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Nomura sets record target price for Aadhar Housing Finance, sees 20% upside — here’s why
Japanese brokerage Nomura began coverage in Aadhar Housing Financegiving it a ‘buy’ rating and setting a target price of ₹550 per share. The stock, which debuted on Indian stock exchanges in May, is currently trading 45% above its IPO price of ₹315 apiece.
Nomura’s price target suggests an all-time high for the stock, offering 20.35% upside potential from its recent closing price of ₹457 per share.
He said Aadhar Housing Finance stands out as the most attractively priced stock in its segment, trading at 2.4x FY26F P/B compared to 2.8x/3.3x for Aavas and Home first. This lower valuation provides a margin of safety for investors, making it Nomura’s preferred pick in this sector.
According to the brokerage, the company holds a distinct market position with the most diversified loan book and strongest profitability among its peers. The brokerage forecasts an EPS (earnings per share) CAGR of 20% from FY24 to FY26F, with an average RoA (return on assets) and RoE of 4.4% and 17%, respectively, over FY25–26F.
The structural story continues
Despite home loans growing at a CAGR of 15% over the last decade (FY13–1H24), the brokerage highlighted that home loan penetration in India remains comparatively low compared to global standards.
However, favorable demographic trends, rising income levels, significant housing shortages and government initiatives The promotion of affordable housing is expected to gradually increase the penetration of real estate loans.
Brokerage estimates suggest that the real estate lending sectorr could grow at a rate of 14%–15% over the next decade, potentially doubling in size in the next five years.
AHFCs lead in the low-income mass market segment
Nomura said affordable housing finance companies (AHFCs) hold a distinct advantage in the low-income mass market segment, where loan sizes are typically below ₹2.5 million. This segment, according to the brokerage, is underserved and poses significant challenges in terms of outreach and assessing borrower creditworthiness compared to standardised lending practices in the mainstream segment.
In the mid- and high-income home loan categories, banks and major housing finance companies (HFCs) dominate, facing competitive pricing pressures that erode profit margins over time, even for established players like HDFC.
To diversify and sustain growth and profitability, AHFCs and HFCs are expanding their exposure to other mortgage products.
Best placed among AHFCs
According to Nomura, Aadhar Housing Finance stands out as India’s most diversified AHFC, operating across 20 states and UTs, compared to 13 for Aavas and Home First. No single state contributes more than 14% of Aadhar’s Assets Under Management (AUM), in contrast to Home First and Aavas, where the top state constitutes 31% and 35% of the AUM, respectively.
Nomura highlighted that Aadhar and Aavas focus more on self-employed and informal salaried customers, while Home First predominantly targets salaried customers.
He also said Aadhar is enjoying a higher growth period for its loan against property (LAP) portfolio due to its higher proportion of home loans, which make up 86% of its portfolio mix, compared to 75% for Aavas and 69% for Home First.
Aadhar Housing Finance maintains one of the lowest operating expense ratios in the industry despite an increase in FY24 due to IPO-related expenses.
In terms of asset quality, Aadhar exhibits a 3-year average cost of credit of approximately 0.3%, slightly higher than Aavas (0.2%) and Home First (0.4%). However, Aadhar has implemented provisions like Provisioning Coverage Ratio (PCR) on Stage-3 assets and has the highest ECL/EAD ratio at 1.2%, compared to 0.8% for Home First and 0.6% for Aavas.
Looking at profitability metrics, Aadhar Housing Finance boasts the highest 3-year average return on equity (RoE) of around 17 per cent from FY22 to FY24, beating Aavas and Home First, each recording a RoE of 14 per cent, the brokerage noted.
Disclaimer: The opinions and recommendations given in this article are those of individual analysts. They do not represent the views of Mint. We advise investors to consult certified experts before making any investment decisions.
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