Why Aavas Financiers Share Price is Falling

Editor's note: Shares of Aavas Financiers have remained under pressure ever since the unexpected exit of its founder.

After over a decade's association, Sushil Agarwal, founder as well as managing director (MD) and chief executive officer (CEO) decided to pare stake in the company in April 2023.

The management team is currently headed by Sachinder Bhinder and Ghanshyam Rawat.

Sushil Agarwal moved out of the organisation on 3 May 2023.

The stock is currently trading at its 52-week low levels and is available at reasonable valuations.

When the MD pared his stake in the company, we covered a detailed article explaining the impact, what lies ahead for the housing financier, and more.

Continue reading...

Why Aavas Financiers Share Price is Falling

According to exchange data, foreign portfolio investors (FPIs) heavily bought shares of financial services stocks in the first two weeks of the financial year 2023-24.

They purchased finance stocks worth Rs 44.1 billion (bn) during this period.

With the sector seeing strong demand tailwinds in 2023, many stocks have emerged as big winners, while others have failed to generate satisfactory returns.

One of them is Aavas Financiers.

Shares of the company are down 21% so far in 2023, with a fall of 9% in the past five days.

However, this is not the first time that the stock has failed to generate negative returns.

Investors in Aavas Financiers have tasted the bitter downside last year too, when the share price dropped 34%. This is particularly disappointing when considering the market decline of 1.7%.

With this continuous downtrend intensifying in 2023, let's find out why Aavas Financiers is under pressure.

#1 MD's stake reduction impact

According to the latest shareholding pattern of Aavas Financiers, managing director and CEO Sushil Agarwal has reduced his holding by 1.75% in the March 2023 quarter.

Mr. Agarwal has reduced his shareholding in the company to 1.55% against 3.3% in the December 2022 quarter.

He sold 1.4 million (m) shares during the quarter, dragging the number of shares down to 1.2 m against 2.6 m in December 2022 quarter.

Following the update, the share price of Aavas declined 6.3% intraday, further hitting a 52-week low on 24 April 2023.

This is because Agarwal is a key member of the company's leadership team and the sale of his stake may have caused concern among investors.

Apart from this, promoters of the company have consistently reduced their stake in the company since September 2021.

Look at the table below.

Quarter ending	21-Jun	21-Sep	21-Dec	22-Mar	22-Jun	22-Sep	22-Dec	23-Mar
Stake (%)	50.07	39.22	39.21	39.2	39.19	39.16	39.15	39.2

Update: The updated table looks something like this now. Promoters have constantly decreased their stake in the company which investors are considering as a big red flag.

Long-term outlook

Going forward, the company plans to enhance the technological upgradation systems for LOS, LMS, and ERP.

It's strengthening its distribution network by adding branches and improving technological systems. The company plans to deepen its presence in existing states and enter new states.

In addition, the company has collaborated with the International Finance Corporation to achieve EDGE certification for affordable, green self-built homes.

This is the first-ever pilot project by IFC and EDGE in collaboration with Aavas for self-built green homes not just in India but at a global level, marking a significant turning point in the history of construction and affordable housing finance space.

The company is focusing on sustainable expansion and is maintaining and improving its growth, operating, and asset quality metrics as its business scales new heights.

Update: Given the increasing urbanisation trend and affordable mortgage rates, Aavas Financiers is a prime beneficiary in the segment it operates.

It has a healthy capital adequacy ratio. The company also has low risk as it's focused on smaller ticket home loans. This keeps its asset quality in check.

The company also enjoys lower borrowing cost compared to peers. It has maintained strong relationship with all the leading banks including PNB, SBI, HDFC Bank.

It also gets funding support from various international agencies, such as Asian Development Bank (ADB), International Finance Corporation (IFC), and British International Investment.

How Aavas Financiers shares have performed recently

Aavas Financiers shares have declined by more than 21% in 2023. Over the month, the company's shares have been trading lower by 20%.

Aavas Financiers touched its 52-week high of Rs 2,077 on 16 November 2022 while it touched a 52-week low of Rs 1,335 on 12 June 2023.

About Aavas Financiers

Aavas Financiers is a housing finance company in India. It was originally incorporated as Au Housing Finance Limited on 23 February 2011.

The company provides housing loans to customers belonging to the low and middle-income and self-employed segments in suburban and rural India. Its only operating segment is Lending to borrowers.

The company's product portfolio includes home loans, land purchase and construction, home improvement loan, and others.

It offers customers loans for the purchase or construction of residential properties and the extension and repair of existing housing units.

For more details, see the Aavas Financiers company fact sheet and quarterly results.

For a sector overview, read our finance sector report.

You can also compare Aavas Financiers with its peers -

Aavas Financiers vs Aditya Birla Capital

Aavas Financiers vs Aptus Value Housing Finance

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

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