Decisive actions amidst turbulent times
Defying seasonal weakness and structural challenges at the borrower level, Aptus Value Housing Finance’s (APTUS IN) Q2 earnings were steady and met expectations. The disbursement run-rate slowed in Q2, not only due to a shift in customer mix towards ticket sizes above INR 0.7mn, but also because of a high base effect. Q2 also saw a policy change – Loans were written off post 500dpd instead of 730dpd, causing credit costs to jump to over 50bps in Q2 from ~40bps in Q1. Going forward, credit costs are expected to stay below 50bps for the full year, supported by strong risk management and a robust borrower profile (65% borrowers do not have more than one loan). Led by execution and strategy, APTUS may deliver high ROA of 6.0% and ROE of 19% in FY25-28E. Maintain conviction BUY (TP retained at INR 439).
Healthy profitability and margin resilience amid policy-led moderation: PAT was steady at INR 2.26bn, rising 3.3% QoQ/ 24.5% YoY, in line with estimates, supported by healthy loan growth and stable asset quality. This helped offset the impact of policy-driven moderation in disbursements and higher provisions of INR 181mn (up 70.9% QoQ / 90.2% YoY). Opex-to assets ratio has remained stable at or below 2.7% for the past 10 quarters, supported by sustained productivity improvements and operating efficiencies. NIM was strong at 13.4%, aided by a 20bps QoQ improvement in the cost of borrowings, while a modest 10bps drop in yields had a limited impact, with yields expected to stay stable, going forward.
Disbursements moderated led by policy shift; growth momentum set to strengthen: AUM increased a healthy 4.4% QoQ/21.6% YoY to INR 117.7bn, though the disbursement run-rate moderated in Q2 owing to a strategic shift toward higher ticket sizes (above INR 0.7mn) and slightly elevated customer prepayments. Focus on expansion beyond its core Southern markets (Maharashtra and Odisha) and steadily expanding its branch network (40 additions each year) should aid growth. Stable BT-outs (5-6%) along with the planned branch expansion are expected to sustain a 25% AUM CAGR in the medium term.
Proactive measures to keep asset quality stress under control: Stage-3 was stable at 1.6%, up marginally by 6bps QoQ due to seasonal softness, while Stage-2 declined by 2bps to 4.8%. Improved collection efficiency to 99.36% and 30+ DPD declining from 6.45% to 6.34%, was reflective of continued strengthening in recoveries. Credit costs surged to 50bps from 38bps in Q1, mainly due to the policy revision mandating 100% technical write-offs for accounts overdue beyond 500 days. Looking ahead, expect credit costs to remain <50bps in FY26E-28E, backed by prudent risk management and a resilient borrower base. Maintain conviction BUY: APTUS has stepped up its policy measures to navigate turbulent times, despite having economies of scale. Emphasis on better customer profile and changes in write-off policy hit disbursement momentum and credit cost run-rate in Q2. Our estimates are conservative and unaffected. Post the recent correction, APTUS is set for a re-rating, on expectations of high ROA of 6.0% and ROE of 19% (FY25-28E), led by branch expansion, strong customer engagement, a lean cost structure, and its 100% NBFC setup, allowing for a higher pricing hurdle rate. Maintain BUY with TP unchanged at INR 439, on 3.5x FY27E P/ABV.
