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Aptus Value a play on affordable housing, but IPO not cheap: Analysts

NEW DELHI: Good things come at a price, say analysts, who believe Aptus Value IPO’s asking valuation at 5.4 times book value is already factoring in a strong growth ahead, leaving little on the table for investors.

While still suggesting a ‘subscribe’ to the issue, analysts said investors must consider a few points before bidding for the issue.

First, 52 per cent of Aptus Value’s loan portfolio comes from Tamil Nadu, and past experiences of Repco and Can Fin Home suggest that slowdown in home states impact growth as well as profitability for regional HFCs.

Second, there is a limited track record of Aptus’ assets as housing finance loans behavioral maturity is 7-8 years, whereas 65 per cent of the company’s book is built over the past three years.

Third, Aptus operates at a leverage of 2 times as opposed to a sector average of 6-8 times, and this over capitalisation may lead to a low teen return on equity (ROE) despite strong profitability.

“While the progress in affordable housing in India has been rather slow, with total outstanding loans at mere Rs 88,000 crore (3 per cent of mainstream housing), Aptus has crafted its own success story through a combination of identifying the right customer profile, the right collateral and heavy usage of analytics, systems and process. However, valuations at 5.4 times on post-money book and 45 times on FY23 earnings do not leave much upside in the near term,” said Antique Stock Broking.

The brokerage has a ‘subscribe for long term’ rating to the issue.

On the block is a fresh issue of Rs 500 crore and an offer for sale (OFS) of up to 6,45,90,695 equity shares. The IPO will open on Tuesday, alongside Chemplast Sanmar.

On a post-issue basis, the IPO is valued at 7.1 times the book value of Rs 50.10, Choice Broking said, while suggesting the issue is aggressively priced. Its peer Home First Finance trades at a trailing P/BV of 3.6 times. While Aavas Financier trades at P/BV of 8.1 times, its asset under management (AUM) is more than double of Aptus’.

“The company is well-capitalised for future growth (CAR stood at 73.6 per cent in FY21). Yet it comes with a fresh issue of Rs 500 crore. With contained credit cost, strong disbursements management and focus on underpenetrated low- and mid-income segment, business growth, and profitability is expected to remain robust going forward. However, the market cap at Rs 17,494 cr at P/BV of 7.1 times for a company having AUM of Rs 4,068 cr seems overpriced,” Choice Broking said. This brokerage has advised ‘subscribe with caution’.

The retail focussed HFC is primarily serving low and middle-income self-employed customers in the rural and semi-urban markets of India. As of December 31, 2020, its assets under management (AUM) consisted of 72.5 per cent loans given to self-employed individuals. Salaried individuals accounted for the remaining 27.5 per cent loans.

An analyst with a domestic brokerage, who was in the middle of writing a note on the IPO, said, the HFC has strong fundamentals but the issue is priced fully, suggesting a ‘subscribe’ on the issue with long-term horizon.

Marwadi Shares and Brokers said at FY-21 adjusted book value per share of Rs.50.03, the HFC would list at a P/BV of 7.06 on a post-issue basis, with a market cap of Rs 17,494 crore, while its peer Aavas Financiers is trading at a P/B of 8.47.

“We assign a ‘subscribe’ rating to this IPO as the company has a presence in large underpenetrated markets with strong growth potential,” it said.

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