Aadhar Housing Finance Shares Soar 7% After Kotak Institutional Equities Initiates Coverage with 'Buy' Rating
Aadhar Housing Finance Ltd shares surge 7% after Kotak Institutional Equities initiates coverage with a 'Buy' rating and sets a fair value of Rs 550, implying an upside potential of 31%.
Aadhar Housing FinanceKotak Institutional EquitiesHousing FinanceAffordable HousingStock MarketReal Estate NewsSep 03, 2024
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.
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).
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.
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.
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.
About Kotak Institutional Equities Kotak Institutional Equities is a leading brokerage firm in India, providing research and analysis on various sectors and companies.
Frequently Asked Questions
What is the fair value of Aadhar Housing Finance set by Kotak Institutional Equities?
Rs 550
What is the upside potential of Aadhar Housing Finance shares as per Kotak Institutional Equities?
31.30 per cent
What is the current market share of Aadhar Housing Finance in the affordable segment?
7 per cent
What is the expected AUM CAGR of Aadhar Housing Finance from FY2024-27E?
21 per cent
What are the key risks to Aadhar Housing Finance's growth as per Kotak Institutional Equities?
Lower NIM or growth due to increase in competition, effective execution of consistent growth strategies, and risk to asset quality from rising share of self-employed
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