IPO Note | Financials
Sep 24, 2018
Aavas Financiers Ltd
NEUTRAL
sue Open: Sept 25, 2018
Is
Issue Close: Sept 27, 2018
Aavas Financiers (Aavas) started operations in March 2012 as a retail affordable
housing finance company. The company lends to the low-ticket, high yield segment
and targets low-income rural and semi urban self-employed customers. Aavas
Issue Details
operates from a network of 165 branches spread across eight states (Rajasthan,
Face Value: `10
Gujarat, Maharashtra, MP, Haryana, Delhi, UP and Chhattisgarh) of which 46%
Present Eq. Paid up Capital: `70.75cr
loan book is from the state of Rajasthan. Aavas has a loan book (AUM) of
`4,359cr as on June 2018 with average ticket size of ~`8.8 lakh.
Offer for Sale: *1.6cr Shares
Fresh issue: `400cr
Positives: (1) Aavas Financiers’ loan book grew by 78% CAGR over FY14-18 to
Post Eq. Paid up Capital: `71.24cr
`4,070cr; (2) Adequate ALM match along with zero exposure towards capital
Issue size (amount): *`1,729cr -
market borrowings to support spreads in coming quarters; (3) Sufficient capital
**1,734 cr
(FY18 CAR at 61.6%) to fuel growth engine; (4) Stable asset quality (FY18 GNPA at
0.34% & NPA at 0.26%).
Price Band: `818-821
Lot Size: 18 shares and in multiples
Investment concerns: (1) Highly concentrated in state of Rajasthan: As Aavas had
thereafter.
started its journey from the state of Rajasthan, 46% of the loan portfolio is from
Post-issue implied mkt. cap: *`6,430cr
here. It has been observed in the past that the financials of Repco Home & Can Fin
- **`6,452cr
Home were impacted due to slowdown in the home state; (2) Presently Aavas is
Promoters holding Pre-Issue: 81.3%
working at a leverage of 4x as compared to sector at 8x owing to excess capital.
Currently, sizable profit has been generated owing to excess capital and in order to
Promoters holding Post-Issue: 73.1%
improve RoE, Aavas has to grow very aggressively.
*Calculated on lower price band
** Calculated on upper price band
Outlook & Valuation: On the valuation front, at the upper end of the IPO price
Book Building
band, Aavas demands price-book (PB) multiple of 4.3x on FY18 book value
QIBs
50% of issue
(considering Fresh Issue) and 69x FY18 EPS. Established listed peers are trading in
the range of 2.5- 3.5x of FY18 PB and in terms of PE these players are trading at
Non-Institutional
15% of issue
valuation of 14-35x of FY18 EPS. Thus, considering the higher valuation, intense
Retail
35% of issue
competition, and regional concentration of its loan portfolio we recommend
NEUTRAL rating to Aavas Financiers.
Post Issue Shareholding Patter
Promoters
73%
Key Financials
Y/E March (` cr)
FY14
FY15
FY16
FY17
FY18
Others
27%
NII
20
43
76
127
204
YoY Growth (%)
111
76
69
60
PAT
6
19
33
57
93
YoY Growth (%)
201
72
74
63
EPS
1
3
4
8
13
Book Value
8
14
28
77
149
P/E
955
317
185
106
65
P/BV
109.2
59.7
29.7
10.7
5.5
ROE (%)
11
24
21
15
11
Jaikishan J Parmar
ROA (%)
1.5
3.0
2.6
2.7
3.0
+022 39357600, Extn: 6810
Source: RHP, Angel Research; Note: Valuation ratios based on pre-issue outstanding shares and at
upper end of the price band
Please refer to important disclosures at the end of this report
1
Aavas Financiers Limited | IPO Note
Company Background
Aavas Financiers (Aavas) started operations in March 2012 as a retail affordable
housing finance company. The company lends to the low-ticket, high yield segment
and targets low-income rural and semi urban self-employed customers. Aavas
operates from a network of 165 branches spread across eight states (Rajasthan,
Gujarat, Maharashtra, MP, Haryana, Delhi, UP and Chhattisgarh) of which 46%
loan book is from the state of Rajasthan. Aavas has a loan book (AUM) of
`4,359cr as on June 2018 with average ticket size of ~`8.8 lakh. Aavas has been
able to maintain pristine asset quality (FY18 GNPA at 0.34% & NPA at 0.26%).
