Aadhar Housing Finance Limited — Q2 FY25 earnings call

Call held 6 Nov 2024

Management summary

Aadhar Housing Finance delivered a steady Q2 FY25, characterized by robust AUM growth and improving asset quality. The company is successfully executing its 'deeper impact' strategy, expanding into Tier 4 cities while maintaining a 100% retail, secured portfolio. Despite rising borrowing costs and competitive pressures on yields, management remains confident in achieving its full-year targets for growth and operational efficiency.

Highlights

  • AUM reached ₹22,817 crores, representing a significant 21% YoY growth.

  • Disbursements for the quarter stood at ₹2,036 crores, up 18% YoY.

  • Asset quality improved with GNPA dropping 6 bps YoY to 1.29%; NNPA at 0.9%.

  • PAT for Q2 FY25 grew 15% YoY to ₹228 crores; H1 PAT grew 24% YoY to ₹428 crores.

  • Spread remained healthy at 5.9%, with management targeting 5.8%-5.85% for the full year.

  • Cost-to-income ratio improved to 36.2% from 37.5% in FY24, on track for a 80-100 bps annual reduction.

  • Branch network expanded to 545 branches across 21 states, with 22 new branches added in H1 FY25.

  • Average ticket size maintained at ₹10 lakhs with a conservative average LTV of 59%.

Key financials

  1. AUM ₹22,817 Cr +21%YoY
  2. PAT ₹228 Cr +15%YoY
  3. GNPA 1.3% -4.4%YoY
  4. Spread 5.9%
  5. Cost-to-Income Ratio 36.2%
  6. Capital Adequacy Ratio 46.6%

What they filed

Q1 FY27: revenue up 17.1%, net profit up 19.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue764 798 833 848 897 +17%943 +18%985 +18%993 +17%
Net profit228 239 245 237 266 +17%281 +18%311 +27%282 +19%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Retail Home Loans
    74% Portfolio Share
  • Other Retail Loans (Non-Home)
    26% Portfolio Share

Guidance & targets

Volume

  • Disbursement Growth Volume · FY25 · High confidence 18% to 20%
    So, we still are guiding for 18% to 20% disbursement?

    — Rajesh Viswanathan, CFO

Revenue

  • AUM Growth Revenue · FY25 · High confidence 22% to 24%
    which will culminate to about 22% to 24% AUM growth.

    — Rishi Anand, MD & CEO

Profitability

  • Profit Growth Profitability · FY25 · Medium confidence 23% to 27%

    Previously 30% to 35% → 23% to 27%

    it will generally be in the threshold of about 23% to 27%. So that is the way it was. I'm not sure we ever mentioned 35%.

    — Rajesh Viswanathan, CFO

Margin

  • Exit Spreads Margin · FY25 · High confidence 5.8% to 5.85%
    probably we will be ending in the range of somewhere between 5.8% to 5.85% spreads as we exit the year.

    — Rajesh Viswanathan, CFO

  • Cost-to-Income Reduction Margin · FY25 · High confidence 80 bps to 100 bps
    we aspire to drop our cost-to-income ratio from the FY24 level by at least 80 bps to 100 bps in the current financial year.

    — Rajesh Viswanathan, CFO

Other

  • Branch Expansion Other · FY25 · High confidence 70 to 75
    we are looking at anywhere between 70 to 75 new branch network... we want to stick to our plan of 70 to 75 new branches.

    — Rishi Anand, MD & CEO

Risks & concerns

  • Rising Cost of Borrowing

    medium

    Cost of funds rose to 8.1% and is expected to reach 8.2-8.25% by year-end due to bank MCLR hikes.

    Both acknowledged

  • Competitive Pressure on Yields

    medium

    Aggressive competition in metros and Tier 1/2 locations is impacting the ability to fully pass on rate hikes.

    Management acknowledged

  • Balance Transfer Out (BT Out)

    low

    While BT out is at 5.8%, management notes this is a substantial improvement from 6.5% YoY.

    Analyst downplayed

Q&A highlights

3 direct
Yield Stagnation vs Rate Hike Direct
The incremental rate of lending... would not move directly proportional to that. We are lending in quarter one and quarter two at rates which are almost 10 bps to 15 bps higher than what we achieved in quarter four of last year.

Explains why a 25 bps rate hike in June didn't immediately translate to higher reported yields due to competitive pressures and product mix.

Asked by Rinesh, ICICI

Profit Growth Guidance Clarification Direct
I think there may be some miscommunication here... profit, typically... will generally be in the threshold of about 23% to 27%.

Management explicitly corrected an analyst's higher expectation (30-35%), setting a more realistic growth floor for investors.

Asked by Jagdish Sharma, Individual Investor

Cost of Funds Outlook Direct
Probably as we exit the year we would be in the range of anywhere between 8.2% to 8.25%. So basically, that is sort of cost of funds that we should be really looking at.

Provides a clear ceiling for borrowing costs, which is critical for modeling future NIMs.

Asked by Satish Kumar, Mirae Asset Capital

1 min read 5 chapters

Detailed narrative

AUM and Disbursement Momentum

Aadhar Housing Finance crossed a significant milestone, reaching an AUM of ₹22,817 crores, a 21% YoY increase. Disbursements for the quarter grew 18% YoY to ₹2,036 crores. Management is guiding for full-year AUM growth of 22% to 24% and disbursement growth of 18% to 20%, indicating a strong second half of the year.

Asset Quality and Provisioning

The company maintained superior asset quality with a GNPA of 1.29%, down from 1.35% a year ago. Collection efficiency remains robust at 99%. Management indicated that Stage 3 provisioning will be maintained in the range of 35% to 37%, ensuring a healthy buffer against potential credit losses.

Yield and Spread Dynamics

Despite a 25 bps rate hike in June, reported yields remained relatively flat due to competitive pressures and the lag in floating rate resets. Spreads for the quarter were 5.9%, and management expects to exit the year between 5.8% and 5.85%. The cost of funds is expected to peak around 8.2% to 8.25% by the end of FY25.

Operational Efficiency and Expansion

The company is on track to reduce its cost-to-income ratio by 80-100 bps this fiscal year, reaching 36.2% in Q2. Distribution expansion continues with 22 new branches added in H1, targeting a total of 70-75 for the full year. This expansion is central to their 'deeper impact' strategy in Tier 4 cities.

Borrowing Mix and Liquidity

Aadhar has a diversified borrowing profile with 40 relationships, comprising 50% from banks, 25% from NHB, and 25% from NCDs. Liquidity remains strong at ₹2,273 crores (12% of loan book), though management intends to optimize this to a buffer of 8% to 10% going forward.

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