Aadhar Housing Finance IPO Review: Apply or avoid? #Finance

Fiscal year 2024. Indian housing market growth at an all-time high. A company related to this market, is coming up with a big IPO of Rs. 3,000 crore. There are no marks for guessing this company. This company deals in low-Income housing

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance segment. Aadhar Housing Finance. Aadhaar Housing

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance has a 98.72 percent stake in BCP Top. For context, this is a subsidiary business of the world’s leading Asset Management company, Blackstone. So, what are we going

to cover today? Aadhaar Housing Finance India’s business model, strengths and weaknesses, peer Valuation, financials, and of course, all the important details of the

IPO at the end. So, please watch the CashNews.co till the end. If you want to know more about the IPO, some reading resources are in the description, so you can check them as well. Now, let’s start. Aadhaar Housing #1a73e8; text-decoration: none;">Finance operates in the low-Income housing Loans sector. This sector is better understood as it specifically caters to salaried individuals, self-employed persons, and small businesses. It provides housing Loan

solutions up to 15 lakhs. By the end of March 2023, the market size of this industry was 4.3 lakh crores. By the way, between Financial Year 2023 and Financial Year 2026, the CAGR growth is expected to grow by 8-10%. This growth is contextualized. Let’s hear from MD and CEO, Rishi Anka,

through historical analysis. So I would say, since you mentioned COVID, I think post-COVID, the market has been very very dynamic. I think it is an industry-wide phenomenon. When it comes to low-Income housing, post-Covid, I think at least in the segment I operate in, people want

to own their own house to secure their family’s future. Company offers Loans in this range. Home Loan or non-home Loans. In which scenarios can I get a Loan? Loans can be taken for residential property

related home construction or improvement, acquisition and construction of commercial property. And as we can see in this table, between 2021 and 2023, gross Assets of home and non-home Loans under management, Loan disbursements and average ticket

size growth have been observed in the company. The average ticket size of Aadhaar Finance Loans is Rs. 9,00,000 and the average Loan-to-value ratio is 58.1%.

From the Loan-to-value ratio, we see the value of the Loan compared to the asset or property purchased with it, which gives us the degree of risk of the Loan. To calculate the risk ratio, divide the total amount of the Loan by the

property value and multiply by one hundred, gives us the Loan value as a percentage of the property value. Ideally, the ratio shouldn’t be more than 80%, and I guess that makes sense. Even tier 4 or tier 5 cities at which the companies operate. Take a look at this clip. The

segment that we cater, they build their house only once in a lifetime and the emotional quotient that accompanies the property is very high. We definitely have customer dealing points. But they try to prevent themselves that they are not NPA and the surface does not apply to them and their house

does not go out of their hands. For this reason our GNP levels have always been in the range of 1.2 to 1.3% . Whereas the industry runs at 3.5%. The solid distribution Aadhar Finance has

created a solid distribution channel. They have an extensive network of country wide branch and sales offices. As of 30th September they have 471 branches which are present in 533 districts and 20 states of India. Due to evenly spread-out offices they have mitigated geographical concentration risk.

Now their expansion is not wide but focused. Let’s hear from the company’s MD & CEO again. Obviously we don’t have any more states to expand into, but we will definitely be going deeper into states that we know like the back of our hand. Our birth state, for example, Uttar

Pradesh, has 64 branches there. We can go deep into states like Rajasthan, Maharashtra, and Gujarat. These are states of high potential when you go to tier three, tier four kind of locations. This was the business model of Aadhaar color: #1a73e8; text-decoration: none;">Finance. Now let’s see their strengths and weaknesses. This is the company’s expertise in the segment. Company claims that the Indian low-Income housing Loan segment, Aadhaar

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance’s Assets under management, are among the highest compared to its 6 peers as of September 30th, 2023. Additionally, the company’s Assets

under management have shown consistent growth from financial year 2021 to 2023. 2. Country wide presence. Aadhar Housing Finance has 471 branches and sales offers across the country. These

extensive networks are spread over 20 states. This gives a massive boost to their sales. They believe that a comprehensive on-ground presence is very important for growth in the low-Income housing #1a73e8; text-decoration: none;">Finance segment. Third, Blackstone backing. Along with strong management, Aadhaar Housing Finance also has a strong promoter, BCP Topco. BCP is

an affiliate business of Blackstone. They hold a 99 percent stake in Aadhar Housing Finance. This arrangement provides the company with Blackstone’s resources, relationships, and

expertise. On the flipside, what if Blackstone exits? Well, the company’s promoter isn’t worried. The concern is that these private Equity guys will keep coming back and selling Shares in the market, capping the stock price gains. So, as you mentioned,

there’s no precedent of one single large shareholder. And since there’s no precedent for the primary, there’s no precedent for the secondary either, so how will they exit? And as far as your concern about them coming back to the market every six months, as I indicated, the fund

life is until 2030. Eventually, by 2030, they will have to exit. That’s how it works. 4. Diversified lending profile. The company uses a diversified lending profile approach to funding, mostly through bank Loans and Loan arrangements. Finally, NHB’s

refinancing and non-convertible debentures. After the company’s ownership change, they are continuously raising funding from diversified sources to reduce their funding costs. Now let’s talk about their weaknesses. First, Negative Cash Flows. Due to past fresh

