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Five things to keep in mind in Aptus Value Housing Finance’s IPO

Aptus Housing’s gross bad loans have remained below 1% of its book in FY21, despite the pandemic.Premium
Aptus Housing’s gross bad loans have remained below 1% of its book in FY21, despite the pandemic.

  • Aptus Housing Finance’s metrics are decent compared with other similar sized listed peers such as Magma Housing Finance Ltd, Shriram Housing Finance Ltd, and larger ones such as Repco Home Finance Ltd. In yield on assets, Aptus trumps most peers with 17.3% for FY21

The housing finance market has shown resilience despite the pandemic and most lenders including banks have seen decent growth in home loans during FY21 and even in the first quarter of the current financial year. That said, it is a crowded market with intense competition and the initial public offer of Aptus Value Housing Finance India Pvt Ltd should be seen in this context. The company is a non-bank home loan lender with operations concentrated in Tamil Nadu. The company is targeting to raise roughly Rs2,700 crore through the IPO wherein about Rs500 crore would be fresh issue of shares while the rest would be an exit for existing promoters through offer for sale. The indicative price band is 346-353 per share. What can investors expect from this IPO?

Better than the rest

Aptus Housing Finance’s metrics are decent compared with other similar sized listed peers such as Magma Housing Finance Ltd, Shriram Housing Finance Ltd, and larger ones such as Repco Home Finance Ltd. In yield on assets, Aptus trumps most peers with 17.3% for FY21. The yield for peers Aavas Financiers Ltd, Repco Home Finance and Aadhar Housing Finance Ltd fall in the 11-13% range. While cost of borrowing is higher for Aptus compared with others, the lender has been able to maintain its margins. This augurs well for the company’s profitability.

Southern pie’s appeal

The housing market of southern India, particularly the state of Tamil Nadu which contributes to more than half of Aptus Housing’s assets under management, is a crowded market. In fact, Tamil Nadu has the third largest share in total home loans given out in India as of FY21. The overall southern region has 35% share in outstanding home loans. Notwithstanding this, the market has potential to grow as shown by Aptus Housing Finance. The company is among the largest players with an AUM of 4,000 crore and has shown a decent growth compared with listed peers in the last few years.

Stress sources linger

Aptus caters largely to low and middle income self-employed borrowers, the prospectus informs us. Investors must note that in the wake of the pandemic, this segment has been the most stressed. But Aptus Housing’s gross bad loans have remained below 1% of its book in FY21, despite the pandemic. That shows the company’s risk management is robust and the lender has helped its borrowers navigate stress well. Further, collections have been strong since June after the brief impact from the second wave with July collection efficiency around 93%. But a source of stress for the lender would be business loans that form 27% of its loan book. Investors would need to discount the same. Further, the share of loan against property has also risen sharply for the lender.

Pandemic proof growth

The pandemic has brought deceleration to a strong housing loan growth with non-bank lenders reporting a flat or a low single digit growth for FY21. Aptus wasn’t an outlier here. Its AUM has remained steady in FY21 but on a compounded annual growth rate basis, Aptus outshines its peers. The lender’s AUM grew by 48% during FY17-FY21 period, higher than most peers. To be sure, the pandemic has impacted the momentum but the outlook on growth is sanguine.

Exiting investors

While the IPO will fetch funds for the company, the lender hardly needs capital as its Tier-1 capital adequacy ratio was at 73.63% as of March. Indeed, the issue will predominantly give an exit to some of the existing investors. Analysts at Jefferies India Pvt Ltd point out that existing investors, including founder promoter may divest close to 13% of stake in the company. At the upper end of the price band, the company is valued at 17,494 crore post issue. Analysts at Antique Stock Broking Ltd believe that the valuations assume strong growth for many years. The brokerage estimates a price-to-book ratio of 5.3 at the given valuation which appears dearer than peers.

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