AAVAS - AAVAS Financiers Limited Share Price

During the Q4FY25 Earnings Conference Call, management of Aavas Financiers Limited provided an optimistic outlook for the company, highlighting significant operational achievements and growth plans. Key points discussed include:

1. Assets Under Management (AuM): The company achieved a milestone by crossing the INR 200 billion mark in AuM, reaching INR 204 billion, an 18% year-on-year growth.

2. Disbursement Growth: Disbursements for Q4FY25 amounted to approximately INR 20 billion, marking a 27% quarter-on-quarter increase, while total disbursements for FY25 were INR 61.2 billion, a growth of around 10%.

3. Net Profit Increase: The net profit for FY25 grew by 17% year-on-year, reaching INR 5.74 billion.

4. Operational Efficiency: Management reported a reduction in operational expenditure (opex) to asset ratio by 26 basis points year-on-year to 3.32%, surpassing their initial target to reduce it by 25 basis points.

5. Credit Quality: The company's asset quality remains strong, with a gross non-performing assets (GNPA) ratio of 1.08% and a 1+ day past due (DPD) ratio of less than 4% at 3.39%.

6. Branch Network Expansion: The company opened 30 new branches in FY25 and plans to accelerate branch expansion in H1FY26 to enhance its distribution network.

7. Future Guidance: Aavas aims for 20% disbursement growth, with an ambition to achieve INR 500 billion in AuM over the next five years.

8. Focus on Quality: Continued emphasis on risk-adjusted returns to underpin sustainable and profitable growth, leveraging advanced technological platforms established during the fiscal year.

These forward-looking points indicate a strategic focus on operational excellence, growth in sustainable housing finance, and a commitment to maintaining high asset quality while enhancing shareholder value.

Q&A Section Summary

Question 1:
Renish Bhuva from ICICI Securities: "When we look at the asset yields, it has been static around very narrow range between 13.1% to 13.15%. What do you see in the near term?"
Answer: I believe our focus on risk-adjusted returns has led to a steady disbursement yield, with a 22 bps increase last year. We're working towards adjusting product types and using our technology to improve disbursement yields in the next 3-4 quarters, which will help approach our target spread.

Question 2:
Renish Bhuva from ICICI Securities: "How will you address the impact of the majority floating rate book on yields?"
Answer: Our disbursement strategy is key; as we maintain solid pricing, even in a falling rate environment, we expect our spread to hold. Our management is confident that we can optimize disbursement yields regardless of interest fluctuations.

Question 3:
Shreya Shivani from CLSA: "Your Stage 3 provision coverage has increased to over 32%. Where should this number stabilize?"
Answer: We expect Stage 3 provision coverage to stabilize between 30-34%, given recent upgrades in our ECL methodology that factor in economic changes and slippages over time.

Question 4:
Shweta Daptardar from Elara Capital: "Is the branch expansion focused on existing or new territories?"
Answer: Our branch expansion is primarily within existing states for now. However, we plan to enter new territories like Tamil Nadu in the near future to boost scalability and reach our target of INR 50,000 crore AuM in 5 years.

Question 5:
Nischint Chawathe from Kotak Institutional Equities: "Can you provide insight on growth trajectory and disbursements?"
Answer: We maintain a growth target of around 20% despite modest slippages in the last quarter. Improved underwriting practices and genereal credit behavior in our geographies give us confidence for stronger disbursements this year.

Question 6:
Raghav Garg from Ambit Capital: "Why have home loan disbursements declined vs. last year?"
Answer: While we achieved 55,000 logins, a cautious underwriting approach led to a lower login-to-sanction ratio of around 38%. This affected disbursements, but we expect to recover as we adapt our strategies.

Question 7:
Rajiv Mehta from Yes Securities: "What is your target for home loans specifically?"
Answer: While we aim for overall 20% disbursement growth, we maintain a 65:35 ratio between home loans and MSMEs. Our focus will be on improving quality and leveraging recent learning to boost home loan disbursements.