Here is why brokerages have ‘subscribe’ rating on Aptus Housing, despite its expensive valuations

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The Rs 2,780.05 crore IPO (initial public offering) of the housing finance company, Aptus Value Housing Finance is open for subscription. The three-day issue closes on August 12 and the price band for the issue is fixed at Rs 346-353 per share having a face value of Rs 2 per share. The issue comprises fresh issuance of equity shares of Rs 500 crore, and an OFS (offer for sale) of Rs 2,280.05 crore by existing selling shareholders including promoter Padma Anandan, and investors Aravali Investment Holdings, JIH II LLC, GHIOF Mauritius, and Madison India Opportunities IV.

An investor can bid for a minimum of 42 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,826 at the higher end of the price band. A retail investor can at max apply for 13 lots or 546 shares for Rs 1,92,738.

The NBFC (non-banking finance company) will utilise the net proceeds from the fresh issue of Rs 500 crore towards augmenting tier I capital requirements. Anchor book

Ahead of the IPO Aptus Value Housing Finance raised Rs 834 crore on August 08, from anchor investors. The company has decided to allocate 23.63 million equity shares to anchor investors at Rs 353 apiece, valuing the transaction size to Rs 834.02 crore, according to a circular uploaded on the BSE website.

WF Asian Reconnaissance Fund, Neuberger Berman, Aberdeen Global, Steadview Capital, Copthall Mauritius, SmallCap World Fund, The Genesis Group, Nomura, Edelweiss Trusteeship, Axis Mutual Fund (MF), are among the anchor investors.

Grey market chatter

In the grey market shares of the company are quoting at Rs 375 per share marking a premium of Rs 22 or 5.87% over the IPO price of Rs 353.

According to Abhay Doshi, founder of Unlisted Arena, Aptus Value Housing Finance has posted commendable performance which is evident from its financial statistics. It has achieved a CAGR (compounded annual growth rate) of 34% for its AUM (assets under management) from FY19 to FY21. The company is efficient in its operations. The ability of the company to manage the credit quality of loans is reflected in GNPA which was a mere 0.68% in FY21.

“The second wave of Covid is now showing some signs of business getting impacted which may further impact for a quarter or two. The P/BV (price to book value) comes around 8.6x which makes the issue fully priced against the superlative performance leaving little to nothing for investors in short term,” Doshi added.

Brokerages view

Angel Broking | Rating: Subscribe

Aptus has posted strong growth in both NII (net interest income) and net profits of 46.2% and 54.7% between FY19-FY21. Despite the Covid-19 crisis the company’s asset quality has remained largely stable with GNPA (gross non performing assets) and NNPA (net non performing assets) largely stable at 0.6% and 0.5% respectively at the end of FY2021. At the higher end of the price band the stock would be trading at P/BV of 8.5x FY21 BVPS (book value per share) of Rs. 41.7 which is in line with Aavas Financers which is a comparable company. Given strong growth prospects, and industry leading return ratios Angle Broking has a subscribe rating on the issue.

Antique Stock Broking | Rating: Subscribe for long term

The progress in affordable housing in India has been rather slow, with total outstanding loans at mere Rs 88,000 crore (3 per cent of mainstream housing), Aptus has crafted its own success story through a combination of identifying the right customer profile, the right collateral and heavy usage of analytics, systems and process. However, valuations at 5.4 times on post-money book and 45 times on FY23 earnings do not leave much upside in the near term.

Choice Broking | Rating: Subscribe with caution

Aptus is well-capitalised for future growth (CAR (capital adequacy ratio) stood at 73.6 per cent in FY21). Yet it comes with a fresh issue of Rs 500 crore. With contained credit cost, strong disbursements management and focus on underpenetrated low- and mid-income segment, business growth, and profitability is expected to remain robust going forward. However, the market cap at Rs 17,494 crore at P/BV of 7.1 times for a company having AUM of Rs 4,068 crore seems overpriced.

The contained credit cost, strong disbursements management, and focus on underpenetrated low- and mid-income segment, business growth & profitability is expected to remain robust going forward.

Marwadi Shares and Finance | Rating: Subscribe

Considering the FY-21 adjusted BVPS of Rs. 50.03 on the post-issue basis, the company is going to list at a P/B of 7.06 with a market cap of Rs.17,494 crore, while its peer namely Aavas Financiers is trading at a P/B of 8.47.

The brokerage firm has assigned a ‘Subscribe’ rating to this IPO as the company has a presence in large underpenetrated markets with strong growth potential and is available at a reasonable valuation as compared to its peers.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)