About the Company

Aavas Financiers Limited provides housing loans to customers belonging to low and middle-income segments in semi-urban and rural areas in India. The company offers home loans for flats, houses, and bungalows, as well as resale properties; land purchase and construction loans, including finance for self-construction of the residential houses; and home improvement loans, which include loans for tiling or flooring, plaster, painting, etc. It also provides home equity loans; and micro, small, and medium enterprise loans for business expansion, purchase of equipment, working capital, etc., as well as balance transfer products. The company was formerly known as AU Housing Finance Limited and changed its name to Aavas Financiers Limited in February 2017.

Q4FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 291 235 23.83% 310 -6.13% 1105 903 22.37%
PBT 95 66 43.94% 111 -14.41% 353 302 16.89%
PAT 88 60 46.67% 86 2.33% 289 249 16.06%

Consolidated Financials (In Crs)
  Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 291 235 23.83% 310 -6.13% 1106 903 22.48%
PBT 95 66 44% 110 -13.64% 353 302 16.89%
PAT 87 60 45% 85 2.35% 289 249 16.06%

Detailed Results

  1. The company had a good quarter with a 24% YoY rise in revenues and 45% YoY rise in PAT. 
  2. AUM growth for the company was 21.3% YoY to Rs 9454.3 Cr as of 31st Mar 2021. 
  3. Disbursements in FY21 have fallen 9.3% YoY mainly due to the tough Q1. 
  4. Gross Stage 3 loans were at 0.98% vs 0.46% a year ago. Net Stage 3 loans were at 0.71%. 
  5. NIM in FY21 has gone down 45 bps YoY to 7.71%. 
  6. Product breakup was 73.5% Home Loans & 26.5% Other Mortgages Loans. 
  7. Around 60.4% of existing customers are self-employed while the rest are salaried. 
  8. 99.8% of customers are retail-driven. 
  9. The company has kept the yield spread at a stable 5.76% in Mar ’21. 
  10. Opex to AUM in FY21 was down to 3.01% from 3.38% a year ago. 
  11. ROA for FY21 was at 3.49%. 
  12. The company has no CP exposure and has recently raised borrowings of Rs 729 Cr for 119 months at 6.31%. 
  13. The company maintains a positive ALM mismatch across all time periods and has an average tenure of outstanding borrowing at 130 months. 
  14. It has total liquidity of Rs 2836 Cr as of 31st Mar 2021. 
  15. It maintained a CAR of 54.54% with Tier 1 capital at 53.33%. 
  16. Book value per share was at Rs 305.9 vs Rs 267.9 a year ago. 

