Aadhar Housing Fin IPO review (Apply)

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Review By Dilip Davda on May 2, 2024

•    AHFL dominates low income housing segment amongst HFCs on major counts.
•    It enjoys a Pan India presence with 498 branches.
•    The company posted steady growth in its top and bottom lines for the reported periods. 
•    Based on FY24 annualized earnings, the issue appears reasonably priced. 
•    Investors can lap it up for the medium to long term rewards. 

ABOUT COMPANY:
Aadhar Housing Finance Ltd. (AHFL) is a HFC focused on the low income housing segment (ticket size less than Rs. 1.5 million) in India and it had the highest AUM and net worth among analyzed peers in FY2021, FY2022, FY2023 and nine months ended December 31, 2022 and December 31, 2023. In addition, according to the peer set analyzed by CRISIL, AHFL had the highest number of live accounts in FY2023 (Source: CRISIL Report). In addition, it has a presence in 20 states and union territories, which is the highest among the peers analyzed by CRISIL as of March 31, 2023 (Source: CRISIL Report).

AHFL is a retail-focused HFC focused on the low income housing segment, serving economically weaker and low-to-middle income customers, who require small ticket mortgage loans. It offers a range of mortgage-related loan products, including loans for residential property purchase and construction; home improvement and extension loans; and loans for commercial property construction and acquisition. Company's financial performance has remained consistent and resilient through various external events in the Indian economy.

It has made social objectives one of the core objectives of its business model. It operates a financially inclusive, customer centric lending business and believe that its business model contributes significantly to the economic uplift of its target customers by contributing to an improvement in their standard of living. In addition to customer-facing social objectives, it has also implemented social objectives in aspects of its business. AHFL's presence in urban and semi-urban locations across India provides a source of employment in these locations.

The company has robust and comprehensive systems and processes for underwriting, collections and monitoring asset quality. These systems and processes are also technology enabled across its front office and back office with a view to ultimately digitize the entire life cycle of a loan from origination to closure. Loan applications from salaried-customers go through its regional processing unit ("RPUs"), increasing efficiency while those from self-employed customers, which require close understanding of the customer and their cash flows, are managed regionally. It also has an internally developed credit assessment model and have digitized monthly collections from customers to the extent possible to reduce processing and improve collection efficiency. 

It has migrated to a digital IT infrastructure with a view to reducing costs, carrying on real time analysis of customer data, improving its control and underwriting functions, while increasing customer reach and distribution capability. Since June 2019, BCP Topco, which is its Promoter, and is an affiliate of funds managed and/or advised by affiliates of Blackstone Group Inc (collectively "Blackstone"), currently holds 98.72% of its pre-Offer issued, subscribed and paid-up Equity Share capital. AHFL benefits from the resources, relationships and expertise of Blackstone, one of the world's leading investment firms. Blackstone's asset management businesses include investment vehicles focused on real estate, private equity, public debt and equity, growth equity, opportunistic, non-investment grade credit, real assets and secondary funds, all on a global basis.

AHFL has modelled its branches to meet the local requirements of the location they are set up in. On a regional level, it has categorized branches as main and small branches which are hubs and it further penetrate deeper through micro or ultra-micro branches under the ambit of main or small branches. Usually the company establish its presence in a new location with an ultra-micro branch based on the geography, potential and low delinquency trends, and once the ultra-micro branch becomes profitable, it upgrades it to a small or main branch to cater to a larger pool of customers. AHFL has 498 branches and 3,885 employees in nine months ended December 31,2023. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of fresh equity shares issue worth Rs. 1000 cr. (Approx. 31746056 shares at the upper band), and an Offer for Sale of equity shares worth Rs. 2000 cr. (Approx. 63492064 shares at the upper cap). Thus the overall size of the IPO is worth Rs. 3000 cr. (Approx. 95238120 shares at the upper band). The issue opens for subscription on May 08, 2024 and will close on May 10, 2024. The company has announced a price band of Rs. 300 - Rs. 315 per share of Rs. 10 each. The minimum application to be made is for 47 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. BCP Topco VII Pte. Led. Is the promote/selling stakeholder offering shares worth Rs. 2000 cr. via OFS.

The company has reserved shares worth Rs. 7.00 cr. (Approx. 239747 shares) for its eligible employees and offering them a discount of Rs. 23 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs, and not less than 35% for Retail investors. 

The issue constitutes 22.33% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity shares, the company will spend Rs. 750.00 cr. for future capital towards onward lending, and the rest for general corporate purposes. 

The joint Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd., Citigroup Global Markets India Pvt. Ltd., Kotak Mahindra Capital Co. Ltd., Nomura Financial Advisory and Securities (India) Pvt. Ltd., and SBI Capital Markets Ltd., while KFin Technologies Ltd. is the registrar to the issue. 

Having issued/converted initial equity shares at par, the company issued further equity shares in the price range of Rs. 15 - Rs. 908.05 between FY95 and August 2020. It has also issued bonus shares in the ratio of 9 for 1 in January 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 80.54 per share. 

Post-IPO company's current paid-up equity capital of Rs. 394.76 cr. will stand enhanced to Rs. 426.50 cr. Based on the upper price band of the issue, the company is looking for a market cap of Rs. 13434.78 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 1575.55 cr. / Rs. 340.13 cr. (FY21), Rs. 1728.56 cr. / Rs. 444.85 cr. (FY22), and Rs. 2043.52 cr. / Rs. 544.76 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 547.88 cr. on a total income of Rs. 1895.17 cr. Thus, it marked steady growth in its top and bottom lines for the reported periods. 

For the last three fiscals, the company posted an average EPS of 12.1, and an average RoNW of 14.2%. The issue is priced at a P/BV of 2.93 based on its NAV of Rs. 107.60 as of December 31, 2023, and at a P/BV of 2.56 based on its post-IPO NAV of Rs. 123.07 per share (at the upper band). 

If we attribute annualized FY24 earnings to post-IPO fully diluted equity capital, then the asking price is at a P/E of 18.39. Thus the issue appears reasonably priced.

For the reported periods, the company has posted a RoE margins of 13.5% (FY21), 15.2% (FY22), 16.5% (FY23), 18.4% (9M-FY24) respectively for the referred periods. The PAT margin data is missing from KPI table. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in August 2020, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Aptus Value, Aavas Financiers, Home First Finance, and India Shelter as their listed peers. They are trading at a P/E of 28.2, 25.8, 27.5, and 40.6 (As of May 02, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The five BRLMs associated with the issue have handled 60 issues in the past xxx years, out of which 18 issues closed below the issue price on listing date. 

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