Aavas Financiers IPO Review

Aavas-Financiers-Limited-IPO

Aavas Financiers IPO issue consists of a fresh issue of equity shares aggregating up to Rs 400 crore and offer for sale (OFS) of 1.62 crore equity shares aggregating up to Rs 1329.2 – 1334.1 crore. Aavas Financiers IPO total issue size at the upper end stands at Rs. 1734.07 Crores. The Jaipur based company is registered with the NHB as an HFC. (Housing Finance Company)

Aavas Financiers IPO: Details
Issue Period 25 Sept – 27 Sep’2018 
Issue Details Fresh Issue  Rs.400 Crores and OFS of  16,249,359 Shares.  
Issue Size (Rs. Cr) Rs.1,729.20 Cr – 1,734.07 Cr
Price Band Rs.818 – 821
Retail & Employee Discount Rs.5/- per Equity Share
Bid Lot 18 Shares and in multiple thereof 
Issue Structure :  
QIB 50% of the Net offer 
NIB 15% of the Net offer 
Retail 35% of Net offer -Upto 7,392,513 Equity Shares-  605.22 Cr
BRLMs ICICI Securities, Citigroup Global
Markets, Edelweiss Financial, Spark Capital, HDFC Bank
Registrar  Link Intime India Pvt. Ltd.  
About Aavas Financiers
  • Company is registered with the NHB as an HFC and it commenced operations in Jaipur, Rajasthan in March 2012. 
  • The company was initially promoted by Au Financiers Limited, which sold 90.10% of the outstanding equity interest of the company as it converted to a small finance bank.
  • The equity was sold to Lake District Holdings Limited (a subsidiary of Kedaara
    Capital I Limited) (“Lake District”), Kedaara Capital Alternative Investment Fund – Kedaara Capital AIF 1 (“Kedaara AIF-1”), Partners Group ESCL Limited (“ESCL”) and Partners Group Private Equity Master Fund LLC (“Master Fund”) in June, 2016.
  • The name of Company was changed from ‘AU Housing Finance Limited’ to ‘Aavas Financiers Limited’ in March 2017. 
  • Aavas Financiers provides customers home loans for the purchase or construction of residential properties, and for the extension and repair of existing housing units. They also offer customers other mortgage loans including loans against property.
  • Aavas Financiers operates from a network of 165 branches spread across 8 states (Rajasthan, Gujarat, Maharashtra, MP, Haryana, Delhi, UP and Chhattisgarh) . Companies operations are concentrated in the state of Rajasthan which accounts for 46% loan book.
  •  As of June 30, 2018, 61.22% of the Gross Loan Assets were from customers who belonged to the economically weaker section and low income group, earning less than Rs. 50,000 per month and 36.27% of the Gross Loan Assets were from customers who were new to credit.
  • As of June 30, 2018, 64.21% of Gross Loan Assets were from self-employed customers.
Aavas Financiers: Financials
Particulars Q1FY19 Fy18 Fy17 Fy16 Fy15
Revenue from Operations 143.85 456.34 305.13 190.88 103.68
Revenue Growth (%) 49.56% 59.85% 84.10%
Profit Before Tax 44.47 141.75 87.56 49.95 28.96
Profit after Tax 29 92.93 57.14 32.78 19.08
Net Profit as % to revenue 20.16% 20.36% 18.73% 17.17% 18.40%
EPS (Rs.) 4.17 15.87 11.1 8.24 5.54
RoNW (%) 9.85% 8.46% 10.09% 16.08% 18.81%
Net Asset Value (Rs.) 166.46 157.03 96.41 46.6 27.05
Net Interest Margin (NIM) 2.03 7.25% 6.61% 6.10% 6.76%
Equity Share Capital 70.75 69.17 58.16 38.38 32.92
Reserves 1,106.94 1,029.06 508.16 165.44 68.52
Net worth 1,177.69 1,098.47 566.33 203.82 101.44
Gross Loan Assets 4,359.09 4,073.02 2,693.52 1,679.87 842.89
Growth (%) 51.22% 60.34% 99.30% 107.49%
Disbursement 546.9 2,051.16 1,391.60 1,050.43 536.91
Disbursement Growth (%) 47.40% 32.48% 95.65% 91.79%
Face Value 10
IPO Price 821
Post issue equity  78.6
Post Issue NAV 208.8
Post issue EPS 11.82
PE  69.44
P/BV 3.93
CAGR Sales 3 Yrs 63.88%
CAGR Net Profit 3 Yrs 69.51%
Market Cap 6453.06
Market cap / Sales 14.14
Aavas Financiers IPO: Pros
  • Aavas Financiers is a  housing finance company which  primarily serving low and middle income customers with self-employed constituting ~63.4% of total loan accounts.
  • Aavas Financiers’ loan book grew by 78% CAGR over FY14-18 to  Rs. 4,070cr.
  • Aavas Financiers has stable asset quality with FY18  NPA at 0.26%.
  • Company claims to have implemented a robust and comprehensive credit  assessment, risk management and collections framework
    to identify, monitor and manage risks inherent in our operations.
  • As of June 30, 2018, 61.22% of the Gross Loan Assets  of the company were from customers who belonged to the economically weaker section and low income group, earning less than Rs. 50,000 per month and 36.27% of the Gross Loan Assets were from customers who were new to credit. As of June 30, 2018, 64.21% of Gross Loan Assets were from self-employed customers.
Aavas Financiers IPO: Risks
  • It is highly concentrated in state of Rajasthan:
  • The risk of non-payment or default by borrowers may adversely affect its business
  • Self-employed customers. constitute 63.81% of its Gross Loan Assets. Self-employed customers are often considered to be higher credit risk customers due to their increased exposure to fluctuations in cash flows and to adverse economic conditions.
  • An increase in general interest rates in the economy could also reduce the overall demandfor housing finance and impact company’s growth.
Aavas Financiers: Assessment
  • Aavas Financiers has  been able to deliver strong credit growth since inception.
  • Aavas Financiers long-term credit ratings have improved from CRISIL BBB+/Stable in August 2012 to CRISIL A+/Stable at present. 
  • The company is  led by a professional management team and Key Managerial Personnel held 4.90% of the outstanding equity interest of the Company.
  • While the company’s growth rate has been commendable it is on a very low base. Company is seeking very high valuations compared to peers.
  • On the post issue share capital, PE ratio is  69.4 times of its FY18 earnings. Similarly on Post issue NAV, the PBV ratio is 3.93.
  • Return on net worth (RoNW) is very low compared to peers
  • Despite a creditable performance by Aavas Financiers, good performance of AU Small Finance Bank on the bourses , I do not  intend to apply in the Aavas Financiers IPO due to high price being demanded.
  • There have been recent concerns on HFCs due to rate hike. I addition presently secondary market conditions are quite subdued.

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk. 

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