Investor Conference Call Highlights

  1. Aavas disbursed Rs Rs 1012.7 Cr in Q4 which was up 17% YoY and 30% QoQ 
  2. The company has reduced its prime lending rate by 10 basis points with effect from January 1, 2021. It has also decided to further reduce Aavas Financial’s Limited prime lending rate by 15 basis points with effect from April 1, 2021.  
  3. The total number of customers was 125,591 which was up 20% YoY as of March 2021.  
  4. Aavas added 30 new branches in FY21 bringing up the total to 280 branches overall.  
  5. Employee count rose 22% YoY to 4336.  
  6. Overall borrowing mix as of March 31, 2021, is 34.1% as term loan from banks, 24.2% from assignment and securitization, 22.6% from National Housing Bank, and 19% from other debt capital markets.  
  7. As of March 31, 2021, Aavas had an average borrowing cost of 7.40% against the average portfolio yield of 13.16% resulted in a spread of 5.76%.  
  8. Total COVID-19 provisions stood at Rs 19 Cr.  
  9. The management has stated that the company now has enough capacity to originate loans of Rs 400 Cr per month while keeping its underwriting standards high as always. So, it is easy to maintain a quarterly run rate of Rs 800-900 Cr of disbursements if the demand outlook remains steady.  
  10. The tax rate in Q4 was lower than the rest of FY21 as the tax refund was processed in Q4.  
  11. The 1 day past due number has improved to 6.37% from >8% in Q3.  
  12. Given current lockdowns and economic situation, the management has admitted that 1+DPD will indeed rise before coming down to guided numbers in subsequent quarters.  
  13. Collection efficiency increased to >100% as 1+DPD fell QoQ.  
  14. The total write-off in FY21 was Rs 2.84 Cr vs Rs 3.88 Cr last year.  
  15. The salaried yield is 12.24% and the self-employed yield is 13.75%.  
  16. The company has very less exposure to ECLGS of around Rs 54 Lac only.  
  17. Most of the employee additions were in sales and collections in the 30 new branches added in FY21.   
  18. The management has guided that Opex to AUM should improve by 25-30 bps in the next 2-3 years depending on the environment.  
  19. The 1+DPD in Maharashtra was at 10.3%.  
  20. The company always plans to have contiguous growth of 50 km in each branch which takes around 2-3 years of operations to reach. Thus, once the growth potential of existing branches was reached in terms of the above metric, the company decided to add a further 7-8 branches in Rajasthan.  
  21. The company is aiming to expand to 4 new states in the next 5 years and add around 30-40 branches each year. 40-50% of these new branches are to be in the new states while the rest will be in existing states.  
  22. The income derived from direct assignment activities is volatile as it depends on the loan assignment mix. LAP has a yield spread of 7.5% while pure home loans have a yield spread of 3-4%. Thus, actual profitability in the quarter from direct assignment depends on the volume of which type is sold in it.  
  23. According to RBI issued guideline in 2012, any assignment transaction is directly booked as upfront profit and not recognized as book income.  
  24. NPA number for housing loans is 1%, for non-housing it is 1.9%, for salaried it is 0.44% and for self-employed it is 1.3%.  
  25. The management maintains that Aavas has not had any impact on its operations from the expiry of the CLSS scheme in Pradhan Mantri Awas Yojana.  
  26. The company has a fixed policy of hiring a risk team at first before hiring a business team when expanding to a new state and for the first 3 years of operations, it guides the new teams to try and understand cash flow patterns, income, seasonality, asset behaviour, judiciary behaviour, etc and thus has no targets in the initial 3-year period.   
  27. The management expects city penetration to hit a ceiling of 10-20% in 15 years since opening a new branch. Thus, it is confident that Aavas can disburse around Rs 50,000-60,000 Cr in the next 10 years from the 180 branches it has opened in the last 5 years.  
  28. The management clarified that Aavas has very clear tenets that it follows to keep high collections and good quality underwriting. They always choose a market with <5% housing finance penetration and do not do any risky assets like builder financing, under construction financing, or loans of Rs 1 Cr+.  
  29. The main approach here is to have a fixed but efficient underwriting process while avoiding the obvious risky ones and scaling up this underwriting process as Aavas expands. Thus, at present, 85% of financed properties are individual homes and 95% of customers are living in those homes that they financed. 

Analyst’s View

Aavas Financiers is a fast-growing housing finance company in India. What sets it apart from the large housing finance players like HDFC, LIC Housing Finance & Repco is the space they cater to. The average ticket size of loans is less than 9 lacs against more than 14 lacs for others. Aavas caters to smaller towns where the population is less than 10 lacs. Aavas has done very well in Q4 with 24% YoY revenue growth and 45% profit growth. It has also maintained AUM growth of >20% despite disbursements falling 9.3% YoY in FY21. It also managed to do >100% collections in Q4 owing to falling 1+DPD in Q4. But the management admits that the collections will indeed fall as a result of local lockdowns and the overall impact of 2nd wave of COVID. It remains to be seen whether the company will be able to sustain the sky-high valuations that it is currently going at. However, stretched valuations may have factored in most of the positives. Nevertheless, it is a good business to track in the housing finance space, especially given its consistent and steady growth while maintaining good asset quality and underwriting standards.

 


 

Q3FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 310 239 29.71% 270 14.81% 814 668 21.86%
PBT 111 80 38.75% 85 30.59% 258 236 9.32%
PAT 86 68 26.47% 66 30.30% 202 189 6.88%

 

Consolidated Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 310 239 29.71% 270 14.81% 814 668 21.86%
PBT 110 80 37.50% 85 29.41% 258 236 9.32%
PAT 85 68 25.00% 66 28.79% 201 189 6.35%

