Presence in large, underpenetrated markets with strong growth potential: The company is one of the largest housing finance companies in south India in terms of AUM, as of March 31, 2021. Its AUM has grown at a CAGR of 34.54% from Rs 22,472.33 million as of March 31, 2019 to Rs 40,677.62 million as of March 31, 2021. As of March 31, 2021, the states of Tamil Nadu (including the union territory of Puducherry), Andhra Pradesh, Karnataka and Telangana accounted for Rs 21,263.74 million, or 52.27%, Rs 11,116.08 million, or 27.33%, Rs 4,038.13 million, or 9.93% and Rs 4,259.67 million, or 10.47% of its AUM, respectively, and it had a network of 190 branches covering 75 districts in such states and the union territory of Puducherry. As of March 31, 2020, the states of Tamil Nadu (including the union territory of Puducherry), Andhra Pradesh, Karnataka and Telangana accounted for Rs 17,748.31 million, or 55.84%, Rs 7,778.75 million, or 24.47%, Rs 3,224.53 million, or 10.14% and Rs 3,035.36 million, or 9.55% of its AUM, respectively, and it has a network of 174 branches covering 75 districts in such states and the union territory of Puducherry. As of March 31, 2019, the states of Tamil Nadu (including the union territory of Puducherry), Andhra Pradesh, Karnataka and Telangana accounted for Rs 13,418.55 million, or 59.71%, Rs 4,689.26 million, or 20.87%, Rs 2,413.21 million, or 10.74% and Rs 1,951.31 million, or 8.68% of its AUM, respectively, and it had a network of 142 branches covering 71 districts in such states and the union territory of Puducherry.
Robust risk management architecture: The company has implemented a robust risk management architecture to identify, monitor and mitigate risks inherent in its lending operations. As a result, it has maintained its asset quality across economic cycles including events such as demonetization, the implementation of the Goods and Services Tax, the liquidity crisis that was triggered by defaults by large financial services companies and the COVID-19 pandemic. As of March 31, 2021, March 31, 2020, and March 31, 2019, its Gross NPAs expressed as a percentage of its Gross Loan Book were 0.68%, 0.70% and 0.40%, (the GNPA for rural portfolio was 0.68%,0.72% and 0.49% and the same for its urban portfolio was 0.71%, 0.67% and 0.28%) while its Net NPAs expressed as a percentage of its Net Loan Assets were 0.49%, 0.54% and 0.30%, respectively. Further, it has not restructured any loans or written-off any loans receivable since the inception of the company.
Strong in-house operations: The company conducts all aspects of its lending operations in-house including sourcing, underwriting, valuation and legal assessment of collateral and collections, which enables it to maintain direct contact with its customers, reduce turn-around-times and the risk of fraud. It sources customers directly through its sales team, which comprised over 1,085 personnel as of March 31, 2021. A direct sourcing model has helped it maintain contact with its customers and establish strong relationships with them, led to customer referrals, high levels of customer satisfaction and increased loyalty. It has also helped mitigate underwriting and default risks by enabling it to have a customer base with a better credit profile. Its in-house sourcing model helps it to make a better credit evaluation of customers on a wide range of parameters after collating all customer information in its database. It spend a considerable time to understand the formal and informal income sources of customers as well as that of their family members, savings capacity and repayment track record with their formal and informal borrowings.
Established track record of financial performance: The company’s focus on serving self-employed customers has resulted in high yields for its loan portfolio. As of March 31, 2021, its average yield on disbursements was 16.88%, with home loans, loans against property and business loans accounting for 15.38%, 17.00% and 20.45%, respectively. Further, as of March 31, 2020, its average yield on disbursements was 17.18%, with home loans, loans against property and business loans accounting for 15.57%, 17.00% and 20.40%, respectively. Moreover, as of March 31, 2019, its average yield on disbursements was 17.23%, with home loans, loans against property and business loans accounting for 15.64%, 17.00% and 20.30%, respectively. Its loan portfolio also qualifies for priority sector lending. It lays emphasis on improving cost efficiencies by monitoring and controlling its operating costs and it typically sets up its branches in an economical manner.
