Introduction
Established in 2010, Aadhar Housing Finance Limited commenced operations in February 2011. It merged with DHFL Vysya on November 20, 2017, and was subsequently rebranded as Aadhar Housing Finance Limited on December 4, 2017. Operating under BCP TOPCO VII PTE. LTD., a Blackstone Group Company, Aadhar Housing Finance Ltd. has established itself as a leading entity in India’s housing finance sector, maintaining a nationwide presence with 471 branches and offices.
Focused on providing financial solutions to customers across income segments, Aadhar Housing Finance Ltd. serves a diverse clientele ranging from those earning INR 5,000 to over INR 50,000 monthly. The company’s commitment to empathy, trust, and transparency has fostered strong customer relationships, contributing to a substantial loan book. With branches in 20 states, the company reaches over 90% of India’s population, ensuring accessible homeownership solutions.
Specializing in the low-income housing segment, Aadhar Housing Finance Ltd. offers mortgage loans averaging Rs. 0.9 million to Rs. 1.0 million with loan-to-value ratios ranging from 57.7% to 58.3%. The company’s product portfolio includes loans for residential property purchase, construction, home improvement, extension, and commercial property acquisition and construction.
Aadhar Housing Finance Ltd. is committed to financial inclusion, maintaining high ethical standards and professionalism while empowering customers across urban and semi-urban India. With a network of 487 branches and 109 sales offices spanning 20 states and union territories, the company operates in approximately 10,926 pin codes, contributing to local employment and economic development.
The company employs robust systems for underwriting, collections, and asset quality monitoring, supported by a digital infrastructure aimed at enhancing efficiency and customer service. Securing financing through various channels such as term loans, NCDs, and refinancing, Aadhar Housing Finance Ltd. ensures adequate capitalization. The company is led by a seasoned management team and a board of directors with extensive experience in the housing finance and banking sectors.
Presence
AHFL boasts a nationwide branch and sales office network crucial for its success in the low-income housing finance segment. As of December 31, 2023, it operates 487 branches (including 109 sales offices) across 20 states and union territories of India. This extensive network, expanded from 310 branches in March 2021 to 487 branches by December 2023, ensures broad geographical coverage and local adaptation.
The company tailors its branch models to meet specific regional needs, categorizing them into main, small, and micro branches. Additionally, AHFL collaborates with local channel partners to extend its presence and service capabilities beyond its physical locations. This strategy includes engaging sales managers and direct sales teams to effectively serve diverse customer needs across urban, semi-urban, and rural areas.
Since 2018, AHFL has implemented innovative programs like the ‘Aadhar Mitra Program’ to enhance customer reach and lower acquisition costs for new loans. This initiative involves individuals acting as Aadhar Mitras who refer customers to designated service teams in exchange for a referral fee. Complemented by digital platforms and social media under the ‘Digital Aadhar Mitra’ program, AHFL leverages technology to strengthen its position as the preferred lender for low-income housing loans.
Overall, AHFL’s extensive physical presence, strategic partnerships, and innovative programs underscore its commitment to serving the housing needs of diverse communities across India.
Business
AHFL specializes in the low-income housing segment (loan ticket size less than Rs. 1.5 million) in India, consistently maintaining the highest Asset Under Management (AUM) and net worth among its peers from Fiscal 2021 through Fiscal 2023, and as of December 31, 2023. With a Gross AUM growth from Rs. 133,271.0 million in FY2021 to Rs. 172,228.3 million in FY2023, AHFL has shown a robust CAGR of 17.3% from FY2021 to December 31, 2023. Its branch and sales office network spans widely across urban and semi-urban areas, ensuring extensive reach and scalability. This positions AHFL uniquely to cater effectively to the housing finance needs of low-income and mid-income customers, including salaried individuals, those in the informal sector, and self-employed small business owners.
AHFL has demonstrated a robust business model that withstands various economic cycles, supported by (i) a customer-centric approach, (ii) an expansive branch and sales office network, and (iii) a proficient management team. As the leading HFC focused on the low-income housing segment in India, with the highest AUM and net worth among its peers from Fiscal 2021 through Fiscal 2023 and up to December 31, 2023, AHFL’s financial performance remains consistent and resilient despite external economic fluctuations.
Its resilience in the low-income housing segment is bolstered by tailored product offerings and policies that address specific challenges faced by customers, ensuring robust credit, underwriting, and collections practices. AHFL’s credit evaluation capabilities, including objective cognitive rule-based credit decisions and a four-pronged credit assessment model, further enhance its ability to manage risks effectively.
