Citi initiates coverage on Aadhar Housing Finance stock with ’buy’ rating, sees 42% upside | Stock Market News

Global brokerage firm Citi Research, in its recent note, initiated coverage on Aadhar Housing Finance with a ‘buy’ rating and a target price of ₹565 per share, indicating an upside potential of 42% from its latest trading price of ₹398. 

The brokerage’s optimistic outlook stems from the company’s consistent growth, scaling up steadily at over 16% CAGR over the past 4–6 years (compared to single-digit growth in the affordable housing finance market).

The brokerage noted that the company has emerged as a trailblazer, commanding a 2% market share in the low-income (average ticket size less than ₹2.5 million) housing finance segment. Post-acquisition by Blackstone Group, the entity has made significant strides in governance, processes, efficiency, growth, and profitability metrics.

Having created a moat in customer understanding, loan underwriting, and collections, the company has gained the confidence to steadily grow its share in the informal self-employed category, which has been growing at a 43%/49% CAGR over the past 4–6 years.

The brokerage expects the share of self-employed customers to scale up by 1–2 percentage points annually over the medium term. It also highlights Aadhar’s differentiated strategy compared to other affordable housing financiers (AHFs). While many AHFs focus on establishing dominance and deepening their presence in core states, Aadhar has adopted a wide, deep, and diversified distribution approach.

No single state accounts for more than 14% of gross AUM, and the top 3/top 5 states collectively contribute 40% and 60% of AUM, respectively, significantly lower than their peers, Citi noted.

Aadhar has guided for 75 branches in FY25, including 25 branches in tier-1/2 locations and 50 deep-impact branches in Uttar Pradesh, Rajasthan, Gujarat, Tamil Nadu, and Andhra Pradesh/Telangana. The brokerage estimates that these deep-impact branches will constitute 10% of disbursements and 3% of AUM in the medium term.

Citi expects the company’s disbursement growth to sustain AUM CAGR at 21-22%, with growth levers including: expansion beyond the top three states of Maharashtra, Uttar Pradesh, and Madhya Pradesh; increasing the share of Andhra Pradesh, Telangana, and Tamil Nadu; ramping up sales offices and deep-impact branches; further scaling up the share of self-employed customers by 1–2 percentage points annually; improving productivity as new branches mature; and initiatives to curtail BT-Out and repayment/prepayment run rates.

On the financial front, the brokerage projects PAT growth of 22% over FY24-27E, driven by AUM growth at 21-22% CAGR, NIMs on AUM at 7.0-7.1%, credit costs contained at 0.3-0.4%, moderation of Opex/assets to <3.5% as leverage kicks in, and higher fee realisation. These factors, the brokerage believes, should further enhance Aadhar’s RoA/RoE profile to above 4.5% and 16.5% over FY25-27E.

Stock slides 23% from all-time high

The company’s shares have been sliding over the last four months, closing in the red with each passing session. After reaching an all-time high of ₹516.65 per share in September, the stock has corrected by 23.15% to date.

Nevertheless, it is still up 26.3% from its IPO price of ₹315. The company’s shares debuted on Dalal Street in May 2024, listing at ₹329 per share, which was 4.6% higher than their issue price.

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.