Exhibit 1: Trend in No. of loan accounts
Exhibit 2: Customer bifurcation
60,000
57,049
120.0
52,788
Self Employed
Salaried
50,000
100.0
40,000
34,512
80.0
40.6
38.0
38.5
37.4
36.6
43.5
60.0
30,000
21,666
20,000
40.0
12,117
62.0
61.6
62.7
63.4
56.5
59.4
10,000
7,044
20.0
-
-
FY14
FY15
FY16
FY17
FY18
Q1FY19
FY14
FY15
FY16
FY17
FY18
Q1FY19
Source: Company
Source: Company
Key Management Personnel
Sushil Kumar Agarwal is the WTD and CEO of the company. He is associated with
the company since its incorporation. He is qualified CA and CS. He was previously
associated with AuSFB as its Business Head - SME & Mortgages. Prior to working
with Aavas, he was associated with ICICI Bank Limited as its chief manager, Kotak
Mahindra Primus Limited as an assistant manager. He has more than 17 years of
experience in the field of retail financial services.
Ghanshyam Rawat is the CFO of the company. He heads finance & treasury,
accounts, internal audit, compliance, budget and analytics departments. Mr. Rawat
holds a B.Com from the Rajasthan University and is a qualified CA. He has been
previously associated with First Blue Home Finance Limited, Accenture India Private
Limited and Deutsche Postbank Home Finance Limited.
Sunku Ram Naresh is an MBA (Marketing) and B.Sc. from Sri Krishnadevaraya
University, A.P. He is a business development professional having a rich
experience of 19 years in Mortgages and FMCG distribution. His last assignment
was with Bajaj Finance Ltd. and he has also worked with companies like Future
Money, GE Money Financial Services Ltd., ICICI Bank Ltd. and Nestle India Ltd.
Sep 24, 2018
2
Aavas Financiers Limited | IPO Note
Issue details
This IPO is a mix of OFS and Fresh Issue of shares. The issue would constitute fresh
issue worth of `400cr and OFS worth of `1,334cr. OFS largely would offer exit to
early investors namely Lake District, ESCL, Master Fund and few others.
Exhibit 3: Pre and Post-IPO shareholding pattern
No of shares (Pre-issue)
%
No of shares (Post-issue)
%
Promoter
5,99,05,823.0
81.3
5,74,73,645.0
73.1
Investor/Public
1,38,17,181.0
18.7
2,11,21,466.2
26.9
7,37,23,004.0
100.0
7,85,95,111.2
100.0
Source: RHP Note: Calculated on upper price band
Objects of the offer
The company would utilise the proceeds from the Fresh Issue towards
augmenting its capital base to meet future capital requirements.
To achieve the benefits of listing the equity shares on the Exchanges and to
carry out offer for sale of equity shares.
Sep 24, 2018
3
Aavas Financiers Limited | IPO Note
Outlook & Valuation: On the valuation front, at the upper end of the IPO price
band, Aavas demands price-book (PB) multiple of 4.3x on FY18 book value
(considering Fresh Issue) and 69x FY18 EPS. Established listed peers are trading in
the range of 2.5- 3.5x of FY18 PB and in terms of PE these players are trading at
valuation of 14-35x of FY18 PAT. Thus, considering the higher valuation, intense
competition, and regional concentration of its loan portfolio we recommend
NEUTRAL rating to Aavas Financiers.
Exhibit 4: Relative Comparison
HFC (` Cr)
ROE
RoA
P/BV
PE
PAT
C/I
GNPA NPA
Adv-18
Dewan Hsg. Fin.
14.0
1.2
2.13
16.0
1,172
23
1.0%
0.6%
87,610
LIC Housing Fin.
