Aadhar Housing Finance IPO Review: Aadhar Housing Finance is coming up with its IPO issue of Rs. 3000 Cr which will open on 8th May 2024. The issue will close on 10th May and be listed on the exchange on 15th May 2024. This article will analyze the GMP, financials, strengths and weaknesses of the Aadhar Housing Finance IPO Review 2024. Keep reading to find out!

Aadhar Housing Finance IPO Review – Company Overview

Aadhar Housing Finance is a Housing Finance Corporation focused on the low-income housing segment disbursing loans to the tune of Rs. 15 Lakhs. The Company provides small ticket loans to middle-income customers.

As of December 2023, the gross assets managed by the Company are worth Rs. 19,865 Cr. The loans provided by Aadhar Housing Finance have an average ticket size of Rs. 9 – 10 Lakhs, with an average Loan-to-value ratio of 58.3% as of December 2023. 

The Company has a network of 487 branches which include 109 sales offices as well. 59% of the Loans disbursed by the HFC are to salaried customers and 41% to self-employed customers. 

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Since June 2019, BCP Topco has been the promoter of the Company. BCP Topco is an affiliate of funds managed and advised by affiliates of Blackstone Group Inc “Blackstone”.

The Company has secured funding from a variety of sources such as term loans and cash credit/ working capital facilities. Ir raises funds from the issuance of NCDs, refinancing from the National Housing Board (NHB), and subordinated debt borrowings from banks, mutual funds, and other domestic, development institutions to meet our capital requirements. 

Aadhar Housing Finance has a strong experienced management team with an average age of 25 years in the financial services industry. The board comprises independent directors and qualified and experienced personnel with extensive knowledge and understanding of the housing finance and banking industries. 

Aadhar Housing Finance IPO Review – About the Industry

The International Monetary Fund (IMF), on January 2024 economic outlook update, revised its India economic growth estimate in real terms for FY24 to 6.7% from the previous 6.3% estimate in October 2023, citing momentum from resilient domestic demand. 

Over the past three fiscals, the Indian economy has outperformed its global counterparts by witnessing a faster growth. Going forward as well, the IMF projects that the Indian economy will remain strong and will continue to be one of the fastest-growing economies. 

With increasing financial literacy, mobile penetration, and the Prime Minister’s Jan Dhan Yojana bank accounts (scheme aimed at bringing the unbanked under the formal banking system), there has been a rise in the participation of individuals from non-metro cities in banking. 

With more people attached to the formal banking sector, the demand for financial products in smaller cities has seen a major uptick in recent years. Nevertheless, in terms of the credit-to-GDP ratio, India has a low credit penetration compared with other developing countries, such as China indicating the potential that can be tapped.

Similarly, in terms of credit to households as a proportion of GDP as well, India lags other markets. As of FY23, rural areas, which accounted for 47% of GDP, received just 8% of the overall banking credit. This shows the vast market opportunity for banks and NBFCs to lend in these areas. 

With the increasing focus of government towards financial inclusion, rising financial awareness, and increasing smartphone and internet penetration, the delivery of credit services in rural areas will increase. 

Further, the usage of alternative data to underwrite customers is expected to also help the financiers assess customers and cater to the informal sections of society in these regions. 

Aadhar Housing Finance IPO Review – Financials

Aadhar Housing Finance’s interest income in FY23 was Rs. 1776 Cr, which increased by 15.5% from Rs. 1538 Cr in FY22. Since FY21, the interest income growth has remained at 12% CAGR.

Despite Interest Income increasing by just 15.5% YoY, interest expense on the other hand increased by just 5% during the same period and even dropped by 1% CAGR since FY21.

This falling cost of borrowing has led to a 25.7% increase in Net Interest Income from Rs. 777 Cr in FY22 to Rs. 977 Cr in FY23. Net Profits of the HFC also increased by 22.46% from Rs. 445 Cr in FY22 to Rs. 545 Cr in FY23. 

