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Aptus delivered a healthy beat on PPOP and PAT level aided by higher NII (material decline in CoF), larger other income and controlled opex. Earnings beat came through despite a higher credit cost from the Rs60-70mn loan write off. Disbursements (Rs5.2bn, up 14% qoq/26% yoy) and AUM growth (up 8% qoq/27% yoy) were in-line with expectations and traction was stronger in home loans (share of secured business loans came-off further). Pre-closure rate was stable with BT Out staying around 3-4%

GNPA declined by 34 bps qoq to 1.2% (GS-3 as per Ind-AS was 1%); however, 12 bps of the reduction was contributed by write-off of loans worth Rs60-70mn that were overdue for more than 24 months. Co. introduced this prudential policy of writing-off or providing 100% on loan accounts that become 2-year overdue in Q4 FY22. The 30+ dpd portfolio corrected by significant 3 ppt qoq to 10% (nearly back to March-21 level) with robust collections in 30-90 overdue bucket (fell from 11.5% to 8.7%). Collection efficiency in March-22 was substantially higher at 103% v/s 98% in Dec-21 and 101% in March-21. ECL cover on GNPA and Stage-2 assets was stable qoq; however, the 2% ECL on Stage-2 loans is much lower than Home First and Aavas. Opex/Assets continued to decline owing to calibrated branch addition in recent quarters and improving throughput from younger branches (<3-yr old).

Aptus expects strong loan growth from the branches added in past three years, while it would continue to invest on distribution/resource expansion (added first branch in Orissa during Q4 FY22). With collections and business environment having normalized, the co. aspires to grow at 2x of the market growth rate (strong growth in secured business loans has resumed from March). Aptus does not expect much increase in CoF over coming quarters with expected benefits of 25-50 bps from the recent credit rating upgrade. About 40% of current borrowings are on floating rate (linked to 6m or 1-year MCLR) and 23% of loans are on floating rate. Opex/Asset ratio us expected to remain stable with the impact of investments on branch, resources and IT/Digital being offset by better business productivity.

We estimate AUM/earnings CAGR of 26%/21% over FY22-24 with a moderate reduction in RoA metric (assuming some spread contraction). Structurally high growth prospects and return metric (20%+ RoE on gearing of 2.5-3x) support valuation of 4x FY24 P/ABV. Upgrade the stock to BUY (12m PT of Rs400) as recent price correction has opened meaningful upside. However, we would closely monitor movement/behavior of Stage-2 portfolio in near term and impact of regional diversification on cost structure and asset quality in the longer run.

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