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Largest and most profitable AHFC; pioneering affordable housing space as a category creator

Aadhar Housing Finance (Aadhar) has carved a niche for itself in affordable housing finance, pioneering the space as a category creator, armed with its distinct business-scaling strategy. As the industry chose safer shores of credit-tested markets in south and west India, Aadhar established its inaugural branch in Uttar Pradesh (UP) – uncharted territory for affordable housing finance; and what stands out is its focus on diversification. As on Mar’24, India’s largest state, Maharashtra, accounted for only 14% of its AUM vs. peers' single-state contribution of >30%. Aadhar’s execution credentials also set it apart; among AHFCs, Aadhar’s: 1) INR 211bn AUM (Mar’24), is preeminent; and 2) FY24 RoE, at 18.4%, is notable. We initiate coverage with a BUY rating and TP of INR 550, valuing Aadhar at ~3x FY26E BVPS.

Sole AHFC player to reach INR 211bn AUM…

Pre-2010, housing finance was dominated by prime housing within the confines of metros and tier-1/2 cities. Aadhar challenged this and paved the way to create space for low-income housing finance beyond tier-2 cities by commencing operations as an affordable housing finance company (AHFC) in Feb’11. Since then, its unwavering focus on affordable housing has helped it deliver 18% AUM CAGR between FY18–24, gather an AUM of INR 211bn, as of Mar’24, record 23% YoY growth in FY24 – and most notably, become the largest AHFC in the arena. An early entry into under-penetrated markets such as UP, MP, Chhattisgarh and Jharkhand among others, complemented by its focus on diversification, has been the key enabler for Aadhar.

…elevated by impeccable asset quality and profitability credentials

Category creation in the lending business entails a plethora of industry-first initiatives and razor-sharp focus on asset quality. Aadhar has proven to be adept at handling both prerequisites. The company can arguably be credited for its adoption of a differentiated approach, mainly being – 1) its entry into uncharted territory of an untested credit market such as UP, by tapping into the formal salaried segment (peers focused on self-employed); and 2) focus on widening its presence in initial years than deepening (strategy adopted by peers). Average GNPL, at 1.2%, and credit cost at average 40bps with FY21– 24 coverage ratio of ~30% despite covid, is testimony of its resilient model. Its superior execution track record is also evident in the FY18–24 37% PAT CAGR

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