Aavas Financiers Limited IPO

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Aavas Financiers Limited (Formerly known as “AU Housing Finance Limited”) was originally incorporated as a private limited company at Jaipur, Rajasthan, under the name of “Au Housing Finance Private Limited” on February 23, 2011. The Company got registered with National Housing Bank (subsidiary of Reserve Bank of India) as a Housing Finance Company (HFC) and awarded the license from National Housing Bank (NHB) in August 2011.

(i) Business Segment

AAVAS is primarily engaged in the business of providing housing loan to customers belonging to a low and middle-income segment in semi-urban and rural areas. These are creditworthy customers who may or may not have the income proof documents like IT return, salary slip and hence are financially excluded by other large housing finance companies and banks. AAVAS uses unique appraisal methodology to assess these customers individually. The financing solution needs to be appropriated and suitable for them.

AAVAS believes that every customer is unique and so far as his financial needs & feel it is absolutely necessary not to treat them as a homogenous group of borrowers but appreciate the individual need of every customer, and offer housing Finance solutions that are appropriate and suitable to them.

(ii) The Target Customers

AAVAS is engaged in the business of providing housing loan to customers belonging to a low and middle-income segment in semi-urban and rural areas. These are the people who are either self-employed, running small businesses like providing transportation facilities in auto rickshaw or other vehicles, running grocery shops, tiffin centers, beauty parlous and other businesses or these customers are carrying out business of agri or animal husbandry products in rural areas or salaried class people who are carrying out small jobs in private or public sector.

(iii) Area Of Operations

AAVAS caters to the needs of various small families in rural areas, towns, and a city’s peripheral area and other semi-urban areas to meet their lifetime dream to own their own house. Presently AAVAS is operating in 8 states namely Rajasthan, Gujarat, Maharashtra, Madhya Pradesh, Delhi, Uttar Pradesh, Chattisgarh, and Haryana.

 

Objects of the Aavas Financiers Limited IPO:

Objective of Aavas Financiers Limited IPO are: Offer for Sale Each of the Selling Shareholders will be entitled to its respective proportion of the proceeds of the Offer for Sale after deducting their portion of the Offer related expenses and relevant taxes thereon. Fresh Issue (a) Gross Proceeds (b) Less: Offer related expenses to the extent borne by our Company (c) Net proceeds of the Fresh Issue

Aavas Financiers Limited IPO Details:

Current GMP: (80) - (85)
Open Date: Sep 25 2018
Close Date: Sep 27 2018
Total Shares: 21,121,466
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Built Issue IPO
Issue Size: 1734.07 Cr.
Lot Size: 18 Shares
Issue Price: ₹ 818-821 Per Equity Share
Listing At: NSE,BSE
Listing Date: Oct 08 2018

Promoters And Management:

Promoters of Aavas Financiers Limited Company are: As on the date of this Draft Red Herring Prospectus, Lake District and ESCL are the Promoters of our Company. Lake District and ESCL currently hold 35,261,756 Equity Shares, equivalent to 49.84% and 17,127,627 Equity Shares equivalent to 24.21% of the pre-Offer issued, subscribed and paid-up Equity Share capital of our Company, respectively.

Financials of Aavas Financiers Limited IPO:

Year AUM(Cr) Revenue(Cr) PAT(Cr) Gross NPA NIM Outstanding Shares( M) EPS Book Value
FY16 1700 190 32.7 0.6% 6.1% 3.8383 9 53
FY17 2700 305 57.1 0.8% 6.6% 5.8164 10 97
FY18 4100 457 92.9 0.3% 7.3% 6.9173 13 159

Comparison With Peers:

Name of the Company AUM(Cr) NIM Gross NPA Cost of Borrowing P/E P/B
Aavas Financiers Housing 4073 7.25% 0.34% 7.5% 65 4.06
Canfin Homes 15743 3.53% 0.43% 7.7% 13.67 3.05
Gruh Fin 15568 4.40% 0.45% 7.54% 33 8.96
PNB Housing 62252 3.07% 0.33% 7.71% 25.91 3.41

Recommendation on Aavas Financiers Limited IPO:

