Aadhar Housing Finance IPO: A Promising Play on the Affordable Housing Boom

Despite geopolitical tensions and looming elections, Indian stock market continue to outperform major global indices.

This momentum is expected to carry over into the primary market in May, with a flurry of IPO launches and listings raising a total of Rs 70 billion (bn).

This year marks a significant departure from the past two decades, where the Indian primary market typically stagnated before elections.

The amount raised through IPOs in the six months leading up to the 2024 election cycle has already surpassed the combined total of the previous four election periods by a factor of seven.

Among the highly anticipated offerings in May, one of the most awaited IPOs of 2024, Aadhar Housing Finance is set to make its debut.

#1 About Aadhar Housing Finance

Specialising in mortgage-related loan products, Aadhar Housing Finance provides various options, including loans for purchasing and constructing residential properties, home improvement and extension loans, and loans for commercial property construction and acquisition.

The company operates as a housing finance company (HFC) with a focus on the low-income housing segment.

Its clientele primarily consists of economically weaker and low-to-middle-income individuals in need of small-ticket mortgage loans.

As of 30 September 2023, the company possesses a network comprising 471 branches, among which 91 serve as sales offices.

The average loan size is around Rs 1 million (m) with a loan-to-value ratio of approximately 58%, showcasing a targeted approach to addressing the needs of its primary customer segment.

#2 Factors Setting this IPO Apart

• Aadhar Housing Finance is one of the largest affordable housing finance companies catering to borrowers with loan sizes typically below Rs 1.5 m. This focus on a market segment with high demand and limited competition, positions the company for growth.
• Blackstone, the US investment firm, acquired the stake in June 2019, via an associate firm, from Dewan Housing Finance Co. Ltd and the Wadhawan group, for around Rs 22 bn.

  Post-acquisition, Blackstone invested Rs 13 bn more into the company.

  Being owned by an affiliate of Blackstone group, a leading global investment firm, provides Aadhar with valuable resources and expertise.

  Blackstone's investment and industry connections gives the company an edge in the market.

• Aadhar boasts the most extensive network among its peers, with over 487 branches and 109 sales offices across 20 states. This widespread presence allows them to efficiently source and service loans, reaching customers in underserved areas.
• The company's financial performance has remained consistent and resilient through various external events in the Indian economy, such as demonetisation and the introduction of GST, etc.

  The company's overall growth, portfolio performance, asset quality and continued profitability during these periods demonstrate the strength of the business.

• Furthermore, Aadhar's focus on long-term borrowings, with all borrowings being long-term as of the recent financial years, underscores its prudent financial strategy.

  This, coupled with competitive borrowing costs and a stable funding base from diverse sources, including banks and mutual funds, enhances the company's financial stability and growth prospects.

These factors collectively make Aadhar Housing Finance a distinctive IPO with an established foothold.

Here are the key details of the IPO...

Issue period: 8 May 2024 to 10 May 2024

Type of issue: Book Built Issue

Price band: Rs 30 to Rs 32 per share

Face value: Rs 10 per equity share

Lot size: 47 shares

Application limit: Maximum thirteen lots for retail investors. Retail investors can make an application for a minimum of one lot for Rs 14,805 and their maximum investment would be 13 lots for Rs 192,465.

Tentative IPO allotment date: 13 May 2023

Tentative listing date: 15 May 2023.

The housing finance company has fixed a price band of Rs 300-315 per share for its initial share sale of Rs 30 bn.

#3 A Look at its Financials

The company has demonstrated revenue growth of 9.1% on a compounded annual growth rate (CAGR) basis over the period spanning from the financial years 2021 to 2023.

This performance can be credited to the growing customer base and a continuous growing demand.

While there was a good increase in revenue, the net profit of the company also increased from Rs 3 billion (bn) in March 2021 to Rs 5.5 bn in March 2023.

The housing finance company's gross assets under management (AUM) stood at Rs 198.7 bn at the end of December FY24, higher by 20% over the same period last year.

The company's net interest income for the year surged 28.6% to Rs 12.4 bn as against the previous year, with net interest margin (NIM) expansion of 1.1% at 8% during the same period.

Aadhar Housing Finance's Financial Snapshot (2021-23)

Particulars	31-Mar-21	31-Mar-22	31-Mar-23
Revenues (Rs in bn)	15.7	17.3	20.4
Revenue Growth (%)	-	10.1	17.9
Net Profit (Rs in bn)	3.4	4.5	5.5
Net Worth (Rs in bn)	26.9	31.5	36.9

Data Source: Company's Draft Red Herring Prospectus (DRHP)

Its net profit for the nine months ended December FY24 climbed 35.6% to Rs 5.5 bn, compared to the same period last year.

Net interest income rose nearly 30% during the same period to Rs 11.4 bn, with NIM at 9%.

Looking ahead, the company has plans to extend distribution network to achieve deeper penetration in key states.

#4 Peer Comparison

As per the company's red herring prospectus, these are the industry peers of Aadhar Housing Finance.

Peer Comparison

Company	Total Revenue (Rs in billion)	EPS (Basic) (in Rs)	Return on Net Worth (%)
Aadhar Housing Finance	20.4	13.8	16.5
Aptus Value Housing Finance	10.9	10.1	16.1
Aavas Financiers	16.1	54.4	14.1
Home First Finance Company	7.9	26	13.5
India Shelter Finance Corporation	5.9	17.8	13.4

Data Source: Company's Red Herring Prospectus (RHP)

Aadhar Housing Finance has the highest total revenue among the companies listed, indicating a large customer base and loan portfolio.

Aadhar Housing Finance has a competitive return on net worth, suggesting it's efficient at generating profits from shareholders' equity.

#5 Risks

• Aadhar Housing Finance is involved in certain legal proceedings, and an unfavourable outcome could have adverse implications for its business operations.
• If the company fails to identify, monitor, and manage risks, it could have an adverse material effect on the business.
• The company is vulnerable to volatility in interest rates and may face mismatches between assets and liabilities in the future, which may cause liquidity issues.
• Aadhar Housing Finance is obligated to adhere to stringent regulations and guidelines set forth by regulatory bodies such as the NHB and RBI in India. Compliance with these regulations may escalate compliance costs, divert management attention, and expose the company to penalties.
• Any increase in the levels of non-performing assets in the AUM, for any reason whatsoever, would adversely affect the business, results of operations, cash flows, and financial condition.

Conclusion

Aadhar Housing Finance is committed to its strategy of targeting customers and expanding its customer base while simultaneously investing in and deploying digital and technology-driven solutions.

The Indian home mortgage finance market is poised for remarkable growth, projected to be at a robust 13% compound annual growth rate (CAGR) from FY23 to FY26.

This growth is driven by increasing incomes, improved affordability, and substantial government support.

As the industry continues to evolve and expand, it is expected to play a crucial role in addressing the housing needs of millions and contributing to the overall growth and development of the nation.

Consequently, the forthcoming quarters are anticipated to yield favourable outcomes for housing finance companies (HFCs) and non-banking financial companies (NBFCs).

For more information on IPOs, check out the list of upcoming IPOs.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...