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Aptus Value Housing Finance IPO: A Detailed Analysis & IPO Review

Aptus Value Housing Finance IPO: A Detailed Analysis & IPO Review

Last updated: 09 Aug, 2021 | 03:07 pm

Aptus Housing IPO: Aptus Housing IPO Allotment Date, Price Band & Review

Aptus Value Housing Finance IPO opens for subscription on 10th August. The company is looking to raise Rs 2,780.05 crore through the public issue. Here are the details:

Aptus Value Housing Finance IPO Date: 10th August - 12th August 2021

Aptus Value Housing Finance IPO Price band: Rs 346 - 353 per share

Issue Size: Rs 2,780.05 crore (Fresh Issue of Equity Shares aggregating up to Rs 500 Crore offer for sale by promoters and shareholders worth Rs 2,280.05 crore.)

Reservation: QIB 50%, Retail - 35%, NII 15%.

Employee Reservation: NA

Bid lot: 42 shares, and in multiples of 42 shares

IPO Objective

The funds raised from the IPO will be utilized:

  • To meet issue-related expenditures of the company.
  • To augment the company's capital base to meet future capital requirements.
  • To achieve share listing benefits on the stock exchange.

About Aptus Value Housing

  • The company was incorporated in 2009 and it primarily serves low and middle-income, self-employed customers in the semi-urban and rural market of India.
  • It is one of the largest housing finance companies in South India in terms of AUM. It has an AUM of Rs 4,068 crore as of March 31, 2021 (Crisil report).
  • The company offers home loans to retail customers for the purchase and self-construction of residential property, loan against property, home improvement and extension loans, business loans, etc. They do not provide any loans to builders or for commercial real estate.
  • It undertakes all types of lending activities such as sourcing, the credit assessment, underwriting, valuation, legal assessment of collateral, and collection.
  • The company had a network of 190 branches covering 75 districts in Tamil Nadu (including the union territory of Puducherry), Telangana, Andhra Pradesh, and Karnataka.

Listed Peers

The housing finance industry is highly competitive in India. Aptus Value Housing faces competition from many business categories - NBFCs, HFCs, small finance banks, and scheduled commercial banks. The listed peers of Aptus Value are Aadhar Housing Finance Ltd, Home First Finance Company India Ltd, Shriram Housing Finance Ltd, Repco Home Finance Ltd. etc.

  • From the table we can see that Aptus Value has the highest Yield on advances, highest Return on Assets and lowest Leverage among its listed peers.This indicates its strong financial position and positive future prospects.
  • The company has the second best Net Interest Margin in the listed space.
  • Among the listed peers, Aptus Value has a mid-size AUM of Rs 4,068 crore. The leaders in terms of AUM are Aadhar Housing and Repco Home Finance with AUM over Rs 12,000 crore.

Financials

  • Profit After Tax (PAT) has more than doubled between FY19 and FY21. The PAT has increased from Rs 111.48 crore in FY19 to Rs 266.94 crore in FY21.
  • The company has stable asset quality. The net NPA has increased in the last financial year. In FY19, net NPA was 0.3%. It was in 0.54% and 0.49% in FY20 and FY21, respectively
  • Net Interest Margin has remained around 10% in the last three financial years.
  • Capital Adequacy Ratio for FY19, FY20, and FY21 was 43.64%, 82.49%, and 73.63%, respectively.
  • From the very inception, the company has never restructured any loans or written-off any loans receivable and as of FY21, FY20 and FY19 their Gross NPAs expressed as a percentage of their Gross Loan Assets was 0.68%, 0.70% and 0.40%, respectively. 
  •  The company has not paid any dividend. It will follow a prudent dividend policy post listing based on its financial performance and future prospects.

USPs

Presence in underpenetrated markets - Aptus Value has a presence in states like Tamil Nadu, Andhra Pradesh, Karnataka, and Telangana. These four states have high per-capita incomes, better financial literacy, and GDP growth rates. This gives Aptus Value strong growth potential. The company already has the largest network in south India and can use it to capture the growing market.

Robust risk management system - For a housing finance company, it is very important to receive the payments on time from its customers. Aptus Value Housing has implemented a robust risk management system to identify, monitor, and mitigate risks inherent in its lending operations. They have not restructured any loans or written off any loans receivable since the inception of the company.

Strong customer relationships - Aptus Value Housing works only with retail customers, and they have developed a customer-centric organization by developing a strong relationship with customers. A strong relationship is the result of them addressing every concern of customers in availing housing finance. The sales team of 1085 employees interacts directly with the customer to convert more customers.

Experienced management - The industry is very competitive, but the company has an experienced management team to handle any challenge.

Growth Potential

Focus on the rural and semi-urban market - As mentioned earlier, the company focuses on low and middle-income self-employed customers in rural and semi-urban markets. This segment of customers is unserved or untapped by formal financial institutions. The company will continue to grow in this segment of retail investors as per their risk mitigation strategy.

Expand branch network - The company plans to increase its branch network for which they have a process in place. They first conduct research and consider a number of factors such as regional demographics, level of urbanization, and the competitive landscape before setting up a new branch.

Focus on asset quality - Aptus intends to grow, but the focus will remain on maintaining its asset quality. They were able to consistently perform well through such macro-economic challenges due to several factors including the risk management architecture, and proactive measures undertaken during such periods.

Reduce the cost of borrowing - The company plans to reduce its cost of borrowing by improving its credit rating and financial performance. The credit ratings by both ICRA and CARE are ICRA A+(Stable) and CARE A+; Stable, respectively (March 2021).

Key Risks:

Capital intensive business - The company requires substantial capital for business. Company ability to raise funds at competitive rates and on-time depends on various factors. Any disruption in sources of capital can have an adverse effect on the company's business and financial conditions.

Covid and liquidity - Liquidity may be affected by the COVID-19 pandemic which may affect its ability to continue to operate and grow our business. With Covid still around, the company's ability to borrow money to fund current and future customer demand will be uncertain.

Increasing NPA - As of December 31, 2020, 72.5% of Aptus AUM was from self-employed customers, while 27.5% was from salaried customers. If customers default, the financial condition of the company may be impacted. 

Aptus Value Housing: INDmoney Recommendation

Aptus Value Housing has reported a strong rise in topline (40% CAGR), and bottomline (55% CAGR) over the last three years. The company’s focus on serving self-employed customers has resulted in high yields for their loan portfolio. However, nearly 65% of the overall book has been built over the last three years. 

The company’s business stands out in terms of margins and return ratios in comparison to peers. Aptus Value Housing has the highest Yield on Advances, highest Return on Assets and lowest Leverage among its listed peers Aavas Financiers, Home First Finance and Motilal Oswal Home Finance. The gross GNPA ratio of Aptus (at 0.7%) is also among the lowest in the industry. The tier-I capital adequacy ratio at a high 73.8% indicates strength in the company’s capital position. 

At the higher end of the price band of Rs 353, Aptus Value Housing IPO is priced at a PE ratio of ~65.4 times FY21 EPS on a post-issue basis (fully diluted). This is in-line with larger listed peer Aavas Financiers (68.07), but higher than Home First Finance (50.86 times). This IPO season, good businesses are getting valued at aggressive valuations, and Aptus Value Housing is no exception. 

Given the company’s strong growth in topline, good return ratios, healthy margins, lower cost ratios and leverage as compared to peers and robust growth outlook, we remain positive on the long-term prospects of this issue. 






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