Risks and concerns
Geographical constrain: The company’s operations are primarily focused in the states of Tamil Nadu and Andhra Pradesh. As of March 31, 2021, Rs 21,263.74 million, or 52.27% of its AUM were from Tamil Nadu, while Rs 11,116.08 million, or 27.33% were from Andhra Pradesh, respectively. As of March 31, 2020, Rs 17,748.31 million, or 55.84% of its AUM were from Tamil Nadu, while Rs 7,778.75 million, or 24.47% were from Andhra Pradesh, respectively. As of March 31, 2019, Rs 13,418.55 million or 59.71% of its AUM were from Tamil Nadu, while Rs 4,689.26 million or 20.87% were from Andhra Pradesh, respectively. As of March 31, 2021, of its 190 branches, 144 branches were located in the states of Tamil Nadu and Andhra Pradesh. The real estate and housing finance markets in these two states may perform differently from, and may be subject to market conditions that could be different from, the housing finance markets in other regions of India. Any adverse developments in these regions could have an adverse effect on the company’s business and results of operations.
Substantial capital requirement: The company’s business and results of operations depend on its ability to raise both, debt and equity from various external sources on suitable terms and in a timely manner. Its financing requirements historically have been met from several sources, including refinancing from the NHB, term loans, working capital loans and issuance of non-convertible debentures (NCDs) to meet its capital requirements. It also monetizes loans through securitization to banks and financial institutions. Its business thus depends and will continue to depend on its ability to continually access these sources of capital.
Stiff competition: The housing finance industry in India is highly competitive and it competes with banks, other HFCs, small finance banks and NBFCs in each of the geographies in which it operates. Consistent with developments over the years, it may also see the entrance of new competitors in the housing finance industry. The company’s competitors may have more resources, a wider branch and distribution network, access to cheaper capital, superior technology and may have a better understanding of and relationships with customers in these markets. This may make it easier for competitors to expand and to achieve economies of scale to a greater extent. In addition, its competitors may be able to rely on the reach of the retail presence of their affiliated group companies or banks. Competition in this market segment has also increased as a result of interest rate deregulation and other liberalization measures affecting the housing finance industry in India and it expects competition to intensify in the future.
Inability to maintain capital adequacy ratio: The RBI Master Directions currently require HFCs to comply with a capital to risk (weighted) assets ratio, or capital risk adequacy ratio (CRAR), consisting of Tier I and Tier II capital. Paragraph 6.1 of the RBI Master Directions currently requires all HFCs to comply with a CRAR, consisting of Tier I and Tier II capital, of not less than 13.0% of its aggregate risk weighted assets and of risk adjusted value of off-balance sheet items, on or before March 31, 2020, 14% on or before March 31, 2021 and 15% on or before March 31, 2022 and thereafter. At a minimum, Tier I capital of an HFC, at any point of time, cannot be less than 10%. Further, it is required to ensure that the total Tier II capital at any point of time, should not exceed 100% of Tier - I capital. It cannot assure that it will be able to raise adequate additional capital in the future on terms favorable to it, or at all, which may adversely affect the growth of its business.
Outlook
Aptus Value Housing is a retail-focused housing finance company that primarily serves low and middle-income self-employed customers in the rural and semi-urban markets of India. The company offers home loans to retail customers to purchase homes, construct residential property, house improvement and extension, loans against property, and business loans. It undertakes all types of lending activities such as sourcing, underwriting, valuation, and legal assessment of collateral, the credit assessment, and collection. On the concern side, a substantial portion of its customers are first time borrowers which increases risks of non-payment or default for it. Also, the risk of non-payment or default by borrowers may adversely affect its business, results of operations and financial condition.
The issue has been offered in a price band of Rs 346-353 per equity share. The aggregate size of the offer is around Rs 2734.84 crore to Rs 2790.17 crore based on lower and upper price band respectively. On the performance front, its total income increased by 25.11% to Rs 6,552.42 million for the financial year 2021 from Rs 5,237.20 million for the financial year 2020, primarily due to an increase in revenue from operations. Moreover, the company’s profit for the year increased by 26.51% to Rs 2,669.44 million for the financial year 2021 from Rs 2,110.12 million for the financial year 2020. The company intends to continue to expand its presence in an on-ground contiguous manner in order to achieve deeper penetration in these regions. Before setting up new branches, it conducts research and considers number of factors such as regional demographics, level of urbanization and the competitive landscape. It also intends to expand its branch network in large housing markets in the states of Maharashtra, Odisha and Chhattisgarh. The company’s operating model is scalable and will assist it to expand its operations with lower incremental costs to drive efficiency and profitability.
100% Secure Process
Download APP
