Started in 2011, Aavas Financiers Limited is a Jaipur - Rajasthan based retail, affordable housing finance company, primarily serving low and middle income self employed customers in semi-urban and rural areas in India. A majority of the customers have limited access to formal banking credit. According to ICRA Report, the Company had the lowest Gross NPAs as of March 31, 2018 and the second highest growth rate of assets under management for the last three financial years, among affordable housing finance companies that had assets under management between Rs 25 billion and Rs 200 billion. Company offers customers home loans for the purchase or construction of residential properties, and for the extension and repair of existing housing units. In addition to home loans, company offers customers other mortgage loans including loans against property, which accounted for 24.18% of the Gross Loan Assets as of June 30, 2018. As of June 30, 2018, 61.22% of the Gross Loan Assets were from customers who belonged to the economically weaker section and low income group, earning less than Rs 50,000 per month and 36.27% of the Gross Loan Assets were from customers who were new to credit. The average sanctioned amount of home loans and other mortgage loans was Rs 0.87 million and Rs 0.80 million, respectively, on the Gross Loan Assets, as of June 30, 2018. Since the commencement of the operations in March 2012, company have served more than 62,500 customers. AFL has adopted a strategy of contiguous on-ground expansion across regions and as of June 30, 2018, company conducted the operations through 166 branches covering 95 districts in eight states of which, they have a significant presence in the four states of Rajasthan, Gujarat, Maharashtra and Madhya Pradesh. As of June 30, 2018, company employed 1,996 personnel and had 57,049 loan accounts including securitised and assigned cases. Company secures financing from a variety of sources including term loans and working capital facilities; proceeds from loans assigned and securitised; proceeds from the issuance of non-convertible debentures ('NCDs'); refinancing from the National Housing Bank ('NHB'); and subordinated debt borrowings from banks, mutual funds, insurance companies and other domestic, foreign and multi-lateral financial institutions to meet the capital requirements. As of June 30, 2018 company's Total Borrowings were Rs 27,217.61 million, and the average cost of borrowings has reduced from 12.28% as of March 31,2014 to 8.57% as of June 30, 2018. Meanwhile, company's long-term credit ratings have improved from CRISIL BBB+/Stable in August 2012 to CRISIL A+/Stable currently. AFL was initially promoted AU Small Finance Bank Limited ('AuSFB'), which sold 90.10% of the outstanding equity interest of the Company in connection with its conversion to a small finance bank, to Lake District Holdings Limited (a subsidiary of KedaaraCapital I Limited), Kedaara Capital Alternative Investment Fund - Kedaara Capital AIF 1('Kedaara AIF-1'), Partners Group ESCL Limited ('ESCL') and Partners Group Private Equity Master Fund LLC ('Master Fund') in June, 2016. The name of the Company was changed from 'AU Housing FinanceLimited' to 'Aavas Financiers Limited' in March 2017. Company's Key Managerial Personnel held 7.19% of the outstanding equity interest of the Company, as of the date of this Red Herring Prospectus. As per financial performance, Aavas has posted total income/net profits of Rs. 54.32 cr. / Rs. 44.94 cr. (FY14), Rs. 103.76 cr. / Rs. 19.08 cr. (FY15), Rs. 190.90 cr. / Rs. 32.78 cr. (FY16), Rs. 305.49 cr. / Rs. 57.14 cr. (FY17) and Rs. 457.24 cr. / Rs. 92.93 cr. (FY18) . For upto Q1 of FY19, it has reported net profit of Rs. 28.99 cr. on total revenue of Rs. 143.87 cr. So company has posted healthy growth over last couple of years. Aavas has posted an average EPS of Rs. 12.68 and average RoNW of 10.27% for last three fiscals. Issue is priced at a P/BV of 5.23 as per NAV of 157.03 on 31.03.18. If we attribute latest earnings of FY18 on fully diluted equity post issue, then asking price is at a P/E of 64 plus and if we annualise earnings of FY19, than asking price at a P/E of 51 plus. As per RHP, industry average P/E ratio is 21.4 and listed peers comparison shown in above table. So issue looks aggressively priced. On BRLM's front, five merchant bankers associated with this issue and have handled 66 public issues in the past three years. When we take recent 10 IPOs of each BRLM then out of those 4 issues opened below their offer price and 6 opened above issue price on listing dates. As per financials, company's growth is consistent and very good, RoNW is 10.27% for last three fiscals and issue is priced at P/E of around 64 plus as per latest earnings, which looks expensive compared to peers. Company is an HFC registered with the NHB with focus on low and middle income self employed customers and very low NPAs. So we give NEUTRAL rating to this IPO.
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