Robust risk management architecture shall aid in superior asset quality
The company has implemented robust risk management architecture to identify, monitor
and mitigate risks inherent in their lending operations. Hence, the company was
able to maintain its asset quality across economic cycles including events such
as demonetization, the implementation of the Goods and Services Tax, the liquidity
crisis that was triggered by defaults by large financial services companies and
the COVID-19 pandemic. Most importantly, the company has not restructured any loans
or written-off any loans receivable since the inception, as the company primarily
targets customers whose sources of income according to them are more resilient to
economic cycles. As of March 31, 2021, their home loans, loans against property
and business loans had an average loan-to-value of 38.89%, 38.27% and 39.21%, respectively,
at the time of sanctioning of the loan. They also seek to maintain an instalment
to income ratio of at least 1:2.
Expanding its market in other states shall provide further impetus to growth
The company intends to expand their branch network in large housing markets in the
states of Maharashtra, Odisha and Chhattisgarh. The company also continues to expand
their presence in an on-ground continuous manner in order to achieve deeper penetration
in the existing regions. Before setting up new branches, the company conducts research
and considers a number of factors such as regional demographics, level of urbanization
and the competitive landscape. The company believes that their operating model is
scalable and shall assist them in expanding their operations with lower incremental
costs to drive efficiency and profitability.
Major focus on maintaining robust asset quality
The company intends to grow their business while focusing on maintaining their asset
quality. The company has also maintained its asset quality across economic cycles
and were able to consistently perform well through such macro-economic challenges
due to several factors including the risk management architecture, the strength
of the management team and proactive measures undertaken during such periods. As
of FY19/FY20/FY21, its Gross NPAs expressed as a percentage of Gross Loan Book stood
at 0.40%, 0.70% and 0.68%, (the GNPA for rural portfolio was 0.49%, 0.72% and 0.68%
the same for their urban portfolio was 0.28%, 0.67% and 0.71%) while its Net NPAs
stood at 0.30%, 0.54% and 0.49%, respectively.
Diversifying sources of borrowing has led to reduction in borrowing cost
Historically, the company has secured financing from several sources including private
and public sector banks, refinancing from NHB, financing from IFC, issuance of NCDs
and securitization transactions and these access to diversified and cost effective
sources of borrowings have aided in reducing its credit costs. The company has been
able to obtain cost-effective financing and optimize their borrowing costs due to
several factors including their improved credit ratings, stable credit history,
conservative risk management policies and strong brand equity. The credit ratings
by both ICRA and CARE are ICRA A+(Stable) and CARE A+; Stable, respectively as of
March 31, 2021. This has resulted into reducing their average cost of borrowings
(including securitization) to 9.11% as of March 31, 2021 from 10.17% as of March
31, 2020. The company aims to further increase their lender base, which has grown
to 17 as of March 31, 2021 from 14 as of March 31, 2019.
Established track record of financial performance with cost efficiencies
The company’s major focus is to serve self-employed customers which has resulted
in high yields for their loan portfolio. As of March 31, 2021, their average yield
on disbursements was 16.88%, with home loans, loans against property and business
loans accounting for 15.38%, 17.00% and 20.45%, respectively. The company’s
loan portfolio also qualifies for priority sector lending and it lays emphasis on
improving cost efficiencies by monitoring and controlling their operating costs
and setting up branches in an economical manner. According to the CRISIL Report,
the company had lowest cost to income ratio amongst its peers during FY21. During
the last 3 financial years i.e FY21, FY20 and FY19, their operating expenses to
net income ratio stood at 21.80%, 26.08% and 30.34%, respectively. The company’s
AUM per employee grew from Rs 17 million as on FY19 to Rs 21.26 million as on March
31, 2021 and this indicates their focus on low credit costs which has resulted in
high Return on Assets (RoA). The company had the highest RoA of 5.7% amongst its
peers during the FY21.
