Housing Finance Stock Below Rs 325 Recommended To Buy, To Give 17% Returns Ahead

Home loan company, Aptus Value Housing Finance India is recommended to buy for a target price of Rs 380. This will imply a potential upside of nearly 17% going forward. Brokerage Investec Bank plc (UK) believes Aptus has a cost leadership in the housing finance sector that is difficult to disrupt.

In its research note, Investec said, "Aptus is the most profitable HFC (FY23 RoA/RoE of 8%/16%) in India, thanks to its focus on less crowded segments (rural, informal segment, small loan size, high share of non-housing loans), frugal cost structure (lowest cost to income) and best in class asset quality (lowest write-offs). Aptus has built an in-house cost-efficient model that is difficult to disrupt."

Here are four key investment rationales by Investec on the potential of Aptus:

1. Aptus operates in an underpenetrated segment with rural areas accounting for 76% of AUM, new to credit customers form 38%, self-employed at 70%, a loan size of Rs0.85mn and share of non-housing at ~40%. This leads to high yields and margins at ~17% and ~12% for FY23.

2. Aptus has an in-house operating model with all functions (sourcing, underwriting, legal, technical, and collection) performed by its employees. Its centralised underwriting model is more scalable than the decentralised model.

3. Cost efficiency is unparalleled, with the lowest cost to income ratio and lowest credit losses (negligible write-offs since inception). A high margin operating segment with cost leadership implies high return ratios.

4. Its AUM grew at 37% CAGR over FY18-FY23, touching Rs76bn as of Sept'23 end. Aptus has hitherto executed well in south India. The next leg of growth (post 3 years) hinges on execution in new states (Maha and Odisha). In its home state of TN, loan growth has slowed down at AUM of Rs30bn (grew 13% YoY in H1FY24).

Investec sees growth potential in a) existing states (primarily Telangana and Andhra; both growing at ~40% YoY) and b) Business Loans vertical which is small (Rs15bn as of Sept'23).

Hence, the brokerage said, "We value Aptus on two stage excess return on equity model with cost of equity of 12%."

On BSE, currently, Aptus share price is at Rs 324.85 apiece with a market cap of Rs 16,207.55 crore.

Aptus is a Home Loan Company. Aptus has been formed to primarily address the housing finance needs of self employed, belonging to Low and Middle Income Families primarily from semi urban and rural markets. On its website, Aptus stated that despite the vibrant growth of the housing finance sector especially over the past few years, India still has one of the most severe housing shortages today. The majority of India's population and especially the self employed business segment from semi urban areas lack access to housing finance.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.