Review and Recommendation of Aavas Financiers Limited IPO from IZ team is:4/10 [The company has shown excellent growth in the last 5 years. However, we have not to forget that interest rates were low in the last 5 years which resulted in improved margins for Housing Companies and now as our economy is moving in high-interest rates regime the housing finance companies going forward will feel the pinch. The asking valuation on P/B of more than 4 is too much when there is fear in the market regarding liquidity crunch for the NBFCs, Infra Financing companies and Housing Financing companies. ]

Registrar of Aavas Financiers Limited IPO:

  1. Link Intime India Private Limited

Company Address:

Aavas Financiers Limited 201-202, 2nd Floor, South End Square, Mansarover Industrial Area Jaipur 302 020, Rajasthan, Phone: +91 14 1661 8800 Fax: +91 14 1661 8861 Email: ipo@aavas.in Website: www.aavas.in

Bid Details of Aavas Financiers Limited IPO as on
27-Sep-2018 18:30:01 IST

No.of shares offered No. of shares bid No. of total times
4,224,293 11,720,412 2.77
3,168,220 824,868 0.26
7,392,514 1,850,796 0.25
- - -
- - -
14,785,027 14,396,076 0.97
No.of shares offered No. of shares bid No. of total times
4,224,293 6,954,624 1.65
3,168,220 605,790 0.19
7,392,514 1,438,380 0.19
- - -
- - -
14,785,027 8,998,794 0.61
No.of shares offered No. of shares bid No. of total times
4,224,293 4,765,788 1.13
3,168,220 219,078 0.07
7,392,514 412,416 0.06
- - -
- - -
14,785,027 5,397,282 0.37

Total Number of Applications in Retail Category: 87,193

Application-wise Subscription in Retail Category: .21

Discussion on Aavas Financiers Limited IPO:

    Aavas Financiers Limited IPO
    Basis of Allotment
    Ret : 0.199053×
    Ret Cat Ratio : 1:1
    NII : 0.142399×
    IPO Price Fixed @ Rs.821
    Listing On BSE & NSE.
    Listing Dt. : Monday 8 Oct 2018

    Meeting with Rashesh Shah – Edelweiss Meet – Point 1 – Is the a liquidity Crisis in the Indian bond system?- Aboslutely YES. There is a crisis of confidence among lenders towards NBFC’s in the short term capital market and funds are being raised at above 10% levels, the trigger was ofcourse the IIFS default which took place on the 8th of september and Icra downgraded ILFS to ‘D Rating’ on the 12th. This is normal after a default, it happened in 2008 banking crisis, it happened in 2013 after Amtek Auto Defaulted, its happening now. It never happened during demonetization because banks had to much money to borrow as CASA.

    Point 2 – How long will this last and how will be the impact? – Normally these kind of liquidity freeze events last 1-6 months and NBFC’s become cautious with thier capital for lending as they need to save their own franshicee rather than grow fast. (safety first). Even Edelweiss would be increasing liquidity from 10% of the book to 15%, Ofcourse growth would be affected for next 6 months till things normalize. Most NBFC’s would report muted growth after Q2 Quarter for next 2 quarters

    Points 3 – Will the NPA’s rise if growth slows down – Aboslutely not, every crisis in the world with financials have happened when they were borrowing to underlying poor asset and the asset defaults which is not the case with these NBFCs, the problem is a short term liquidity problem due to a default, nothing long term.

    Point 4 – Will the NIM compress- Not Really because they can pass on the rates to borrows easily except the housing finance market where banks are competition.

    Point 5- Will banks stop borrowing to NBFC – For the Short term there would be some trouble but structurally there wont be any impact as RBI supports lending via NBFC. When a Bank lends to a NBFC and an NBFC lends to a SME, there are two capital adequency which are created i.e. 10% at the bank and 15% at the NBFC level. So a 1000 Crore loan directly to an SME by a bank would mean 900 Crores goes to the SME and 10% to the capital adequency where if the bank lends to an NBFC who then lends to an SME then 900 Crores would go the NBFC who would have to maintain 15% capital adequency of roughly 150 crores and 750 would go to the SME.

    Also PSU banks don’t have the capability to borrow directly to the SME and recover, they rather lend it to the NBFC and earn a cool 4-6% spread and no opex cost.

    Point 6 – What will happen to smaller NBFC? – Well there would be a wipe out of capital for smaller NBFC companies for next 1-2 years. Everybody was started a lending business and then smaller guys won’t find it easy to get funding from banks.

