Aavas Financiers Ltd opens its initial public offering (IPO) on 25 September aimed at raising Rs 1,734 crore. Promoters and investors of the housing finance company are selling 1.62 crore shares, and the mortgage lender is planning on issuing fresh shares worth Rs 400 crore.

These will be offered to the public at the price band of Rs 818-821 a share for a period of 3 days.

Promoters selling their stakes are Lake District Holdings Ltd., Partners Group Private Equity Master Fund LLC and Partners Group ESCL who will be selling 24.2 percent of their shareholding from the existing 81.26 percent. Other investors putting their shares on sale are Kedaara Capital (0.32 percent), Sushil Agarwal (1.24 percent) and Vivek Vig (0.17 percent).

From the anchor investors category, the company has raised Rs 520 crore from AU Small Finance Bank, DSP Blackrock Tax Saver Fund, Abu Dhabi Investment Authority-Behave, Bajaj Life Insurance, SBI Life, and Morgan Stanley India Investment.

Company Background

Aavas Financiers is the former subsidiary of AU Small Finance Bank and used to be called AU Housing Finance Ltd. It is primarily into providing housing loan to customers belonging to the low and middle-income segment in semi-urban and rural areas. Its customers are either self-employed, running small businesses like providing transportation facilities in auto rickshaw or other vehicles, running grocery shops, tiffin centers, beauty parlous and other businesses or these customers are carrying out business of agri or animal husbandry products in rural areas or salaried class people who are carrying out small jobs in private or public sector.

It has 186 branches in 8 states, namely, Rajasthan (75), Gujarat (29), Maharashtra (36), Madhya Pradesh (29), Delhi (2), Uttar Pradesh (4), Chattisgarh (5) and Haryana (6).

Loans are extended for home purchases, repairs, construction, and expansion. Its loan book has grown at an annualised rate of 58.6 percent and profit at 71.3 percent. As of March this year, its gross non-performing assets stood at 0.34 percent of total advances and net interest margin was over 7 percent.

Brokerage views

Antique Stock Broking said, "Valuations at 4.1 times on post-money book and 43 times on FY19e earnings do not leave much upside in the near term. Investors with long term outlook can look to subscribe." Emkay Global feels that as the company's overall leverage accelerates, superior returns on equity of over 20 percent can be expected. It also said that the risk of dilution was also limited due to sufficient capital in place and gave the IPO a "subscribe" recommendation.