Loan disbursements the company has had negative Cash Flow, from key operating activities. And the company says that Cash Flow is negative in the company’s future too. Second, Unsustainable Profitability. ICRA is a

Credit rating agency and they believe that the cost of borrowing of the National House of Banking is low. Due to which there are chances of increasing in the financial year. Like there is a possibility of a drop in the company’s margins. Let’s talk about peer

Valuation. So first let us see in which areas, Aadhar Housing Finance is leading compared to its peers. First, PE. Aadhaar Housing’s Valuation is lower

than all these companies. This means that its other peers are trading their earnings at a premium Valuation in the market. Next is Return on Equity, where the company is ahead of everyone else except Aptus. A company’s ROE increases when there is growth in

its net Profit. There is Revenue growth for Aadhar Housing Finance. Along with that they have reduced the cost of borrowing. Due to which there’s

growth in net Profit. If you look the net Profit of these companies, then the Profit number of Aadhaar Finances is the highest. And this is

because Aadhar Finances works on a larger scale than all these other companies. High asset under-management and Loan disbursement rate have further strengthened their pan

India presence. Apart from this, the company has improved its multiple metrics such as net interest margin and payment collection efficiencies, which is allowing them to increase their Profitability. Now let’s come to the areas where the company is performing less than its

peers. Aadhar Housing Finance’s Debt to Equity ratio is the highest. This is because in FY23, their Loan disbursements increased. But

an interesting trend is their ability to service Debt. To service this trend, Aadhar Finance took more Debt, but still their Debt to

Equity ratio has gone down in the last three years. Now after the peer Valuation of Aadhar Housing Finance, we move towards the financials. First of all,

let’s talk about total Revenue and as you can see, the company has improved year on year. This figure increased from 1,175 to 1,728 and then finally in FY2023 it closed at 2,043. Talking about Profit, we are also seeing over the years increment in

Profit. From 340, this figure increased to 444 and then in FY23 it was recorded at 544.7 crores. Now let’s talk about the company’s PE ratio, which is 22.82 and if we compare it to the industry’s PE, it has been recorded at 31.9. Let’s talk about the EPS of

the company. So the EPS as you can see is 13.8. Debt to Equity is 3.3 which is actually a little high. Return on Networth is 14.7. Assets under management in crores is 1,722.8. The average cost of borrowing is 7 percent. In this IPO, you can bid

from Wednesday, i.e., 8th of May to Friday, i.e., 10th of May. The total issue size of the IPO is 3000 crore rupees, with 1000 crore rupees being the fresh issue and the rest 2,000 crores being Offer for sale. So, the majority of the raised money will not go to the company. The company will use the

IPO’s fresh issue proceeds in the following ways. First, the company will use 750 crores for its future Capital requirements. Second, for general corporate purposes. Company will invest in its Strategic initiatives, distribution network expansion, advancement of technology,

repayment of Debt. The company will not spend more than 25 percent of the raised money. According to reports, Aadhar Housing Finance’s grey market premium as of 5th May

is Rs 52. Stock estimated listing 16.51 percent premium. Remember, any company’s GMP only reflects the market’s speculations and trends. Do not consider GMP as the actual share price. Aadhar Housing text-decoration: none;">Finance IPO: Will you apply or avoid? Let us know in the comments. As an informed investor, it is your duty to make a decision only after in-depth research. I have attached the RHP of Aadhaar Housing #1a73e8; text-decoration: none;">Finance in the description and in the pinned comments so that your research is a little bit easier. If you liked this IPO review of Aadhaar Housing none;">Finance, then please like and share this CashNews.co with your friends. If you want to get such in-depth IPO reviews first, then subscribe to Groww and press the bell icon. Before leaving, a small reminder. This CashNews.co is for educational purposes only. It is not a buy or sell

recommendation. I’ll meet you in the next CashNews.co. Until then Happy Investing! Bye bye. The Securities market is subject to market risks. Read all related documents carefully before investing. Please read the risk disclosure documents carefully before investing in

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