    Conclusion – Overall the times are tough for NBFC for next 3 months, there is absolutely a confidence crisis in the system for the short term but its like a bumper on the Highway. We believe these kind of events test the viability for the business model and the larger NBFC’s would come out stronger out of this and the solution is confidence. The corporate bond revival is a must for growth in NBFC’s going forward.

    Aavas Financiers Limited IPO

    PremjiInvest, ADIA among anchor investors in Aavas Financiers as IPO opens.. Premji was right in Tejas IPO… is he right in Avaas too?

    Aavas Financiers IPO

    RISKY BET: The Company with unique model in Affordable Housing but issue is priced at stretching valuation. A must in portfolio stock in longer term.

    Aavas Financiers Limited IPO

    Aavas Financiers sees over $1 billion in demand from Anchor Investors

    Aavas Financiers got orders of ~520cr from high profile anchor investors, ahead of its IPO, which opens tomorrow. The company has finalised 34 investors at upper end of the prize band.

    As per sources, overall demand was over US $ 1 billion from more than 75 investors across US, Europe, Asia and India (well over 10 Times the anchor amount)

    Largest global active asset managers and SWFs including Abu Dhabi Investment Authority, Kuwait Investment Authority, Nomura, HSBC Halbis, Morgan Stanley, Amundi, Wasatch, BNP, Steinberg, Kotak, Beuna Vista and Think participated in the Anchor book.

    Many large domestic mutual funds including 4 of the Top 5 such as SBI MF, ICICI Prudential MF, Relaince MF, Birla MF, Kotak MF, DSP MF, IDFC MF, Sundaram MF, Edelweiss MF, IIFL MF have participated. The Anchor book also saw widespread participation from the leading life insurance companies such as SBI, Bajaj Allianz, BIRLA Sunlife, Kotak, Max along with AU Small Finance Bank.

    ICICI Securities, Citibank, Edelweiss, Spark and HDFC Bank are the Investment bankers to the share sale.

    Brokerage View

    (i) Emkay

    Recommend ‘Subscribe’.

    a) As the company accelerates its overall leverage, the likely probability of achieving superior return on equity of about 20 percent remains fairly high.

    b) With sufficient capital already in place, a further risk of dilution is also quite limited.

    (ii) Antique Broking

    Recommend ‘Subscribe’ from a long-term perspective.

    Valuations don’t leave much upside in the near term.

    (iii) Anand Rathi

    Recommend ‘Subscribe’.

    a) Aavas Financiers offers the near-impossible trinity: high spread, explosive growth and good asset quality.

    b) While valuation appears high, most financial inclusion plays (Bandhan Bank, Bharat Financial and Gruh Finance) generally command a premium over mainstream peers.

    (iv) Prabhudas Lilladher

    Recommend ‘Avoid’.

    a) Valuations stand at a significant premium over peers, pricing in all the positives.

    b) Elevated capital adequacy ratio at 61 per cent, challenging market conditions, coupled with higher valuations entail greater risk to high growth and an improvement in RoE.

    c) Long-term prospects look positive, valuations leave scope for negative surprises.

    तीन कारण हैं आवास फाईनेंशियर्स लिमिटेड के आईपीओ से दूर रहने के
    जयपुर आधारित हाउसिंग फाइनेंस कंपनी आवास फाईनेंशियर्स लिमिटेड द्वारा कारोबारी विस्तार के लिए आईपीओ लाया जा रहा है। कंपनी का आईपीओ 25 सितम्बर को खुलकर 27 सितम्बर को बंद होगा। हालांकि कुछ कारणों के चलते कंपनी के आईपीओ से निवेशकों को दूर रहने में ही भलाई नजर आ रही है।
    बढती प्रतिस्पर्धा : हाउसिंग फाईनेंस सेक्टर में एलआईसी, पीएनबी हाउसिंग, हुडको, एचडीएफसी, इंडियाबुल्स इत्यादि बहुत सी फाईनेंस कंपनियां कार्यरत हैं , हालांकि इनका फोकस प्रमुख शहरों तक ही सीमित है और आवास फाईनेंशियर्स लिमिटेड को अपना अधिकत्तर बिजनेस टीयर-2 और टीयर-3 सिटी से हासिल हो रहा है। लेकिन आने वाले समय में ग्रोथ हासिल करने के लिए ये कंपनियां भी अपना विस्तार टीयर-2 और टीयर-3 सिटी के साथ गांव-कस्बों में भी करेंगी ।

    The Aavas has to seriously think on the repricing else it might face the issue in sailing through.

