Aptus Value Housing Finance – Balance act between Housing Finance and Micro Finance
Company Name – Aptus Value Housing Finance India Ltd (Aptus) Current Share Price – INR 303 (December 16, 2022) Market Cap – INR 15,027 cr |
1. What is interesting about the stock?
Home is where love resides, memories are created, friends and family belong, and laughter never ends.
We have a strong emotional need for a home. Bare necessities for a person – Roti, Kapda, and Makaan !!
Home is the least risky product (due to this emotional connection) for any finance company as can be seen by a couple of facts:
Post COVID-19, home loan collection rates were 95-98% in June 2021 vs unsecured loans at 80-85% and auto loans at 85-90%
The average credit cost (a proxy for riskiness) for housing finance companies was 0.9% (average FY19-21) vs auto finance companies at 1.7% and micro-finance companies at 2.9%
So, this makes the housing finance sector quite lucrative for finance companies, leading to higher competition and lower rates vs. other kinds of loans.
Aptus Value Housing Finance India Ltd, a retail-focused housing finance company (HFC), was incorporated in December 2009. The Company was founded by its current promoter, Chairman and Managing Director, M. Anandan and the other promoter is WestBridge Crossover Fund.
The Company got listed on the stock exchange on August 24, 2021.
Aptus offers customers home loans for the purchase and self-construction of residential property, home improvement and extension loans; loans against the property; and business loans, which accounted for 58%, 15%, and 20% respectively of its AUM of INR 5,932 cr (as of Sep 30, 2022). Its target borrowers are from the low to middle-income segments, with an average ticket size of less than INR 10 lakh.
Aptus is primarily focused on self-employed customers (72%) with limited or no documentary evidence of their income and with limited access to funding from banks and larger HFCs – 38% of the customers are new to credit.
Aptus is rural-focused with a geographical presence by adopting a strategy of contiguous expansion across regions and is focused on achieving deeper penetration in its existing markets.
Aptus’ wholly-owned subsidiary, Aptus Finance India Private Limited, extends mortgage loans to small and medium enterprises.
The value proposition that differentiates Aptus are:
Focus on customer profile – low-income, self-employed, new-to-credit customers in rural markets: Aptus has a higher yield (17-18%) vs other housing finance companies as this segment is largely untapped
100% in-house sourcing and evaluation: Key to managing the NPL ratio in the untapped market
Contiguous expansion in southern states – helps in managing the cost-to-income ratio as the penetration level at each branch improves
Tamil Nadu – 46% of AUM as of Sep 30, 2022
AP – 33%
Telangana – 13%
Karnataka – 8%
Aptus has a higher yield on loans (17%) vs Home First or Aavas at 10-12% driving higher RoA (~8%) vs the competition. RoA and spreads (~8%) of Aptus are closer to a microfinance company than a housing finance company.
The question is whether this kind of RoA and spread can be sustained. Microfinance companies faced challenges in the collection and subsequently got impacted by political interference which triggered regulation to cap interest rates.
Why invest in Aptus?
Experienced management team and marquee shareholder
Focus on the untapped market segment
Low D/E ratio – Company may not need additional equity infusion in near-term
Loan-to-value (LTV) ratio of less than 50% for ~84% of the portfolio (a lower ratio would lead to lower delinquency) vs a typical level of 70-80%
2. Key Historical Financials
Revenue is growing 25-30% since FY20 with strong RoA
Cost to income ratio of ~20% - is lower even compared to large banks
RoE of 15% - can improve as the Company uses debt to fund disbursement in the near term leading to a higher D/E ratio
Gross NPA of ~1.5% and Net NPA of 1.1%
3. What is my view on company valuation?
Aptus IPO was subscribed 17.2x last year – significantly oversubscribed by institutional and non-institutional investors (~34x) but a lukewarm response from the retail investors (1.35x). Company issued shares at INR 353 and the share has traded mostly below the issue price. The current price is ~15% discount to the IPO price.
Aptus trades at a P/BV of 4.7x and P/E (TTM) of 33x. Aavas Financiers trades at a P/BV of 5.2x and P/E (TTM) of 39x & Home First trades at a P/BV of 3.8x and P/E (TTM) of 31x. Aptus’s valuation is in line with other retail-focused housing finance companies.
However, on a fundamental basis, a P/BV valuation of 4.7x is very high for any financial services company.
4. What are the risks to the investment analysis?
Risks to the analysis are:
A highlighted proportion of non-housing loan (NHL) books; exposure to borrowers with modest credit profiles
Limited portfolio seasoning
Geographically concentrated operations make the company vulnerable to political interventions
About the Author
I have over 17 years of experience in equities with a detailed focus on autos, auto components, and media. I am an engineer and have an MBA from a premier institute in India.
Disclosure
I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.