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Growth on track; margin pressure persists

Q1 disbursements saw a strong growth of 41% YoY while AUM growth remained healthy at 15% YoY. Commentary indicated an aspiration for ~22% disbursement growth and 18% AUM growth for FY27 by regaining market share in HL segment; we remain conservative considering high competitive intensity and build ~17%. Spreads are likely to remain under pressure in FY27 (<5%) due to competitive intensity and PLR cuts; however a diversified borrowing profile to support CoF. Despite seasonal uptick in credit cost, asset quality remains resilient with no visible stress across segments. Operating leverage through improved productivity, branch profitability and favourable product mix is expected to aid cost efficiency and support RoA. We increase our FY27/ FY28E estimates factoring a pick-up in growth and improved productivity. We value the stock at 2.1x (earlier 1.9x) with a TP of INR1,675. Maintain ACCUMULATE.

Expect AUM growth of 17% in FY27E:

Q1 disbursements saw a robust growth of 41% YoY to INR16.1bn. AUM grew 15% YoY to INR239.3bn led by strong customer acquisition and sustained demand. Housing Loans/ MSME/ LAP contributed 64%/ 23%/ 13% of the portfolio. The AUM mix for 5mn ticket sizes stood at 83%/11%/5%/1% while the AUM mix in terms of salaried/non-salaried borrowers stood stable at 38:62. The repayment rate stood elevated at 19.4% (vs. 16%-17% usually); commentary indicated the spike to be temporary which has tapered down in Jun-26. Company remains focused on scaling the HL segment and regaining market share through direct sourcing, while maintaining a balanced portfolio with HL:NHL share of 65:35. It reiterated its FY27 guidance of ~22% disbursement growth and 18% AUM growth. We model an AUM growth of 17%/18% for FY27/28E, considering high competitive intensity in the sector.

Spread pressure persists; cost efficiency to aid profitability:

1Q reported yield saw a 12bps moderation QoQ to 12.70% following a PLR cut of 10bps w.e.f. Jun’26, while CoF remained largely stable sequentially at 7.64%. Consequently, reported spread declined by 14bps QoQ to 5.06%. Commentary indicated continued pressure on spreads in FY27 (<5%) amid heightened competition and reiterated focus on expanding the HL portfolio. It expects a diversified borrowing mix and strong lender relationships to support CoF. The company also has unavailed sanctions amounting INR4.8bn providing sufficient liquidity for near-term business expansion. Reported Opex/AUM ratio improved to 3.1% in Q1FY27 and company expects higher operating leverage through improved branch and resource profitability. We build an opex ratio of 3.4%/ 3.3% for FY27/FY28E.

Credit cost in-line with guidance:

Asset quality saw a slight increase in Q1FY27 with GNPA/NNPA at 1.11%/0.71% vs. 1.05%/0.68% in Q4FY26. 1+dpd stood at 3.76% during the quarter while GNPA for HL and NHL portfolio was largely similar at 1.10% and 1.15% respectively. Credit cost increased to 24bps (vs 13bps QoQ) due to seasonality, however it remains within the guided range of ~25bps. Management indicated no sign of stress across geographies or customer segments as reflected in stable bounce rates and collection efficiency. Further, the company has recalibrated its policies for vulnerable sectors like tours & travels and restaurants to mitigate potential risks arising from the impact of West-Asia conflict and delayed monsoon, thereby keeping asset quality under check. We build credit cost of 26/ 22 bps for FY27/FY28E

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