Detailed Results

  1. The company had a good quarter with a 29% YoY rise in revenues and 25% YoY rise in PAT.
  2. AUM growth for the company was 22.6% YoY to Rs 8822.6 Cr as of 31st Dec 2020.
  3. Disbursements in 9M have fallen 20.5% YoY mainly due to the tough Q1.
  4. Gross Stage 3 loans were at 1% vs 0.57% a year ago. Net Stage 3 loans were at 0.72%.
  5. NIM in 9M has gone down 124 bps YoY to 7.42%.
  6. Product breakup was 73.4% Home Loans & 26.6% Other Mortgages Loans.
  7. Around 60.7% of existing customers are self-employed while the rest are salaried.
  8. 8% of customers are retail-driven.
  9. The company has kept the yield spread at a stable 5.74% in Dec ’20.
  10. Opex to AUM in 9M was down to 2.82% from 3.42% a year ago.
  11. ROA for 9M was at 3.22%.
  12. The company has no CP exposure and has recently raised borrowings of Rs 935.6 Cr for 144 months at 7.04%.
  13. The company maintains a positive ALM mismatch across all time periods and has an average tenure of outstanding borrowing at 131 months.
  14. It has total liquidity of Rs 2670 Cr as of 31st Dec 2020.
  15. It maintained a CAR of 52.98% with Tier 1 capital at 51.12%.
  16. Interest Income has risen 27.6% YoY in Q3 while interest expenses have risen 23.6% YoY.

Investor Conference Call Highlights

  1. Aavas’s long-term credit rating continues to be AA- with a stable outlook from ICRA and CARE.
  2. As on 31 December 2020, the average borrowing cost 7.68% against the average portfolio yield of 13.42%, resulting in a spread of 5.74%.
  3. Additional ECL provisioning of Rs 4.29 Cr was created to consider the impact of COVID-19 during Q3. Total provision for COVID stands at Rs 19 Cr.
  4. Book value stands at Rs 294.6 per share.
  5. Collection efficiency in Dec was at 98.8%.
  6. As of December, only 2,000 accounts were there who have not paid the December installment down from 5,800 such accounts in Sep.
  7. The company has done securitization of almost 23% of total AUM. The management has stated that it aims to bring it down and keep this figure in the range of 15-20% depending on the yield available.
  8. The increase in salaried % should not be seen as a decrease in self-employed disbursements and this % will keep on changing depending on market conditions.
  9. The management is confident of maintaining AUM growth guidance of 20-25% and has stated that Aavas will remain cautious in lending till Q4 and will start on a normal growth path from FY22 onwards.
  10. Normally, the company keeps only 3-4 months of disbursement as cash in hand but due to COVID-19, the management decided to be more conservative and maintain cash at 6 months disbursement level.
  11. Despite operating in similar geographies as Gruh, Aavas is not getting any yield pressure as both have different customer sets to cater to. Gruh finances apartment properties and has a 70% salaried customer set while Aavas finances mostly independent houses and have a 70% self-employed customer set. The management has stated that the market is large enough for both to co-exist.
  12. The management has identified 3 main priorities for Aavas which are maintaining asset quality, maintaining the spread, and maintaining growth pace.
  13. The management has clarified that the 1% NPA figure is without the Supreme Court freezing decision and with this decision, the NPA is at 0.3%.
  14. The management has clarified that the disbursement in salaried have been normal while disbursements in self-employed will increase naturally as the economy opens up.

Analyst’s View

Aavas Financiers is a fast-growing housing finance company in India. What sets it apart from the large housing finance players like HDFC, LIC Housing Finance & Repco is the space they cater to. The average ticket size of loans is less than 9 lacs against more than 14 lacs for others. Aavas caters to smaller towns where the population is less than 10 lacs. Aavas has done well in Q3 with 30% YoY revenue growth and 25% profit growth. It has also maintained AUM growth of >20% despite the pandemic and is back to collections above 98%.  Given the positive cues from the real estate sector in recent times, Aavas could be a big beneficiary going forward. However, stretched valuations may have factored in most of the positives. Nevertheless, it is a good business to track in the housing finance space.