    DHFL at CMP is a good bet rather than going for Aavas at such high valuations when there is a pressure in Housing Finance Companies.

    No buyer .only selling ..now after 12 pm it turns into discount trading ..

    Approximately 5 to 10% discount ..
    Means

    -80

    *What happened in the financial debt market leading to a huge sell-off and panic in the Stock Market yesterday?*

    A debt fund of DSP Mutual Fund named DSP CREDIT RISK FUND was holding IL&FS commercial Paper (CP).
    This paper were rated AAA.
    But last week IL&FS made an interest default hence its rating went down to D.

    Redemption pressure came to this fund.

    Hence DSP MF sold AAA rated 9.1% paper of DHFL as they needed big fund and hence this quality paper was sold at a steep discount to meet the redemptions.

    Fine…this was debt market operations
    but its repercussion were seen in DHFL stock… thinking its paper was sold at steep discount… hence company must be in some trouble.

    This led to fear of all NBFCs specially HFC’s will have big problem and it triggered sell off in all the NBFCs.

    Then followed by banks and YES Bank was already in bad news.

    Leading to overall sell-off and volatility.

    *Now Post this NBFC Sell Off What is expected ahead ?*

    (1) Due to the redemption pressure on DSP Blackrock MF, the fund house had to sell DHFL Bonds at net yield of 11% whereas as per Issue DHFL had yield of 9.1%. This means the Bond was sold at 18% steep discount (Rs.100 bond sold at Rs. 82). After this so many clarifications are coming up by DHFL that it was a secondary market deal wherein they have nothing to do.

    (2) Why did DSP Sell?
    Ans : Because DSP faced redemption pressure from the Corporate clients holding Funds that have exposure to IL&FS due to downgrade of rating to D from AAA.
    This redemption pressure would have resulted in default by DSP and hence they had 2 options :
    (a) Either sell GSec
    or
    (b) Sell DHFL Bonds as investment at a loss.
    Now Gsec is already in loss due to Bond yield having risen hence logically if the loss is same it’s better to sell Corporate Bonds.

    (3) Now hereafter other AMCs having exposure of Rs.2800 crores to IL&FS bonds would get redemption pressure from Corporate clients who have invested in this Rs 16 trillion Debt MF industry. Assuming the avg exposure to IL&FS Bonds as 3% of Gross portfolio this means the value of AUM in such affected funds is Rs. 94,000 Crores. Assuming 25% of such investments are by Corporate Client who do not wish to hold D grade funds the redemption pressure would be a whooping Rs. 23000-24000 Crores.

    (4) It’s impossible for such schemes to get this amount in a week. Further, illiquid Corporate debt market and DHFL saga results in the fact that AMCs have no option but to sell GSec. Hence, GSec will face a huge selling pressure so either Bond Yield will shoot up to 8.30-8.50% levels or the RBI has to do OMO (Open Market Operations).

    (5) If RBI Opts for OMO then the governments spending capacity will reduce by an equal amount and given that elections are around the corner it is impossible for Govt to allow Rs. 24000 Crores out of the system.

    (6) The government has only 1 solution: It will have to tell LIC to save IL&FS by ensuring no further defaults specially to Banks and Mutual Funds till elections in order to avoid a financial system crash that will involve a lot of banks, nbfc and Mutual Funds.

    (7) At the end of the day public money will be used by LIC to save IL&FS and prevent further defaults.
    This will relax the Corporate bond market and stock markets from further panic!