With a diversified customer base that includes both salaried and self-employed individuals across formal and informal sectors, AHFL maintains resilience through economic cycles. Approximately 58.6% and 57.2% of its customer base comprised salaried customers as of March 31, 2023, and December 31, 2023, respectively. This strategic customer mix positions AHFL strongly to navigate varying economic conditions, catering to both resilient salaried customers and self-employed individuals whose loans typically carry higher risk-adjusted spreads.
AHFL’s extensive branch and sales office network play a pivotal role in its operations, ensuring widespread accessibility and service delivery across urban and semi-urban areas, thereby reinforcing its resilience and market presence.
AHFL implements robust systems for underwriting, collections, and asset quality monitoring. It uses a comprehensive credit assessment framework tailored for retail customers, primarily salaried individuals buying residential properties. With an internal risk appetite statement guiding decisions, AHFL balances risk and return effectively. It employs specialized teams for different customer segments, ensuring swift underwriting at Regional Processing Units (RPUs) and thorough checks at branch levels.
AHFL’s credit managers across branches conduct detailed assessments, supported by streamlined processes from lead generation to loan disbursement and collections. Its in-house civil engineering team ensures accurate property valuations. The company secures diversified, cost-effective financing through term loans, NCDs, and strategic assignments, managing its funds meticulously with a focus on liquidity and asset liability alignment.
The company provides various types of loans:
1. Home loans for salaried employees
2. Home loans for self-employed individuals
3. Loans for purchasing and constructing plots
4. Loans for home improvements
5. Loans for extending homes
6. Loans against residential and commercial properties
7. Balance transfer and top-up loans
8. Loans for purchasing non-residential properties
9. Loans for constructing homes
10. Loans for purchasing plots
11. Loans for constructing non-residential properties
12. Aadhar Gram Unnati (specific loan product)
13. Aadhar Green Housing (specific loan product)
Financials
As mentioned, typically we do not feature companies with less than a two-year operating history. However, despite its recent listing, we are highlighting this company with a focus beyond its current financials.
Going ahead
AHFL aims to expand its customer base focused on economically weaker and low-to-middle income segments. By FY2023, it reached 233,000 accounts, growing to over 255,000 Live Accounts by December 31, 2023. The majority of its customers are salaried (58.6% as of March 31, 2023) and self-employed individuals (41.4%), catering primarily to LIG and EWS categories. AHFL plans to enhance mortgage market penetration in India, emphasizing financial inclusion through a customer-centric digital approach. It also considers strategic acquisitions of low-income housing loan portfolios for further growth.
Sectorial Outlook
The Indian mortgage market divides broadly into two segments based on loan size: loans above Rs. 1.5 million for urban areas, and loans below Rs. 1.5 million for semi-urban and rural areas, focusing on low-income housing. This segment includes houses in outskirts and areas served by government schemes like PMAY and NHB’s affordable housing fund. The EWS and LIG segments face a significant housing shortage, totaling 95% of India’s estimated shortfall, as highlighted in RBI’s 2019 report on housing finance securitization.
The Indian housing finance market grew at a 14% CAGR from Fiscal 2018 to 2023, driven by rising disposable incomes, demand from smaller cities, attractive interest rates, and government incentives. Loans over Rs. 1.5 million saw increased dominance, comprising 85% of the market by March 2023. Despite this, loans under Rs. 1.5 million still make up the majority of volumes, accounting for 52% of housing loans. Housing finance companies cater to customers with less formal income proof, while banks benefit from lower funding costs, allowing them to offer competitive rates to creditworthy customers.
As of December 2023, India’s low-income housing finance market stood at Rs. 4.4 trillion, constituting 14% of the total housing finance market. Public sector banks held 38% market share with Rs. 1.7 trillion, followed by HFCs at 29% with Rs. 1.3 trillion, and private banks at 22% with Rs. 1.0 trillion as of March 2023. Other players held 8% collectively. The segment grew at a CAGR of 3% from Fiscals 2018 to 2023, and is projected to grow at 8-10% CAGR between Fiscals 2023 and 2026.
Conclusion
Aadhar Housing Finance Limited, a company with a 14-year history, absorbed DHFL Vysya and rebranded itself as Aadhar Housing Finance, expanding to approximately 500 branches across India. Specializing exclusively in housing finance, it targets both salaried individuals and those seeking small-ticket housing loans. While newly listed companies often present cleaned-up balance sheets to attract investors during IPOs, AHFL operates in the robust housing finance sector, prioritized by the government. Despite ongoing legal proceedings that could affect its business, AHFL presents an opportunity worth considering due to its strategic focus and market position.