IGI Logo

Disbursement recovery in focus; margins remain stable

Q2 disbursements saw a decline (-7% YoY) due to the implementation of project Tejas and cancellation of DDs, while loan book growth at ~10% YoY was supported by lower run-down (4.17%). IT-led efficiency gains and workforce rationalisation are expected to support disbursement growth in H2FY27. However, we remain conservative on growth and build in AUM growth of 13%/14% for FY27/FY28E, factoring in the lower H1 run-rate. We expect FY27/ FY28E NIM to trend broadly in-line with guidance at 3.75%. Asset quality remains comfortable with benign credit cost guidance of ~10bps for FY27. We slightly tweak our FY27/ FY28E estimates factoring a moderation in growth and heightened competition. We keep our P/ABV multiple unchanged at 1.7x Sep’28E, resulting in a TP of INR1,090. Valuation remains undemanding and sustained housing demand underpin our positive view. Reiterate BUY

Project Tejas impacted disbursements; expect 13% AUM growth:

Q2 disbursements declined 6.8% YoY at INR23.7bn while the loan book grew 9.8% YoY to INR435.4bn. Disbursement momentum was impacted by

(1) implementation of tech transformation project Tejas

(2) cancellation of DDs worth INR290mn in-line with NHB guideline. IT-led efficiency gains and workforce rationalisation are expected to enhance operational productivity and support disbursement growth. Loan book witnessed lower run-down during the quarter at 4.2% (vs. 4.3% YoY/4.4% QoQ) with prepayments declining in Aug/Sep’26 to ~INR6bn from INR6.6bn in Jul’26. The underlying demand remains robust across geographies with monthly run-rate exceeding average disbursements of Q1 (INR4.8bn in Sep’26 vs INR4.3bn in Q1). While disbursements stabilized in KN with monthly run-rate of ~INR2.5bn, TL witnessed some moderation due to changes in registration process. Housing Loans/LAP and Mortgage/Top-up /Other loans contributed 84%/ 9%/ 2%/ 5% of the portfolio. The company opened 25 new branches in H1FY27 against its FY27 target of 28 branches and aims to achieve disbursements of ~INR130bn (+20% YoY) with a loan growth of 13-14% in FY27. Management expects to recover the Q2 disbursement shortfall and targets INR80bn+ in H2FY27 to meet the annual guidance. However, we remain conservative and build a disbursement of ~INR120bn for FY27 and AUM growth at the lower end - 13%/14% for FY27/ FY28E considering heightened competition, regulatory challenges in TL and ElNino impact. Quarter Summ

Guiding for NIM at 3.75%:

Q2 reported yields saw a slight uptick of 3bps QoQ to 9.84% while CoF rose by 5bps to 7.03% (vs. 6.98% in 1Q). Consequently, reported spreads stood at 2.81% (vs. 2.83% QoQ). The yields and CoF trajectory remained broadly aligned with management guidance. The funding outlook remains favourable with NHB sanctions of INR13.5bn at 6.6-6.7% and undrawn sanctions of INR25bn to support business growth. Management reported no material impact from the new wage bill, while the proposed changes to insurance commissions (forms <1% of PBT) are expected to have a negligible impact. The recent 25bps rate hike has increased CoF by 12-13bps, with ~10bps to be passed on to customers. Management reiterated its FY27 NIM guidance of ~3.75% and spreads at 2.75%+ for FY27. We factor in NIM at 3.77%/ 3.67% for FY27E/FY28E.

Credit cost outlook benign:

GNPA/NNPA stood at 0.90%/0.43% vs. 0.87%/0.42% in Q1FY27. While delinquency in Q2 remained contained at 8.4% (vs. 9.6% YoY) despite ongoing macroeconomic challenges, SMA-0 saw an increase due to a change in computation methodology from monthly to daily. The incremental NPA moderated to INR350mn in H1FY27 from INR400mn in H1FY26. Management expects GNPA in H2FY27 to decline further, supporting asset quality and keeping credit costs under control; reiterating its guidance for FY27 credit cost of 10bps. We build a similar range for FY27/FY28E.

Please refer disclaimer at Report
SEBI Registration number is INH000000933.