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Margins to Benefit From Rate Cut and Ratings Upgrade; Growth Trajectory Strong!

Est. Vs. Actual for Q1FY26: NII – MISS; PPOP – BEAT; PAT – BEAT

Changes in Estimates post Q1FY26

FY26E/FY27E (in %): NII: -0.7/-4.9; PPOP: -0.7/-5.3; PAT: -1.0/-5.5

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 management indicated that it does not intend to pass on the rate cuts to its fixed-rate customers. On the borrowing side, ~56% of the company’s loans are floating, of which 30% are MCLR-linked, while the balance 26% are EBLR-linked. On the EBLR-linked loans, while the pass-through of the repo rate cut was only partially visible in the CoF in Q1, the management expects a more meaningful reduction in CoF (down 20bps QoQ) in Q2, with a more pronounced impact of the repo rate cut being visible. With the MCLR repricing visible likely from Q3 onwards, the management has guided for a 40-45bps reduction in CoF on the existing book over FY26. Moreover, the incremental CoF for the HFC has dropped sharply to 8.05-8.1% vs. the current rate of 8.6-8.7%. Similarly, on the NBFC front, CoF is down to 8.5-8.6% vs 9-9.25% earlier. Furthermore, the recent rating upgrade should provide further support to CoF, as the company continues to renegotiate its rates with the banks. The rating upgrade should also help Aptus diversify its borrowing mix.

• Growth Runway Large: While Q1 disbursements were muted, the growth momentum has picked up in Jun-Jul’25, clocking a monthly disbursement run-rate of Rs 340 Cr vs Rs 300 Cr over Apr-May’25. The management is confident of a sharper recovery in H2 and expects a disbursement growth of 20-22% in FY26, translating into AUM growth of 28-29%. With (1) Demand remaining buoyant in the customer segment Aptus serves, (2) A gradual increase in ATS, (3) Branch addition in new states of Maharashtra and Odisha and deeper penetration in the existing geographies, Aptus aspires to scale an AUM of Rs 25,000 Cr by FY29E. We expect Aptus to deliver a healthy AUM growth of 25% CAGR over FY25-28E.

• Asset Quality Trends Not Worrisome: The increase in the 30+dpd/GNPA in Q1 was attributed to the seasonal weakness seen during the quarter. The management highlighted that the collection efficiency (CE) has bounced back to 99.5-99.75% in Jun’25 (vs 99.1% in Q1) and continues to remain healthy in Jul’25 as well. Aptus has strengthened its collection team to ensure healthy CE. The management remains confident of maintaining healthy asset quality metrics, with stress visibility being low and the customer segment being 3-4 levels over MFI or Small ticket size customers, where stress build-up is currently high. Thus, credit costs are expected to remain under check.

Sector Outlook: Positive

Company Outlook: Aptus’ growth trajectory continues to remain robust and is likely to continue to be supported by strong demand visibility, improving ticket size and branch-led geographic expansion. The fixed rate, along with the ratings upgrade, should help Aptus improve its margins. With geographic and branch expansion on the cards, Opex growth is expected to remain high. Aptus’ cost structure continues to remain lean, with limited scope for improvement. Post the seasonal weakness seen in asset quality, concentrated efforts to improve CE should help drive asset quality improvement and keep credit costs under control. We expect Aptus’ RoA to remain best in class, ranging between 7-7.3% over FY26-28E.

Current Valuation: 3.8x FY27E ABV; Earlier Valuation: 3.8x FY27E ABV

Current TP: Rs 425/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 925)

Financial Performance:

? Operational Performance: Aptus’ disbursements momentum was seasonally weak, de-growing at 27% QoQ and registered a growth of 15% YoY. AUM growth was marginally below our expectations at 24/4% YoY/QoQ, with growth driven by Home loans (+18/3% YoY/QoQ) and Small Business Loans (+51/7% YoY/QoQ). In the housing finance book, the share of housing loans improved to 71%, flat QoQ.

? Financial Performance: NII grew by 18/3% YoY/QoQ. Yields remain steady QoQ at 17.4%, while CoF declined by 10bps QoQ. Spreads were maintained at 8.7%. NIMs stood at 13.4% vs 12.8% YoY. The company added only 1 new branch in Q4FY25, taking the total branch count to 301. The addition was in the state of Andhra Pradesh. The company plans to add 15 branches in Q2FY26. Opex grew by 24/4% YoY/QoQ. C-I Ratio stood at 19.9% vs 20.9/20.2% YoY/QoQ. The C-A ratio was steady at 2.66% vs 2.67/2.68% YoY/QoQ. PPOP grew by 31/6% YoY/QoQ. Credit costs stood at 38bps vs 30bps QoQ. PAT grew by 28/6% YoY/QoQ.

? Asset quality deteriorated owing to seasonality, with GNPA/NNPA at 1.49/1.12% vs 1.19/0.89% QoQ. Collection Efficiency stood at 99.1% vs 99.2/101.2% YoY/QoQ. 30+dpd book was at 6.5% vs 6.3/5.9% YoY/QoQ.

Key Takeaways

• BT-Out Rates Under Control: The company’s BT-out rate has been consistently maintained at 2-2.5% and no geography has seen a diversion from this trend. BT-out is either to SFBs or NBFCs, mainly for competitive rates. The management credits the lower BT-out rates to the direct in-house sourcing model, which ensures better customer retention and stickiness.

• Branch Additions: As a part of its efforts to gradually expand beyond its core southern India states, Aptus plans to add 10 branches in the newer states of Maharashtra and Odisha in FY26. Going ahead, another 10- 15 branches will be added in FY27.

Outlook

We continue to remain positive about Aptus’ growth prospects and strong underwriting capabilities that drive healthy asset quality outcomes. While we reduce our AUM estimates by 2-3% over FY26-27E, we largely retain our NII/Earnings estimates over FY26, supported by improving NIMs. However, we reduce our NII/Earnings estimates by ~5-6% for FY27E. We expect superior RoA/RoE delivery of 7-7.3%/20-22% over FY26-28E. We expect Aptus to deliver a healthy AUM/NII/Earnings growth of 25/24/25% CAGR over FY25-28E.

Valuation & Recommendation We reiterate our BUY recommendation on the stock. The stock currently trades at 3.0x FY27E ABV, and we value Aptus at 3.8x FY27E ABV to arrive at a target price of Rs 425/share, implying an upside of 26% from the CMP. We believe current valuations are attractive given Aptus’ strong growth potential and the industry's best RoA delivery. Key Risks to Our Estimates and TP • The key risk to our estimates remains a slowdown in overall disbursement and AUM growth, which could potentially derail our earnings estimates. • Increase in BT-Out rates, which are currently at manageable levels

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