16.7
1.3
1.84
11.7
1,990
16
0.8%
0.4%
1,66,320
GIC Housing Fin
20.2
1.8
1.62
8.7
184
20
2.5%
0.2%
10,752
Repco Home Fin
16.7
2.2
2.39
15.4
206
17
2.9%
1.3%
9,857
GRUH Finance
29.1
2.5
17.38
66.2
363
14
0.5%
0.0%
15,568
Can Fin Homes
24.9
2.1
3.03
13.5
302
15
0.4%
0.2%
15,743
PNB Housing
14.0
1.6
3.17
24.1
831
20
0.3%
0.2%
57,014
Indiabulls Hous.
28.8
3.3
3.76
13.6
3,567
13
0.8%
0.3%
1,22,578
H D F C
24.1
3.4
5.12
25.8
12,164
8
1.0%
0.7%
3,99,511
Aavas
11.2
3.0
4.31
69.4
93
46
0.3%
0.3%
3,177
Source: Company, Valuation done on 20/9/18 Closing Price
Risk
Aavas’ operations are concentrated in four states of western India, particularly
Rajasthan and any adverse developments in this region could have a negative
impact on the company’s business, results of operations, financial condition
and cash flows.
Sep 24, 2018
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Aavas Financiers Limited | IPO Note
Income Statement
Y/E March (` cr)
FY15
FY16
FY17
FY18
Net Interest Income
43
76
127
204
- YoY Growth (%)
111
76
69
60
Other Income
8
18
35
64
- YoY Growth (%)
111
127
91
81
Operating Income
51
94
163
268
- YoY Growth (%)
111
84
73
65
Operating Expenses
20
40
67
125
- YoY Growth (%)
43
105
66
85
Pre - Provision Profit
31
54
95
144
- YoY Growth (%)
202
71
78
51
Prov. & Cont.
2
4
8
2
- YoY Growth (%)
136
53
117
-75
Profit Before Tax
29
50
88
142
- YoY Growth (%)
208
73
75
62
Prov. for Taxation
10
17
30
49
- as a % of PBT
224
74
77
60
PAT
19
33
57
93
- YoY Growth (%)
201
72
74
63
Balance Sheet
Y/E March (` cr)
FY15
FY16
FY17
FY18
Equity
33
38
58
69
Reserve & Surplus
69
165
508
1,029
Net worth
101
204
566
1,098
Borrowings
704
1,447
1,793
2,596
- Growth (%)
99
105
24
45
Other Liab. & Prov.
47
60
91
123
Total Liabilities
852
1,711
2,451
3,817
Cash Balances
11
235
276
565
Investments
-
-
1
14
Advances
829
1,456
2,135
3,177
- Growth (%)
104
76
47
49
Fixed Assets
5
6
10
18
Other Assets
7
14
29
43
Total Assets
852
1,711
2,451
3,817
B/S Growth %
104
101
43
56
Sep 24, 2018
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Aavas Financiers Limited | IPO Note
Exhibit 5: Key Ratio
Y/E March
FY15
FY16
FY17
FY18
Profitability ratios (%)
NIMs
6.9
6.6
7.1
7.7
Cost to Income Ratio
38.6
43.1
41.4
46.4
RoA
3.0
2.6
2.7
3.0
RoE
24.3
21.5
14.8
11.2
Asset Quality
Gross NPAs (%)
0.52
0.55
0.79
0.34
Net NPAs (%)
0.43
0.42
0.60
0.26
Credit Cost (%)
0.28
0.25
0.36
0.06
Provision coverage
17
24
24
24
Per Share Data (`)
EPS
2.6
4.4
7.8
12.6
BV
14
28
77
149
ABVPS
12
25
70
139
Valuation Ratios
PER (x)
317.2
184.6
105.9
65.1
P/BVPS (x)
59.7
29.7
10.7
5.5
P/ABVPS (x)
65.9
32.6
11.7
5.9
Source: RHP, Note: ratios are Calculated on upper price band & Pre issue.
Sep 24, 2018
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Aavas Financiers Limited | IPO Note
Research Team Tel: 022 - 39357800
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