the company is well-poised to deliver strong earnings growth in the forthcoming years considering the underpenetrated housing finance market, niche presence of Aavas, well-managed risk matrix and efficient usage of technology. Expect the company to command rich valuations as competition intensity remains on lower side in the space Aavas operates; and the visibility of healthy 5% spread, stable asset quality and 2.5% RoA remains high. The company is adequately capitalized for superlative growth with CAR at ~61.6% as on FY18. With further capital infusion from IPO, the case is well-set for a rating upgrade which will further improve business prospects. At an upper price band of Rs 821, the stock is available at ~4.1x FY18 P/ABV and P/E ratio of 65.4x on post money basis. We recommend investors to SUBSCRIBE the issue and hold the stock from long term perspective. Listing gains may get limited considering the recent mayhem in NBFC space.

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