Citi initiates coverage on Aadar Housing Finance stock with ‘buy’ rating, forecasts 42% upside

Global brokerage firm Citi Research initiated coverage on Aadar Housing Finance with a Buy rating and target price in a recent note. INRAt $565 per share, it represents a potential upside of 42% from the latest trading price. INR398.

The brokerage’s optimistic outlook stems from the company’s consistent growth, which has steadily scaled at a CAGR of over 16% over the past four to six years (single-digit growth in the affordable housing finance market). (compared to the growth of ).

The brokerage noted that the company has emerged as a first mover, capturing a 2% market share in the low-income segment (average ticket size below). INR2.5 million) Housing finance sector. Since being acquired by Blackstone Group, the company has made significant progress in governance, processes, efficiency, growth and profitability metrics.

Building a moat in customer understanding, loan underwriting and collections gives the company the confidence to steadily increase its share in the informal self-employed category, growing at a CAGR of 43%/49% over the past four years I’m doing it. 6 years.

The brokerage expects the share of self-employed clients to increase by 1 to 2 percentage points annually over the medium term. It also highlights Aadhar’s differentiated strategy compared to other affordable housing finance providers (AHFs). While many AHFs focus on establishing dominance and deepening their presence in core states, Aadhaar takes a broad, deep, and diversified distribution approach.

Citi says no state accounts for more than 14% of total assets under management, and the top three and top five states together account for 40% and 60% of assets under management, respectively, significantly lower than other states. pointed out.

Mr. Adar is leading 75 branches in FY25, including 25 branches in Tier 1/2 locations and in Uttar Pradesh, Rajasthan, Gujarat, Tamil Nadu, Andhra Pradesh/ It includes 50 influential branches of Telangana state. The brokerage firm estimates that these high-impact branches will account for 10% of executions and 3% of assets under management over the medium term.

Citi expects the company’s payment growth to maintain a 21-22% CAGR for assets under management, and the growth levers include: Expand market share in Andhra Pradesh, Telangana, and Tamil Nadu. Strengthen sales offices and influential branches. Increase the share of self-employed customers by an additional 1 to 2 percentage points each year. Productivity increases as the new branch matures. Efforts to reduce BT out and repayment/prepayment run rates.

On the financial front, the company expects AUM growth at 21-22% CAGR, NIM to AUM of 7.0-7.1%, subdued credit costs of 0.3-0.4%, and suppressed Opex to increase PAT compared to FY24-27E. It is predicted to increase by 22%. /Asset drops to less than 3.5% as leverage kicks in and higher fees are realized. Due to these factors, the brokerage believes Aadhar’s RoA/RoE profile will further improve to over 4.5% and over 16.5% in FY25-27E.

Stocks are down 23% from all-time highs

The company’s stock price has fallen over the past four months, ending each session in the red. After hitting an all-time high, INRThe stock was valued at $516.65 per share in September, and the stock has revised 23.15% year-to-date.

Nevertheless, it is up 26.3% from its IPO price. INR315. The company’s shares will be listed on Dalal Street in May 2024. INRThe stock price was $329 per share, 4.6% higher than the issue price.

Disclaimer: The opinions and recommendations expressed in this article are those of the individual analysts. They do not represent the views of the Mint. We recommend checking with a certified professional before making any investment decisions.