    *DHFL conference call summary*

    *Opening remarks*
    – We don’t have any delay in fulling our repayment, forget about default
    – No pledge against promoter holding
    – No exposure to IL&FS
    – Have a very diversified borrowing profile

    *Q&A highlights*
    • Our borrowing rate continues to be that for an AAA-rated Company in the market
    • 8.65% is the incremental rate of borrowing (blended). Last 1 month borrowing has been at 8.0-8.2%, NCDs at 9.20-9.25%
    • We have to abide by the NHB regulations, not the RBI. @11% was a secondary deal, over which we don’t have control
    • There were secondaries in the morning willing to buy the paper, but there were no offers – there were two parties
    • Promoter or promoter entities have not sold any stake
    • ALM 0-1 yr +Rs 12-13k cr. 1-3 yr +Rs 2,000 cr 3-5 yr +Rs 20,000 cr. 5+ yrs is -ve. Overall we are very comfortable
    • Overall, as %age of developer portfolio, there is no NPA
    • Rs 10,000cr liquid investment book invested in different securities and market. There are CPs lined up in the next qtr, but there is enough liquidity. Till Mar-19, our net cash flow is +ve
    • In the Rs 10,000cr, lion share is in mutual funds and FDs. some in fixed income, small portion elsewhere.
    • RBI circular cannot be the reason for our stock collapsing. An RBI circular would impact all the housing finance Companies.
    • 99.7% of our loans are on floating rates, and rate hikes can be passed through
    • In addition, have Rs 9,700cr worth of unutilized bank lines
    • Contingent liabilities worth Rs 275cr not significant
    • In Apr-18, we passed on 62bps interest rate hike to customer. Incremental NPA of 0.9% was very low
    • *Suggest that a mutual fund had a credit event, and they sold our bonds*

    It would be better to skip Aavas Financiers in view of the crash in all HFCs today – Some regulatory changes may be coming – And those who can sell Aavas may well do so instead of applying open or skip the issue altogether.

    The coming time would impact all housing finance companies in totality.

    Impact of rising debt market yields on NBFCs incl HFCs. At the same time, HFCs benefited when PSU banks went slow on lending due to NPAs and vacated the space to these HFCs. Now as IBC resolutions bring them back to health, PSU banks are expected to aggressively reclaim home loan space as against corporate lending.

    Impact:
    1. Home loans shifting to banks means narrowing pie for HFC
    2. Squeezed NIMs due to aggressive pricing and higher cost of funds

    Again it is a case of very good company asking very high valuation. The main reason behind asking such high valuations being the exit of PE promoters.
    (i) LAKE DISTRICT HOLDINGS LIMITED selling 8,815,439 Equity Shares
    (ii) ESCL Group limited is selling 4,281,907 Equity Shares.
    (ii) KEDAARA CAPITAL ALTERNATIVE INVESTMENT FUND selling 236,339 Equity Shares.
    (iii) PARTNERS GROUP PRIVATE EQUITY MASTER FUND LLC selling 1,879,110 Equity Shares.
    (iv) SUSHIL KUMAR AGARWAL Selling 911,564 EQUITY SHARES
    (v) VIVEK VIG, Selling Equity Shares 125,000.

    (i) No. Of Outstanding Shares= 74.07 Million shares
    (ii) Net wOrth=14984 Million
    (iii) Book value= 202
    (iv) P/B= 4.06

    The P/B is very high as compared to its peers.Look what management has to say about it:-

    Justifying the P/B implied by the price band, Agrawal said: “We know how to assess (our target clients). We have a 100 percent retail loan book with an average ticket size of less than Rs 10 lakh and only 50 percent loan to value and 33 percent installment to income ratio.” He added that the company maintained gross NPA of 0.5 percent over five years and RoA of 2.5 percent over the past six years.

    *Aavas Financiers Limited IPO update:*

    Opens on: *25-Sept-2018*

    Closes on: *27-Sept-2018*

    Price Band: *₹ 818 to ₹ 821*

    Bid Lot: *18 Equity Shares* & in Multiple thereafter

    Issue Size : *₹ 1734 Crs at upper Band*

    Face Value : ₹ 10/- per share

    Apply=✅✅

    A) How Housing Finance Company do business?

    The business of Housing Finance Companies is very easy to understand. They sourced money from the market through a number of different channels and then give loans to the retail investors and difference of interest in sourcing and supplying is their margin.

    B) Source of Funding of All Housing Finance

    Source ————-FY16——————FY17————————FY18
    (i) Banks———-25%———————20%————————–20%
    (ii) NCD ————46%——————-50%————————–53%
    (iii) FD————-14%———————-14%—————————14%
    (iv) NHB Refin—-4%———————–4%—————————-3%
    (v) Others———–3%———————–4%—————————2%
    (vi) off balance sheet——-8%————–8%————————–9%

    C) Factors to look at in analyzing any housing finance companies?

