IPO Note - Aptus Value Housing Finance India Ltd by Religare Broking
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About the Company
Incorporated in 2009, Aptus Value Housing Finance India Ltd. (Aptus) is an entirely retail-focused housing finance company, primarily serving low and middle-income self-employed customers in the rural and semi-urban markets of India. It is one of the largest housing finance companies in south India in terms of AUM as of FY21. It offers home loans (51.7% of AUM) for the purchase and self-construction of residential property, home improvement and extension loans; loans against property (21.9% of AUM); and business loans (26.4% of AUM). As of FY21, 99.5% of its AUM were from customers who belonged to the low and middle-income groups, earning less than ₹ 50,000 per month, and 39.9% of its customers were new to credit. It has implemented a robust risk management architecture which is reflected in its asset quality. It conducts all aspects of its lending operations in-house including sourcing, underwriting, valuation and legal assessment of collateral and collections, which enables them to maintain direct contact with its customers, reduce turn-around times and the risk of fraud. Further, Aptus has diversified its geographical presence by adopting a strategy of contiguous expansion across regions and is focused on achieving deeper penetration in its existing markets.
Objects of the Issue
* To fully augment the tier I capital requirements of the company
* To achieve the benefit of listing on stock exchanges
Valuation
The Indian housing finance market clocked a healthy CAGR of approximately 12% (growth in loan outstanding) over FY18 to FY21 on account of a rise in disposable income, healthy demand emanating from smaller cities and markets, attractive interest rates and government impetus on housing. Going forward, the home loan market is expected to bounce back more strongly in the long term and grow at 11-12% CAGR between FY21 and FY25. This would be led by strong government initiatives in the housing sector (PMAY-U, PMAY-G, Tax incentives, special financing window), rising urbanization and nuclearization, and rising income levels.
Aptus would benefit from positive industry growth trend given its strong presence in large and underpenetrated markets. It has implemented robust risk management architecture to identify, monitor and mitigate risks inherent in its lending operations. As a result, the company has maintained its asset quality across economic cycles including events such as demonetization, the implementation of the GST, the liquidity crisis that was triggered by defaults by large financial services companies and the COVID-19 pandemic. Going forward, the company intends to continue to focus on increasing its presence in rural and semi-urban markets. Moreover, it intends to increase penetration in existing markets and expand its branches. Further, it plans to reduce its cost of borrowings by diversifying the sources. The financial track record has been healthy for the company with stable asset quality. From a long term perspective, we have a positive view on the company.
Key Risks:
* i) The ongoing pandemic may impact growth and asset quality.
* ii) High concentration in 2 states (Tamil Nadu & Andhra Pradesh).
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