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Strong performance, as expected

Sturdy all-round delivery

Aptus delivered a strong performance which was characterized by further increase in disbursements, sustained strong AUM growth, slight compression in portfolio spread, restrained management of opex and stable asset quality. Disbursements were marginally below expectations (grew 3% qoq/27% yoy) on account of business being slowed in Dec due to floods in few important districts of TN. Nevertheless, AUM growth was brisk at 6% qoq/28% yoy aided by traction across products (HL, SBL and Quasi HL). Portfolio Spread came-off by 13 bps qoq to 8.7%, as CoF increased by 14 bps and portfolio yield was stable (not much manifestation of 50bps rate hike taken across products and contracts from Sept 1st). Aptus added 12 branches in Q3 FY24 after adding 19 in the preceding quarter. Bulk of the branch addition was in AP and TL, and an additional branch was opened in the recently entered state of Orissa. Opex growth was restrained at 23% yoy owing to better productivity from existing branches/resources, well-managed attrition and increasing sourcing from non-branch channels (share improved from 14% to 17% in past 2Q) which include leads from Customer App, Construction Ecosystem Partners and social media. Asset quality was stable during the quarter reflected in firm collection efficiency of 99.65%, steady 1+ dpd/30+ dpd/Stage-3 loan assets at 8%/6%/1.2% and moderate credit cost of 40 bps. ECL coverage was maintained across loan stages. Annualized RoE for Q3 FY24 was 17.1%, having secularly improved by 70 bps through the year.

Upbeat commentary on growth and profitability stays

With demand across products remaining strong, significant distribution being added, operational/execution issues being promptly addressed and credit metric remaining stable, Aptus is confident about delivering 25-30% AUM growth for the next 3-4 years. The December disbursement shortfall due to TN floods has already been covered in January and hence AUM growth is likely to be robust in Q4 FY24. The co. would be adding seven branches in the current quarter, of which three would be in OR and four will be in MH. While AP and TL would remain high-growth markets, resolution of the manpower issues in TN would accelerate growth in the home state. The 50bps rate hike of Sept 1st is expected to manifest in portfolio yield of the current quarter. The incremental lending rate across products stands at 15.5% for HL, 17.5-18% for Quasi HL and 21.5% for SBL. Borrowing mix is being shifted towards floating-rate loans and majority of bank loans are liked to Repo/EBLR, both of which will benefit portfolio spread when interest rates decline. The borrowing cost in HFC co. continues to be stable after RBI RW changes, but it has increased by 50 bps in the NBFC.

Reiterate BUY with enhanced 12m PT of Rs430

We maintain our structural liking for Aptus as it has stronger moats than peers (Home First and Aavas), which is reflected in much lower BT pressure, resilient Spread performance, restrained opex and higher profitability. At potentially 4-5x leverage in very long run, Aptus can deliver 22-24% RoE. Aptus’ outperformance in Affordable Housing is expected to continue with its valuation premium sustaining. The stock trades at 20x PE and 3.8x P/ABV on FY26 estimates. We reiterate BUY with enhanced 12m PT of Rs430 pegging target multiple on FY26.

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