IGI Logo

Disbursement picks up; growth/NIM pressure persists

While Q1 disbursements picked up (+14.5% YoY), higher repayments resulted in muted loan book growth of 4.0% YoY to Rs3,221 bn. AUM is guided to grow at 8-10% in FY27 aided by direct assignment/co-lending and affordable housing. We build an AUM growth of 8%/9% in FY27/28E. We expect yields to moderate in FY27, with NIM moderating by 9/13bps in FY27/28E to 2.6%/2.5%. Increase in high- yielding LAP/LRD likely to provide some cushion. Headline asset quality saw an improvement and we build a credit cost of ~5/12bps over FY27/28E. We tweak FY27/ FY28E estimates downward factoring in weaker growth and NIM compression expected over FY27/28E. We reduce the multiple to 0.6x (from 0.7x earlier) on Mar-28E P/ABV, resulting in TP of Rs 550. Retain ‘Hold’.

* Expect 8%/9% growth in FY27/ FY28E: While Q1 disbursements picked up at Rs150.1bn (+14.5% YoY), higher repayments (~Rs90.8bn) led to 4.0% YoY/ 1.9% QoQ growth in loan book at Rs3,221bn. Individual HL/Non-housing Individual/NHC-Project Loans/NHC-Other Loans contributed to 84.4%/ 12.6%/ 3%/ 1.3% of the portfolio. The AUM mix in terms of salaried/non-salaried borrowers remained stable at 88:12. Developer Finance saw good traction during Q1 and company is targeting disbursements of INR40bn in FY27. Disbursements in LAP/LRD are expected to reach INR150bn. Overall disbursement growth for FY27 is guided at 10-12% with AUM growing at 8-10% aided by direct assignment/ colending and affordable housing. We build a disbursement growth of 11.9%/8.7% YoY, translating into a loan growth of 8%/9% for FY27/28E.

* NIM to moderate over FY27-28E: Q1 yield contracted QoQ to 8.80% (vs. 8.89% in Q4), while cost of borrowing inched up to 7.14% (vs. 6.97% in Q4). Consequently, reported NIM moderated to 2.56% (vs. 2.77% in Q4). Reported NIM for Q1 came in at 2.58%, attributable to the carryover impact of last year's rate cuts and continued competitive pressure from banks in the IHL segment. Commentary indicated that INR170bn of borrowings are maturing in FY27 and will be refinanced at a lower rate; however, the cumulative COB is likely to see an increase of ~3–4 bps. Company is focusing on the non-IHL portfolio which yields a premium of ~150 bps over IHL and is expected to provide some cushion to overall NIM as the share increases. We expect NIM to moderate by 9/13bps in FY27/28E to 2.6%/2.5%, factoring an elevated CoF and pricing pressure due to competitive intensity from banks.

* Headline asset quality stable: Asset quality stood largely stable in Q1 with GNPA/NNPA at 2.14%/1.11% vs. 2.16%/1.06% in Q4. Stage 2 assets improved by 18bps QoQ to 2.60%. Recoveries from written-off NPA accounts of INR319mn are reclassified under impairment on financial instruments from other income. Of the historical write-off pool, recoveries of INR5-6bn are expected in FY27, with a further ~INR20bn expected over the next two years. GNPA guidance was maintained below 2% for FY27. Credit cost guidance of 10–15 bps for FY27 remains intact, notwithstanding -5 bps in Q1, which was aided by recoveries. We build a credit cost of 5bps/12bps in FY27/ FY28E.

Please refer disclaimer at https://www.plindia.com/disclaimer/

SEBI Registration No. INH000000271