Buy but for long term: Brokers on Aptus Value Housing IPO

Aptus Value Housing Finance India Ltd’s initial public offering (IPO) began on a slow note Tuesday in a crowded primary market and as brokers remain cautiously optimistic about the mortgage lender’s share sale.

Analysts are upbeat, yet cautious, about Aptus Value’s IPO, which is priced at 5.4 times its post-money book value. This is a tad pricey, according to brokers. 

Having said that, most analysts recommend subscribing to the IPO. They, however, say that investors should look at the stock as a long-term play due partly to concentration risks as more than half the company’s loan book is exposed to Tamil Nadu and because a bulk of the company’s loan book has been built just over the last three years.

Aptus Value, which focuses on low- and middle-income, self-employed, rural or semi-urban customers, is looking to raise up to Rs 2,780 crore via the IPO. It is one of four companies that have hit the market with their IPOs—the others are cement maker Nuvoco, automobile marketplace CarTrade and chemicals maker Chemplast Sanmar.

Of the total IPO money, the company will pocket Rs 500 by issuing new shares while selling shareholders will keep the remaining amount. The sellers include private equity and venture capital firms WestBridgeCapital, Granite Hill Capital, Juniper Industrial Holdings and Madison India Capital.

The IPO was covered barely 12% by mid-afternoon. Ahead of the IPO, Aptus raised Rs 834 crore from anchor investors that included long-only investors such as Dutch pension fund APG and a teachers’ pension fund of Ohio, US, and Edelweiss Tokio Life Insurance Company.

What brokers say

Geojit: The Mumbai-based brokerage firm said that at Rs 353, the upper end of the price band, the issue appears fully priced. Still, it has recommended its clients to “subscribe” to the IPO, albeit “on a long-term basis” considering its strong return ratios, impressive growth and attractive margins.

Geojit noted that the lender’s gross loan assets have grown at a compound annual pace of 34.54% from Rs2,247.2 crore in FY19 to Rs4,067.8crore in FY21. 

Antique Stock Broking: The firm said that the affordable housing segment in India has been rather slow to take off. But “Aptus has crafted its own success story ”by identifying the right customer profile, the right collateral and heavy usage of analytics, systems and process.

“However, valuations at 5.4 times on post-money book and 45 times on FY23 earnings do not leave much upside in the near term,” said Antique Stock Broking.

The brokerage has a ‘subscribe for long term’ rating to the issue.

Choice Broking :The brokerage firm has advised investors to “subscribe with caution”.

The brokerage house said that the issue is aggressively priced. On a post-issue basis, the IPO is valued at 7.1 times the book value of Rs 50.10, it said. In comparison, Home First Finance trades at a trailing P/BV of 3.6 times. Also,Aavas Financier trades at P/BV of 8.1 times but its assets under management are more than double of Aptus Value’s.

“The market cap at Rs 17,494 crore at P/BV of 7.1 times for a company having AUM of Rs 4,068 crore seems overpriced,” Choice Broking said.