Aadhar Housing Finance - Pioneering Affordable Housing Space As A Category Creator: ICICI Securities

ICICI Securities Report

We initiate coverage on Aadhaar Housing Finance Ltd. with a Buy rating and target price of Rs 550, valuing it at ~three times on FY26E BVPS versus industry current average of ~2.8x for FY26E.

Aadhar being an industry leader with better return on equities could deserve premium and hence there is an upside risk to the current multiple.

Aadhar is a seasoned affordable housing finance company and a category creator in the affordable housing space. It commands lion share in the affordable housing finance (within listed peers) and has delivered industry-leading profitability between FY20–24.

Aadhar has demonstrated superior execution by delivering robust 37% profit after tax compound annual growth rate during FY20-24 versus <35% for peers.

The company’s AUM CAGR, at 23% and return on asset more than 3% between FY20–24 stand on the pillars of:

1. steady improvement in risk-adjusted yields to 13.6% by FY24 from 12.5% in FY22, the same was largely driven by 100 bps improvement in asset yields;

2. deep distribution network – it has one of the extensive branch network of >500 branches; the same has enabled the company in sustaining >20% growth in disbursements between FY20–24;

3. increased focus on scaling loan-against -property book given much higher yields at 16.5% versus home loan yields at 12.5%; and

4. pristine asset quality – average credit cost at 33bps between FY21–24. Aadhar strives to sustain current growth runrate as it expects AUM growth at ~20% in near term driven by better productivity at newly opened branch and its plans to add 70–75 branches in FY25.

Credit cost is likely to remain at 20 bps in near term. Combination of steady growth, operating leverage and stable credit coat at ~20 bps to keep RoA robust at more than 4% over FY24–26E.

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