AAVAS - AAVAS Financiers Limited Share Price

Management's outlook for Aavas Financiers is optimistic, with a focus on leveraging the favorable macroeconomic environment, driven by positive government initiatives and structural reforms. They expect the macro environment to support affordable housing finance due to improved affordability, stable funding conditions, and a strong growth runway. Management emphasized their strategic priority of sustainable growth with a robust pipeline for expansion.

Key forward-looking points include:

1. Growth Expectations: For FY27, Aavas aims for over 25% growth in disbursements, translating to an additional Rs 2,000 crore in loans. The strategy involves improving productivity, branch expansion, and leveraging digital channels.

2. Branch Expansion: Aavas plans to add around 50 branches in FY27, contributing an estimated Rs 100-150 crore in additional business.

3. Funding Success: Aavas raised approximately Rs 975 crore from a significant multilateral financing body, marking a milestone that highlights their strength and confidence in generating affordable housing loans.

4. Asset Quality: The company aims to maintain credit costs below 25 bps sustainably. For Q3 FY26, their 1+ DPD stood at 3.80%, while GNPA was at 1.19%, indicating robust asset quality.

5. Financial Performance: The management reported a 16% YoY increase in net profit for Q3 FY26 to Rs 1.70 billion, driven by a 17% YoY growth in net interest income. Their target is to sustain a spread of around 5.25%.

6. Cost Indicators: Aavas aims to maintain its cost-to-income ratio below 43%, with an OPEX-to-assets ratio targeted for further reduction alongside growth.

This combination of strategic initiatives aims to position Aavas decisively in the affordable housing market, with overarching goals of quality-driven growth and customer engagement.

1. Question: "When we look at maybe the first 9 months growth, it clearly suggests maybe the guidance which was given of closer to like 18-odd percent. That appears to be quite stretched, and it might settle at less than 15-odd percent. So maybe in terms of the indicators as to how do we plan to get towards 18% to 20-odd percent growth in the coming years?"

Answer: I acknowledge the challenges we've faced due to a tight credit environment, impacting our AUM growth. We've prioritized quality over aggressive expansion. However, post-Diwali, we've seen a noticeable uptick in business momentum. While FY26 growth might moderate around 15%, I expect FY27 to deliver a targeted 25%+ growth in disbursements as we enhance branch infrastructure and leverage digital channels, driving consistent, quality growth.

2. Question: "So that trajectory, maybe that guidance continues in terms of adding 20-25 branches in the second half?"

Answer: Yes, we are indeed on track to add 20-25 branches this quarter, with a further commitment to adding around 50 branches over FY27. These openings will deepen our market penetration in Tier 2 and Tier 3 cities through our innovative RRO model, which provides cost-efficient growth while establishing a strong regional presence.

3. Question: "What were the growth headwinds this year? And what will change next year for us to start accelerating on growth?"

Answer: The primary headwinds this year were from our cautious approach due to disbursement process transitions and market conditions. However, I forecast growth acceleration next year, supported by improved market conditions, enhanced digital strategies, and expanded branch operations, with expectations for a strong recovery across our various growth initiatives.

4. Question: "The asset quality front... Is that also likely to help us on seeing better business momentum as we can now relax some of the underwriting related norms in the coming quarters?"

Answer: We're committed to maintaining our high underwriting standards focused on risk-adjusted returns. While improving asset quality might allow us to consider some relaxed norms, any adjustments will strictly meet our risk criteria. Sustaining quality while expanding selectively will ensure that we capitalize on favorable market conditions without sacrificing our standards.

5. Question: "When I look at the AUM per branch for Gujarat, Madhya Pradesh, and Uttar Pradesh, now these states have been showing growth of less than 10%. So anything that has happened in those states?"

Answer: Both Gujarat and Uttar Pradesh represent significant focus areas for us. In MP, we've recognized existing challenges, but we're committed to deeper expansion there, particularly in UP. Our strategy will involve more localized efforts via RRO offices and model branches, which will strengthen our ground presence and foster better growth moving forward.

6. Question: "On the opex-to-assets... How do we see our opex-to-assets moving?"

Answer: Our opex-to-assets ratio is expected to trend downwards despite branch expansions because we are opening smaller branches with lower infrastructure costs. Combined with anticipated productivity gains from our initiatives, we project that operational expenses will continue to improve as we achieve sustainable growth without drastically increasing overheads.

7. Question: "Can we revert back to that traditional movement in asset quality, which we generally see in Q4?"

Answer: Based on January metrics, we're positioned well for the traditional Q4 asset quality improvement. Our proactive risk management strategies and collections focus have shown promise, and I believe that with the upcoming quarter, we will observe a beneficial pullback in 1+ DPD, reflecting our commitment to maintaining quality amid growth.