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Strong Growth Delivery to Continue; Margins to Benefit in Rate-Cut Cycle

Est. Vs. Actual for Q4FY25: NII – MISS; PPOP – BEAT; PAT – BEAT

Changes in Estimates post Q4FY25

FY26E/FY27E (in %): NII: -1.1/-2.2; PPOP: -0.3/-1.4; PAT: 0.2/-0.9

Recommendation Rationale

• NIMs to benefit in the rate cut cycle: Aptus remains a key beneficiary in the rate cut cycle, with ~80% of the loan portfolio being fixed rate. The impact of the repricing of ~20% floating rate book on NIMs is expected to be marginal. In its borrowing mix, ~56% of the loans are floating rate borrowings, of which ~30% are linked to the repo rate and would reprice downwards, and the management expects the benefit on CoF to be visible in Q1FY26. Moreover, the ~26% MCLR-linked borrowings should see the benefit of a lower rate accrue from Jul’25 onwards. Furthermore, the bank is negotiating with its lenders (banks) for better spreads. The management has indicated that it does not intend to pass on the benefit of the rate cuts to the borrowers. This should be margin accretive, with spreads improving. We expect NIMs (calc.) to range between 11.9% (+/5bps) over FY26-27E.

• Geographic diversification to continue: As Aptus intends to diversify its geographical reach into geographies other than its core geographies of TN, AP, KA, and Telangana (TL), the company plans to further expand its footprint in Maharashtra (MH) and Odisha (OD). Thus, the company plans to add 10 new branches in MH and OD, along with 40 new branches, to further deepen its presence in the existing states. The credit behaviour and portfolio quality in the newer geographies have held up well, instilling confidence in the management to pursue growth beyond its core geographies.

• Growth to remain buoyant: The management has guided for a 24-25% disbursement growth for FY26, translating into an AUM growth of ~28-30% during the year. This growth should be driven by (i) new branches in both the new and existing geographies contributing to overall business, (ii) improving ATS from Rs 8-8.5 Lc to Rs 9-9.5 Lc, (iii) improving productivity of loan officers, and (iv) improving contribution from digital marketing. Additionally, the e-Khata issue in KA has been resolved, and Aptus has seen growth momentum improve in the state. Similarly, growth in TN has also seen a bounce-back. We expect Aptus to deliver a healthy 27% CAGR growth over FY25-27E

Sector Outlook:

Positive Company Outlook: Aptus’ management intends to maintain a strong pace of growth given the large headroom for growth in the core states and the target customer segment. Foray into newer states will further help the company accelerate the pace of growth, while enabling the company to reduce the concentration of its business in the southern states, though gradually. With a bulk of Aptus’ loan book being fixed rate, the company remains a key beneficiary in the rate cut cycle as it does not intend to pass on the benefit of the rate cuts on the borrowings to its customers. The cost structure is lean and has little scope for improvement. With continuous investment in people, tech, and branch network expansion, the management expects the C-A ratio to remain stable at 2.63- 2.7% over the medium term. We expect Aptus’s RoA/RoE to remain best-in-class, ranging between 7.2-7.3%/20-23% over FY25-27E. Aptus also remains well-capitalised to fuel strong growth over the medium term.

Current Valuation: 3.8x FY27E ABV;

Earlier Valuation: 3.6x Sep’26E ABV

Current TP: Rs 400/share;

Earlier TP: Rs 400/share

Recommendation: We maintain our BUY recommendation on the stock.

Alternate BUY Ideas from our Sector Coverage Can Fin Homes (TP – Rs 830)

Financial Performance

? Operational Performance: Disbursements grew by 10/14% YoY/QoQ. AUM growth was marginally below our expectations at 25/6% YoY/QoQ was driven by Home loans (+20/4% YoY/QoQ) and Small Business Loans (+50/10% YoY/QoQ). In the housing finance book, the share of housing loans declined marginally to 71% vs. 72% QoQ.

? Financial Performance: NII grew by 19/3% YoY/QoQ. Yields remain steady QoQ at 17.4%, while CoF declined marginally by 2bps. The company added two new branches in Q4FY25, taking the total branch count to 300, with 38 new branches added in FY25 (10 in Maharashtra and Odisha, 28 in TN, Telangana, Karnataka and AP). Opex grew by 21/11% YoY/QoQ led by higher other expenses (60/20% YoY/QoQ). Thus, the C-I Ratio increased to 20.2% vs 20.6/19.7% YoY/QoQ. PPOP grew by 24/8% YoY/QoQ. Credit costs stood at 30bps vs. 52bps QoQ. PAT grew by 26/9% YoY/QoQ.

? Asset quality remained stable with GNPA/NNPA at 1.19/0.89% vs. 1.2/0.89% QoQ. Collection Efficiency improved to 101.2% vs 99.4% QoQ. 30+dpd book witnessed a decline at 5.9% vs. 6.2% QoQ.

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