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Strong growth/quality at reasonable valuation

Aptus Value Home offers a favourable long-term risk-reward at current valuation (2.7x PABV and 16x PE on FY25E), wherein structural business model positives seem underemphasized. While concerns over stock supply in the longer run are tenable, the apprehensions around management transition and business scalability appear stretched. We view the appointment of Mr. Balaji as MD (erstwhile ED & CFO) as a non-disruptive development with growth/quality execution fairly verticalized and institutionalized at Aptus, and the likelihood of Mr. Anandan guiding strategy even after current term (ending in Dec’24) by being a Non-executive Chairman. Aptus has demonstrated regional diversification/scalability with comparable asset quality across disparate Southern markets. While existing markets can comfortably support 25-30% growth in coming years, the contiguous and calibrated entry/expansion in new states would aid long run prospects.

Structurally, portfolio spread and opex metric should remain in a narrow band underpinned by benefits from niche positioning, scale, tech investments and credit rating. Aptus’ strong customer and property underwriting, and focused collection mechanism gets reflected in low credit cost and GNPLs, and negligible actual loan write-offs. We estimate 27-28% AUM CAGR and 23-24% earnings CAGR over FY23- 26 with RoE crossing 18% in FY26 (without assuming further dividend payouts). At potentially 4-5x leverage in the very long run, Aptus can deliver 22-25% RoE. Reiterate BUY on favourable risk-reward with a 12m PT of Rs350.

Robust growth to continue - competition, pricing, management transition and new markets less of an issue

Demand and competition are apparently not a significant risk to growth for affordable housing financiers in general, and more so for Aptus which operates in interior demography and in relatively lower-ticket segment. The differentiated franchise profile (70%+ share of Rural/LIG/Self-employed borrowers and 35%+ New-to-credit) and significant contribution of non-HL products (SBL 21% and LAP 15%) imply substantial long-term growth opportunity. The streamlined execution model (sourcing, credit, collection and operational structure) has underpinned strong growth and scalability (37% AUM CAGR over FY18-23) without dilution of the yield (tapping of largely unserved customer segment and locations). Another indicator of negligible-to- low competitive pressure is balance transfer of loans being at just 2-4%.

Aptus has demonstrated regional diversification with comparable asset quality across disparate Southern markets/states. Key drivers of such scalability are 1) well- institutionalized policies & processes, 2) verticalized/focused credit and collection functions, 3) local property underwriting & centralized credit underwriting, 4) sound HR practices of local hires, near-industry salaries, monthly incentives, etc. and 5) optimal deployment of tech in fulfillment. The co.’s foray in new markets of OR and MH would be facilitated by above-mentioned practices and a contiguous expansion strategy (familiarity with next location). The portfolio scale-up would be calibrated in new markets, as Aptus is confident of sustained strong growth in existing markets with room for market share growth even in its larger states of TN and AP.

Recent elevation of Mr. Balaji as MD (erstwhile ED & CFO - 12 years with Aptus) is a neutral development from growth execution standpoint. Mr. Anandan (Founder) remains Executive Chairman till Dec 2024 and may well continue to guide strategy even after as Non-executive Chairman. The co. has a verticalized operating structure with each function headed by a competent person. Tech team is being strengthened and investments are being incurred towards increasing sourcing contribution from customer referral app, ecosystem partner app and social media. The growth focus on SBL is being sharpened by having a separate credit team, business team (in identified branches) and product head.

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