Buy Aadhar Housing Finance Ltd For the Target Rs. 670 by Investec Equities estimates
Geo diversification is driving healthy AQ
Aadhar reported PAT at Rs 2.6bn (up 17% YoY), in line with our ests. AUM stood at Rs 275bn (up 21% YoY, 4% QoQ). AUM growth is led by LAP segment (up 28% YoY). Disbursement growth moderated to 4% YoY in line with trends witnessed in other affordable HFCs. AQ performance is solid with 1+ DPD flat QoQ and GS2 declined 15bps QoQ. GS3 increased 8bps QoQ. GS2+GS3 slippages improved QoQ and YoY indicating solid AQ. NIM increased QoQ on lower CoF. Spreads expanded 10bps QoQ. RoA/RoE stood at 3.9%/16% for the quarter. Aadhar has reported a strong quarter on AQ and profitability, though disbursement growth moderated YoY. We revise AUM and PAT ests downwards and cut TP to Rs625. It trades at 2.5x FY27E P/B and 17x P/E which we believe is reasonable given its growth and RoE profile. Disbursement growth revival is key. BUY.
* Disbursement growth moderates: Disbursements were up 4% YoY. In Q1FY25 disbursements were impacted. Deferred disbursements in Q2FY25 led to higher base effect impacting YoY growth. Mgmt. remains confident of disbursement growth revival in H2.
* AQ remains pristine: GNPA is up 9bps QoQ, NNPA increased 3bps QoQ. GS2+3 slippages (incl. write-offs) were lower QoQ and YoY. It recovered Rs80mn from its written off project finance portfolio. It has another Rs250mn of written off pool (from which it may have recoveries). Aadhar AQ performance is exemplary when peers are showing higher stress.
* Margin expansion due to lower CoF (down 10bps QoQ). It expects another 10bps CoF reduction for FY26. It has not passed rate benefits to customers & intends to do so in H2. It guided exit spread of 5.8% (Q4F26).
* Geographic diversification is helping in delivering steady performance in asset quality. Mgmt highlighted that its AQ is stable, and it is not experiencing stress in US tariff impacted geographies.
* Valuations reasonable: We see Aadhar’s valuation as reasonable given its geographic diversified book, steady growth (AUM CAGR of 19% over FY25-FY28E), stable AQ and improving RoEs (16%+ in FY28E).
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