Expanding Into Odisha And Maharashtra And Adopting Digital Technologies Will Drive Future Growth

Key Takeaways

• Expanding into new states and enhancing branch presence can drive future revenue growth for Aptus Value Housing Finance India.
  
• Strengthening analytics and digital adoption, along with cost control measures, could enhance operational efficiency and net margins.
  
• Asset quality concerns and interest rate risks could challenge net margins, while market expansion faces competition and potential economic or regulatory hurdles.

Catalysts

Together with its subsidiary, Aptus Finance India Private Limited, operates as a housing finance company in India.

• Expanding operations in new states like Odisha and Maharashtra, as well as increasing penetration in existing geographies by opening new branches, could drive significant future revenue growth.
  
• Strengthening the analytics and digital adoption, including the customer referral app and construction ecosystem app, is expected to increase lead generation and improve operational efficiency, potentially enhancing net margins.
  
• The focus on productivity, collection efficiencies, and cost control, supported by new mobile-first lead management software, could maintain or even improve net margins over time.
  
• With robust capital adequacy and diversified funding sources, Aptus is well-positioned to support its growth ambitions without immediate equity raises, potentially improving earnings and return on equity in the long term due to increased leverage.
  
• The company's vision of reaching an ₹25,000 crores loan book by FY '28 and strategic investments in new branches and relevant technology indicate a strong growth trajectory, which should contribute to revenue and earnings expansion.

Aptus Value Housing Finance India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aptus Value Housing Finance India's revenue will grow by 26.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 61.4% today to 56.2% in 3 years time.
• Analysts expect earnings to reach ₹13.0 billion (and earnings per share of ₹26.08) by about March 2028, up from ₹7.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.3x on those 2028 earnings, up from 21.3x today. This future PE is lower than the current PE for the IN Diversified Financial industry at 24.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.37%, as per the Simply Wall St company report.

Aptus Value Housing Finance India Future Earnings Per Share Growth

Risks

• The company's asset quality, as indicated by the NPA and marginal improvements in collection efficiency, could pose a risk to future net margins if borrower repayment issues intensify.
  
• The higher proportion of variable rate borrowings (53%) compared to fixed-rate lending could lead to interest rate risk, impacting earnings if lending rates cannot be adjusted quickly enough to match borrowing rate increases.
  
• The company's expansion into new markets like Maharashtra and Odisha may face competition and unfamiliar market conditions, which could challenge revenue and profit targets.
  
• The observed increase in technical write-offs, despite good recovery efforts, suggests potential future challenges to net margins if credit quality deteriorates further.
  
• While the company aims for a 25% to 30% growth in disbursements, any economic downturn or adverse regulatory changes in key markets could slow growth, affecting revenue and profit projections.

Valuation

• The analysts have a consensus price target of ₹390.133 for Aptus Value Housing Finance India 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 ₹460.0, and the most bearish reporting a price target of just ₹305.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹23.2 billion, earnings will come to ₹13.0 billion, and it would be trading on a PE ratio of 22.3x, assuming you use a discount rate of 14.4%.
• Given the current share price of ₹301.15, the analyst price target of ₹390.13 is 22.8% 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.