Aadhar Housing Finance IPO: Everything You Need to Know About Investing in Affordable Housing
Blackstone-backed Aadhar Housing Finance is set to join the Indian stock market party with its much-anticipated Initial Public Offering (IPO). This move signifies a potential growth opportunity for investors, but also necessitates careful consideration before move in.
Understanding Aadhar Housing Finance
Aadhar Housing Finance is a prominent player in India’s affordable housing finance sector. Backed by the global private equity giant Blackstone, the company caters to individuals seeking home loans, particularly for those aspiring to own their first homes. As of March 31, 2020, Aadhar Housing boasted the largest customer base and disbursement in the affordable housing segment . Its extensive network of over 292 branches spread across 20 states strengthens its reach and accessibility across the country.
IPO Details: Dates, Price Band, and Objective
The Aadhar Housing Finance IPO is slated to open for subscription on May 8th, 2024, and close on May 10th, 2024. The price band for the offering has been set at ₹300 to ₹315 per share. This price range determines the minimum and maximum amount an investor can pay for each share.
The company aims to raise a total of ₹3,000 crore (approximately $430 million) through the IPO. This capital infusion will likely fuel Aadhar Housing Finance’s growth plans, potentially expanding its branch network, loan portfolio, and technological capabilities.
IPO Structure: Fresh Issue and Offer for Sale (OFS)
The Aadhar Housing Finance IPO will be a combination of fresh issue and offer for sale (OFS).
- Fresh Issue: This refers to new shares issued by the company itself. In Aadhar’s case, the fresh issue size is ₹1,000 crore, which translates to approximately 3.17 crore shares. The funds raised through the fresh issue will directly go to the company’s coffers.
- Offer for Sale (OFS): In an OFS, existing shareholders sell their holdings to the public. Here, Blackstone, the major shareholder of Aadhar Housing Finance, will be offering ₹2,000 crore worth of shares (around 6.35 crore shares) through the IPO. The proceeds from this sale will not go to the company but directly to Blackstone.
Understanding the Implications for Investors
The structure of the IPO (fresh issue and OFS) holds significance for investors. While the fresh issue directly infuses capital into the company for growth, the OFS primarily benefits existing shareholders like Blackstone. This is an essential factor to consider when evaluating the potential for future returns on your investment.
IPO Allotment and Listing
After the subscription window closes on May 10th, the allotment process for IPO shares will likely take place around May 13th, 2024. If your application is successful, you will be allotted shares in proportion to the demand and available shares. The tentative listing date for Aadhar Housing Finance on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) is expected to be around May 15th, 2024.
About The Promoter
Blackstone Group Inc. is the company’s promoter, which essentially means they are the main sponsor and hold a controlling ownership stake. Blackstone, through an affiliate called BCP Topco VII Pte, has owned a significant share of Aadhar Housing Finance since June 2019. Currently, their stake is a whopping 98.72% of the company’s shares.
The remaining shares are held by public shareholders, with ICICI Bank being the other major shareholder owning 1.18% of the total shares.
Here’s a breakdown of the upcoming IPO proceeds usage:
- Rs 750 crore from the fresh issue will be used to meet Aadhar Housing Finance’s future lending needs, which means they will have more capital to provide home loans.
- The remaining funds will be used for general corporate purposes, which could include things like improving technology, expanding their branch network, or covering administrative costs.
There’s a regulatory requirement for housing finance companies like Aadhar to maintain a minimum capital adequacy ratio (CAR). This ratio ensures they have enough capital to cover potential loan defaults. It’s calculated using a combination of a company’s own funds (Tier I capital) and supplementary sources (Tier II capital). The minimum requirement is 15% of the total value of their risky loans and other financial commitments. Additionally, the company’s core capital (Tier I) needs to be at least 10% at all times.
Looking at Aadhar’s recent performance, their capital adequacy ratio, known as CRWAR (Capital Risk-Weighted Adjusted Ratio), was 39.7% in December 2023. This represents their core capital (Tier I) at 38.9%. While this is still comfortably above the minimum requirement, it’s important to note that this ratio has decreased compared to 44.9% in December 2022.