The HFC has seen a 6.8% CAGR drop in its Live accounts from 2.56 Lakh in FY21 to just 2.33 Lakh in FY23. This is due to the drop in Assets under Management from Rs. 19,865 Cr in FY21 to just Rs. 17,222 Cr in FY23. These were the financial highlights of the Aadhar housing finance IPO review

Aadhar Housing Finance IPO Review
Source: RHP of the Company

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Aadhar Housing Finance IPO Review – Key Players 

Here is a look at how Aadhar Housing Finance compares against some of its listed peers in the market. Aadhar is the largest revenue generator amongst its peers with a revenue twice the size of the top 2nd Company. 

Even in terms of return on net worth, aadhar has the highest RONW at 16.5%, much higher than the 16.1% of Aptus Value Housing Finance. 

Aadhar HFC Compared to its peer, TBO at a higher issue price of Rs. 314 and basic earnings of Rs. 13.80 will be issued at a PE of 22.75x.

Source: RHP of the Company

Strengths of the Company 

  1. Focused on low-income housing segment: Aadhar Housing Finance is focused on the low-income housing market which presents the Company to leverage its position to the majority of the Indian population in towns & villages.
  2. Customer-centric business model: The Company can offer loans to low-income middle-class families who could not finance a home loan from regular financial institutions. This allows the company to get a competitive advantage with the rising middle class.
  3. Extensive Branch Network: The Company has a Pan-India branch & sales office network. It has significantly increased its branch network from 310 in FY21 to over 487 as of FY23.
  4. Low Non-Performing Assets: The Gross Non-Performing Assets of the Company stood at 1.2% as of FY23. The Company has robust comprehensive and processes for underwriting, collections & monitoring asset quality.

Weaknesses of the Company

  1. Pending cases against former Promoters: The former promoters of the Company have ongoing regulatory investigations by the enforcement agencies including the ED
  2. Dependence on third-party CRAs: The Company depends on the information provided by the borrowers and also by the respective credit rating agencies such as CRIF, and CIBIL. Any misleading information provided by them could result in the disbursement of bad loans.
  3. Risk of NPAs: As a Housing Finance Corporation the Company’s assets are the loan disbursed to the borrowers. The HFC expects to receive payments regularly and is at risk of non-payment by these said borrowers.
  4. Potential lack in monitoring risks: The HFC under bad management can lack the capability to monitor & manage risk eventually leading to bad loans which can have an adverse impact on the Company’s profits.

Aadhar Housing Finance IPO Review – GMP

The shares of Aadhar Housing Finance traded at a 16.51% premium in the grey market on 06th May 2024. The shares in Grey Market traded at Rs 367. This gives it a premium of Rs 52 per share over the cap price of Rs 315.

Aadhar Housing Finance IPO Review – Key IPO Information

ParticularsDetails
IPO SizeRs. 3000 Cr
Fresh IssueRs. 1000 Cr
Offer for Sale (OFS) Rs. 2000 Cr
Opening date8 May 2024
Closing date10 May 2024
Face ValueRs. 10 per Share
Price BandRs. 300 - 314
Lot Size47 Shares
Minimum Lot Size1 Lot (47 Shares)
Maximum Lot Size13 Lots (611 Shares)
Min. InvestmentRs. 14,805
Listing Date15 May 2024

Promoters: BCP TOPCO VII PTE.

Book Running Lead Manager: ICICI Securities Ltd, Citigroup Global Markets India Pvt Ltd, Kotak Mahindra Capital Company Ltd, Nomura Financial Advisory & Securities (India) Pvt Ltd and SBI Capital Markets Ltd.

Registrar to the Offer: KFin Technologies Ltd

The Objective of the Issue

  1. Rs. 750 Cr will be utilized towards funding the capital requirements for future lending.
  2. The remaining amount will be utilized for General Corporate Purposes.

Conclusion

Aadhar Housing Finance is a housing finance company focused on providing small loans to the low and middle-income segments. Its key strengths include a focus on underserved segments, an extensive branch network, and relatively low NPAs. 

However, pending cases against former promoters and dependence on third parties are weaknesses. Financially, the company has shown steady growth in interest income and profits, aided by lower borrowing costs. 

Compared to peers, it is the largest revenue generator with the highest return on net worth. The IPO is priced at a reasonable 22.75x P/E. Overall, it appears a promising opportunity given its focus area and financials, but investors should consider the risks highlighted. So, will you be investing in the upcoming IPO? Let us know in the comments below.

Written by Nasir Hussain

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