Aavas Financiers shares rally 12%, hit fresh lifetime high

Shares of Aavas Financiers, on Tuesday, surged 12 per cent intra-day and hit a record high of Rs 2,320 on the BSE on expectation of earnings improvement. The stock of the housing finance company surpassed its previous high of Rs 2,113, touched on January 5, 2021.

Thus far in the month of February, Aavas Financiers has outperformed the market by gaining 28 per cent, after the government, in the Budget 2021-22, extended the affordable housing tax holiday up to March 2022. In comparison, the S&P BSE Sensex was up 6 per cent during the same period.

Additional deduction of Rs 1.5 lakh on interest on housing loan for affordable housing has been extended on home loans till March 31, 2022. The scheme was first introduced in the 2019 budget and has seen extension since then.

The extension on deduction on payment of interest by one more year will help in offering the much-needed convenience for the home buyer. Affordable housing tax holiday extension up to March 2022 will boost the recent momentum in housing demand.

Aavas Financiers is retail, affordable housing finance company, primarily serving low and middle income self-employed customers in semi-urban and rural areas in India. The Company's product offering consists of home loans for the purchase or construction of residential properties, and for the extension and repair of existing housing units.

In the October-December quarter (Q3FY21), Aavas Financiers reported strong earnings, with 26 per cent year on year (YoY) growth in profit after tax to Rs 85.6 crore. The past quarter was characterized by stable disbursements on a YoY basis, margin improvement, and a moderately higher GS3 ratio.

The company disbursed Rs 764.5 crore during the quarter registering 2 cent YoY growth and 15 per cent quarter on quarter growth. At the same time, the collection efficiency for the month of December was 98.8 per cent, reaching pre-Covid levels. With the Covid-19 vaccination drives beginning in India & other countries across the globe, the management hope that the worst is behind and can look forward to 2021 with renewed albeit cautious optimism.

Analysts at Motilal Oswal Securities believe Aaavas has built a sustainable business model to scale up profitably across geographies over the long term. Its technology adoption and relentless focus on asset quality have made it a standout v/s peers. This is evident in the healthy asset quality performance in Q3FY21 (the first complete quarter post the lifting of the moratorium on term loan EMI payments). Disbursements have resumed to YoY levels – we forecast a 20 per cent AUM CAGR over FY20–23E. Decline in NIM (due to yield pressure) would be offset by improvement in the expense ratio, the brokerage firm said in results update.

At 10:26 am, the stock was trading 10 per cent higher at Rs 2,275 on the BSE, as compared to 0.33 per cent rise in the S&P BSE Sensex. A combined around 210,000 equity shares have changed hands on the counter on the NSE and BSE, so far.