Japanese brokerage firm Nomura has initiated coverage on Aadhar Housing Finance, giving it a 'buy' rating and setting a target price of ₹550 per share. The stock, which debuted on the Indian stock exchanges in May, is currently trading 45% above its IPO price of ₹315 apiece.
Nomura's target price suggests an all-time high for the stock, offering a potential upside of 20.35% from its recent closing price of ₹457 per share.
It said Aadhar Housing Finance stands out as the most attractively priced stock in its segment, trading at 2.4x FY26F P/B compared to 2.8x/3.3x for Aavas and Home first. This lower valuation provides a safety margin for investors, making it the preferred choice for Nomura in this sector.
According to the brokerage, the company holds a distinctive market position with the most diversified loan book and the strongest profitability among its peers. The brokerage forecasts an EPS (earnings per share) CAGR of 20% from FY24 to FY26F, with an average RoA (return on assets) and RoE of 4.4% and 17%, respectively, over FY25–26F.
Despite home loans growing at a 15% CAGR over the past decade (FY13–1H24), the brokerage highlighted that housing loan penetration in India remains comparatively low compared to global standards.
However, favorable demographic trends, increasing income levels, significant housing shortages, and government initiatives promoting affordable housing are expected to gradually increase housing loan penetration.
The brokerage estimates suggest that the housing loan sector could grow at a rate of 14%–15% over the next decade, potentially doubling in size within the next five years.
Nomura said that affordable housing finance companies (AHFCs) hold a distinct advantage in the low-income mass-market segment, where loan sizes are typically below ₹2.5 million. This segment, according to the brokerage, is underserved and presents significant challenges in terms of reach and assessing borrower creditworthiness compared to standardised lending practices in the prime segment.
In the prime and mid-income home loan categories, banks and prime housing finance companies (HFCs) dominate, facing competitive pricing pressures that erode profit margins over time, even for established players like HDFC.
To diversify and sustain growth and profitability, AHFCs and HFCs are expanding their exposure to other mortgage products.
According to Nomura, Aadhar Housing Finance stands out as the most diversified AHFC in India, operating across 20 states and UTs compared to 13 for Aavas and Home First. No single state contributes more than 14% of Aadhar's Assets Under Management (AUM), contrasting with Home First and Aavas, where the top state constitutes 31% and 35% of AUM, respectively.
Nomura highlighted that Aadhar and Aavas focus more on self-employed and informal salaried customers, whereas Home First targets salaried customers predominantly.
It also stated that Aadhar enjoys a longer growth runway for its Loan Against Property (LAP) portfolio due to its higher proportion of home loans, which make up 86% of its portfolio mix compared to 75% for Aavas and 69% for Home First.
Aadhar Housing Finance maintains one of the lowest operating expense ratios in the industry, despite an increase in FY24 due to IPO-related expenses.
In terms of asset quality, Aadhar exhibits a 3-year average credit cost of approximately 0.3%, slightly higher than Aavas (0.2%) and Home First (0.4%). However, Aadhar has implemented provisions like Provisioning Coverage Ratio (PCR) on Stage-3 assets and has the highest ECL/EAD ratio at 1.2%, compared to 0.8% for Home First and 0.6% for Aavas.
Looking at profitability metrics, Aadhar Housing Finance boasts the highest 3-year average return on equity (RoE) of around 17% from FY22 to FY24, outperforming Aavas and Home First, each recording a RoE of 14%, the brokerage underscored.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
