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A mixed show

In-line on growth, better on spread and slightly weaker on asset quality Aptus delivered PAT of Rs1.72bn in Q1 FY25, which was in-line with our estimate. While disbursements were expectedly moderate due to implementation of LOS, the delivery of stable portfolio spread was a positive. Portfolio run-off (BT trends were stable), and AUM grew by 4% qoq/27% yoy. With not much movement in AUM mix, the portfolio yield was unchanged at 17.4%. CoF was also stable, reflecting stable incremental funding cost for the parent HFC and well-navigated repricing pressure on bank borrowings. 30+ dpd/GNPLs increased by 90 bps/20 bps with collection efficiency declining 100 bps sequentially to 99.2%. Credit cost was marginal at 16 bps with the co. dipping into ECL provisions of Stage-1 assets (ECL fell to 35 bps from 40 bps) and not augmenting provisions for Stage-2 assets (ECL fell from 9.5% to 7.8%). Overall, Aptus continues to deliver strong RoA/RoE of 7.7%/18.1%.

Disbursement velocity and delinquency buckets to improve from Q2 FY25

Though originations in April were marginal due to implementation of LOS, it picked up in May and June. Disbursements have fully reverted to normalcy now with July originations being 27-28% higher on yoy basis. In Q2 FY25, the co. targets disbursements of Rs10bn which would be a ~35% yoy growth. Business trends in the home market of TN (35% of AUM) has started to improve with originations being 15% higher yoy in May-June. Management has retained 30% growth aspirations for both disbursements and AUM for the current year. We believe key levers will be 1) branch addition (5 added in Q1 and 25 more to be added in remaining fiscal), 2) optimization of Sales Officers at existing branches, 3) efficiencies from the new LOS/LMS (will shorten Sanction TAT), 4) growing contribution of alternate/non-branch channels in sourcing and 5) natural growth from increase in ATS. Aptus’ 1+ dpd stood at 8.1% v/s 7.5% as of March, hence representing a reduction in 1-30 dpd bucket. The collection efficiency has reverted to near-normal levels in July and thus Management expects improvement in 30+ dpd and GNPLs by Sept.

Reiterate BUY, preferred pick in Affordable Housing

We maintain estimates and continue to expect 29%/24% AUM/Earnings CAGR over FY24-26. We see RoE at 19.5-20% for FY26. Growth in disbursement volumes, efficiencies from new LOS and recovery in asset quality would be key monitorables. Management of portfolio spread should be less of an issue for Aptus in the medium term with fixed-rate loans much larger than fixed-rate borrowings and about 25% of bank borrowings linked to Repo. Structurally we remain bullish on 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. Aptus also differentiates with its high founder promoter holding at ~25%. Valuation is lower than peers at 17x P/E and 3.1x P/ABV on FY26 estimates.

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