Nomura’s target price on Aadhar Housing Finance implies a 20.3 per cent upside from the stock’s last closing price on the BSE.
“Aadhar Housing Finance has a longer runway for growing its loan against property (LAP) book due to its higher share of home loans. Besides, Aadhar has one of the lowest opex ratios in the industry, which increased in FY24 due to IPO-related expense,” Nomura noted.
Nomura’s Buy call is driven by the stock’s least expensive valuations among other affordable housing financiers and high geographical diversification.
Nomura initiates coverage on Aadhar Housing: Key reasons
Aadhar Housing Finance, according to Nomura, is one of the best plays in the segment as it focuses on the low-income housing segment, with ticket size of less than Rs 0.15 crore, in India.
“We believe Aadhar has a dominant position, and should benefit from industry tailwinds with consistent growth and high profitability among financial peers. We estimate an earnings per share (EPS) CAGR of 20 per cent during FY24-26 with return on assets (RoA) and return on equity (RoE) of 4.4 per cent and 17 per cent, respectively, over FY25/26,” Nomura said.
It also expects Aadhar to deliver an asset under management (AUM) CAGR FY24-26F of 22 per cent.
1) Aadhar is the most diversified affordable housing financier
Aadhar Housing Finance has a presence in 20 states/union territories (UTs) which is highest amongst the peers. India Shelter is present in 15 states, and Home First, Repco, and Aavas each have presence in just 13 states.
Aadhar Housing Finance also has the highest number of branches among peers and the second-highest number of branches per state in FY24.
“Further, unlike Aavas and Repco, which have high concentration in single state of Rajasthan and Tamil Nadu, no state in Aadhar has AUM concentration more than 14 per cent, offering Aadhar cushion in case of adverse political, environmental or social events,” Nomura said.
2) Higher share of home loans for Aadhar Housing in AHFCs
As per the Reserve bank of India’s (RBI’s) regulations, HFCs are required to have minimum 60 per cent home loans in overall loan book.
In AHFCs, Aadhar Housing has the second-highest share of home loans in the mix, just behind Home First Finance (75 per cent).
“This higher share of home loans provides a long runway for Aadhar to achieve high growth (higher than pure home loans) while maintaining/expanding spreads,” Nomura noted.
3) No significant movement in ticket size
While Home First had the highest ticket size on AUM among affordable housing financiers (Rs 0.115 crore) as of FY24, Aadhar had Rs 0.1 crore (9MFY24).
Within the home loans segment, the ticket size of Aadhar Housing increased from Rs 0.09 crore in FY22 to Rs 0.1 crore as of 9MFY24.
4) Aadhar does not operate high cost loan sourcing model
Aadhar Housing has various channels to source the loans including, DSAs, DSTs, connectors, Aadhar Mitras.
5) Aadhar has lower opex, better asset quality than peers
Opex-to-average assets of Aadhar Housing has been increasing over the past two years, mainly on account of front-ended expansion in branch network; however, the ratio still remains significantly lower than Aavas and India Shelter, Nomura said.
That apart, Aadhar Housing has maintained healthy asset quality levels. Its gross stage-3 ratio stood at 1.1 per cent as of FY24. Its provision coverage ratio on Stage 3 loans was at 41 per cent.
Affordable Housing: Nomura view on the sector
Driven by acute housing shortage, low mortgage penetration and rising income levels, and aided by government policies, global brokerage Nomura believes India’s affordable housing financiers are on a “long-term, structural” growth path.
“As per our initial estimates, the housing loan industry should grow at around 14-15 per cent over the next decade, leading to the market more than doubling in the next five years. Affordable housing lenders, within the larger financiers’ pool, have an edge in the low income mass-market category, which is the least-serviced segment,” the brokerage said in a report dated July 16.
Valuation wise, affordable housing financiers are trading at 2.4x-3.4x FY26E P/B, which is around 70-120 per cent premium over prime HFCs.
There are expectations of more than 20 per cent loan growth and 15-18 per cent RoE over the next two decades, which is largely baked into the valuations.
First Published: Jul 17 2024 | 12:25 PM IST
