Aavas Financiers IPO Note (Avoid)

Review By Rudra Shares & Stock Brokers Ltd on Sep 25, 2018

THE OFFER

 Issue Open: 25 Sep 2018 to 27 Sep 2018

  »»  Issue Type:  Book Built Issue IPO

    »»  Issue Size: 

            21,121,437 Equity Shares @ 10 aggregating up to Rs 1734.07 cr 

           ›   Offer for Sale of 16,249,359 Equity Shares

         ›    Fresh Issue aggregating up to Rs 400 Cr

  »»  Face ValueRs 10 Per Equity Share 

  »»  Issue PriceRs 818 - Rs 821 Per Equity Share 

  »»  Market Lot18 Shares 

  »»  Minimum Order Quantity18 Shares 

  »»  Listing At:   NSE, BSE

 

CAPITAL STRUCTURE

 

The share capital of Company is set forth below:-   (Amount in Rs except share data)

Authorized Share Capital:- 85,000,000 Equity Shares @10 Aggregate value 850,000,000

Issued, subscribed and paid up capital before the Issue:- 70,750,891 Equity Shares @10 Aggregate value 707,508,910

 

Present Issue:-

21,121,437 Equity Shares @ 10 aggregating up to Rs 1734.07 cr

Offer for Sale of 16,249,359 Equity Shares

Fresh Issue aggregating up to Rs 400 Cr

 

OBJECT OF THE OFFER

 

       The Offer comprises a Fresh Issue by Company and an Offer for Sale by the Selling Shareholders.

  • Offer for Sale

       The proceeds of the offer for sale will go to Shareholders after deducting their portion of the Offer related expenses and relevant taxes thereon. The company will not receive anything            from the  proceeds of the Offer for Sale.

  • Fresh Issue

      The Net Proceeds of the Fresh issue will be utilized towards augmenting capital base to meet future capital requirements arising out of growth in business.

 

COMPANY OVERVIEW

Aavas financiers is a retail housing finance company, primarily serving low and middle income self employed customers in semi-urban and rural areas in India.

As of March 31, 2018, Company conduct its operations through 165 branches spread across 92 districts in 8 states with strong presence in the four states of Rajasthan, Gujarat, Maharashtra and Madhya Pradesh.

According to ICRA Report, Company had the lowest GNPAs as of March 31, 2018 and the second highest growth rate of AUM for the last 3 financial years, among affordable housing finance companies that had AUM between  Rs 25 billion and Rs 200 billion.

As of March 31, 2018, 60.40% of Gross Loan Assets were from customers who belonged to the economically weaker section and low income group, earning less than Rs 50,000 per month and 34.76% of Gross Loan Assets were from customers who were new to credit.

 

ROAD MAP AHEAD

    Company objectives are to expand their market share and aim to accomplish this through the following strategies:

  • Expand Branch Network to Achieve Deeper Penetration.
  • Continue to Focus on Low and Middle Income Self Employed Customers.
  • Increase Product Portfolio and Improve Cost Efficiency through Use of Technology and Data Analytics.
  • Enhance Brand Recall to Attract New Customers.

 

STRENGTHS

  • Strong Distribution Network with Deep Penetration Serving Underserved Customers in Rural and Semi-Urban Markets.
  • In-house Sourcing Model leading to Superior Business Outcomes.
  • Robust and Comprehensive Credit Assessment, Risk Management and Collections Framework.
  • Access to Diversified and Cost-Effective Long-Term Financing.
  • Effective Use of Technology and Analytics to build a Scalable and Efficient Operating Model.

 

FINANCIAL HIGHLIGHTS

Total Revenues stood Rs 457.2cr, Rs 305.4cr and Rs 190.8cr, in Fiscal 2018, Fiscal 2017 and Fiscal 2016 respectively.

PAT was Rs 92.9cr, Rs 57.1cr and Rs 32.7cr, in Fiscal 2018, Fiscal 2017 and Fiscal 2016 respectively.

Net Interest margin was 7.25%, 6.61% and 6.10% in Fiscal 2018, Fiscal 2017 and Fiscal 2016 respectively.

As of & for the year ended March 31, 2018, Total Borrowings were Rs 2595.78cr and average cost of borrowings has reduced from 12.28% as of March 31, 2014 to 8.65% as       of March 31, 2018.

As of March 31, 2018, the weighted average duration of outstanding borrowings, including securitization and assignment was 135.35 months.

 

RISK FOR THE BUSINESS 

  • Company requires substantial capital and any disruption in sources of capital could have an adverse effect on business.
  • The risk of non-payment or default by borrowers may adversely affect business.
  • Company may face asset-liability mismatches, which could affect liquidity and adversely affect business.
  • Companies operations are concentrated in four states of western India, particularly Rajasthan and any adverse developments in this region could have an adverse effect on business.
  • Company is exposed to operational and credit risks which may result in NPAs, and company may be unable to control the level of NPAs in portfolio.
  • Companies inability to expand business into new regions and markets in India could adversely affect business.
  • Non-compliance with the NHB’s observations made pursuant to its periodic inspections could expose company to certain penalties and restrictions.

 


Conclusion / Investment Strategy

Aavas financiers is a retail housing finance company, primarily serving low and middle income self employed customers in semi-urban and rural areas in India.

On the upper price band of Rs 821 with EPS of Rs 13.27 for FY18, P/E works out at 61.86x. Issue seems to be highly priced.

Moreover, taking into consideration, Companies operations concentrated in four states of western India, particularly Rajasthan, Company requires substantial capital, operational & credit risks and inability to expand business into new regions. Based on the above aspects, we recommend to "AVOID" the issue.

Reviewer recommends Avoid to the issue.

Review By Rudra Shares & Stock Brokers Ltd on Sep 25, 2018

Review Author

Rudra Shares & Stock Brokers Ltd.

Rudra Shares & Stock Brokers Ltd. is Kanpur based brokerage houses offering services to Retail and HNI customers. Rudra Shares offer a range of financial services which includes institutional and retail brokerage of Equity, Currency, Commodities, Derivatives, Online Trading, Depository Services, Fixed Deposits, IPOs and Mutual Funds Distribution, Wealth Advisory and Research.

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