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AAVAS saw a weak quarter as disbursal growth fell by 43% QoQ (usually Q1 sees a 25-30% QoQ dip) and overall stress increased. Disbursals were ~17% lower to PLe since the company transitioned to a realization-based model for disbursal recognition to adopt a more conservative approach, also aligning with regulatory expectations. Credit flow for Jul’25 has normalized to Rs5.5- 6.0bn vs avg. Rs3.8bn in Q1’26. While AAVAS has guided for an AuM growth for FY26E of 18-20%, we have factored an AuM CAGR of 17% due to the Q1’26 impact. Stage-3 and 1+DPD saw a blip of 14/76bps QoQ to 1.2%/4.15% due to seasonality; company expects to roll it back in upcoming quarter. We trim multiple on FY27ABV to 2.8x from 2.9x due to lower growth; TP declines to Rs1,925 from Rs2072. Retain ‘ACCUMULATE’.

Weak quarter with miss on all core parameters: NII was lower at Rs2.78bn (PLe Rs2.83bn). NIM (calc.) was a miss at 6.3% (PLe 6.4%) due to blip on calc. loan yields which were 12.5% (PLe12.6%). AuM growth was a miss at 16.2% YoY (PLe 17.7%) as disbursals were lower at Rs11.5bn (PLe Rs13.8bn) while repayments were higher at Rs8.3bn (PLe Rs8bn). Non-HL share rose to 33% from 32% in Q4’25 while salaried to self-employed mix was stable QoQ at 60:40. Other income was more at Rs790mn (PLe Rs725mn) due to assignment. Opex at Rs1.7bn was 2% above PLe led by higher staff cost. Thus, PPOP came in at Rs1.9bn which was 1.5% lower to PLe due to higher opex. On asset quality, gross stage-3 worsened by 14bps QoQ to 1.22% (PLe 1.15%); PCR was stable at 31.2%. Provisions were a drag at Rs112.6mn (PLe Rs76.4mn). PAT at Rs1.4bn missed PLe by 5%.

Disbursals impacted due to accounting change: Disbursals fell by 43% QoQ since accounting method was changed to realization based, whereby disbursals are recognized after being actually credited to customer accounts against earlier practice of recognizing post cheque issuance. The company usually witnesses a 15-45 days gap between cheque issuance and actual credit. The change offers a more accurate view of business performance and strengthens transparency. However, this was a one-time impact; Jul’25 disbursals have rebounded to Rs5.5- 6.0bn (avg. Rs3.8bn in Q1’26). While AUM growth guidance for FY26 has been maintained at 18-20% we trim AuM growth by 100bps to 17% each for FY26/27.

Asset quality was a drag; guided to normalize: Stress increased QoQ with blip in stage-3 while 1+DPD also rose by 76bps QoQ to 4.15%. Management attributed this to seasonality and is confident of rolling it back. Maharashtra, MP and Karnataka saw some stress. 1+DPD levels have already started normalizing from July’25, retracing back to Rs0.5mn as it exhibits stronger asset quality and portfolio behavior. Credit costs guided at <25bps for FY26.

Q1FY26 Concall Highlights

Assets/Liabilities

• AUM growth for FY26 guided at 18-20% and is expected to be 20-25% in FY27. Monthly disbursement run-rate at Rs.5.5-6bn.
• Owing to stress in certain sectors of salaried class, management is focused more on disbursals to self-employed segment due to better risk reward profile. Focus is more on loans exceeding Rs0.5mn as it exhibits stronger asset quality and portfolio behavior.
• Management has adopted change in accounting of disbursements to realization model whereby disbursals would be accounted when they credit to the account of customers as against earlier practice of accounting it as and when cheques are issued. This has resulted in drop in sanction to disbursement ratio by 10bps to 75%.
• Company usually witness 15-45 days gap in cheque issuance and credit to the account of customer, observed mainly under builder purchase and resale purchase category which forms 5-10% of total book. Disbursements in MSME and LAP category happen under RTGS route.
• Borrowing mix: EBLR – 38%, MCLR – 40%, Fixed – 22%. Company has witnessed a 22bps reduction in EBLR linked borrowing. No PLR changes made during Q1FY26.
• NCDs worth Rs4bn raised during Q1FY26.

Profit & Loss

• Company has received fresh sanctions from NHB and has completed a drawdown of Rs2bn in Q1FY26 which is expected to cushion its cost of borrowing going forward.
• 10 new branches to be opened in Tamil Nadu in Sept’25. Tech-transformation has led to reduction in TAT from 13 days to 6 days and is also expected to optimize costs further.
• Employee per branch were higher compared to peers as company follows a direct distribution model which typically employes a higher no of employees on role.

Asset Quality

• Credit costs guided at less than 25bps for FY26.
• Uptick in delinquency largely remains seasonal, 1+DPD levels started showing normalization from July’25 retracing back to below 4% levels.
• Maharashtra, MP and Karnataka have observed some stress.
• One day DPD is guided to be below 5%.
• Management is confident about a rating upgrade from ICRA and CARE.

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