Strong financials vs pricey valuations: Should you bid for Aptus Value IPO?

The three day Aptus Value Housing Finance IPO opened for subscription on Tuesday, August 10, to raise Rs 2,780 crore at the upper end of the price band of Rs 346-353 per share. The issue is a mix of an offer for sale (Rs 2,280 crore) and a fresh issue (Rs 500 crore). The proceeds from the offer for sale will go to the selling shareholders, while the amount received from the sale of fresh issue will be utilized for fully augmenting the tier I capital requirements of the company.

At the upper price band of Rs 353, the company is available at P/BV of 8.8x (FY21) which is aggressively priced, observed analysts.

Investors can apply for the IPO in a lot of 42 shares and in multiples thereof. Fifty per cent of the IPO portion is reserved for QIBs, 35 per cent for retail category and 15 per cent for non-institutional investors.

Aptus is an entirely retail-focused housing finance company (HFC) in India, which primarily serves low-and-middle-income self-employed customers in rural and semi-urban markets. It is currently operating in Tamil Nadu, Andhra Pradesh, Karnataka, Telangana and the union territory of Puducherry. Aptus is focused on expanding its presence and deepening penetration in existing regions.

Financial Snapshot

Aptus’ financial performance has been impressive on various counts, noted brokerage Reliance Securities. While its revenue clocked 40 per cent CAGR over FY19-FY21, mainly aided by 35 per cent CAGR in loan book and steady NIMs (~10 per cent) over FY19-FY21, profit clocked 55 per cent CAGR over the same period. Further, the company has been generating a healthy return on assets (RoA) in the range of 6.5-7 per cent.

The company generates ~17 per cent YoA which is significantly higher than the industry trend of ~9-10 per cent. Management attributes high yield to its lending to self-employed customers and its ability of credit risk assessment for disbursement to poor people having no access of formal banking. "We view sustaining margin at this level would be difficult with the increase in business and increasing competition." Choice Broking said in an IPO note.

That said, the company's asset quality remained stable at GNPA/NPNA of 0.7 per cent/0.5 per cent. The company has not restructured any loans or written-off any loans receivable which indicate that the company has well maintained its assets quality even during the challenging situation, Choice noted.

Analyst Take

While analysts remain bullish on the company's strong financial performance, they believe the company's valuations leave little upside in the near-term. Overall, they suggest that investors can subscribe to the IPO but long-term performance remains key. Here's a look at individual assesment by top brokerages:

Antique Stock Broking: Subscribe for long term

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 5.4x on post-money book and 45x on FY23e earnings do not leave much upside in the near term. Investors with long-term outlook can look to subscribe.

Choice Broking: Subscribe with caution

At the higher price band, the issue is aggressively priced. Further, the company is well capitalised for future growth despite this 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 are expected to remain robust going forward. However, demanded market cap at Rs 17,494 crore for a company having an AUM of Rs 4,068 crore seems overpriced. Considering all these parameters, we assign a ‘Subscribe with Caution’ rating to the issue.

Geojit Financial Services: Subscribe for long term

At the upper price band, the issue appears to be fully priced. We assign a Subscribe rating for the issue on a long-term basis considering its strong return ratios, impressive growth and attractive margins.

Reliance Securities: Subscribe

Aptus has maintained superior RoE and RoA of 13.5 per cent and 6.5 per cent, respectively in FY21. Further, given a strong capital base, we believe APTUS is on a firm footing to capitalise on the huge opportunities in the housing/mortgage loan space. We believe the sharp rise in GNPA to 2 per cent in July 2021 from 0.7 per cent in March 2021, led by second Covid-19 wave is a near-term concern, which can ease with the recovery in economic activities.

Religare Broking: Positive in long term

Aptus would benefit from positive industry growth trend given its strong presence in large and underpenetrated markets. It has implemented robust risk management architecture to identify, monitor and mitigate risks inherent in its lending operations. As a result, the company has maintained its asset quality across economic cycles. The financial track record has been healthy for the company with stable asset quality. From a long term perspective, we have a positive view on the company.

KR Choksey: Subscribe for listing gains

The company is a leader in the attractive south market and has been able to grow the loan book while maintaining high quality and lower costs. IPO’s higher price band of Rs 353 per share implies a P/E of 63.6x and P/B of 8.6x, which is significantly higher than the industry average of 58.6x and 6.0x respectively. Considering relatively higher yields, leadership status in attractive south market, the potential for growth in larger housing markets, low-cost income ratio, strong capital adequacy and expected reduction in borrowing costs, we recommend a ‘Subscribe’ to Aptus issue for listing gains.

Source: Brokerage Reports