The housing finance sector in India has been witnessing strong growth, driven by rising homeownership and government-backed initiatives like Pradhan Mantri Awas Yojana. This gives housing finance companies (HFCs) a strong growth runway as demand remains strong.
HFCs have grown at about 13.5% CAGR over the past five years, buoyed by rising incomes, steady demand and a big push from the government. However, housing penetration remains low, with a mortgage-to-GDP ratio of 12.3%, much lower than 28% in China and 60% in the U.S.
Source: Aadhar Housing Q3FY25 Investor Presentation
This, along with the secure nature of lending, puts affordable HFCs in a better position to take advantage of the opportunity. Notably, the opportunity is enormous– ₹45 trillion– a huge gap to fill as the Indian economy grows.
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Thus, we have selected two companies, Aadhar Housing Finance and India Shelter Finance, that have recorded industry-leading growth while maintaining low NPAs. They are poised to expand massively to exploit the massive tailwind.
#1 Aadhar Housing Finance
Aadhar started operations in 2011 and is the leading low-income HFC in India. It caters to the home financing needs of the lower income segment of society and is among the few HFCs with a presence in pan-India.
It spans 20 states and serves over 2.6 lakh customers through 523 branches nationwide. It serves customers with monthly incomes of ₹5,000-50,000 and above and has an average loan ticket size of ₹1.5 million.
Strong AUM growth led to excellent execution
Aadhar’s excellent execution and diverse geographical presence have enabled it to grow strongly. Its assets under management (AUM) grew at a compound annual growth rate (CAGR) of 13% during FY22-24 to ₹211 billion in FY24.
71% of this AUM is focused on customers from the economically weaker section and low-income group. However, this declined from 80% in FY22, as the company gradually moved towards other lending solutions.
This robust growth was driven by strong disbursements, which grew at a CAGR of 21% during this period. Moreover, its AUM and disbursements grew by 23% and 20% in FY24 compared to the previous year.
The rise in AUM and disbursements has been accompanied by a strong return on assets (RoA),
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