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Steady quarter; Growth acceleration ahead

Aptus Value Housing Finance (Aptus) reported a steady quarter with PAT at INR 1.5bn (+20% YoY, +4.1% QoQ) driven by a) robust growth in NII (+20% YoY, +8% QoQ) with NIMs (cal.) at 12.41% (+17bps QoQ) and b) strong AUM growth at INR 76bn (+28.2% YoY, +7% QoQ) led by healthy disbursements (+23.3% YoY, +15.3% QoQ). Yields inched up to 17.2% (+5bps QoQ), with cost of funds at 8.41% (+11bps QoQ) leading to largely steady spreads at 8.79% (-6bps QoQ). Management indicated that effective Sept’23, all live accounts in nonHL products saw an upward re-pricing by 50bps, and guided for NIMs to remain stable over the next few quarters. Asset quality showed improvement with GS3/NS3 at 1.19%/0.89% (- 10bps QoQ, -8bps QoQ). PCR on stage 3 continues to remain steady at 25%. On the back of strong on-ground demand for homes and small businesses, the management remains confident of achieving a growth of 30%+ for FY24E. We expect growth momentum to continue with NIMs performance to sustain going ahead, and therefore build in average RoA/RoE of 7.26%/17.7% over FY24E/25E. We continue to maintain BUY with a TP of INR 315 (3.5x FY25E BVPS).

* Healthy growth momentum continues: Aptus reported a strong growth in AUM at INR 76bn (+28.2% YoY, +7% QoQ) driven by robust growth in disbursements (+23.3% YoY, +15.3% QoQ). LAP segment saw the highest growth (+13.4% QoQ, +45% YoY) followed by home loans at (+7% QoQ, +30.4% YoY) and small business loans at (+2% QoQ, +28% YoY). On the back of strong on-ground demand for homes and small businesses, the management remains confident and guided for achieving 30%+ growth in FY24E. We build in an AUM CAGR of 31% over FY23-25E.

* Steady operating performance: Operating profit stood at INR 2bn (+18% YoY, +5% QoQ) led by strong growth in NII (+20% YoY, +8% QoQ) with NIMs (cal.) at 12.41% (+17bps QoQ) and healthy AUM growth. Spreads were steady at 8.79% (-6bps QoQ) with yields inching up to 17.2% (+5bps QoQ) and cost of funds at 8.41% (+11bps QoQ). Management indicated that effective Sept’23, all live customer accounts in the non-HL segment saw an upward re-pricing by 50bps and guided for NIMs to remain stable over the next few quarters.

* Improvement in asset quality: Asset quality improved with GS3/NS3 at 1.19%/0.89% (- 10bps QoQ, -8bps QoQ). PCR on stage 3 continues to remain steady at 25%. 30+ DPD moderated to 5.99% (-28bps QoQ) with collection efficiency at 99.72% (vs 99.52% in 1QFY24). On the back of 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 0.26% over FY24E/25E.

* Valuation and view: We believe that Aptus will continue to deliver healthy return ratios with avg RoA/RoE of 7.26%/17.7% over FY24E/25E on the back of a) robust growth of 30%+ over FY23-35E led by branch expansion, b) high-yielding portfolio and c) lower credit costs. We continue to maintain BUY with a TP of INR 315 (3.5x FY25E BVPS).

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SEBI Registration Number is INM000010361