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We attended AAVAS’s analyst meet where the management was represented by the entire senior leadership including the MD & CEO Mr. Sachinder Bhinder and the President & CFO Mr. Ghanshyam Rawat.

We highlight the key takeaways from the meet below:

* Mr. Sachinder Bhinder, the recently appointed MD & CEO of AAVAS, presented the company's strategic vision of capitalizing on the opportunities within the affordable housing sector by leveraging its expansive geographical presence, robust technology infrastructure, and disciplined liability management strategy. AAVAS by: a) maintaining a customer-centric approach, b) continuously improving its underwriting processes, and c) effectively leveraging data analytics, aims to grow its loan book sustainably and deliver superior value to its stakeholders.

* Management highlighted that with the ongoing IT transformation, there will be a significant improvement in the average turnaround time (TAT) for loan sanctioning and disbursals. With the loan files moving to digital, there will be productivity improvements that will translate into operating efficiencies and sustainable decline in operating cost ratios.

* The company stated that it has always been ahead of its peers in managing risk and with the implementation of various ERP solutions (incl. Oracle Fusion) as well as newer and more extensive analytics it will be able to monitor risk much more closely than before. This will help deliver the same pristine asset quality.

* AAVAS has an AUM of ~INR142b as of Mar’23 and has delivered an AUM CAGR of 28% over FY18-FY23 while maintaining GNPAs of <1% all through the 13 years of its operations.

* Despite having a ~60% self-employed customer mix, the superior execution on asset quality and the benign credit costs (across cycles, over the last 13 years) have corroborated that this asset quality is indeed an outcome of its robust underwriting and collections infrastructure.

* We now model a ~28% AUM CAGR over FY23-FY25E. This translates into a 26% consol. PAT CAGR over the same period and an RoA/RoE of 3.6%/16% in FY25.

* Valuations have significantly de-rated over the last one month and the stock now trades at 2.9x FY25E P/BV. Before turning constructive, we would closely monitor the execution on AUM growth and asset quality under the new leadership of Mr. Bhinder. Moreover, we would also keenly observe how the IT transformation accelerates disbursements and improves productivity for AAVAS. Retain Neutral with a TP of INR1,530 (based on 2.7x Mar’25E BVPS).

Opening remarks from Mr. Sachinder Bhinder (MD & CEO)

* AAVAS places a strong emphasis on governance, which is further reinforced by the composition of its Board of Directors. The Board consists of seasoned and skilled professionals, underscoring the company's commitment to sound governance practices. * The company attributes its strong asset quality to its robust quality metrics, which have been rigorously tested and proven effective across various credit cycles and economic downturns.

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