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Why Aavas Financiers Share Price is Falling

Oct 31, 2023

Why Aavas Financiers Share Price is Falling

Editor's note: Shares of Aavas Financiers have remained under pressure ever since the unexpected exit of its founder.

After over a decade's association, Sushil Agarwal, founder as well as managing director (MD) and chief executive officer (CEO) decided to pare stake in the company in April 2023.

The management team is currently headed by Sachinder Bhinder and Ghanshyam Rawat.

Sushil Agarwal moved out of the organisation on 3 May 2023.

The stock is currently trading at its 52-week low levels and is available at reasonable valuations.

When the MD pared his stake in the company, we covered a detailed article explaining the impact, what lies ahead for the housing financier, and more.

Continue reading...

Why Aavas Financiers Share Price is Falling

According to exchange data, foreign portfolio investors (FPIs) heavily bought shares of financial services stocks in the first two weeks of the financial year 2023-24.

They purchased finance stocks worth Rs 44.1 billion (bn) during this period.

With the sector seeing strong demand tailwinds in 2023, many stocks have emerged as big winners, while others have failed to generate satisfactory returns.

One of them is Aavas Financiers.

Shares of the company are down 21% so far in 2023, with a fall of 9% in the past five days.

However, this is not the first time that the stock has failed to generate negative returns.

Investors in Aavas Financiers have tasted the bitter downside last year too, when the share price dropped 34%. This is particularly disappointing when considering the market decline of 1.7%.

With this continuous downtrend intensifying in 2023, let's find out why Aavas Financiers is under pressure.

#1 MD's stake reduction impact

According to the latest shareholding pattern of Aavas Financiers, managing director and CEO Sushil Agarwal has reduced his holding by 1.75% in the March 2023 quarter.

Mr. Agarwal has reduced his shareholding in the company to 1.55% against 3.3% in the December 2022 quarter.

He sold 1.4 million (m) shares during the quarter, dragging the number of shares down to 1.2 m against 2.6 m in December 2022 quarter.

Following the update, the share price of Aavas declined 6.3% intraday, further hitting a 52-week low on 24 April 2023.

This is because Agarwal is a key member of the company's leadership team and the sale of his stake may have caused concern among investors.

Apart from this, promoters of the company have consistently reduced their stake in the company since September 2021.

Look at the table below.

Quarter ending 21-Jun 21-Sep 21-Dec 22-Mar 22-Jun 22-Sep 22-Dec 23-Mar
Stake (%) 50.07 39.22 39.21 39.2 39.19 39.16 39.15 39.2

Update: The updated table looks something like this now. Promoters have constantly decreased their stake in the company which investors are considering as a big red flag.

Long-term outlook

Going forward, the company plans to enhance the technological upgradation systems for LOS, LMS, and ERP.

It's strengthening its distribution network by adding branches and improving technological systems. The company plans to deepen its presence in existing states and enter new states.

In addition, the company has collaborated with the International Finance Corporation to achieve EDGE certification for affordable, green self-built homes.

This is the first-ever pilot project by IFC and EDGE in collaboration with Aavas for self-built green homes not just in India but at a global level, marking a significant turning point in the history of construction and affordable housing finance space.

The company is focusing on sustainable expansion and is maintaining and improving its growth, operating, and asset quality metrics as its business scales new heights.

Update: Given the increasing urbanisation trend and affordable mortgage rates, Aavas Financiers is a prime beneficiary in the segment it operates.

It has a healthy capital adequacy ratio. The company also has low risk as it's focused on smaller ticket home loans. This keeps its asset quality in check.

The company also enjoys lower borrowing cost compared to peers. It has maintained strong relationship with all the leading banks including PNB, SBI, HDFC Bank.

It also gets funding support from various international agencies, such as Asian Development Bank (ADB), International Finance Corporation (IFC), and British International Investment.

How Aavas Financiers shares have performed recently

Aavas Financiers shares have declined by more than 21% in 2023. Over the month, the company's shares have been trading lower by 20%.

Aavas Financiers touched its 52-week high of Rs 2,077 on 16 November 2022 while it touched a 52-week low of Rs 1,335 on 12 June 2023.

About Aavas Financiers

Aavas Financiers is a housing finance company in India. It was originally incorporated as Au Housing Finance Limited on 23 February 2011.

The company provides housing loans to customers belonging to the low and middle-income and self-employed segments in suburban and rural India. Its only operating segment is Lending to borrowers.

The company's product portfolio includes home loans, land purchase and construction, home improvement loan, and others.

It offers customers loans for the purchase or construction of residential properties and the extension and repair of existing housing units.

For more details, see the Aavas Financiers company fact sheet and quarterly results.

For a sector overview, read our finance sector report.

You can also compare Aavas Financiers with its peers -

Aavas Financiers vs Aditya Birla Capital

Aavas Financiers vs Aptus Value Housing Finance

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

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Which are the top finance companies in India?

Based on marketcap, these are the top finance companies in India:

You can see the full list of the finance stocks here.

And for a fundamental analysis of the above companies, check out Equitymaster’s Indian stock screener which has a separate screen for best fintech companies in India.

What are the top gainers and top losers within the finance sector today?

Within the Inv. & Finance sector, the top gainers were SHANTHALA FMCG PRODUCTS LTD. (up 19.1%) and ECONO TRADE (up 9.3%). On the other hand, BFL DEVELOPERS (down 17.2%) and DHFL (down 10.0%) were among the top losers.

You can check out our finance sector report.

How should you value finance companies?

Investing in stocks requires careful analysis of financial data to find out a company's true worth. However, an easier way to find out about a company's performance is to look at its financial ratios.

Two commonly used financial ratios used in the valuation of stocks are -

Price to Earnings Ratio (P/E) - It compares the company's stock price with its earnings per share. The higher the P/E ratio, the more expensive the stock.

Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.

To know more about the finance sector's past and ongoing performance, have a look at the performance of the NIFTY finance Index.

What is the AAVAS FINANCIERS share price today?

The last traded price of AAVAS FINANCIERS was Rs 1,472.7 on the BSE, up 1.6% over the previous close. On the NSE, AAVAS FINANCIERS last traded price was up 1.0% at Rs 1,474.5.

What is the Earnings per share (EPS) of AAVAS FINANCIERS?

AAVAS FINANCIERS had an EPS of Rs 60.0 in the latest financial year. In the most recent quarter, the company declared an EPS of Rs 14.7.

What is the PE Ratio and PB Ratio of AAVAS FINANCIERS?

At the current price of Rs 1,472.7, AAVAS FINANCIERS trades at a PE ratio of 24.53 while its PB ratio stands at 3.21.

Which are the top finance companies in India by marketcap?

Based on marketcap, these are the top finance companies in India:

You can see the full list of finance stocks ranked by marketcap here.

Also, here's one of our more popular screens related to marketcap: India's Biggest Companies by Marketcap.

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