Neutral AAVAS Financiers Ltd For Target Rs.1,800 by Motilal Oswal Financial Services Ltd
Reasonably good quarter but slightly weak business volumes
Earnings in line even as spreads rose ~5bp QoQ; minor uptick in GS3/NS3
* AAVAS Financiers (AAVAS)’s 3QFY25 PAT grew 26% YoY to ~INR1.46b (in line). NII in 3QFY25 grew 15% YoY to ~INR2.5b (in line). Other income grew 19% YoY, aided by a higher assignment income of ~INR532m (PY: INR448m) and fee income of ~INR262m (PY: ~INR206m).
* 3QFY25 core NIM (calc.) expanded ~12bp QoQ to ~6.7%. Reported spreads rose ~5bp QoQ to 4.95% (v/s ~4.9% as of Sep’24).
* AAVAS will continue to focus on
AUM rises ~20% YoY; share of HL in disbursements stands at ~64%
* AUM grew 20% YOY to ~INR192b. Disbursements rose ~17% YoY and ~23% QoQ to ~INR15.9b. Share of Home Loans (HL) in 9MFY25 disbursements stood at ~65%. The Annualized run-off in the loan book stood at ~16.4% (PY: ~15.7% and PQ: ~16.6%).
* Management shared that disbursements grew ~15-20% YoY in Jan’25. The sustained disbursement momentum in 3QFY25 and Jan’25 has strengthened the company’s confidence to achieve its guided AUM growth of ~20%-25% in FY25 and beyond.
* Securitization during the quarter amounted to ~INR4b (PY: ~INR3.2b) and securitization margins contracted ~30bp QoQ to 13.2%.
Highlights from the management commentary
* Management shared that it has seen an improvement in demand in T3 to T5 cities. The self-construction segment continues to see healthy demand.
* AAVAS has implemented its Loan Origination System (LoS), providing clear visibility into risk metrics and enabling the company to command better risk-adjusted yields.
Valuation and view
* AAVAS reported RoA/RoE of ~3.4%/~14.2% in 3QFY25. The company’s continuous efforts to improve its technological edge and relentless focus on asset quality have positioned it as a standout player among its peers. Notably, its 1+DPD remains well below the guided levels, driven by its prudent underwriting process and efficient collection efforts.
* Now that the company has completed all major tech transformations, we expect no disruptions to business activities in the future. Moreover, the improvement in TAT (down to 7 days from 11 days earlier) should translate into a stronger disbursement growth trajectory in the subsequent quarters.
* The stock trades at 2.3x FY27E P/BV and any re-rating in valuation multiples will depend on stronger AUM growth and delivery of operating efficiencies to further improve the RoA profile. Maintain Neutral with a TP of INR1,800 (based on 2.6x Sep’26E BVPS).
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