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Strong Quarter

Aptus Value Housing Finance (Aptus) reported a strong quarter with PAT of INR 1.6bn (+26% YoY, +6.5% QoQ, +4% JMFe) driven by a) robust growth in NII (+20% YoY, +5% QoQ) with NIMs (cal.) at 12.25% (-16bps QoQ) and b) strong AUM growth of INR 81bn (+28% YoY, +6.2% QoQ) led by healthy disbursements of INR 7.7bn (+27% YoY, +3.1% QoQ). CoFs moved up +14bps QoQ at 8.55%while yields remained steady (+1bps QoQ) leading spreads to decline by -13bps QoQ. Mgmt highlighted that the increase in CoFs was due to upward revision of interest rates from banks by +25bps which was impacted due to new RWA regulation from RBI. Asset quality remained steady with GS3/NS3 at 1.19%/0.9%. PCR on stage 3 continues to remain steady at 25%. As the demand for homes and small businesses continues to remain strong, management remains confident of achieving a growth of 25-30% going ahead. We expect growth momentum to continue with steady NIMs performance from here on and expect it to expand with rate cuts and thus further drive earnings going forward. We build in average RoA/RoE of 7.2%/18.2% over FY24-26E and continue to maintain BUY with a revised TP of INR 400 valuing it at 3.8x on FY26E BVPS.

Healthy growth momentum continues: Aptus reported a strong growth in AUM of +20% YoY, +5% QoQ at INR 81bn driven by robust growth in disbursements (+27% YoY, +3.1% QoQ). Small business loans saw the highest growth of +11.5% QoQ, +34% YoY. Home loans grew +28% QoQ, +6.2% YoY while LAP remained steady QoQ. Out of total disbursements during the quarter, 7.4% was sourced through customer referral, 6.2% from construction ecosystem, 3.2% through social media and balance through in-house sourcing. We believe that Aptus has a strong in-house lead generation team and with Tamil Nadu employee attrition now back to normal (which has been an issue since Q1), we expect healthy disbursements momentum going ahead. Mgmt continues to guide for 25-30% normalized AUM growth and we build in AUM growth of 30% CAGR over FY23-26E.

Steady operating performance: Operating profit stood at INR 2.1bn (+21% YoY, +9.2% QoQ) led by strong growth in NII (+20% YoY, +5% QoQ) with NIMs (cal.) at 12.25% (- 16bps QoQ). Spreads declined -13bps QoQ at 8.66% as cost of funds moved up +14bps QoQ at 8.55%. Yields remained steady at 17.21% (+1bps QoQ) as major part of the book is housing loans which are low-yielding and there was no major shift in the product mix during the quarter. Mgmt guides for cost of funds to further move up by ~10bps in Q4 due to upward revision of interest rates by banks guided by RBI circular on RWA regulations. Mgmt. targets 40% fixed rate and 60% floating rate borrowings to benefit from interest rate cuts going ahead.

Steady asset quality: Asset quality remained steady with GS3/NS3 at 1.19%/0.9% (flat QoQ). PCR on stage 3 continues to remain steady at 25%. 30+ DPD moved up +5bps QoQ at 6.04% with collection efficiency at 99.65% (vs 99.72% in 2QFY24) affected by Tamil Nadu floods. Given Aptus’s strong collection and underwriting team, we expect asset quality to continue to improve going ahead and build in an average credit cost of  0.29% over FY24-26E.

Valuation and view: We believe that Aptus will continue to deliver healthy return ratios with avg RoA/RoE of 7.2%/18.2% over FY24-26E on the back of a) robust growth of 30% over FY23-26E led by branch expansion, b) high-yielding portfolio and c) lower credit costs. We continue to maintain BUY and revise our TP to INR 400 valuing it at 3.8x on FY26E BVPS.

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