Evaluating Aadhar Housing Finance Ltd IPO opportunity; Should you invest?

In this analysis, we take a closer look at Aadhar Housing Finance Ltd and present you with the exclusive IPO details.

About the Issue  

Aadhar Housing Finance Ltd is launching its initial public offering (IPO) for equity shares valued at Rs 10 each. The IPO price range is set between Rs 300 and Rs 315 per equity share, resulting in a total issue size of Rs 3,000 crore at the upper price band.  

The IPO is scheduled to commence on May 08, 2024, and will conclude on May 10, 2024. The market lot size for the IPO is 47 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 611 shares or a total investment of Rs 1,92,465 assuming the upper price band.   

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. To meet future capital requirements towards onward lending

2. General corporate purposes

Promoter holding  

BCP Topco VII Pte Ltd is the promoter of the company. The promoter currently holds a pre-issue shareholding stake of 98.72 per cent in the company.

Company profile  

The company specializes in retail-focused housing finance, targeting the low-income housing segment, catering to economically weaker and low-to-middle-income customers who seek small-ticket mortgage loans. The company offers a variety of mortgage-related loan products, encompassing loans for residential property purchase and construction, home improvement and extension loans, as well as loans for commercial property construction and acquisition.

Since June 2019, BCP Topco, the company's promoter and an affiliate of funds managed and/or advised by entities of Blackstone Group Inc (collectively ‘Blackstone’), currently holds a 98.72 per cent stake. The company derives benefits from the resources, relationships, and expertise of Blackstone, one of the world's leading investment firms.

According to CRISIL, it boasted the highest Assets Under Management (AUM) and net worth among its peers analysed in FY21, FY22, and FY23. Moreover, it held the highest number of active accounts in FY23. Additionally, the company maintains a presence in 20 states and union territories, the most extensive coverage among its peers as of March 31, 2023.

The company boasts a seasoned business model, demonstrating strong resilience throughout various business cycles. Furthermore, its robust and comprehensive systems and processes for underwriting, collections, and monitoring asset quality serve as valuable assets, enhancing the company's efficiency.

Financials  

The company has successfully demonstrated robust growth in both its revenue and net profit over the past few years. In FY23, both revenue and net profit witnessed strong year-on-year growth, with an 18 per cent rise in revenue and a 22 per cent surge in net profit compared to FY22. The 9MFY24 figures were equally impressive, suggesting robust growth for FY24 if the current pace is maintained.

Valuation and outlook  

The issue is priced with a P/BV ratio of 2.93 times, calculated using its Net Asset Value (NAV) of Rs 107.60 as of December 31, 2023. When we calculate the PE ratio for the company by considering the annualized FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 18. The company exhibited superior performance in comparison to its listed peers, taking into account both valuation and returns simultaneously.

Given the robust demand in the housing and housing finance industry, coupled with the company's notable market share and strong track record of profitability, along with solid parental support, it is well-positioned for growth. Hence, we advise investors to contemplate subscribing to the offering with a long-term perspective.