Buy This Mid-Cap Housing Finance Stock For Robust 34% Gains In 12 Months, Gains 20.97% In 1 Month

LKP Research is bullish on Aptus Value Housing Finance India Ltd (APTUS ), a mid-cap housing finance company. The brokerage suggests 'buy' the stock of the company for a target price of Rs 526 apiece. If the stock of the company is bought at the current market price, the investors are likely to get a potential gain of 34% in 12 months.

Stock Outlook

The current market price of the stock is Rs 351.90 apiece, the stock was opened at Rs 361.50 apiece. The 52-week low of the stock is Rs 220.10 apiece and 52-week high is Rs 394.90 apiece, respectively.

Returns on Investment

The stock of the company surged roughly 5.93% over the past 1 week. It has given 20.97% of positive return in the past 1 month. Whereas, in the past 3 months, the stock has given 21.6% of positive return. Over the past 1 year, the stock has fallen 6.83%. The stocks were listed on the exchange on 24 August 2021, according to the NSE.

Overview

Aptus Value Housing Finance is consistently delivering a strong profitability (~35% CAGR in previous 4 years), and healthy ROA (above 7%) driven by strong loan growth (~30%) and immaterial provision expenses. The company has a robust tech driven customer acquisition platform (100% in house sourcing) and follows a stringent credit underwriting process (cash flow assessment). It has been fruitful for the company for several years as the NPA (1% NNPA) formation remained minuscule. A lower credit cost has resulted in superior return ratios (9% ROA in 1QFY23), furthermore the business growth for the company remains strong with healthy NIMs (~8% reported in 1QFY23)."We expect the business environment and operating metrics to remain strong for the company. We have a positive outlook on the company with a BUY recommendation," the brokerage said.

Best in class ROA

The Company has consistently delivered ROA of more than 6% since FY16. A high capital base and lower leverage keeps the ROE at a standard level of above 12%. A best in class ROA was led by superlative NIMs (despite higher COF) along with controlled operating expenses (C/I ratio: ~20%). We believe the company's ROA to stay in a range of 7% in coming years driven by exceptional NIMs (calculated) of above 10%. However, we believe, the yields (YOA: 17% on 1QFY23) may squeeze marginally. Nevertheless, lowering COF (7.7% on 1QFY23) may keep the spreads (as well as NIMs) intact. We are expecting NIMs of above 10.5% in FY23E. The improving operating margin (C/I: 20% on 1QFY23) is likely to deliver 27% PPOP growth for FY23E. We estimate a ROA/ROE of 7%/14% for FY23E.

Collection Efficacy level high; Negligible NPA formation

Collection efficiency have surpassed the pre-covid level and stood at 101.2% in June'22 compared to 95% in Jun'21. The March'22 collection efficiency was 103.1%. Further, 30+ DPD loan also declined to 6.48% in June'22 from 13% in Dec'21, against 8.7% in March'22. The management expects further improvement in 30+DPD in the coming quarters. The company's Gross Stage - 3 stands at 1.75% of loan portfolio. Despite covid and various lockdowns, the collection efficiency remained robust and asset quality unharmed. We are expecting a Gross Stage - 3 of 130bps and Net Stage - 3 of 90bps for FY23E. Furthermore, we estimate an ECL provision (PCR) of 26%. Lower stress is likely to keep the credit cost in check, which may translate into better profitability in coming years.

Robust Capital Position; Strong ALM

The Company has healthy capital position (Tier 1: ~83.3% of RWA) as on June-22. The capital won't be a concern for balance sheet growth. We expect the company to clock a credit growth of ~27% in coming years. The company has comfortable liquidity position with cash & cash equivalents of ₹5.73bn (as on June'22) and ₹13bn available for business up-to Dec'22. The company also has strong ALM practices. As on June'22, the company carries an ALM surplus of ₹5.1bn for

Outlook and Valuation

APTUS would continue to command a premium valuation, as it delivers best-in-class ROA among its peers, led by continued focus on affordable housing in Tier-II/III cities along with rigorous underwriting practices, which has helped it to withstand covid-led disruptions. "We expect strong AUM growth (27% estimated), stable NIM (calculated) of 10.7% and opex at 2.2% of average assets will help APTUS to deliver strong PAT (30% CAGR) over FY22-FY24E. We value the company at 6.5xFY24E book value to arrive a target price of ₹526," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of LKP Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.