Published on Sunday, September 23, 2018 by
Initial Public Offer to open on September 25, 2018 and to close on September 27, 2018
Price Band: Rs. 818 to Rs. 821 per Equity Share
Minimum Lot: 18 shares
Brokerage houses have given ‘Subscribe’ recommendation to the forthcoming IPO of Aavas Financiers Limited (the "Company"), which proposes to open on September 25, 2018, an initial public offering of approximately around Rs. 1,734 crore (at the upper end of the Price Band of Rs. 818 to Rs. 821 per equity share) including a fresh issue of Rs. 400 crore.
"Strong Loan Book growing at 78% CAGR"- ‘Subscribe’ says Chola Securities
Aavas Financiers' loan book grew by 78% CAGR over FY14-18 to INR 40bn, says a Chola Securities report recommending ‘Subscribe’ and adding, "Given, the industry tailwinds like Government’s push for affordable housing (through tax incentives, budgetary allocation and CLSS scheme), the estimated shortage in housing in both rural & urban areas (43.67mn and 10mn respectively), increasing urbanization and higher disposable income, the strong loan growth momentum is expected to continue in the coming years also."
"Strong growth expected in profitability & earnings for future"- Says Antique Stock Broking
Antique Stock Broking report says, "Valuations at ~4.1x post-money book and 43x on FY19e earnings assumes very strong growth in profitability and earnings for many years." With an EPS of Rs. 5, Gruh Finance Ltd. has a P/E of 64.5 as compared to 61.1 for Aavas (Source: Antique report). The report adds, "Given the excess capital, Aavas operates at leverage of 4x as opposed to a sector average of 8x. Aavas's best-in-class RoAs are a result of low leverage maintained by the company. If we look at the basic lending business, the spreads enjoyed by Aavas are similar to that of GRUH finance, which has 4x the size of Aavas."
"A healthy investment opportunity for long-term"- ‘Subscribe’ says Reliance Securities
Reliance Securities report says, "Visible signs of a pick-up in demand for mortgage loans led by improving affordability, attractive incentive from PMAY scheme and improving legal framework augur well for sustained growth in AAVAS’s loan book over next 5 years. Looking ahead, we expect Aavas Financiers to deliver strong performance on the back of strong demand for the mortgage loan in rural and urban India. At a higher price band of Rs821, the Issue is priced at 3.94x post issue net worth, which provides a healthy investment opportunity for the long-term investors. Thus, we recommend SUBSCRIBE to the Issue."
"High spread, explosive growth, and good asset quality"- ‘Subscribe’ says Anand Rathi
"Aavas: Attractive business, robust system, strong track record," says Anand Rathi report while recommending ‘Subscribe’. It says, "Aavas offers the near-impossible trinity – high spread, explosive growth, and good asset quality. The company has a clear strategy – focus on markets with low home-loan penetration and difficult-to-access customers with robust system-driven, technology-enabled, and local-knowledge-intensive assessment and recovery capacities. Rajasthan remains the main market of the company. Yet, in the last four years, the company has substantially increased footprint in three other states. Aavas has vigorously expanded since 2013 with overall AUM growth of 90% and retail mortgage growth of 80%. Aavas is diversifying both on the asset and the liability side as well as its income stream. The strategic positioning of the company in the less-penetrated markets and targeting of customers with undocumented income and no past credit history allows the company to charge high interest rates. The company has consistently delivered net profit growth of above 60% in the last five years. In the last few years, the company has invested a lot in creating capacity and branch expansion, which have resulted in a high cost-to-income ratio. Aavas is currently utilizing around 50% of it. As the operating leverage plays out with rising utilization, productivity levels would go up. Even before the IPO, Aavas has strong capitalization. With an estimated Rs. 4bn capital infusion through a fresh issue of share capital, the stock would be trading at a P/ABV of 4.1x FY18 book value at the expected upper price band of Rs. 821 which appears high. Yet, most financial inclusion plays (Bandhan Bank, Bharat Financial and Gruh) generally command richer valuations than mainstream peers. Risk factors for the company include concentration (Rajasthan) risk, scalability concerns, regulatory (interest -cap) risk, threat of competition and asset-quality concerns (due to risky clientele and lack of seasoning). As per our overall assessment, we recommend "Subscribe"."
"Issue fairly priced"- ‘Subscribe’ says Asit C. Mehta
An Asit C. Mehta reports says, "Aavas Financiers Limited is a retail housing finance company with operations across Rajasthan, Gujarat, Maharashtra, MP, UP, Haryana, Delhi, and Chhattisgarh. Focused on rural and semi-urban areas, the company plans to expand its presence in the respective states with efficient operations. At the upper price band, asking price is at a P/BV of 5.23X at FY18 book value of Rs.157, making the issue fairly priced. We recommend to SUBSCRIBE to the issue from a long-term perspective."
"Has healthy capital base to fund long-term growth objectives"- ‘Subscribe’ says Chola Securities
Chola Securities report adds, "Aavas Financiers Ltd. has a healthy capital base, to fund growth objectives in the long term, (pre-issue CRAR is at 61.55%). Tailwinds in affordable housing segment would augur well for the loan book growth going ahead. Its target customers being self-employed individuals will aid in keeping the yields higher than peers and result in elevated NIMs. This coupled with stringent credit practices will keep the GNPAs lower and hence aid in scripting the earnings growth going ahead. The company will raise funds to the tune of INR 4bn through this issue, which will boost the capital adequacy further (CRAR will be 81%, considering RWA as at FY18). We believe the valuation of 4.16X FY18’s BV (on the upper limit of INR 821) is justified, given its loan growth potential, superior yields on assets and best in class asset quality. Hence we recommend a SUBSCRIBE to the issue."
Bids can be made for a minimum lot of 18 Equity Shares and in multiples of 18 Equity Shares thereafter. The Equity Shares are proposed to be listed on BSE and NSE.
The Global Co-ordinators and Book Running Lead Managers ("GCBRLMs") to the Offer are ICICI Securities Limited, Citigroup Global Markets India Private Limited, Edelweiss Financial Services Limited, and Spark Capital Advisors (India) Private Limited. The Book Running Lead Manager ("BRLM") to the Offer is HDFC Bank Limited.
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