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Fundamentals of Aadhar Housing Finance
Aadhar Housing Finance has been demonstrating consistent financial growth, making it an attractive proposition for potential investors. Here’s a breakdown of their key financial metrics:
- Growing Assets: As of December 2023 (FY24), Aadhar’s gross assets under management (AUM) reached a healthy ₹19,865.2 crore. This represents a significant 20% increase compared to the same period last year.
- Profitability on the Rise: The company has also witnessed a rise in profitability. Their net profit for FY23 grew by a commendable 22.5% year-on-year, reaching ₹544.8 crore. This upward trend continued in the first nine months of the current fiscal year (9MFY24). Net profit for this period jumped by an impressive 35.6% to ₹547.9 crore compared to the same period in the previous year.
- Increased Revenue Generation: Aadhar’s core business of providing home loans translates to growing revenue streams. Their net interest income, reflecting the difference between interest earned on loans and interest paid on borrowings, rose by 28.6% to ₹1,244.3 crore in FY23 compared to the prior year. This trend continued in 9MFY24 with a nearly 30% increase in net interest income to ₹1,170.4 crore.
- Improved Efficiency: An important profitability metric is the net interest margin (NIM). This represents the difference between what a lender charges borrowers and what it pays to depositors. Aadhar has shown improvement in this area as well. Their NIM expanded by 110 basis points (bps) to 8% in FY23 and further improved by another 100 bps to 9% in 9MFY24. This indicates that Aadhar is efficiently managing its interest rate spread.
- Loan Disbursement Growth: A key indicator of a healthy housing finance company is its ability to disburse loans. Aadhar has shown consistent growth in this area. Loan disbursements during 9MFY24 rose by 24.3% compared to the same period in the previous year, reaching ₹4,904 crore. This follows an impressive 48% increase in loan disbursements for FY23 compared to FY22, totaling ₹5,902.6 crore.
Credit Mix
Aadhar Housing focuses on providing home loans to the low-income housing segment. This means they cater to people with lower incomes who are aspiring to be first-time homeowners. They offer smaller mortgage loans compared to other lenders, with an average loan size of around ₹10 lakh (approximately $14,500) as of December 2023. Aadhar also practices conservative lending by keeping the average loan-to-value ratio at 58.3%. This ratio indicates the portion of the property value financed by the loan. A lower ratio suggests a smaller loan amount compared to the property value, reducing risk for the lender.
When it comes to their borrowers, Aadhar Housing caters to two primary categories:
- Salaried individuals: These salaried professionals make up the majority of Aadhar’s borrower base, contributing 57.2% of their Assets Under Management (AUM) as of the first nine months of the current fiscal year (April to December 2023).
- Self-employed individuals: This segment comprises business owners or those with non-salaried income. They account for the remaining 42.8% of Aadhar’s AUM in 9MFY24. It’s worth noting that there has been a slight shift in the borrower mix compared to the previous financial year (FY23). In FY23, salaried individuals made up a slightly larger share at 58.6%, with self-employed borrowers contributing 41.4%.
Alternatives to Consider
While the Aadhar Housing Finance IPO presents a potential investment opportunity, it’s not the only option. Here are some alternatives to consider for diversification:
- Existing Listed Housing Finance Companies: Research established players in the housing finance sector already listed on the stock market. Compare their financial performance, growth strategies, and valuations with Aadhar Housing Finance.
- Mutual Funds: Consider investing in mutual funds that focus on the housing finance sector. This allows for diversification within the sector, potentially mitigating risks associated with a single company.
- Fixed Deposits and Bonds: For a more conservative approach, explore fixed deposits or bonds that offer guaranteed returns. While these may offer lower returns compared to stocks, they carry significantly less risk.
Conclusion
The Aadhar Housing Finance IPO presents a potential entry point for investors interested in the Indian housing finance sector. However, a well-informed decision requires thorough research and careful consideration of the company’s financials, market conditions, and associated risks. By understanding the IPO structure, your investment goals, and alternative options, you can make a sound decision that aligns with your financial strategy.
Disclaimer: This information is for educational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions.
