Housing finance company Aavas Financiers is going to open its initial public offer for subscription on September 25 with a price band of Rs 818-821 per share.
The issue will close on September 27. Bids can be made for a minimum lot of 18 equity shares and in multiples of 18 equity shares thereafter.
Equity shares are proposed to be listed on BSE and NSE. The global co-ordinators and book running lead managers to the offer are ICICI Securities, Citigroup Global Markets India, Edelweiss Financial Services and Spark Capital Advisors (India). The book running lead manager to the offer is HDFC Bank.
Here are 10 key things one should know before subscribing the issue:
Aavas is a retail, affordable housing finance company, primarily serving low and middle income self employed customers in semi-urban and rural areas in India. According to ICRA Report, company had the lowest gross NPAs as of March 2018 and the second highest growth rate of assets under management for the last three financial years, among affordable housing finance companies that had assets under management between Rs 2,500 crore and Rs 20,000 crore.
Company offers customers home loans for the purchase or construction of residential properties, and for the extension and repair of existing housing units.
Aa of June 2018, Aavas conducted operations through 166 branches covering 95 districts in eight states of which, it has a significant presence in the four states of Rajasthan, Gujarat, Maharashtra and Madhya Pradesh.
About the Issue
The public issue comprises a fresh issue of up to Rs 400 crore and an offer for sale of up to 1,62,49,359 equity shares by Lake District Holdings (88,15,439 equity shares), Partners Group ESCL (42,81,907 equity shares)), Kedaara Capital Alternative Investment Fund – Kedaara Capital AIF 1 (2,36,339 equity shares) and Partners Group Private Equity Master Fund LLC (18,79,110 shares), and Sushil Kumar Agarwal (9,11,564 equity shares) and Vivek Vig (1,25,000 equity shares).
Aavas Financiers aims to raise Rs 1,729.2 crore at lower end of price band and Rs 1,734.07 crore at higher end of price band.
Out of which, the company already raised Rs 520.22 crore from 34 anchor investors and finalised allocation of 63,36,439 equity shares to them at Rs 821 per equity share.
Objects of the Issue
Net proceeds of the fresh issue will be utilised towards increasing company’s Tier I capital base to maintain the minimum capital adequacy ratio and to meet future capital requirements arising out of growth in business.
Company will not receive any proceeds of the offer for sale by the selling shareholders.
> Company has strong distribution network with deep penetration serving underserved customers in rural and semi-urban markets.
> In-house sourcing model leading to superior business outcomes: A direct sourcing and collection system enables company to optimally price offerings and maintain asset quality.
> Company has implemented a robust and comprehensive credit assessment, risk management and collections framework to identify, monitor and manage risks inherent in operations.
> Company has access to diversified and cost-effective long-term financing.
> Company has made significant investments in information technology systems and implemented automated, digitised and other technology-enabled platforms and proprietary tools, to strengthen offerings and derive greater operational, cost and management efficiencies.
> Company's management team has extensive knowledge and understanding of the housing finance business and the expertise and vision to organically scale up business.
> Company intends to continue to expand in an on-ground contiguous manner, to drive greater and deeper penetration in the eight states in which it operates and sets up an additional 70 branches during Fiscal 2019.
> Company plans to continue to focus on low and middle income self employed customers and increase the market share of existing products in the rural and semi-urban markets of India.
> Company has been able to access cost-effective debt financing and reduced average cost of borrowings over the years due to several factors, including financial performance and improving credit ratings.
> Company intends to increase product portfolio and improve cost efficiency through use of technology and data analytics
> Company intends to continue to undertake initiatives to increase the strength and recall of 'Aavas' brand to attract new customers.
Financials and Peer Comparison
Management and PromotersKrishan Kant Rathi is the chairman of Board and an independent Director. He is a qualified chartered accountant and is a member of the Institute
of Chartered Accountants of India. He was previously associated with the Future Group as the chief financial officer, Future Consumer as the chief investment officer and chief executive officer, H & R Johnson (I) Limited and KEC International Limited. Presently, Krishan Kant Rathi is the managing director of Indianivesh Fund Managers Private Limited.
Sushil Kumar Agarwal is the whole-time Director and CEO of company. He has been associated with company since its incorporation in 2011. Sushil Kumar Agarwal is a qualified chartered accountant. He was previously associated with AuSFB as its Business Head – SME & Mortgages. Sushil Kumar Agarwal has previously also worked with ICICI Bank as its chief manager and with Kotak Mahindra Primus Limited as an assistant manager. He has more than 17 years of experience in the field of retail financial services.
Ghanshyam Rawat is the Chief Financial Officer (finance and treasury) of company. He presently heads our finance and treasury; accounts; internal audit; compliance; budget and analytics departments. He has been previously associated with First Blue Home Finance Limited, Accenture India Private Limited and Deutsche Postbank Home Finance Limited.
Lake District and ESCL are the promoters of company. Lake District and ESCL currently holds 47.83 percent and 23.23 percent of the pre-Offer issued, subscribed and paid-up equity share capital of company, respectively.
Risks and Concerns
Here are some risks and concerns highlighted by several brokerage houses:> As of June 2018, the company conducted operations through 166 branches across 95 districts in eight states, of which 157 branches were in
western India in Rajasthan, Maharashtra, Madhya Pradesh and Gujarat.
> Industry Risk: Housing finance companies are highly regulated by various rules and regulations. Any kind of adverse modifications in regulations might impact volatility. Even the company need to be prepared to sustain industry demand volatility and interest rate hikes by central bank.
> Self-employed customers are often considered to be higher credit risk customers due to their increased exposure to fluctuations in cash flows and to adverse economic conditions. As of March 2018, 63.81 percent of gross loan assets were from self-employed customers.
> The company has around 70 percent of its borrowings at floating rates and 55.43 percent of loan assets at floating rates. Rising bond yields could exert pressure on NIMs, as the company may find it difficult to pass on the increase in costs to the customers, due to increasing competition in the affordable housing space.> The company faces significant competition from banks, other HFCs, small finance banks and NBFCs who have entered these markets as well as
private unorganised lenders who typically operate in rural and semi-urban markets.
> Default Risk: The company caters to the low-and-middle income customers, which poses comparatively higher non-repayment and default risk.
> If customers default, the company may receive less money from liquidating collateral than is owed under the relevant financing facility, and, in turn, incur losses.
> Any downgrade in the company’s credit ratings could increase its borrowing costs; affect their ability to obtain financing, and adversely affecting their business, financial condition and cash flows.> Supreme court in its recent ruling, halted all construction projects in Maharashtra, Madhya Pradesh, Uttarakhand and Chandigarh after they failed to comply with its order to come up with a policy on solid waste management, till next hearing (October 9th). Projects worth Rs 4.64 lakh crore, for a total of 575,900 units are already behind schedule in the country and this could further add on to the number. The company has significant operations in these states, though their exposure to under construction projects in these states is not known exactly. Though the company has no exposure towards construction finance (and hence there is no impact on recoveries), this could delay disbursement growth for the company from these regions in individual loan segments.