Aavas Financiers’s loan book grew by 78% CAGR over FY14-18 to INR 40bn. Given, the industry tailwinds like Government’s push for affordable housing (through tax incentives, budgetary allocation and CLSS scheme), the estimated shortage in housing in both rural & urban areas (43.67mn and 10mn respectively), increasing urbanization and higher disposable income, the strong loan growth momentum is expected to continue in the coming years also.
The management of the company has conservatively built their existing portfolio with Zero exposure to developer finance, under construction properties and plots, to keep the book granular.
In FY18, 60.40% of the Gross Loan Assets came from customers who belonged to the economically weaker section and the low income group and 34.76% from customers who were new to credit. Self employed segment accounts for ~63.81% of the Gross Loan Book. As of FY18, LAP accounts for ~23% of their loan book.
Valuation and Outlook
AFL has a healthy capital base, to fund growth objectives in the long term, (pre issue CRAR is at 61.55%). Tailwinds in affordable housing
segment would augur well for the loan book growth going ahead. Its target customers being self employed individuals, will aid in keeping the yields higher than peers and result in elevated NIMs. This coupled with stringent credit practices will keep the GNPAs lower and hence aid in scripting the earnings growth going ahead.
The company will raise funds to the tune of INR 4bn through this issue, which will boost the capital adequacy further (CRAR will be 81%, considering RWAas at FY18). We believe the valuation of 4.16X FY18’s BV (on the upper limit of INR 821) is justified, given its loan growth potential, superior yields on assets and best in class asset quality. Hence we recommend a SUBSCRIBE to the issue.
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