Buy Aptus Value Housing Finance Ltd For Target Rs. 370 By JM Financial Services
Strong quarter
Aptus reported a strong PAT of INR 2.1bn (+26%/+9% YoY/QoQ) which was 6% above our estimates leading to RoA/RoE of 7.6%/20%. This was led by a) steady NII growth (+19%/+3% YoY/QoQ, -3% JMFe) as NIMs (calc.) declined -29bps QoQ, b) higher other income (+80%/+93% YoY/QoQ), and c) lower than expected opex (+21%/+11% YoY/QoQ). AUM growth remained strong at (+25%/+6% YoY/QoQ) driven by disbursements growth of (+10%/+14% YoY/QoQ). GS3/NS3 improved by ~8/6bps QoQ and PCR was sequentially flat at 25% with credit cost of ~30bps. FY26 guidance remains strong at 28-30% AUM growth, improving spreads, opex/assets of 2.6-2.7% and credit costs of 40-45bps. We believe that: a) sustained growth momentum led by branch expansion and higher ATS, b) increased focus on high yielding SBL, complementing its existing HL portfolio, c) improving operational efficiencies, and d) healthy asset quality, will continue to offer compelling return ratios going forward. We maintain BUY with a revised TP of INR 370 (valuing at an unchanged target multiple of 3.2x FY27E BVPS) in return for avg RoA/RoEs of 7%/20% over FY26E/FY27E.
* Growth momentum remains resilient: AUM growth remained strong at (+25% YoY, +6% QoQ) driven by disbursements growth of (+10% YoY, +14% QoQ). Growth was primarily led by home loans at (+25% YoY, +5% QoQ), followed by LAP (+9% YoY, +6% QoQ), small business loans (+25% YoY, +1% QoQ). At a smaller base, Topup loans and insurance loans grew +87% YoY, +59% QoQ. Branch expansion in FY25 was strong with 38 branches opened with 10 branches opened in Orissa and Maharashtra thus broadening its footprints in new geographies. Management guided for 40 more branches to be opened in FY26E with continuing its growth in Maharashtra & Orissa where it aims to grow 10 more branches. The company targets 28-30% AUM growth in FY26E led by 24-25% growth in disbursements with improving productivity and increasing ATS from INR 0.8-0.85mn to INR 0.9-0.95mn. We project AUM CAGR of 26% over FY25-27E.
* Healthy operating performance: Operating profit was healthy at INR 2.8bn (+26% YoY, +10% QoQ, 4% JMFe), driven by a) steady NII growth (+19% YoY, +3% QoQ) as calc. NIMs declined -29bps QoQ, b) higher other income (+80% YoY, +93% QoQ), and c) lower than expected opex (+21% YoY, +11% QoQ). Reported CoFs were largely steady (- 2bps QoQ) while yields were up marginally (+1bp QoQ). As ~56% of borrowings are floating rate (30% - repo rate and 26% - MCLR), management expects MCLR rate reductions to be transmitted to CoFs in Jun/Jul’25 while repo linked are already re-priced. Since 81% of assets are linked to fixed rate, we expect rate cuts to play a crucial role in NIMs expansion going forward. We build in spreads expansion of ~30bps over FY25-27E.
* Asset quality improved sequentially: Headline asset quality metrics saw a marginal improvement with GS3/NS3 at 1.2%/0.9% (-8bps QoQ/-6bps QoQ) with a healthy PCR of 25%. Collection efficiency improved sharply to 101.2% (vs 99.4% QoQ) with 30+ DPD improving to 5.9% (vs 6.2% QoQ). Credit costs were largely steady at 30 bps (vs 29bps QoQ). Management also carries additional management overlay of INR 550mn in its book providing comfort on credit costs. We build in avg. credit cost of ~42bps over FY26E/27E in line with management guidance of 40-45bps.
* Valuation and view: We believe that: a) sustained growth momentum led by branch expansion and higher ATS, b) increased focus on high yielding SBL, complementing its existing HL portfolio, c) improving operational efficiencies, and d) healthy asset quality, will continue to offer compelling return ratios going forward. We maintain BUY with a revised TP of INR 370 (valuing at an unchanged target multiple of 3.2x FY27E BVPS) in return for avg RoA/RoEs of 7%/20% over FY26E/FY27E.
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