Amid liquidity concerns of NBFCs, the initial public offering (IPO) of housing finance firm Aavas Financiers Ltd opened on a tepid note on Monday. Till 5 pm on day 1, the issue received bids for 6,58,368 shares or 4.45% of the 14,785,027 equity shares offered. The IPO comes at a time when the market is volatile over the past few trading sessions and stocks of almost all non-banking finance companies are undergoing a correction.

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Aavas Financiers, formerly known as AU Housing Finance, is a Jaipur-based affordable housing finance company, serving low and middle-income self-employed customers in semi-urban and rural areas in India.

Generally, most of the IPOs see lukewarm subscription on the opening day as investors tend to pick up shares later on.

Aavas has fixed its price band at Rs 818-821, aiming to raise up to Rs 1,734 crore at the upper end of the price band. On Monday, the housing finance company has got orders of Rs 520.22 crore from 34 anchor investors at the upper end of the price, or Rs 821 per equity share.

A K Prabhakar, head of research, IDBI Capital Markets, said the cost of funds in the NBFC space is high. The stocks were overvalued and have seen a correction of 30-35% on an average in the past two weeks. Given the current market condition, as per Prabhakar, some of the better-known stocks with a proven track record are also available at a cheaper price.

“Investors can buy better-known names at a good valuation now,” he said, adding that Aavas is available at an expensive valuation.

Stockbroking firm Prabhudas Lilladher in a research note has advised investors to “avoid” the issue. The high capital adequacy (61%) will not only depress return on equity (RoE) in near-term (current RoE at 11%) but elevated valuations would require high growth to improve ratios and justify valuations.

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On the other hand, Motilal Oswal Securities in its research note said at the higher end of the price band, Aavas is valued at 4.1x 1QFY19 post IPO book value.

Source: DNA Money