Aadhar Housing Finance shares climb 7% today; Kotak sees more upside potential of 31% #CashNews.co

Aadhar Housing Finance Ltd shares recorded a sharp upward move on Tuesday after a domestic brokerage initiated its coverage on the stock with a ‘Buy’ rating. The stock jumped 7.38 per cent to settle at Rs 418.90. At this price, it has moved 27.11 per cent higher in 2024 so far.

Kotak Institutional Equities included the housing finance firm in its coverage with a ‘Buy’ call. It pegged Aadhar Housing’s stock at a fair value of Rs 550, an uptick of 31.30 per cent as against today’s closing price of Rs 418.90.

“Aadhar is a large affordable HFC (Rs 21,100 crore of AUM in FY2024, 7 per cent market share in the affordable segment) with a long track record, well-diversified geographical presence and customer profile. Its multipronged expansion and appraisal strategy will drive 21 per cent AUM CAGR (FY2024-27E) with low credit costs. Stable margins and improving leverage will accelerate RoEs back to high-teens. Initiate coverage with a ‘BUY’ rating; FV Rs 550,” Kotak stated.

“Its multipronged expansion strategy of increased penetration through a variety of branch formats, augmented by industry-first initiative of Aadhar-mitra, will likely support 21 per cent AUM CAGR (FY2024-27E),” it also said.

“A combination of centralized underwriting (at regional processing units) for the salaried and decentralized (at local branches) for the informal profiles, coupled with a dedicated collections team, underpins its low NPLs. Overall credit cost at 0.2-0.4 per cent during FY2021-24 was comparable to listed peers (0.1-1.1 per cent), even though gross stage-2 is a tad higher than peers and gross stage-3 loans are in line,” Kotak added.

While rising funding costs and competition in the affordable space put pressure on NIM, the brokerage said Aadhar’s strategy to grow in the interiors will help offset the same. A shift toward non-home loans (25 per cent of AUMs in FY2024), self-employed (43 per cent of AUMs) and informal (44 per cent of AUMs) is accretive to profitability, it mentioned.

However, Kotak flagged lower NIM or growth due to an increase in competition in larger centers or from large HFCs eyeing the affordable housing space, effective execution of consistent growth strategies, and risk to asset quality from rising share of self-employed and implications of cross-default and cross-acceleration clauses in loan agreements as key risks to the company’s growth.