Add Aavas Financiers Ltd for the Target 1,600 by Emkay Global Financial Services Ltd
Aavas Financiers logged a satisfactory quarter, with strong disbursements and stable asset quality, while overall AUM growth remained steady. 1QFY27 AUM stood at Rs239.3bn, growing 15.4% yoy, supported by a 41% yoy jump in disbursements, though elevated repayments (~19.4%) weighed on growth. Overall asset quality remained pristine despite typical seasonal trends, with 1+ DPD at 3.76% (vs 4.15% yoy and 3.2% qoq) and gross NPAs at 1.11%; the management expects credit costs to remain well-contained and improve in coming quarters. Moving forward, the company is strategically shifting its focus back toward the highly competitive Home Loan segment to regain market share. While this targeted shift is expected to compress spreads to slightly below 5% for the full year, the management anticipates offsetting this pressure through stringent cost controls and a sharp focus on doubling employee productivity at the branch level. Overall, 1Q was a steady quarter, with the management guiding for 17–18% AUM growth in FY27, driven by sustained disbursement momentum and improved resource productivity. We maintain ADD with an unchanged Jun-27E TP of Rs1,600, implying a PBV of 1.9x.
PLR reset drives margin moderation
Aavas reported 1QFY27 disbursements of Rs16.1bn, up 41% yoy, while PAT grew 23% yoy to Rs1.71bn. AUM stood at Rs239.3bn, registering 15.4% yoy growth. Reported NIM expanded 22bps yoy to 7.70% (8.45% in 4Q), while cost of funds (COFs) stood at 7.64%. Spreads moderated to 5.06% following a ~10bps PLR cut in Jun-26. Cost-to-income declined 254bps yoy to 43.7%, and credit costs stood at 24bps. Asset quality improved across buckets, with GNPA at 1.11% (down 11bps yoy), net NPA at 0.71% (down 13bps yoy), and 1+ DPD at 3.76% (down 39bps yoy)
Growth outlook remains intact
The management remains confident of driving AUM growth toward its 17–18% target for FY27, as the strategic pivot to regain market share in the core Home Loan segment continues to gain traction. The management indicated that while this highly competitive asset mix may compress spreads to slightly below 5%, overall COF is expected to be broadly stable despite external market volatilities. To offset any margin pressure, the company is progressing well on its operational initiatives, shifting toward lower-cost direct business sourcing and aiming to double employee productivity to at least Rs2mn per FOS. These efforts are expected to sustain cost-to-income improvements, while credit costs are likely to remain well-contained, supported by disciplined underwriting; overall, the company targets a stable ROA and ROE outlook for the full year.
Estimates largely unchanged; maintain ADD
Considering the 1QFY27 performance and management commentary, we retain our estimates and maintain ADD with an unchanged Jun-27E TP of Rs1,600, implying FY28E PBV of 1.9x.
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