scorecardresearchDown 25% from 52-week high; here's why this stock is Axis Securities' ‘pick

Down 25% from 52-week high; here's why this stock is Axis Securities' ‘pick of the week’

Updated: 13 Jun 2023, 02:42 PM IST
TL;DR.

The brokerage has a buy call on Aptus Value Housing Finance with a target price of 303, indicating a 10 percent upside from its current market price of 275 (as on June 12, 2023).

The brokerage has a buy call on Aptus Value Housing Finance with a target price of  <span class='webrupee'>₹</span>303, indicating a 10 percent upside from its current market price of  <span class='webrupee'>₹</span>275 (as on June 12, 2023).

The brokerage has a buy call on Aptus Value Housing Finance with a target price of 303, indicating a 10 percent upside from its current market price of 275 (as on June 12, 2023).

Down 25 percent from its 52-week high of 366.75, hit in September 2022, brokerage house Aptus Value Housing Finance is Axis Securities' 'pick of the week'.

The brokerage has a buy call on the stock with a target price of 303, indicating a 10 percent upside from its current market price of 275 (as on June 12, 2023).

The stock has gained just 6.5 percent in the last one year but has lost over 9 percent in 2023 YTD, giving negative returns in 3 of the 6 months in the current calendar year.

Aptus has risen over 4.5 percent in June so far after an over 9 percent jump in May. Meanwhile, it lost 1 percent in April and was flat in March. However, it lost nearly 13 percent in Feb and 8.5 percent in Jan.

Also, it is over 24 percent down from its 52-week low of 221.20, hit in June 2022.

The stock was listed in August 2021 and is currently trading 22 percent below its issue price of 353.

Despite such weak stock performance, Axis Securities believes that a strong growth outlook, asset quality improvement, and strong RoA (return on asset) will drive the stock.

Aptus Value Housing Finance India (Aptus) is a retail-focused housing finance company primarily serving low and middle-income self-employed customers in the rural and semi-urban markets of India. The company is predominantly present in the southern states of Tamil Nadu, Andhra Pradesh, Telangana, and Karnataka with operations mainly concentrated in Tamil Nadu and Andhra Pradesh, which collectively contribute 78 percent of the AUM (Assets under management).

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Aptus Value stock price trend

Investment Rationale

Long growth runway: While demand in the existing geographies continues to remain healthy, the management believes in establishing a leadership position by penetrating deeper into the existing geographies rather than entering new geographies, noted the brokerage. It further pointed out that apart from the home loans, Aptus also sees good growth opportunities in SME lending with demand and borrowers' repayment capability improving. While the company will pursue growth in the SME, it will look to cap this book at 21-23 percent of the consolidated AUM.

Axis expects Aptus to deliver a robust AUM growth of 28 percent CAGR over the medium term. This will be driven by the huge unmet demand in the core markets, gradually improving contribution from the new geographies, and the company’s focus on the underserved self-employed customers, wherein the opportunity remains fairly large, it explained.

Asset quality improvement to continue: The brokerage also informed that Aptus’ collection efficiency (CE) has remained stable at over 100 percent over the past few quarters, further adding that the company has also seen a significant improvement in the 30+ dpd (days past due) pool which reduced from 9.9 percent in Q4FY22 to 5.9 percent in Q4FY23 (vs the peak of 12.3 percent in Q3FY22).

Also, Aptus’ GNPA (gross non-performing assets) also improved from 1.19 percent /1.44 percent in Q4FY22/Q3FY23 to 1.15 percent in Q4FY23 post considering the impact of the RBI circular on NPA recognition, noted Axis and stated that the restructured book remains at manageable levels of 0.7 percent of the book and collections continue to remain healthy. The company’s asset quality improvement is likely to continue with collections remaining healthy and the management eyeing to maintain GNPA at 1 percent on a steady state basis, thereby keeping credit costs muted, forecasted the brokerage.

RoA delivery to remain best-in-class: The brokerage also highlighted that Aptus is able to deliver strong RoA due to the pricing power the company commands owing to its dominant presence and lower competition in high-growth rural markets. NIMs may witness some compression over the medium term owing to an increase in CoF, the higher share of fixed-rate loans, and a shift in the portfolio mix towards lower-yielding home loans, it stated.

However, despite margin pressures surfacing, NIMs will continue to remain best amongst peers. Thus, despite margin compression and a marginal inch-up in Opex ratios to reflect the investments that the company is making in expanding its footprint, RoA will continue to remain best in class, it observed. Against this backdrop, Axis expects Aptus to deliver RoA of 7.5 percent (+/- 10bps) over the medium term.

Earnings

In the March quarter, the company posted a 23 percent jump in its net profit at 135.29 crore versus 109.86 crore in the same period last year. Meanwhile, its total income jumped 31.5 percent YoY to 308.37 crore during the quarter under review as compared to 234.34 crore in the corresponding period last year.

 

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First Published: 13 Jun 2023, 02:42 PM IST