    (i) Asset Under Management
    (ii) Net Interest Margins
    (iii) Gross NPA

    Aavas financiers Ltd IPO
    1734.07 cr
    18 shares
    818₹–821₹
    410695 lots
    14778₹ application amount.

    Strengths of the Company:

    1. The Company graduated its underwriting understanding of the informal sector, transforming into institutionalized excellence through prudent documentation.

    2. They have a credit team of 397 personnel, comprising credit managers and disbursement officers
    who conduct an independent verification of customers, evaluate their business and financing needs.

    3. The Company’s financial comfort was reflected in a Capital Adequacy Ratio of 61.55%, which was considerably higher than 12% recommended by NHB.

    Expected Issue Price Calculation based on FY18 Financials

    1. PAT= 92 Cr
    2. Outstanding Shares = 6.917 Cr
    3. EPS= 13
    4. Book Value= 158
    4. Considering asking P/B as ( 3.5x to 4x )
    5. Expected Price would be in the range = Rs. 553-632

    Let us understand the Financials of the Aawas Financiers Housing Limited !!!!!!!!!

    1. Revenue (Cr)
    FY14—————56.55
    FY15—————106.40
    FY16—————196.98
    FY17—————305.49
    FY18—————457.25

    2. PAT (Cr)
    FY14—————7.19
    FY15—————19.08
    FY16—————32.06
    FY17—————57.85
    FY18—————92.93

    3. Gross NPA(%)
    FY14—————0.22
    FY15—————0.52
    FY16—————0.55
    FY17—————0.79
    FY18—————0.34

    Conclusion: The Company has shown excellent Revenue and PAT growth of 69% and 90% respectively in the last 5 years. The Gross NPA stood at 0.34 in FY18 against the Industry Average of ~1-3%.

    Five Things to Know about Aavas Financiers Housing Limited

    (i) They are a retail, affordable housing finance company, primarily serving low and middle-income self-employed customers in suburban and rural areas in India. The result is that the average ticket size of the Company’s loan is considerably lower than the national market, strengthening a case for financial inclusion. A majority of their customers have limited access to formal banking credit.

    (ii) The customer profile comprises of salaried and self-employed individuals (grocers, dairy chains and kirana store owners, restaurants owners and textile traders, among other service providing individuals like drivers, car painters, and electricians). Over the years, the company started enlarging their customer base by extending housing loans to entrepreneurs with or without documented income proofs.

    (iii) As of March 31, 2018, the company conducted its operations through 165 branches spread across 92 districts in the states of Rajasthan, Maharashtra, Gujarat, Madhya Pradesh, Haryana, Uttar Pradesh, Chattisgarh, and Delhi.

    (iv) They offer customers home loans for the purchase or construction of residential properties, and for the extension and repair of existing housing units. They also offer customers other mortgage loans including loans against property.

    (v) The company’s corporate philosophy is to enrich the lives of people by providing access to housing finance in the unserved and under-served markets in India.

    Aavas Financiers IPO
    IPO Opens on 25 September
    IPO Closes on 27 September
    Finalisation of Basis of Allotment 03 October
    Unblocking of Fund 04 October
    Credit of Equity Share to Depository Account 05 October
    Listing Date Oct 08 2018

    Aavas Financiers IPO
    IPO Opens on 25 September.
    IPO Closes on 27 September.
    Issue Size – ₹ 400 crores + 1,62,49,359 shares.
    Eps is 15.20
    NAV is 157
    RONW 8.4%
    Price Band in the Range of 500-550

      Aavas Financiers IPO
      As per the sources
      Issue price of Avas expected to be in the range of 850 to 950 with issue size to be approx 1800 to 2000 cr

    Aavas Financiers Limited IPO
    March 28, 2018
    Rights issue 9,291,521 Equity Share @ 430.50 Cash

    Aavas Financiers Limited IPO
    One good IPO on the anvil is Aavas housing … We should be looking at it if the pricing is sensible … It’s a former subsidiary of AUSFB … which they had divested Just before their IPO … It still holds 7% … PAT growth is 50-60% CAGR from FY15-18 … deep retail penetration, markets will love this … let’s see pricing