 


Q2FY21 Updates

Financial Results & Highlights

 

Consolidated Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 270 231 16.88% 234 15.38% 504 429 17.48%
PBT 84 91 -7.69% 63 33.33% 147 155 -5.16%
PAT 66 76 -13.16% 50 32.00% 116 121 -4.13%

Detailed Results

  1. The company had a mixed quarter with a 17% YoY rise in revenues and 13% YoY fall in PAT.
  2. AUM growth for the company was 23.9% YoY to Rs 8366.9 Cr as of 30th Sep 2020.
  3. Disbursements in H1 have fallen 33.1% YoY mainly due to the tough Q1.
  4. Gross Stage 3 loans were at 0.47% vs 0.62% a year ago. Net Stage 3 loans were at 0.32%.
  5. NIM in H1 has gone down 187 bps YoY to 6.82%.
  6. Product breakup was 73.5% Home Loans & 26.5% Other Mortgages Loans.
  7. Around 64.9% of existing customers are self-employed while the rest are salaried.
  8. 8% of customers are retail-driven.
  9. The company has kept the yield spread at a stable 5.62% in Sep ’20.
  10. Opex to AUM in H1 was down to 2.8% from 3.28% a year ago.
  11. ROA for H1 was at 2.89%.
  12. The company has no CP exposure and has recently raised borrowings of Rs 519.9 Cr for 167 months at 7%.
  13. The company maintains a positive ALM mismatch across all time periods and has an average tenure of outstanding borrowing at 130 months.
  14. It has total liquidity of Rs 2587 Cr as of 30th Sep 2020.
  15. It maintained a CAR of 53.08% with Tier 1 capital at 50.84%.
  16. Interest Income has risen 29.2% YoY in Q2 while interest expenses have risen 35.8% YoY.

Investor Conference Call Highlights

  1. ICRA has updated the long-term credit rating for AAVAS from A+/Positive outlook to AA-/Stable during this quarter.
  2. The total number of live accounts stands at 1,12,500.
  3. Around 0.5% of the total portfolio has not paid a single installment since March.
  4. Total moratorium as of August was at 10% while this number came down to 3.2% in Sep.
  5. The company will continue its pace of branch expansion and will finish its 5-year block in March. From March onwards it will embark on a new 5-year block to expand into 4-5 states.
  6. The management hopes to reach pre-covid sourcing & disbursement levels in the coming quarters.
  7. 1+DPD is around 5-6% in this business currently.
  8. The company has an NPA of Rs 31 Cr currently against which around 22% is normal NPA. The company has also done additional COVID provisioning of Rs 15 Cr. Overall provisioning is sufficient to cover up to NPA of 2%.
  9. The company is always aiming to achieve improvement in Opex to AUM of 35-40 bps each year and the management is confident that this will be achieved this year as well. This should continue for 2-3 years.
  10. Currently, there haven’t been any requests for the restructuring of loans from any customer.
  11. In Q2, top-up loans were less than 1% of total disbursement in the quarter.
  12. The company has around 800 people in underwriting and collections combined. The breakup is around 50-50.
  13. 94% of customers have paid in full while 3% have not paid even part installment in Oct.
  14. The company aims to maintain ROA above 2.5% and has been successful in doing so for H1.
  15. The company aims to reach Opex to AUM of 1.75-2% in the next 2-4 years.
  16. In business terms, the company is sourcing around 9,000, 10,000 files per month. The company has a policy of continuously invest into capacity ensuring that it always has spare capacity for an uptick in demand.
  17. Today 100% of leads come from mobile app & 99% of repayments are from digital means.
  18. The company has also implemented a 100% CRM. It has also ensured that 85% of customer requirements can be gathered through a mobile app without any need to go to a branch.
  19. The company is also cybersecurity compliant with a bank-level kind of security framework.
  20. The company is also constantly investing to stay at the forefront of technology for the long term in this field.
  21. The average cost of borrowing is at 7.9%.

Analyst’s View

Aavas Financiers is a fast-growing housing finance company in India. What sets it apart from the large housing finance players like HDFC, LIC Housing Finance & Repco is the space they cater to. The average ticket size of loans is less than 9 lacs against more than 14 lacs for others. Aavas caters to smaller towns where the population is less than 10 lacs. Throughout the financial crisis which started after the IL&FS default, Aavas has managed to sail through without any major hit on the books. Given the positive cues from the real estate sector in recent times, Aavas could be a big beneficiary going forward. However, stretched valuations may have factored in most of the positives. Nevertheless, it is a good business to track in the housing finance space.

 

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