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ABCAP reported a strong 2QFY27, with healthy growth and improving profitability across lending businesses. NBFC AUM reached Rs1.77trn (+26.5% yoy) led by retail/MSME, while asset quality improved with GS2+GS3 at 2.31% and credit cost moderating to 0.92%; ROA improved to 2.45%, with the management looking to sustain ~2.5%. NIM+fees remained at ~6%, given expectations of a gradual margin expansion as the retail/unsecured mix scalesup; a 25bps lending-rate hike should largely offset higher CoF, though another 5-10bps rise in incremental CoF is expected in 3Q. Management remains watchful of inflation/monsoon-related macro risks, though the NBFC has no direct agri exposure and continues to calibrate underwriting. HFC maintained strong momentum, with AUM at Rs574bn (+50% yoy), Stage 2+3/GS3 at 0.65%/0.37%, and ROA at 2.12%; Management targets >Rs1trn AUM and ~15% ROE over coming 8-10 quarters, while a 20bps PLR hike is likely to cushion rate pressure. Life Insurance retained its target of >20% individual APE and >20% VNB-margin over 3Y, while Health Insurance continued to gain share; AMC remains focused on improving fund performance and scaling its assets. Overall, continued AI/digital adoption is likely to buoy productivity and operating leverage. Factoring in the performance and outlook, we maintain BUY and Sep-27E TP of Rs440, implying 2.3x FY28E PBV for the standalone NBFC.

Broad-based growth with improving asset quality

ABCAP reported a strong 2QFY27, with broad-based growth and improved profitability. NBFC AUM grew 26.5% yoy/5.4% qoq to Rs1.77trn, with disbursements rising 12% yoy/17% qoq to Rs247bn, led by strong retail/MSME traction. Asset quality improved further, with GS2+GS3 at 2.31% and credit cost moderating to 0.92%, while ROA rose to 2.45%. HFC maintained strong momentum, with AUM up 50% yoy at Rs574bn, and disbursements up 55% yoy at Rs89.6bn; Stage 2+3 improved to 0.65% and ROA remained healthy at 2.12%. AMC MF QAAUM grew 4% yoy to Rs4.42trn, with equity QAAUM up 9% yoy at Rs2.09trn. Life Insurance individual APE grew 25% yoy, with VNB margin expanding by 447bps yoy to 16.1% during 1HFY27, aided by higher annuity mix and productivity. Health Insurance GWP grew 46% yoy, gaining ~70bps market share, at 14.2%, though combined ratio increased to 104.4% under Ind AS during 2QFY27.

Margins supported by mix and repricing

Management remains focused on calibrated, risk-adjusted growth, with the increasing retail/unsecured mix expected to gradually support margins. The 25bps NBFC lendingrate hike should aid transmission of higher funding costs, though incremental CoF could rise another 5-10bps in 3QFY27, in our view; opex/AUM is expected to remain at ~1.85- 1.90% despite investments in the gold-loan franchise. Credit trends remain comfortable, though inflation/monsoon-related risks warrant monitoring, with no direct agri exposure. Also, HFC has raised PLR by 20bps, providing a cushion against rate pressure while maintaining a focus on top-decile asset quality. AMC remains focused on improving fund performance, while Health Insurance is likely to sustain healthy growth momentum. Factoring in the 2Q performance and outlook, we maintain BUY with unchanged Sep-27E TP of Rs440, implying 2.3x FY28E PBV for the standalone NBFC.

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