Affordable Housing Policy Support And Technology Investments Will Drive Strong Long Term Prospects

Catalysts

About Aadhar Housing Finance

Aadhar Housing Finance provides retail, secured home loans and loan against property solutions to low and middle income borrowers across India.

What are the underlying business or industry changes driving this perspective?

• Accelerating policy support for affordable housing, including GST 2.0 reforms and schemes such as PMAY 2.0 and Angikaar 2025, is set to deepen formal credit penetration in EWS and LIG segments, supporting sustained double digit AUM growth and higher fee and interest income.
• Expanding the branch network in underserved emerging markets, with a calibrated rollout of smaller B and C category branches, should enhance distribution density, lift disbursement run rate in H2 and structurally support 20% plus AUM compounding and revenue growth.
• Technology investments such as the TCS enabled core platform, advanced data analytics and AI driven underwriting and collections are expected to compress turnaround times and improve recoveries, driving operating leverage, lower cost to income and stronger net margins.
• Improving funding profile, including diversified lender relationships, potential full benefit of AA plus ratings and anticipated MCLR resets, is likely to reduce incremental cost of funds and protect spreads, supporting stable or rising net interest margins and earnings.
• Disciplined risk management with granular, fully retail secured loans, conservative loan to value, geographic diversification caps and contained Stage 2 assets positions the company to grow faster than peers without a commensurate rise in credit cost, sustaining healthy ROA and EPS growth.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Aadhar Housing Finance's revenue will grow by 23.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 48.2% today to 48.8% in 3 years time.
• Analysts expect earnings to reach ₹18.8 billion (and earnings per share of ₹36.98) by about December 2028, up from ₹9.9 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹16.9 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 20.7x on those 2028 earnings, down from 21.3x today. This future PE is lower than the current PE for the IN Diversified Financial industry at 22.4x.
• Analysts expect the number of shares outstanding to grow by 0.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.7%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• While current asset quality indicators such as gross NPAs of 1.42% and collection efficiency above 99% are strong, any macro slowdown or stress in key self-employed segments like textiles, gems and jewelry or small traders could push more customers into delinquency in emerging markets, which would raise credit costs and depress earnings over time.
• The strategy to drive growth through rapid expansion in B and C category branches and deeper penetration into underserved districts may stretch underwriting and collections infrastructure, and if controls lag network growth this could erode asset quality and compress net margins.
• Profitability is currently supported by a healthy spread of 5.9% and expectations of a 10 basis point reduction in cost of funds. If competition in affordable housing intensifies or if policy driven rate transmission is slower than anticipated, lending yields or spreads could be pressured and weigh on net interest margins and revenue growth.
• The business model is highly exposed to sustained government support for low income housing through schemes like PMAY 2.0, Angikaar 2025 and GST incentives. Any reversal, delay or dilution in these programs would soften structural demand in the EWS and LIG segments and slow AUM growth and earnings compounding.
• Stage 3 assets have inched up from 1.34% to 1.42% and legacy project finance recoveries are uncertain and long tailed. If slippages rise faster than upgrades or if recoveries underperform expectations, provision requirements could increase and reduce net profit growth and return on equity.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ₹603.89 for Aadhar Housing Finance based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹650.0, and the most bearish reporting a price target of just ₹540.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be ₹38.5 billion, earnings will come to ₹18.8 billion, and it would be trading on a PE ratio of 20.7x, assuming you use a discount rate of 13.7%.
  
• Given the current share price of ₹485.05, the analyst price target of ₹603.89 is 19.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.