Riding an upswing

In October last year, the market found itself in the clutches of a credit crunch triggered by IL&FS default. The non-banking financial companies (NBFCs) were the worst hit as the rising cost of credit put the brakes on the upward earnings trajectory. And adding to the investors’ pessimism, the crude prices hit a peak to $84 per barrel.

In midst of all this turmoil, affordable housing finance company Aavas Financiers made a weak debut. The stock hit the bourse at Rs.758 against its issue price of Rs.818–821. The bearishness around the NBFC stocks rubbed off on the company, which caters to low and middle income families in semi-urban and rural areas. The stock plunged to an all-time low of Rs. 611.50 on October 31, 2018.

But since then, the NBFC scripted an impressive turnaround on the back of a  strong result in Q4FY19. The company’s net profit surged by 171.89% to Rs.540 million (yoy) led by a 43.8% (yoy) rise of net interest income (NII) to Rs.1.24 billion. The asset quality also remained intact with its NPA at 0.37% against 0.49% in the corresponding quarter in FY18. With the superior performance coming at a time when NBFCs are reeling under the onslaught of the credit crunch, the stock price jumped from the low of Rs.611.50 to all-time high of Rs.1,475 on May 8 this year. 

Cashing in on the 141% spike in stock price, the company’s top management sold stocks worth Rs.665 million on May 6. CEO and whole-time director Sushil Kumar Agarwal’s accounted for nearly 50% of the sale disposing shares worth Rs.330 million. His stake in the firm dropped from 4.13% to 3.83%. Over the last financial year, post the listing in October, employees and top management had sold shares worth Rs.300 million.

After the robust performance, the management remains upbeat about its future prospects. “Given the challenging circumstances faced by the NBFC industry during FY18-19, we have been performing consistently with timely investments and a commitment to deliver sustainable long-term performance. The company would continue to strive for strong asset quality, sustainable profitability and consistent growth while enhancing consumer satisfaction and creating shareholders’ wealth,” said Agarwal in a press release post the results.

With Aavas Financiers outperforming its peers, foreign portfolio investors (FIIs) are flocking towards the stock, increasing their stake from 9.43% in October 2018 to 13.13% in March 2019. Buena Vista Asian Opportunities Master Fund — the FPI with the highest amount of stake in Aavas Fianicers – increased its share from 1.21% to 1.94%. In the same period, mutual funds have marginally pared their stake from 11.09% to 10.30%. SBI mutual fund increased its stake from 0.41% in October last year to 7.50% in December 2018, following which it reduced the stake to 6.86% in March 2019. Similarly, DSP Mutual Fund too increased its stake from 0.41% in October 2018 to 2.09% in December quarter last year and maintained it at 2.08% in March 2019.