Value Pick: Brokerages see 48% upside in Aptus Value Housing Finance shares amid strong outlook

On the back of strong valuations and improving asset quality, several brokerages expect a potential growth of over 48 per cent in Aptus Value Housing Finance Limited shares. The stock on Tuesday closed nearly 1.5 per cent higher to Rs 320.5 per share on the BSE. 

The shares of housing finance company were listed on August 24, 2021, at 7 per cent discount to Rs 329.95 per share on the BSE, as compared to its issue price of Rs 353 per share. The Rs 2780-crore initial public offer of the company was launched between August 10-12, 2021.  

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Axis Securities 

The brokerage initiate coverage on Aptus Value Housing Finance with a Buy recommendation and a target price of Rs 400 per share, implying an upside of 25 per cent, as company operates in a less competitive and under-served markets and has a deep penetration in South India.  

We believe Aptus is well-placed to benefit from the rapidly growing affordable housing market given the under-penetration of the affordable housing finance market, housing finance shortage in lower income group, improving asset quality and deep rural penetration in South India.  

We believe, improving traction in collections, which will result in bucket-wise roll-backs, will help ease the pressure of asset quality in the near term. All these factors collectively cement our confidence in the company’s bright prospects over the long term. 

IIFL Securities 

Aptus Value Housing Finance is a niche player with expertise in the self-employed/LIG segment and strong presence in the South. The company focusses on Tier III/IV locations and around 40% of its customers are new to credit, which helps it to have better risk pricing (yields of ~17%).  

APTUS has industry leading profitability (ROA of around 7.5% in FY22 with superior margins and a frugal operating-expenses structure (~20% CIR). Its 100%, in-house ‘from-origination-to-collection-to recovery’ model helps it enjoy best-in-class asset quality,  

With a multi-year growth opportunity, solid business foundation and strong capitalisation, we expect APTUS’ superior performance to continue in ensuing years and initiate coverage with a Buy rating and a target price of Rs 400 per share, which implies around 25 per cent upside. 

Dolat Analysis and Research 

Aptus’ strength lies in underwriting of informal segment in Tier 2/3 cities, aiding industry best margins. This, along with the HFC’s lean cost structure and strong underwriting aid RoA of over 6% on a steady state basis. With low leverage at 2x and robust profitability, we expect consistent uptick in RoEs at 14.5% currently over time, with little need to raise capital for the next several years.  

Overall stress metrics have held better than peers through COVID, with nil write-offs since inception. Improving CoF (recent rating upgrade) and performance consistency should continue to drive valuations in brokerage’s view.  

Dolat Analysis and Research value the stock at 6.0x FY24E PBV against RoA/RoE of 7/16 per cent, initiating coverage with a Buy rating and a target price of Rs 475 per share, which translates into an upside of over 48 per cent on a long-term basis.