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Back on growth path with a stable margin profile

Q1 disbursements witnessed a strong pick-up (29.5% YoY) supporting a healthy loan book growth of ~11% YoY. While growth momentum remains healthy, higher run-down of 4.4% dragged loan book growth and remains a key monitorable. We expect growth to continue (14%/13% in FY27/FY28E) aided by sustained housing demand, branch expansion and manpower addition. Expect FY27/ FY28E NIM to trend in-line with guidance at 3.75%. Asset quality remains comfortable with benign credit cost guidance of ~10bps for FY27. Cost/income ratio is expected to be elevated at ~19% over FY27 due to investments in business transformation and branch expansion. We slightly tweak our FY27/ FY28E estimates factoring a pick-up in growth and stable margin trajectory. We keep our P/ABV multiple unchanged at 1.8x Mar-28E, resulting in a TP of INR1,075. Reiterate BUY.

Growth recovery underway; expect 14% growth in FY27:

Q1 disbursements reported strong growth of 29.5% YoY at INR26.1bn as registration-related issues in Karnataka (Ekhata) and Telangana normalised. Consequently, the loan book grew 10.8% YoY to INR429.6bn. Disbursement momentum was supported by new branches and improved sales team productivity; however, loan book witnessed higher run-down during the quarter at 4.4% (vs. 3.8% YoY/4.2% QoQ) due to 1) elevated part pre-payments as portfolio transitions from annual to quarterly reset (INR10.7bn), 2) BT-outs (INR4.1bn) and 3) loan closure other than BT-outs (INR3.8bn). Housing Loans/LAP and Mortgage/Top-up /Other loans contributed 83%/ 8%/ 2%/ 7% of the portfolio. AUM mix in terms of salaried/non-salaried borrowers stood stable at 68:32. The growth among salaried / SENP and HL / NHL came at 21%/44% and 28%/ 32% YoY respectively. Management targets a disbursement run-rate of INR3bn in Q2 and INR3.5-4bn in Q3/Q4, however controlling run-down is to be a key monitorable. Company plans to open ~28 new branches over FY27, resulting in an expected disbursement run-rate of ~INR130bn and a loan growth of ~14% in FY27. We build a similar run-rate- 14%/13% in FY27/ FY28E considering new branches/ manpower addition and E-khata resolution giving boost to KN/TL run rate.

Guiding for NIM at 3.75%; opex to be elevated:

Q1 reported yields saw a decline by 18bps QoQ to 9.8% as lending rate cuts were passed on, while CoF improved 9bps to 7.0% (vs. 7.1% in 4Q). Consequently, reported spreads moderated by 9bps to 2.83%. The yields and CoF trajectory remained broadly aligned with management guidance. Near-term funding cost outlook remains favourable driven by

1) benefits from pending NHB drawdowns

2) repayment of high cost NCDs

3) CP issuance at competitive rates in Q1

4) higher share of low-cost term loans in the borrowing mix. While the company indicated that term loan rates have increased to 7.25-7.5% (vs 6.95% last year), the impact is expected to be limited to incremental borrowings, thereby supporting its confidence in maintaining FY27 NIM guidance of 3.75%; we build a similar margin. Cost ratios are likely to be elevated in FY27 (C/I Ratio at ~19%) due to IT implementation, branch expansion and manpower addition.

Credit cost outlook benign:

GNPA/NNPA stood at 0.87%/0.42% vs. 0.85%/0.37% in Q4FY26. Stage 2+3 assets improved sequentially, while management observed no significant delinquencies. The company also indicated no visible stress from macro developments in the IT sector, given its limited exposure (~6% of the loan book). GNPA stood at 0.6-0.63% for salaried customers and 1.45-1.5% for SENP customers. Management guided for FY27 credit cost of 10bps and we build a similar range (~11bps for FY27/FY28E).

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