Article

Aavas Financiers Ltd IPO Note - NOT RATED

24 Sep 2018 Nikita Bhoota

Issue Opens: September 25, 2018
Issue Closes: September 27, 2018
Face Value: Rs 10
Price Band: Rs 818-821
Issue Size: ~Rs 1734 cr
Public Issue: 2.11cr shares
Bid Lot: 18 Equity shares       
Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

81.3

55.5

Public

18.7

44.5

Source: RHP

Company Background

Aavas Financiers Ltd is a retail focused (99.3% retail loan book as of Q1FY19) affordable housing finance company, primarily serving low and middle income self-employed customers with underserved unreached customer segment built on semi-urban & rural distribution framework. For Q1FY19, its AUM mix was ~76% from home loans and ~24% from other mortgage loans; salaried and self-employed mix was ~36% and ~64% respectively. A majority of its customers have limited access to formal banking credit. As of Q1FY19, 61.22% of its gross loan assets were from customers belonging to the economically weaker section/ low income group and 36.27% were from customers new to credit. For Q1FY19, it has 166 branches covering 95 districts in 8 states. Almost all customers are sourced directly by the company.

Offer Details

The offer comprises a fresh issue (49 lakh shares) by the company and an offer for sale by the existing shareholders (1.62cr shares). The net proceeds of the fresh issue will be utilized towards augmenting its capital base to meet its future capital requirements.

Financials

Standalone Rs cr.

FY16

FY17

FY18

Q1FY19#

Total Revenue

191

306

457

144

PPOP

54

95

144

47

PAT

33

57

93

29

NIMs (%)

6.1

6.6

7.3

8.1

P/BV* (x)

15.5

8.4

5.2

4.9

RoE (%)

21.5

14.8

11.2

-

RoA (%)

2.6

2.6

2.7

-

Source: RHP, 5Paisa Research; *On non-diluted basis at upper band, # Q1FY19 nos. not annualized

Key Investment Rationale

  1. The company has been able to access cost-effective debt financing and reduce average cost of borrowings over the years due to better financial performance and improving credit ratings. The company’s long term credit ratings have improved from CRISIL BBB+/Stable in August 2012 to CRISIL A+/Stable currently. The management is expecting a further rating upgrade (from A+ to AA) post completion of equity listing. Its average cost of borrowings has reduced from 12.28% in FY14 to 8.57% in Q1FY19.

  2. The company will continue its focus on low and middle income self-employed customers and increase the market share in its existing products in the rural and semi-urban markets of India. A large segment of India’s rural and semi-urban population is currently unserved by formal financial institutions comprising customers without credit history. According to ICRA, the housing shortage in rural areas among the economically weaker section was for 3.93cr units constituting 89.93% and 99.84% of the total rural housing and urban housing shortage respectively, which offers significant opportunity to company like Aavas Financiers.

Key Risk

As of Q1FY19, 92.82% of its gross loan assets were located in the states of Rajasthan (alone accounting for 46.63%), Maharashtra, Madhya Pradesh and Gujarat. Any significant slowdown in real estate and housing market could hamper its asset quality and financials. Any significant change in interest rates would affect interest expense on its floating interest-bearing liabilities as well as its net interest income. Any increase in its cost of funds may lead to a reduction in net interest margin and hence could adversely affect its financials.

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Aavas Financiers Ltd IPO Note - NOT RATED

24 Sep 2018 Nikita Bhoota

Issue Opens: September 25, 2018
Issue Closes: September 27, 2018
Face Value: Rs 10
Price Band: Rs 818-821
Issue Size: ~Rs 1734 cr
Public Issue: 2.11cr shares
Bid Lot: 18 Equity shares       
Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

81.3

55.5

Public

18.7

44.5

Source: RHP

Company Background

Aavas Financiers Ltd is a retail focused (99.3% retail loan book as of Q1FY19) affordable housing finance company, primarily serving low and middle income self-employed customers with underserved unreached customer segment built on semi-urban & rural distribution framework. For Q1FY19, its AUM mix was ~76% from home loans and ~24% from other mortgage loans; salaried and self-employed mix was ~36% and ~64% respectively. A majority of its customers have limited access to formal banking credit. As of Q1FY19, 61.22% of its gross loan assets were from customers belonging to the economically weaker section/ low income group and 36.27% were from customers new to credit. For Q1FY19, it has 166 branches covering 95 districts in 8 states. Almost all customers are sourced directly by the company.

Offer Details

The offer comprises a fresh issue (49 lakh shares) by the company and an offer for sale by the existing shareholders (1.62cr shares). The net proceeds of the fresh issue will be utilized towards augmenting its capital base to meet its future capital requirements.

Financials

Standalone Rs cr.

FY16

FY17

FY18

Q1FY19#

Total Revenue

191

306

457

144

PPOP

54

95

144

47

PAT

33

57

93

29

NIMs (%)

6.1

6.6

7.3

8.1

P/BV* (x)

15.5

8.4

5.2

4.9

RoE (%)

21.5

14.8

11.2

-

RoA (%)

2.6

2.6

2.7

-

Source: RHP, 5Paisa Research; *On non-diluted basis at upper band, # Q1FY19 nos. not annualized

Key Investment Rationale

  1. The company has been able to access cost-effective debt financing and reduce average cost of borrowings over the years due to better financial performance and improving credit ratings. The company’s long term credit ratings have improved from CRISIL BBB+/Stable in August 2012 to CRISIL A+/Stable currently. The management is expecting a further rating upgrade (from A+ to AA) post completion of equity listing. Its average cost of borrowings has reduced from 12.28% in FY14 to 8.57% in Q1FY19.

  2. The company will continue its focus on low and middle income self-employed customers and increase the market share in its existing products in the rural and semi-urban markets of India. A large segment of India’s rural and semi-urban population is currently unserved by formal financial institutions comprising customers without credit history. According to ICRA, the housing shortage in rural areas among the economically weaker section was for 3.93cr units constituting 89.93% and 99.84% of the total rural housing and urban housing shortage respectively, which offers significant opportunity to company like Aavas Financiers.

Key Risk

As of Q1FY19, 92.82% of its gross loan assets were located in the states of Rajasthan (alone accounting for 46.63%), Maharashtra, Madhya Pradesh and Gujarat. Any significant slowdown in real estate and housing market could hamper its asset quality and financials. Any significant change in interest rates would affect interest expense on its floating interest-bearing liabilities as well as its net interest income. Any increase in its cost of funds may lead to a reduction in net interest margin and hence could adversely affect its financials.

Research Disclaimer