Aptus Value IPO review (May apply)

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Review By Dilip Davda on August 7, 2021

•    Aptus is a retail-focused housing finance company serving low and middle-income groups.
•    For the last three fiscals, it has posted robust growth but sustainability is a major concern.
•    The issue is fully priced at over 65 P/E compared to a listed peer. 82% of the issue is by OFS.
•    This segment is getting crowded with many more players in the fray.
•    Investors may consider parking of funds for long term rewards in this fully priced offer.

PREFACE:
There is no specific number information on the use of fresh issue proceedings in RHP. Perhaps this is the result of an unwarranted hurry in bringing the IPO and filing of offer documents in a hush-hush manner. Aptus has posted robust growth in its top and bottom lines for the last three fiscals, but the sustainability of the same performance going forward is a major concern. This segment is getting crowded with many more players jumping in the fray. The company currently has major business from southern regions only.

ABOUT COMPANY:
Aptus Value Housing Finance India Ltd. (Aptus) is an entirely retail-focused housing finance company primarily serving low and middle-income self-employed customers in the rural and semi-urban markets of India. According to the CRISIL Report, Company had the highest RoA of 5.7% among the Peer Set during the financial year 2021.

Aptus is one of the largest housing finance companies in south India in terms of AUM, as of March 31, 2021. (Source: CRISIL Report) Its AUM has increased from Rs. 2247.23 cr., as of March 31, 2019, to Rs. 4067.76 cr., as of March 31, 2021, at a CAGR of 34.54%. Further, according to the CRISIL Report, it had the lowest cost to income ratio among the Peer Set during the financial year 2021. The company's Operating Expenses to Net Income Ratio for the financial year 2021 was 21.80%. Since the inception of the Company, it has not restructured any loans or written off any loans receivable and as of March 31, 2021, March 31, 2020, and March 31, 2019, the company's Gross NPAs expressed as a percentage of Gross Loan Assets was 0.68%, 0.70% and 0.40%, respectively.

During the financial years 2021, 2020 and 2019, Aptus's credit Costs to Average Total Assets was 0.14%, 0.11% and 0.06%, respectively. It offers customers home loans for the purchase and self-construction of residential property, home improvement and extension loans; loans against the property; and business loans.  It only offers loans to retail customers and does not provide any loans to builders or for commercial real estate. The company targets first time home buyers where the collateral is a self-occupied residential property.

Aptus has also implemented digitized collection models, which has led to an increase in its collection efficiencies. As of March 31, 2021, its branch network stood at 190 in 75 districts of the southern region and had 1913 personnel on its roll. As of July 10, 2021, its total branch tally was 192.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans augment its Tier-I capital requirements, Aptus is coming out with a maiden IPO worth Rs. 2780.05 cr. (at the upper price band) via book building route. It comprises a fresh equity issue for Rs. 500 cr. (approx. 14164290 shares) and an Offer for Sale (OFS) of 64590695 shares (Rs. 2280.05 cr.). It has fixed a price band of Rs. 346 - Rs. 353 per share of Rs. 2 each. The minimum application to be made is for 42 shares and in multiples thereon, thereafter. The issue opens for subscription on August 10, 2021, and will close on August 12, 2021. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 15.89% of the post issue paid-up capital of Aptus. The company has allocated 50% for QIBs, 15% for HNIs and 35% for retail investors.

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

Having issued initial equity at par, Aptus raised further equity in the price range of Rs. 4.00 to Rs. 105.21 (based on Rs. 2 FV) between September 2011 and December 2020. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 2.00, Rs. 8.74, Rs. 25.52 / Rs. 2.00, Rs. 6.00, Rs. 6.50, Rs.8.74, Rs.57.00, Rs. 70.31, Rs. 70.36 and Rs. 105.62 per share. (Based on Rs. 2 FV).

Post-IPO Aptus's current paid-up equity capital of Rs. 96.28 cr. will stand enhanced to Rs. 99.12 cr. Based on the upper cap of the price band, the company is looking for a market cap of Rs. 17494 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, for the last three fiscals, Aptus has posted turnover/net profits of Rs. 337.12 cr. / Rs. 111.48 cr. (FY19), Rs. 523.72 cr. / Rs. 211.01 cr. (FY20) and Rs. 655.24 cr. / Rs. 266.94 cr. (FY21).

For the last three financial years, the company has (on a consolidated basis) posted an average Eps of R.s 4.83 and an average RoNW of 13.52%. The issue is priced at a P/BV of 8.58 based on its NAV of Rs. 41.12 as of March 31, 2021, and at a P/BV of 6.84 based on its post-IPO NAV of Rs. 51.62 (at the upper cap).

If we attribute FY21 earnings on fully diluted post issue paid-up equity capital, then the asking price is at a P/E of around 65.49. Thus the issue is fully priced in comparison with a listed peer.

COMPARISON WITH LISTED PEERS:
As per the offer documents, Aptus has shown Aavas Financiers as its listed peer is trading at a P/E of 67.99 (as of August 06, 2021). However, it is not truly comparable on an apple to apple basis.

DIVIDEND POLICY:
As of the date of filing of RHP, the company has not paid any dividend. It will follow a prudent dividend policy post listing based on its financial performance and future prospects.

MERCHANT BANKER'S TRACK RECORDS:
The four BRLMs associated with this offer have handled 34 pubic issues in the past three years, out of which 10 issues closed below the issue price on the listing date.

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