Particulars (Rs in crores) | FY19 | FY20 | FY21 |
---|---|---|---|
AUM/Gross Loan Assets | |||
Home Loans | 1219.44 | 1661.59 | 2103.21 |
Loan against property | 302.91 | 580.99 | 890.34 |
Business Loans | 724.88 | 936.11 | 1074.21 |
Total | 2247.23 | 3178.69 | 4067.76 |
Disbursements | |||
Home Loans | 564.07 | 627.47 | 665.25 |
Loan against property | 218.5 | 314.23 | 369.8 |
Business Loans | 306.47 | 329.28 | 263.13 |
Total | 1089.04 | 1270.98 | 1298.18 |
Average ticket size on disbursements | |||
Home Loans | 0.078 | 0.076 | 0.072 |
Loan against property | 0.074 | 0.072 | 0.071 |
Business Loans | 0.067 | 0.072 | 0.07 |
Incorporated in 2009, Aptus Value Housing Finance India Limited (“Aptus”) is an entirely retail focused housing finance company primarily serving low and middle income self-employed customers in the rural and semi-urban markets of India. The company is one of the largest housing finance companies in south India in terms of AUM, as of March 31, 2021. The company offers customers home loans for the purchase and self-construction of residential property, home improvement and extension loans; business loans; and loans against property, which constituted for 51.70%/26.41%/21.89% of their AUM, as of March 31, 2021, respectively. The company offers loan to only retail customers and do not provide any loans to builders or for commercial real estate. The company had the largest branch network in south India among the peers and as of March 31, 2021, the company had a network of 190 branches covering 75 districts in the states of Tamil Nadu, Andhra Pradesh, Karnataka and Telangana.
We expect that company may grow supported by healthy capitalization, domain expertise in specific regions, resilient asset quality, structurally higher profitability driven by better margins and lower credit costs. However, majority of the company’s loan portfolio comes from one state and past experiences of peers suggest that slowdown in home states impact growth as well as profitability for regional housing finance companies. At the upper price band of Rs 353, the IPO is valued at 8.5x of FY21 P/BV and as the issue is very highly priced it does not leave any scope of further upside. Also there is no differentiated business model which would demand such lofty valuation. Thus we recommend “Avoid” to this IPO offer.
Peer Comparison
Particulars | AUM | Disbursements | FY21 | |||||
---|---|---|---|---|---|---|---|---|
Rs in Crores | FY21 | CAGR (FY17-21) | FY21 | CAGR (FY17-21) | Total income | PAT | NIM% | ROA% |
Aptus value housing | 4070 | 48% | 1300 | 33% | 550 | 220 | 9.72 | 5.73 |
Aadhar housing Finance | 13330 | 43% | 3550 | 20% | 1550 | 340 | 5.65 | 2.62 |
Aavas Financiers | 9450 | 37% | 2660 | 18% | 1110 | 290 | 7.79 | 3.49 |
Home first financing | 4140 | 51% | 1100 | 27% | 490 | 100 | 6.73 | 2.5 |
Use of Proceeds:
The issue offer is worth Rs 2780.05 crores (at the upper price band) via book building
route. It comprises a fresh equity issue for Rs 500 crores and an Offer for Sale
(OFS) of Rs 2280.05 crores. Fresh issue will be utilized to augment the capital
base to meet future capital requirements and general corporate purposes.
Book running lead managers:
ICICI Securities Ltd., Citigroup Global Markets India Pvt. Ltd., Edelweiss Financial
Services Ltd. and Kotak Mahindra Capital Co. Ltd.
Management:
M Anandan is the Chairman and Managing Director of the company. He has over 40 years
of experience in the financial services sector and has previously served as the
managing director of Cholamandalam Investment and Finance Co Ltd, part of the Murugappa
Group and was also managing director of Cholamandalam MS General Insurance Co Ltd.
Balaji P is the Chief Financial Officer of the company. He has various years of
experience in the textiles, telecom and finance sectors. He was previously associated
with the Bombay Dyeing and Manufacturing Co Ltd, Hutchison Max Telecom Ltd and Cholamandalam
MS General Insurance Co Ltd.
DESCRIPTION | Mar-19 | Mar-20 | Mar-21 |
---|---|---|---|
Interest income | 310.80 | 485.20 | 623.80 |
Interest Expense | 116.20 | 184.50 | 206.50 |
Net Interest Income | 194.60 | 300.70 | 417.30 |
Other Income | 26.10 | 38.30 | 31.20 |
Total Income | 220.70 | 339.00 | 448.50 |
Total Operating Expenses | 67.03 | 88.47 | 97.79 |
PPOP | 153.67 | 250.53 | 350.71 |
Provisions and Contingencies | 1.17 | 3.43 | 5.81 |
Profit Before Tax | 152.50 | 247.10 | 344.90 |
Provision for Tax | 41.22 | 36.20 | 78.10 |
Tax Rate% | 27.00% | 15.00% | 23.00% |
Profit After Tax | 111.28 | 210.90 | 266.80 |
Earnings Per Share | 2.83 | 4.77 | 5.56 |