Neutral Aavas Financiers Ltd for the Target Rs 1,650 by Motilal Oswal Financial Services Ltd
Earnings in line; AUM growth weak, NIM contracts AUM growth impacted by higher run-offs
* AAVAS Financiers’ (AAVAS) 1QFY27 PAT grew 23% YoY to ~INR1.7b (in line). NII grew 17% YoY to ~INR3.2b (in line). Other income rose 17% YoY to INR926m (PQ: INR1.2b and PY: INR790m).
* Opex rose ~10% YoY to INR1.8b (~5% lower than est.). CI ratio declined ~2pp QoQ to ~44.1% (PY: ~46.6%, PQ: ~46.2%). PPoP grew 22% YoY to INR2.3b (in line). Credit costs stood at INR128m (vs. est. of INR100m) and translated into annualized credit cost of ~22bp (PY: ~12bp and PQ: ~22bp). RoA/RoE in 1QFY27 stood at 3.2%/13.3%.
* Aavas highlighted that 1+ dpd remained below 5%, with healthy trends across both the leading and lagging asset-quality indicators. The company also shared that no segment is currently witnessing any meaningful stress and it remains focused on maintaining strong collections and credit quality.
* Management aims to increase disbursements per field employee from INR0.8m-1.0m currently to INR2m-2.2m over the next three years. The company maintained its FY27 guidance of 22-23% disbursement growth and 17-18% AUM growth, with a medium-term AUM growth target of ~20%.
* Aavas guided for further spread compression in FY27 to below 5%, due to a higher focus on home loans, PLR cuts resulting in lower yields, and high competitive intensity. However, management expects to maintain overall profitability metrics through productivity improvements and cost-efficiency measures.
* For AAVAS, a key re-rating trigger would be its ability to translate the stated ~20% growth ambition into sustainable AUM expansion alongside healthy disbursement momentum, thereby demonstrating durable execution in an increasingly competitive environment. We estimate AUM/PAT CAGR of ~18%/16% over FY26-28E, with RoA/RoE of 3.3%/14.2% by FY28E. Reiterate Neutral with a TP of INR1,650 (based on 2x FY28E BVPS)
AUM grew ~15% YoY; repayment rates remained elevated
* AUM grew 15% YoY and ~2% QoQ to ~INR239b. Disbursements rose ~41% YoY to ~INR16.1b. Annualized run-off in the loan-book remained elevated at ~19.4% (PQ: ~19.8% and PY: 16.2%).
* The company shared that there was a small uptick in repayments in Apr’26 and May’26, particularly for loans with interest rates above 14%. However, the trend normalized in Jun’26 and is not expected to increase further.
* The company remains focused on accelerating customer acquisition, improving productivity and increasing revenue per employee. We expect AAVAS to deliver an AUM CAGR of ~18% over FY26-28.
Valuation and view
* AAVAS delivered a modest quarter, with AUM growth weaker than estimated. This was primarily because of elevated repayments. Further, spreads and NIMs declined, with management guiding for further compression during the year, driven by its stronger focus on the home loans (HL) segment. Asset quality remained broadly stable and credit costs remained benign. While the company maintained its 17-18% AUM growth guidance, execution remains a key monitorable amid intense competition and elevated portfolio attrition.
* We estimate an AUM/PAT CAGR of ~18%/16% over FY26-28E, with RoA/RoE of 3.3%/14.2% by FY28. Reiterate Neutral with a TP of INR1,650 (based on 2x FY28E BVPS).
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