Aadhar Housing Finance shares: ICICI gives 'Buy' call with 19% upside potential

ICICI Direct said Aadhar Housing Finance Ltd remains an attractive play in the affordable housing finance segment. The domestic brokerage gave a 'Buy' call on the counter with a 12-month target price of Rs 550, suggesting 19.08 per cent upside potential from Friday's closing of Rs 461.85.

It expects AUM (Asset under management) growth to sustain at around 19 per cent, adding that steady asset quality, gradual improvement in margins and efficiency are expected to result in earnings CAGR of 23 per cent in FY25-27E.

"Given its strong RoA of 4 per cent and RoE of 18 per cent-plus, while delivering credit growth of above 20 per cent, valuations remain attractive at current level. We value Aadhar at 2.7x FY27E BV and assign a target price of Rs 550. We recommend a BUY rating," ICICI stated.

"Aadhar has large distribution presence with 557 branches across 21 states, amid strategy to expand reach over deepening penetration, thereby keeping concentration risk with in check. No state contributes >14 per cent of AUM, and top 3 states account for ~40 per cent (vs >50 per cent for peers). Post geographic expansion undertaken over the years, now plan is to deepen penetration in select tier 4/5 cities. Thus, geographic diversification & low concentration risk enhances stability, while focused tier 4/5 expansion drives sustainable growth," it also said.

"Aadhar has a balanced mix of asset liability with 79 per cent of borrowing and 77 per cent of assets at a floating rate. On the liabilities side, a well-diversified borrowing mix, stable credit rating (AA Stable) coupled with effective liability management is seen to keep CoF relatively competitive (8.1 per cent) and thus aid margin trajectory ahead," the brokerage further stated.

Sharing industry outlook, ICICI said the Indian housing finance market grew at 13.6 per cent CAGR during FY19-24 on account of rise in disposable income, healthy demand and greater number of players entering the segment. 

"Over the past two fiscals, housing finance segment has seen favourable affordability on account of stable property rates (in last 5-8 years) and gradually improving income of individual borrowers. In FY24, housing credit grew significantly by 16.7 per cent driven by aspirations of a growing young population with rising disposable income and faster growth in smaller districts. Overall, the housing industry is expected to grow at CAGR of 13-15 per cent over FY23-FY27E," it added.