IPO: Aadhar Housing Finance

Aadhar Housing Finance Company (HFC) is coming up with its IPO (initial public offering) on May 8, 2024. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality: It reported a three-year average ROE > of 15 per cent. Moreover, it maintained an average gross NPA (non-performing assets) level of 1.3 per cent in the last three financial years. Growth: Over the last three years, its AUM (assets under management) grew by 14 per cent annually and PAT (profit after tax) by 27 per cent annually. Valuation: The stock is valued at a P/E and P/B of 19.5 and 2.6 times, respectively, compared to its peers' median P/E and average P/B of 27.16 and 3.47 times. Overview: Rising disposable incomes, the nuclearisation of families, and government support will help drive the demand for housing. According to an RBI report, the housing shortage in India is estimated to be around 10 crore units by 2022. Most of this shortage is among the lower-income groups (LIGs) and economically weaker sections (EWS). This is set to boost the demand for housing finance companies like Aadhar that cater specifically to low-income groups. About Aadhar Housing Finance Incorporated in 1990, Aadhar Housing Finance provides low-income/affordable housing loans (average loan value less than Rs 15 lakh). With an extensive network of 487 branches, it has a presence in 20 states and union territories. Formerly known as DHFL Vysya Housing Finance, its ownership was transferred to BCP Topco, which belongs to Blackstone Group, in 2019. Strengths of Aadhar Housing Finance Geographical diversification: The company is present in 20 states and union territories, the highest among its peers, with no single state contributing more than 15 per cent to its AUM. Thus, the company is relatively less vulnerable to political or social upheavals in a particular region. Prudent lending norms: Although the maximum loan-to-value (LTV) limits for a property with a market value up to Rs 30 Lakh are as high as 90 per cent, the company maintained an average LTV of 57 per cent during FY21-23, showing its cautious approach to housing finance. Its average GNPA (gross non-performing assets) ratio for the FY21-23 period stood as low as 1.3 per cent. Weaknesses of Aadhar Housing Finance Slow sectoral growth: The low-income housing finance sector has grown at a meagre 3 per cent annually during FY18-23, compared to the overall housing finance sector's growth of 14 per cent during the same period. This is primarily due to the overall subdued demand for low-cost housing and the highly unorganised state of financing in this segment. However, various affordable housing schemes by the government are expected to boost the demand. IPO details Total IPO size (Rs cr) 3,000 Offer for sale (Rs cr) 2,000 Fresh issue (Rs cr) 1,000 Price band (Rs) 300-315 Subscription dates May 8-10, 2024 Purpose of issue To meet future capital requirements for lending Post-IPO M-cap (Rs cr) 13,435 Net worth (Rs cr) 5,249 Promoter holding (%) 76.5 Price/earnings ratio (P/E) 19.5 Price/book ratio (P/B) 2.6 Financial history Key financials 2Y CAGR (%) TTM FY23 FY22 FY21 NII (Rs cr) 28.0 1,512 1,244 967 760 PAT (Rs cr) 26.6 689 545 445 340 AUM (Rs cr)