AAVAS - AAVAS Financiers Limited Share Price

Management provided an optimistic outlook for Aavas Financiers Limited, noting significant developments in Q1FY26. Key highlights include the successful transition to a realization-based disbursement model, which aims to enhance transparency and align with regulatory requirements. Despite a challenging quarter, the company experienced a 17% year-on-year increase in logins, signaling strong underlying housing demand. The AUM (Assets Under Management) reached Rs. 207 billion, reflecting a 16% year-on-year growth.

In terms of performance metrics, the company reported a net profit growth of 10% YoY to Rs. 1.4 billion supported by a 16% rise in net interest income (NII) and a sequential improvement in net interest margin (NIM) to 7.48%. Additionally, credit quality remained strong, with gross non-performing assets (GNPAs) at 1.22% and 1+ day past due (DPD) at 4.15%, indicating a stable asset quality.

For FY26, the management anticipates full-year AUM growth in the range of 18% to 20%. They express confidence in the normalization of disbursement trends starting in Q2, with July's disbursement growth at approximately 16% YoY, translating to a monthly run rate of Rs. 550-600 crore.

Key strategic priorities moving forward include enhancing operational efficiencies, optimizing costs, and further leveraging their digital platforms to boost distribution. The planned opening of 10 new branches in Tamil Nadu by September is part of their strategy to enhance geographic reach and service delivery. Furthermore, the company aims to continue maintaining best-in-class credit metrics while engaging with rating agencies for potential upgrades. Management underscored a commitment to delivering sustainable value and quality growth in the forthcoming quarters.

1. Kunal Shah (Citigroup): "Would this disbursement decline have a recurring effect over the next 2-3 quarters?"

Sachinder Bhinder: "That's a great question. The projected AUM growth of 18% to 20% refers to overall AUM, not just disbursements. Yes, the dip was due to our transition to realizing disbursement only upon crediting to accounts. We anticipate Q2 and Q3 should normalize as this impact unwinds, and we expect the backlog from Q1 to settle, resulting in a more robust disbursement rate moving forward."

2. Shreepal Doshi (Equirus): "What would you attribute the higher DPD deterioration to compared to past periods?"

Sachinder Bhinder: "The increase is largely seasonal, typical for Q1, which affects delinquencies due to timing. We observed a 76 bps rise in 1+DPD. Markets like Maharashtra and MP contributed to spikes, but we are tightening credit norms there. Encouragingly, we see a reversal trend in July, and I'm confident about stability moving forward."

3. Abhijit Tibrewal (Motilal Oswal): "Despite being seen as a robust housing finance franchise, why was there a notable 76 bps increase in 1+DPD?"

Sachinder Bhinder: "While we generally maintain a strong credit framework, Q1 historically shows such spikes. We haven't crossed 5% 1+DPD; it remains well within our risk tolerance. The affected regions are being monitored closely, and early indications show July's numbers have reverted below 4%."

4. Harshit Toshniwal (Premji Invest): "With the disbursement recognition change, will Q2 reflect higher numbers due to prior quarter flows?"

Sachinder Bhinder: "Yes, you're right. There is a carry-forward impact from Q1 that should boost Q2 disbursements, reflecting more typical performance compared to prior years. It presents a unique catch-up opportunity, leading to possibly better than historical rates in Q2."

5. Sanket Chedda (DAM Capital): "Will the disbursement growth in H1 be similar to last year's first half due to this adjustment?"

Sachinder Bhinder: "Not necessarily identical. While Q1 may show a dip due to recognition changes, we expect H2 to reflect a stronger performance, effectively affirming our 18% to 20% AUM growth expectations, but Q1 numbers will skew the H1 comparison."