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IPO Fund Research Report: Aavas Financiers Ltd. - IPO Product Note

Incorporated in 2011, Aavas Financiers Ltd (AFL) is Jaipur based retail, affordable housing finance company, primarily serving low and middle income self-employed customers in semi-urban and rural areas in India. The company is registered with NHB as an HFC. It offers customers home loans for the purchase or construction of residential properties, and for the extension and repair of existing housing units.
24 Sep 2018 | 04:51 PM

In addition to this, it also offers its customers other mortgage loans including loans against property, which accounted for 24.18% of its Gross Loan Assets. As of June 30, 2018, 61.22% of 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 Gross Loan Assets were from customers who were new to credit. The company conducts its operations through 166 branches covering 95 districts in eight states of which, it has a significant presence in Rajasthan, Gujarat, Maharashtra and Madhya Pradesh. Almost all its customers are sourced directly by the company, and as of June 30, 2018, it had 57,049 loan accounts including securitized and assigned cases. Further, as per ICRA, AFL had the lowest Gross NPAs as of March 31, 2018 and the second highest growth rate of assets under management for the last three financial years among affordable housing finance companies that had assets under management between Rs 25-200bn.

 AFL's past financial track record has been impressive. Its Net Interest Income & PAT have grown by 82.4% & 95.7% CAGR over FY14-18, while its NIMs have improved from 6.71% in FY14 to 7.25% in FY18. Further, the growth in Gross Loan Assets and disbursements remained strong at 78% & 64.5% over the same period. The asset quality has also remained healthy with Gross & Net NPAs at 0.34% & 0.26%. With robust industry growth outlook and the company's constant efforts towards focusing on low and middle income self-employed customers, expanding the product portfolio & branch network and optimizing borrowing cost, the growth momentum for AFL could remain healthy going forward. However, some key concerns which cannot be ignored for the housing finance industry in the near term include intensifying competition and rising bond yields. At the upper price band of Rs 821, the company is valued at 69x PE on FY18 EPS and at 4.1x P/BV (on post IPO Book Value).