Is Aavas Financiers a buy post listing at discount? Here's what experts say

Housing finance company Aavas Financiers made a listless debut on Monday as the shares got listed at Rs 750, 9 per cent below its issue price of Rs 821 on NSE. In the intra-day, the stock fell 13.5 per cent. It eventually closed at Rs 771, down 6 per cent.

Majority of the analysts had ‘subscribe’ rating to the company’s IPO, which ran between September 25 and September 27, saying the valuation at which the offer was being offered was very attractive. That apart, the company’s strong fundamentals were another key factor that made brokerage houses recommending ‘subscribe.’

The company’s public offer saw a tepid response as the IPO received an overall subscription of 97 per cent, with only (qualified institutional buyers (QIBs) portion getting 2.77 times subscription.

Generally, if a stock correct 10-15 per cent on its listing day, it surely makes a case for buy. However, on the listing day of any IPO, apart from the company's individual valuation, there are other factors as well, that play a crucial role in making buy or sell decision, feels Pranav Haldea, Managing Director at PRIME Database Group.

Analysts on Dalal Street unanimously believe that recent correction has made many well-known listed names in the NBFC segment very attractive and hence, they should enter these stocks, instead of buying a completely new stock.

G Chokkalingam, the founder at Equinomics Research, maintained that valuation of the company looks very expensive and hence, it doesn't make any sense to buy the stock now. “It's still trading above four times its book value which looks very stretchy. Even Bajaj Finance has come down to five times after the crash. So, compared to stock like Bajaj Finance, the stock looks very costly. Since, last three-four weeks, valuations have dramatically changed for NBFCs. So, there has been a huge contraction in the valuation multiples in the new environment. So, it's definitely not a buy at this time,” Chokkalingam added.

Gaurang Shah, Head of Research at Geojit Financial Services, said that recent meltdown in the NBFC sector has made many listed entities very attractive and they have the potential to create wealth for investors. Gruh Finance, HDFC, Indiabulls Housing Finance, PNB Housing are Shah’s top picks.

“Aavas is relatively new, it has to prove itself. And it is more focused on affordable housing and Pradhan Mantri Aawas Yojana, etc. So, our sense is that after the correction among the listed entities, there is more potential in the listed category to create wealth for now,” Shah added.

AK Prabhakar, Head of Research at IDBI Capital, agrees. “There are many companies which have better business models and are quoting at deep discounts. At exchanges, I can get a better company where I have a 10-year ratio also. So, why I should buy a new company where I don't know the promoter. Indiabulls Housing Finance, DHFL, Mahindra & Mahindra, Cholamandalam are well-known companies and after correction, they have become very attractive,” Prabhakar added. He said that instead of buying into companies which have become very attractive post correction and have a track record of 5-10 years, why should one go for a new company.

Independent market analyst Ambareesh Baliga explained that when the peer group was doing good or holding on in the market, the valuation of Aavas looked attractive. But, when the peer group has corrected so heavily, the way it has crashed, the valuation of the company looks expensive now. “Despite its listing at 9-10 per cent lower, I think there is still more to go on the downside of it. I think it was very clear from IPO subscription, other than anchor and large investors, the Street had not invested. So, it was basically a concentrated buying that happened in the IPO,” Baliga added.