Citi has initiated coverage on Aadhar Housing Finance (AHFL) with a target price of Rs 565, this is an upside of over 42% from the closing price of January 15. The brokerage firm expects that the company will deliver a net profit growth of 22% over FY24-27. It is counting on a 21% compounded growth of assets under management (AUM). Plus, its net interest margin on AUM stands at 7-7.1% and bears a credit cost of 0.3-0.4%. Along with, the company’s operational expenditure on its assets of more than 3.5% and higher fees realisation.
The point it put forward was that the housing finance company’s consistent 16% AUM compounded annual growth rate for 4 to 6 years due to which it commanded a 2% market share.
Further, there has been a remarkable advancement in governance, processes, growth, and profitability, evident after Blackstone acquired a significant stake in the company. Back in February 2019, Blackstone, which manages private equity funds, infused Rs 800 crore in primary equity into AHFL.
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The company has a significant presence in Uttar Pradesh and Madhya Pradesh holding a market share of 3.6%. It is seeing rapid growth in Rajasthan with almost 4% market share and aggressively scaling up in South India. The company’s AUM was dominated by retail home loans at 75%, the salaried segment at 57%, and the economically weaker section and lower income group at 70%.
Alternative diversified distribution strategy
It has a pan-India branch and sales office network across 21 states/Union Territories with a comprehensive on-ground presence through 545 branches, which consists of 140 sales offices. It doesn’t include regional offices and corporate offices. It has opened 213 branches over FY22-H1 FY25 achieving a district-level penetration of around 90% in nine states. However, none of the states contributes more than 14% to the AUM, keeping geographic spread in check.
The company’s growth levers were superior productivity in states like Rajasthan, Uttar Pradesh, Maharashtra, and Madhya Pradesh. According to Citi, it will soon reach an optimal level in other states like Andhra Pradesh, Telangana, and Tamil Nadu.
“Loan sourcing is well distributed for Aadhar across channels. The focus is on ground-level activities such as market combing,
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