Aadhar Housing Finance IPO opens for subscription: Should you bid?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The initial public offering (IPO) of Aadhar Housing Finance, backed by private equity major Blackstone, is opening for subscription on Wednesday, May 8. The three-day public bidding will conclude on May 10.

Ahead of the IPO opening, Aadhar Housing Finance has raised about ₹898 crore from anchor investors such as CLSA Global Markets, Morgan Stanley, Whiteoak, Neuberger Berman, HDFC Mutual Fund, Invesco, among others.

Aadhar Housing Finance IPO review

Swastika Investmart: Subscribe for long term

Shivani Nyati, Head of Wealth at Swastika Investmart has recommended this IPO only for high-risk investors seeking long-term exposure to the affordable housing sector.

In a note, Nyati said that Aadhar Housing Finance is a leading HFC with the highest AUM in its low-income segment. The company boasts a robust and extensive branch network, efficient systems, and access to diversified, cost-effective long-term financing. Its strong financial performance reflects consistent growth over the years.

However, the analyst has highlighted some key challenges that require careful consideration before subscribing to the IPO. She said that Aadhar faces inherent risks associated with the creditworthiness of its low-income clientele and increases in NPAs. Additionally, the company operates in a highly competitive industry and is susceptible to interest rate volatility.

“While the IPO valuation of 22.8 times P/E (price-earnings) and 3.36 times P/BV (price-book value) might appear fair, Aadhar’s high reliance on borrowing necessitates a cautious approach,” she said.

Anand Rathi: Subscribe-Long term

Anand Rathi analysts have assigned a ‘Subscribe’ rating to the IPO, considering the issue is fairly priced. “At the upper price band, the company is valuing at P/E (price-earnings) of 19.45 times, with P/B (price-book) of 2.85 and a market cap of ₹13,434.7 crore post issue of equity shares and return on net worth of 16.50%”.

Aadhar Housing Finance IPO competitive strength

– A seasoned business model with strong resilience through business cycles.
– Robust, comprehensive systems and processes for underwriting, collections, and monitoring asset quality.
– Experienced, cycle-tested and professional management team.

Aadhar Housing Finance IPO key concerns

– Reliance on any misleading information given by potential borrowers may affect its judgment of creditworthiness.
– Any increase in the levels of non-performing assets in its AUM would adversely affect its business.
– It is vulnerable to the volatility in interest rates.
– The Indian housing finance industry is highly competitive.

Aadhar Housing Finance IPO GMP

Shares of Aadhar Housing Finance are trading with a premium of ₹70 in the unlisted market, indicating a listing premium of 22.22%.

The grey market is an unofficial ecosystem where shares start trading before the allotment in the IPO and until the listing day. Most investors track the GMP to get an idea of the listing price.

Aadhar Housing Finance IPO price band

The retail-focused housing finance company has fixed a price band of ₹300-315 per share for its initial share sale of ₹ 3,000 crore. The minimum lot size for an application is 47 shares in one lot and in multiples thereof.

Aadhar Housing Finance has trimmed the size of its IPO to ₹3,000 crore from the originally planned ₹5,000 crore, to have a ‘solid pop on market debut and have a successful listing’.

The offer comprises a fresh issue of equity shares worth ₹1,000 crore and an offer for sale (OFS) of ₹2,000 crore by promoter BCP Topco VII Pte Ltd, an affiliate of Blackstone Group Inc. At the upper end of the price band, the valuation stands at over ₹13,000 crore.

BCP Topco currently holds a 98.72% stake in Aadhar Housing Finance while ICICI Bank owns a 1.18% stake.

The company will utilise ₹750 crore of the fresh issue proceeds to meet future capital requirements towards onward lending and a portion will also be used for general corporate purposes.

Business overview

Aadhar Housing Finance offers a range of mortgage-related loan products, including loans for residential property purchase and construction; home improvement and extension loans; and loans for commercial property construction and acquisition.

The company is an HFC focused on the low-income housing segment, serving economically weaker and low-to-middle-income customers, who require small-ticket mortgage loans.

It has a network of 471 branches, including 91 sales offices, as of September 30, 2023.

Financials

The housing finance company’s gross assets under management (AUM) stood at ₹19,865.2 crore at the end of December FY24, higher by 20% over the same period last year.

It has recorded healthy financial performance in the past as net profit rose by 22.5% year-on-year to ₹544.8 crore for FY23. The company’s net interest income for the year surged 28.6% to ₹1,244.3 crore as against the previous year, with net interest margin (NIM) expansion of 110 basis points at 8% during the same period.

Its net profit for the nine months ended December FY24 climbed 35.6% to ₹547.9 crore, compared to the same period last year. Net interest income rose nearly 30% during the same period to ₹1,170.4 crore, with NIM expanding 100 bps at 9%.

Aadhar Housing Finance IPO BRLM, listing date

ICICI Securities, Citigroup Global Markets India, Kotak Mahindra Capital Company, Nomura Financial Advisory and Securities (India), and SBI Capital Markets are the book-running lead managers to the issue.

The share allotment for the Aadhar Housing Finance IPO will likely be finalised by May 13. The equity shares of the company will be listed on BSE, and NSE with a tentative listing date fixed as May 15.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow