Aadhar Housing Finance shares rally 8%; Buy, still significant upside ahead, says JM Financial

Shares of Aadhar Housing Finance Ltd surged over 8 per cent in Friday's trade, as the domestic brokerage JM Financial initiated coverage on the housing finance company (HFC) with a 'Buy' rating and suggested a target price of Rs 600. JM Financial said Aadhar Housing Finance offers significant upside at the prevailing valuations of 2.5 times estimated FY26 price to book value, citing 4 per cent-plus return on asset (RoA) and 17 per cent return on equity (RoE). It values Aadhar Housing Finance at 3.2 times FY26 P/BV. Increasing competition and stress from self-employed book are key risks to its call.   

Aadhar Housing Finance shares climbed 8.47 per cent to hit a high of Rs 503.40."Despite the onset of the potential interest rate cut cycle, Aadhar’s well-matched and positive ALM mix (78 per cent floating liabilities against 80 per cent floating assets) should result in margins remaining largely steady; and credit costs remaining benign," JM Financial said.

Aadhar Housing Finance's strong AUM growth is led by deeper geographical penetration and the government push on housing. Aadhar Housing Finance has steady net interest margin (NIM) led by higher floating rate loans, operating leverage from expansion strategies and tech innovation and that a benign credit environment should aid in strong return ratios going ahead, JM Financial said.

"While near-term RoE would be suppressed due to fresh issue of equity via IPO, we expect RoE to be 17.0 per cent over FY25-FY26E and forecast earnings CAGR of 26 per cent over FY24-26E. Our comparable analysis suggests that a multiple of 2.5 times FY26E P/BV in return for 4 per cent-plus RoAs and 17 per cent RoEs still have significant upside to offer," JM Financial said.

Aadhar Housing Finance has the longest track record in the affordable housing space with total AUM of Rs 21,700 crore. Post-acquisition by Blackstone, the company has made significant progress in terms of corporate governance, growth, efficiency and profitability.

Aadhar has a diversified presence across 21 states, where it aims to go deeper into geographies going forward, which should keep growth healthy and well-balanced, the domestic brokerage said. 

"Its graded branch expansion strategy allows it to set footprints in tier-4/5 areas at cheaper costs while use of Aadhar Mitra (lead generation channel) and smart use of tech to handle day-today operations significantly contribute to operational efficiencies," JM Financial said.

Aadhar plans to deepen its geographical reach by opening 70 new branches annually, of which 50 will be classified as micro, ultra-micro, or deep impact branches, while the remaining 20 will be designated as small or main branches. Aadhar’s deep impact branches effectively helps in expanding its reach at lower costs which would eventually contribute to growth in the longterm and thus improving scalability, it said.