Buy Aadhar Housing Finance Ltd For Target Rs.550 - ICICI Securities
Largest AHFC with deep distribution and industry leading spread
Aadhar Housing Finance (Aadhar) was amongst the first few AHFCs to get HFC licence, way back in 2010, and since then its execution track record under the leadership of Mr. Deo Shankar Tripathi (Executive VC) and Mr. Rishi Anand (MD & CEO) has been superior. It delivered 18% AUM CAGR between FY18–24 with AUM of INR 228bn, as of Sep’24, driven by an early entry into under-penetrated markets of UP, MP, Chhattisgarh and Jharkhand etc., complemented by its focus on diversification (no single state is contributing >15% of AUM) and one of the highest branch networks of 545; these have been key enablers for Aadhar. More importantly, incremental growth came in at higher spread of ~6% vs ~5-5.25% for peers. Maintain BUY with TP of INR 550, valuing the stock at ~3x FY26E BVPS.
Early entry into under-penetrated markets and then focus on deepening helped in sustaining disbursements
Building a pan-India mortgage business is challenging given the state-wise legal divergence and complexity. Hence, even after a decade in mortgage business, most players are still geographically concentrated with home state / single state contributing >30% of AUM. Aadhar stands out on geographical diversification with no single state contributing >15% of AUM. Immediately post getting HFC license in 2010, it entered low-income underpenetrated markets such as UP, MP, Chhattisgarh, Jharkhand etc. unlike competition which focused on Southern and Western markets. During FY11- 17, it focused on widening its presence vs competition, which focused on deepening in home state/single state. As a result, by FY18, it was already present in >15 states. After getting familiar with local economic dynamics and legal understanding, between FY18-24 it focused on going deeper in those markets, and thereby, remaining ahead of the competition in terms of coverage. The same has enabled it in sustaining strong growth momentum as reflected in 18% AUM CAGR between FY18-24 even on a high base. Its AUM as on Sep’24 at INR 228bn is one of the highest within listed peer set. Its quarterly disbursements stood at INR 20.3bn during Q2FY25 vs INR 12.9bn for Aavas vs INR 11.8bn for Home First vs INR 9.4bn for Aptus and INR 8.3bn for India Shelter.
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