Aavas Financiers, Aptus Value, Home First Finance Gets A 'Buy' As Centrum Broking Initiates Coverage

Centrum Broking Report

We initiate coverage on three affordable housing finance companies viz., Aavas Financiers Ltd. (target price Rs 2070), Aptus Value Housing Finance India Ltd. (target price Rs 380) and Home First Finance Company India Ltd. (target price Rs 1130) with a 'Buy' rating.

Affordable housing finance is a multiyear growth opportunity. The affordable housing finance have registered five-year assets under management compound annual growth rate in the range of 28% to 40% with return on assets more than 3.5% and low credit costs (0.2%-0.5% five-year average).

The underwriting practices have stood the test of Covid with minimal write-offs despite lending to informal customer segment.

Competition from large banks/ nob-banking financial companies is at bay due to-

1. Branch/people intensive business model,

2. customer cashflow based income assessment, low agreement-to-sell (between 0.8 million-1.1 million) and understanding of local nuances.

Yields across players have remained strong and healthy across cycles while Cost of Funding has been in control due to National Housing Bank borrowings.

Pre provision operating profit/assets have remained strong in the range of 4.6% to 10.7% despite opex intensive business.

The afforable housing finance companies are well capitalized to support growth over next few years.

Higher leverage may impact return on asset however improve return on equity profile. We build in average RoE at 15.3%/18.6%/15.9% for Aavas, Aptus and Home First for FY24-26E, respectively.

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