Aavas Financiers - Play On Affordable Housing Finance; IDBI Capital Initiates Coverage With A Buy

IDBI Capital Report

Aavas Financiers Ltd. is the larger player in affordable housing listed space with 351 branches as of Q3 FY24 spread across 13 states (majorly north and west).

Its focus area - 60% customers are self-employed while remaining 40% are salaried in non-formal segments. The operationally intensive business model and low ATS has kept competition from banks and large non-banking financial companies at bay.

Further, the focus on tier 3/4/5 towns with low mortgage penetration has helped Aavas deliver a sustainable return on asset of ~3.5%.

The company started to add low ticket size micro, small and medium enterprise/small business loans which should boost profitability and sustain growth.

We Aavas Financers at three times price/adjusted book FY26E to arrive at a target price of Rs 1820 and initiate coverage with a Buy rating and a potential upside of 39%.

Risks: Competitive intensity on net interest margins; price-to-earning shareholder risk on stock performance.

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