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Healthy growth and margin outlook; steady asset quality

Disbursements/ AUM in Q1 saw a strong growth of 31%/ 26% YoY. Commentary guided for ~25% AUM growth in FY27; we build the same considering deeper penetration across both new and existing markets. Expect FY27/28E NIM to be range-bound at ~6.1% with multiple levers to control CoF. Credit cost is likely to be benign- we build an improvement to 34/32bps in FY27/FY28E (vs. 40bps in FY26). We increase our FY27/ FY28E estimates by factoring in

(1) strong AUM growth

(2) stable spreads

(3) benign credit costs. We increase the multiple to 2.6x with a TP of INR1,385. Upgrade to BUY on healthy growth and margin outlook.

Expect AUM growth of 25% in FY27E:

Q1 disbursements saw a growth of 31% YoY/ 3.6% QoQ to INR16.3bn while AUM grew 25.7% YoY/ 6.7% QoQ to INR169.4bn. Housing Loans/ LAP/ Shop loans contributed 83%/ 16%/ 1% of the portfolio while the AUM mix in terms of salaried/non-salaried borrowers stood stable at 68:32. Disbursements in Q1 were ~50% driven by volume and ~50% by rising average ticket size. Management targets UP/AP and Telangana as key focus markets for the medium-term (1-3 years). The colending book accounted for ~3.6% of total AUM. Some hiccups were faced in this portfolio during the quarter due to a change in process and policy; management expects it to stabilize as more partner banks align with the revised process. Company indicated 25% AUM growth in FY27 driven by

(1) expansion into new growth markets such as UP, Tamil Nadu, Andhra Pradesh, and Telangana, alongwith sustained traction in Rajasthan and southern states

(2) scaling of the co-lending channel

(3) continued investment in technology and AI to enhance TAT. We build a growth of 25%/ 24% for FY27/ FY28E.

Expect spread of 5%+ in FY27E:

Reported yield in Q1 saw a moderation of ~10bps QoQ to 13.0% as company took a PLR cut of 10bps w.e.f. Jan’26, while CoF improved to 7.8% (vs. 7.9% in Q4FY26). Consequently, reported spreads remained largely stable sequentially at 5.2%. Management guided to maintaining a long-term spread of 5–5.25%. NHB drawdown (unutilized so far) is expected to be utilized in H2. We expect NIM (calc.) to be largely range-bound at 6.1% for FY27/FY28E as (1) any rise in CoF will be passed on to customers given the fully floatingrate nature of the book, and (2) unutilized NHB drawdown, expected to be tapped in Q4, is likely to support a lower CoF. The marginal increase in OpEx during the quarter was attributed to increments and fresh hiring, partly offset by a slight reduction in administrative expenses. Opex/Assets ratio stood at 2.8% in Q1FY27, and company expects it to be range-bound at 2.6%- 2.7% for FY27 supported by improved productivity; we build a similar range.

Steady asset quality and credit cost:

Asset quality was steady in Q1FY27 with GNPA/NNPA at 1.8%/1.4%. Q1FY27 bounce rate stood elevated at 16.3% (vs.15.9% QoQ), however early July trends show moderation to 15.2% signaling a range-bound trend. 1+DPD/ 30+DPD stood steady QoQ at 4.7%/ 3.2%. Credit cost stood at ~40bps (flat QoQ). Management indicated that tariff related stress in TN market has now eased. No significant stress in asset quality and collection efficiency was observed during Q1 due to geopolitical tensions. We build a credit cost of 34/32bps for FY27/FY28E

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SEBI Registration number is INH000000933.