Investec has initiated coverage on Aadhar Housing Finance (AADHARHF.NS) with a BUY rating, setting a target price of ₹600, implying a potential upside of 28% from the current market price of ₹468.25. Aadhar, with assets under management (AUM) of ₹217 billion as of June 2024, is the largest and most diversified affordable housing finance company (HFC) in India.
Aadhar’s strong geographic presence across 21 states, diversified customer underwriting model, and origination mix support scalability. Between FY19 and FY24, Aadhar achieved a compound annual growth rate (CAGR) of 16% in AUM and 36% in PAT, with an average return on equity (RoE) of 16.5%. The company maintained steady asset quality with an average GNPA/NNPA of 1.3%/0.9% and average credit costs of 47bps. However, Investec highlighted a potential weakness in the low productivity of direct sales teams (DSTs), limiting operating cost efficiency.
Investec forecasts AUM and PAT growth of 21% and 20% respectively over FY24-27E, with an expected RoE of 17%. The valuation is based on a two-stage excess return on equity model with a cost of equity of 12.25%, at an implied FY26E price-to-book (P/B) ratio of 2.9x. The key risks are competitive intensity and reliance on direct sales agents (DSAs). Additionally, the private equity ownership of 76.5% raises the potential risk of a supply overhang in the future.
