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Healthy growth; strong expansion in margin

Q1FY27 AUM grew 15.3% YoY to INR3,138.0bn, led by healthy across CV, PV, Farm equipment and Gold portfolio. Management reiterated its FY27 AUM growth guidance of ~18%, supported by improving momentum in new vehicle finance and continued scale-up of non-VF portfolio. We build 17%, factoring in geopolitical uncertainties and the impact of a delayed monsoon. Reported NIM expanded driven by improved yields; we expect it to trend at 9.7% in FY28E. Headline asset quality saw a slight deterioration due to seasonality; however provision buffers remain healthy at ~6% of the loan book. We build a credit cost of 2.0%/ 1.9% in FY27/FY28E. We tweak our FY27/ FY28E estimates upwards on better margin, positive growth outlook and controlled credit cost. Reiterate ‘BUY’ with an unchanged multiple of 2.4x on Mar’28 ABV and a TP of INR1,250. Impact of a delayed monsoon and El-Nino to be a key monitorable in Q2.

Expect 17% AUM growth in FY27E:

1QFY27 disbursements grew 19.5% YoY to INR499.7bn. Consequently, AUM grew at a healthy pace of 15.3% YoY/ 3.8% QoQ to INR3,138.0bn, led by the CV, PV, Farm equipment and Gold segments (+19.4 %, 21.2%, 20.6% and 45.8% YoY, respectively). The split among CV/PV/CE/Farm Equipment/MSME/2W/Gold/Personal Loans stood at 46.9%/ 21.9%/ 3.9%/ 2.2%/ 13.4%/ 5.7%/ 2.4%/ 3.6%. New vehicle finance contributed ~16% of overall disbursements in Q1FY27, with management targeting an increase to ~25% over the medium term supported by higher ticket sizes. The company remains confident of accelerating growth in its non-VF portfolio by 1) doubling up the gold loan business to 5% of AUM by leveraging its 2,200+ branch network, 2) expanding MSME book beyond the southern region, thereby forming ~20% of AUM, 3) broadening the personal loan franchise beyond existing 2W customers and 4) gradual recovery in CE as positive demand kicks in. Management expects Q2 disbursement growth to remain at current levels with AUM growth at 15%+ despite macro-uncertainties; reiterating ~18% growth guidance for FY27 led by strong traction in non-VF segments. We remain conservative and factor an AUM growth of 17%/18% for FY27/28E considering the geopolitical crisis and impact of a delayed monsoon.

NIM to improve by ~30bps in FY27E:

NII grew 33.5% YoY (14.1% QoQ) to INR77.1bn. While CoF (calc.) increased by ~10bps QoQ, yield (calc.) improved during the quarter by ~50bps. Consequently, reported NIM saw an uptick of 43bps to 9.04% vs 8.61%. Commentary highlighted incremental borrowings are deployed primarily to support business growth rather than towards liability repayments, providing support to margins. Management expects the improvement in CoF to be offset by lower yields from a rising new VF book, keeping long-term NIM at ~8.5%. We expect NIM (calc.) to improve by ~20bps to 9.7% by FY28E. Cost/Income ratio remained broadly stable at 25.5% (vs. 25.3% in Q4). Despite planned investments towards branch expansion (150 branches in FY27) and manpower addition, company expects cost ratios to be largely stable as operating leverage improves with scale. However, we expect opex to remain elevated (~30%) over the near term as the company continues to invest in expanding its franchise.

Asset quality trend resilient; outlook remains watchful:

Headline asset quality ratio has seen a slight increase in Q1FY27 due to seasonality with GS3/NS3 at 4.64%/ 2.33% vs. 4.58%/ 2.33% QoQ. Stage 2 stood at 7.0% vs. 6.9% QoQ, led a 48bps deterioration in the CE portfolio. Stage 3 PCR improved to 51.0% (vs. 50.3% in Q4FY26) with the company maintaining provisions at ~6% of the total loan book, providing adequate buffer against macroeconomic uncertainties. Commentary highlighted no significant stress noted due to geopolitical tensions, fuel price hikes and lower vehicle utilisation, however impact of delayed monsoon and El-Nino remains a key monitorable in Q2. With a shift toward new vehicle customers and prudent growth strategy, we expect credit cost to be 2.0%/ 1.9% in FY27/ FY28E, in-line with management’s guidance.

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