Buy Aadhar Housing Finance Ltd for the Target Rs 600 by Emkay Global Financial Services Ltd
Aadhar reported a steady 1QFY27 performance, with PAT up 19% yoy to Rs2.82bn, aided by stable margins and ~18% AUM growth. Spread remained resilient at 5.8% and yields were steady at 13.5% despite industry-wide competitive pricing pressures. Aadhar’s approach to protect yields relies on a calibrated urban emerging market strategy, pivoting toward emerging markets that offer ~14.0-14.8% yields vs mature urban yields of ~11.5-12.0%. Overall asset quality metrics were stable (some seasonality impact), with GS3 at 1.32% and early-stage bounce rates holding steady (1+ DPD at ~7%). However, the sole near-term drag was a seasonally elevated 1Q credit cost at ~41bps. The management remained confident of delivering ~20% AUM and PAT growth for FY27, while expecting full-year disbursements to grow 17-18% (targeting an accelerated 23-24% in 2Q) and full-year credit costs to normalize downward to a guided 23-25bps. Factoring in the 1Q performance, margin outlook, and tightly controlled BT-out rate of 5%, the company appears well-positioned to deliver on its FY27 and medium-term guidance for growth and profitability. We maintain BUY and Jun-27E TP of Rs600, implying an FY28E PBV of 2.5x.
Spreads remained resilient, while credit cost stayed seasonally elevated Aadhar reported 1QFY27 comparable disbursements of Rs23.59bn, up 19% yoy (reported at Rs20.36bn, following a transition to cheque realization accounting), while PAT grew 19% yoy to Rs2.82bn. AUM stood at Rs313.64bn, registering 18% yoy growth. The portfolio spread remained resilient at 5.8%, with COF at 7.7% and annualized portfolio yield at 13.5% (with incremental borrowing costs at 7.3%). ROA remained strong at 4.0%, while ROE stood at 14.7%. Operating expenses were slightly elevated due to a Rs140mn one-off ESOP provision, and credit costs were the only near-term drag (~41bps), remaining seasonally elevated for the quarter. Overall asset quality was steady, with GS3 at 1.32% and PCR at 34.1%.
Strategic execution to support growth and profitability
The management remains confident about achieving ~20% AUM and PAT growth in FY27, supported by a 17–18% full-year disbursement growth target (~40-50 branch additions), with growth in the remaining quarters expected to accelerate past 20%. To offset intense urban pricing competition, Aadhar is effectively executing its urban emerging market strategy, capturing higher yields in emerging markets to firmly sustain portfolio spreads at 5.5% or above. These strategic shifts are reinforced by a newly deployed six-layer AI architecture designed to boost operational productivity, which is expected to continuously improve the cost-to-income ratio by 30–40bps and cost-to-AUM ratio by 6–7bps annually. With full-year credit costs guided to normalize at 23–25bps and GNPA targeted to improve to ~1.1% by year-end, the company is on track to deliver resilient asset quality and achieve its medium-term targets of ~4.3-4.4% ROA and ~17% ROE
Estimates largely unchanged; maintain BUY
Considering the 1QFY27 performance and management commentary, we retain our estimates and maintain BUY with an unchanged Jun-27E TP of Rs600, implying FY28E PBV of 2.5x.
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