What you must know about Aadhar Housing Finance IPO?

Aadhar Housing Finance Ltd – About the company

The erstwhile Aadhar Housing Finance Ltd was established in year 2010 and commenced operations in February 2011. It was subsequently merged into DVHFL in late 2017 and renamed Aadhar Housing Finance Ltd. Till date, the company has served more than 246,983 customers through its network of 471 branches and offices across the length and breadth of India. Aadhar Housing Finance Ltd is one of the few affordable housing financiers with a pan-India presence. It has a typical loan denomination ranging from ₹5,000 to ₹50,000, so it really caters to the bottom of the pyramid. BCP Topco VII Pte Ltd (a Blackstone affiliate company) is the holding company of Aadhar Housing Finance Ltd. Its edge from its customer-centric approach with potential to cover 90% of the country's population and offer them customized credit solutions. It seeks to empower the segment that is normally outside the formal lending mechanism bounds.

Apart from plain vanilla loans, Aadhar Housing Finance Ltd also offers top-up loans, business loans, funding for low income groups, balance transfer facility etc. Its total AUM as of date stands at ₹18,885 crore, and the company has a team of nearly 3,700 employees to service these customers. Apart from home construction loans, Aadhar Housing Finance Ltd also offers loan against property (LAP), commercial property loans, loans for plot purchase etc. Some of the specific benefits that Aadhar Housing Finance Ltd brings to the table are home loans without income proof, loan tenures of up to 30 years, eligibility as low as ₹10,000 monthly income, fast / transparent loan procedure, affordable EMIs and the concomitant tax benefits under Section 80C of the Income Tax Act.

The fresh funds will be used for sprucing up the capital base of the company to enable additional onward lending to customers. The promoter of the company is BCP Topco VII Pte Ltd, an affiliate of Blackstone Group of the US. The promoter stake currently stands at 98.72%, which will dilute post the IPO. The IPO will be lead managed by ICICI Securities, Kotak Mahindra Capital, Citigroup Global Markets, SBI Capital Markets, and Nomura Financial Advisory; while KFIN Technologies Ltd will be IPO registrar.

Highlights of the Aadhar Housing Finance IPO Issue

Here are some of the key highlights to the public issue of Aadhar Housing Finance IPO.

• Aadhar Housing Finance IPO will be open from May 08th, 2024 to May 10th, 2024; both days inclusive. The stock of Aadhar Housing Finance Ltd has a face value of ₹10 per share and the price band for the book building IPO has been set in the range of ₹300 to ₹315 per share.
   
• Aadhar Housing Finance IPO will be a combination of a fresh issue of shares and offer for sale (OFS) component. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership.
   
• The fresh issue portion of the Aadhar Housing Finance IPO comprises the issue of 3,17,46,032 shares (317.46 lakh shares approximately), which at the upper price band of ₹315 per share will translate into a fresh issue size of ₹1,000 crore.
   
• The offer for sale (OFS) portion of the IPO of Aadhar Housing Finance Ltd comprises the sale / offer of 6,34,92,063 shares (634.92 lakh shares approximately), which at the upper price band of ₹315 per share will translate into an OFS size of ₹2,000 crore.
   
• Out of the OFS size of 634.92 lakh shares, the entire selling would be by the promoter shareholder only. BCP Topco VII Pte Ltd, an affiliate of Blackstone Group of the US, which is the promoter owner of Aadhar Housing Finance Ltd, will offer the entire 634.92 lakh shares as part of the IPO.
   
• Thus, the total IPO of Aadhar Housing Finance Ltd will comprise of a fresh issue and an OFS of 9,52,38,095 shares (952.38 lakh shares approximately) which at the upper end of the price band of ₹315 per share aggregates to total issue size of ₹3,000 crore.

The IPO of Aadhar Housing Finance Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor allocation quota

The company is substantially owned to the extent of 98.72% by BCP Topco VII Pte Ltd, an affiliate of Blackstone Group of the US. As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee and promoter quota, as indicated above. There is an employee quota of up to ₹7.00 crore that has been communicated by the company as the shares reserved for employees in its red herring prospectus (RHP). The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the Aadhar Housing Finance IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Aadhar Housing Finance Ltd, the minimum lot size is 47 shares with upper band indicative value of ₹14,805. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Aadhar Housing Finance Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Aadhar Housing Finance IPO and how to apply?

The issue opens for subscription on 08th May 2024 and closes for subscription on 10th May 2024 (both days inclusive). The basis of allotment will be finalized on 13th May 2024 and the refunds will be initiated on 14th May 2024. In addition, the demat credits are expected to also happen on 14th May 2024 and the stock will list on 15th May 2024 on the NSE and the BSE. Aadhar Housing Finance Ltd will test the appetite for such affordable home financing stocks in India. The credits to the demat account to the extent of shares allotted will happen by the close of 14th May 2024 under ISIN (INE883F01010). Let us now turn to the practical issue of how to apply for the IPO of Aadhar Housing Finance Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Aadhar Housing Finance Ltd

The table below captures the key financials of Aadhar Housing Finance Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Aadhar Housing Finance Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been moderately strong considering the size of the base, with revenues in FY23 growing nearly 30% over FY21. The growth has been balanced in the last two years, but what is striking is that the company has reported very healthy net margins of 26.66% for the latest year with the average of the last 3 years closer to 25%.
    
2. The net profits have grown have nearly 60% in the last 2 years and that is evident in the net margins improving. Also, the return on equity (ROE) at 14.73% and the return on assets (ROA) at 3.28% are very attractive in the latest year from the standpoint of a lending business. By keeping its asset quality at robust levels, the company has managed to improve its return on equity and also the return on assets.
    
3. The company has a sweating of assets at just around 0.12X in the latest year, and that has consistently been the level. However, in the lending business, that does not have too much importance, as it is the net margins and the NIMs that really matter. In FY23, Aadhar Housing Finance Ltd has a spread of 5.8%, and a cost to income ratio of just 38.1%. Gross NPAs at 1.2% and net NPAs at 0.8% are much lower than industry norms.

Overall, the company has maintained healthy numbers in terms of growth in top line and bottom line as well as profitability and efficiency margins.

Valuation metrics of the Aadhar Housing Finance IPO

Let us turn to the valuations part. On the latest year diluted EPS of ₹13.40, the upper band stock price of ₹315 gets discounted at a P/E ratio of 23-24 times. However, this sort of P/E ratios are normal in the affordable housing finance segment.  If you look at the numbers for the first 9 months of FY24, the EPS is already at ₹13.5, so full year EPS can be extrapolated to ₹18.00 per share. It now translates into P/E ratio of 17-18 times, which looks a lot more reasonable and also fairly enticing.

Here are some qualitative advantages that Aadhar Housing Finance Ltd brings to the table.

• Aadhar Housing Finance Ltd is focused on the low-income housing segment, where the bad assets ratio traditionally tends to be fairly low as defaults are looked down upon.
   
• Aadhar Housing Finance Ltd has access to diversified and long term sources of financing, which can ensure that the spreads are maintained at healthy levels.
   
• Its business model has been time-tested across different life cycles and that makes it both; robust and resilient.

The low cost housing finance business may look risky on paper, but if executed properly with the right cost mix, it can be a low risk business. That is something Aadhar Housing Finance has demonstrated. Investors can look at this stock as a long term play on the affordable housing finance, which meets social objectives and is also economically viable.