Detailed Narrative
Strategic Shift in Disbursement Recognition
AAVAS transitioned to a realization-based model for disbursement recognition in Q1 FY26, recording loans only when funds reach the customer's account rather than at cheque issuance. This conservative move led to a reported disbursement of ₹11.5 bn, a 5% YoY decline, as approximately ₹1.5-2 bn in 'cheque-cut' business rolled over into Q2. Management clarified that without this change, disbursements would have shown double-digit growth. July data already shows a rebound to a ₹5.5-6.0 bn monthly run rate, up 16% YoY.
Asset Quality Resilience Amidst Seasonality
The company reported a seasonal uptick in delinquencies, with 1+ DPD rising 76 bps QoQ to 4.15% and GNPA increasing 14 bps to 1.22%. This stress was primarily concentrated in the sub-₹5 lakh ticket size segment within Maharashtra, Madhya Pradesh, and Karnataka. However, management noted a sharp recovery in July, with 1+ DPD already falling back below 4%. Credit costs remained well-managed at 24 bps, consistent with the long-term guidance of staying below 25 bps.
Liability Management and Cost of Funds
AAVAS successfully reduced its overall cost of borrowing by 22 bps QoQ to 8.02% by proactively shifting a meaningful portion of borrowings to EBLR-linked instruments. The company secured a fresh ₹2 bn drawdown from the National Housing Bank (NHB) at an average rate of ~7%, providing a further cushion to funding costs. Currently, 58% of the total borrowing is linked to floating benchmarks, positioning the company to benefit quickly from any future interest rate cuts.
Distribution Strategy and Branch Expansion
The company is front-loading its branch expansion, with plans to open 10 new branches in September, all located in the new market of Tamil Nadu. Digital partnerships are also gaining traction; the CSC tie-up is already generating over 1,000 monthly logins within a year of onboarding. While this expansion has increased the employee-per-branch ratio to 18, management views this as a necessary investment to support their direct-sourcing model and maintain superior asset quality.
Promoter Transition and Long-term Outlook
Q1 marked the successful entry of CVC Capital Partners as the new promoter, replacing Kedaara Capital and Partners Group. Management expects AUM growth to normalize to the 18-20% range for FY26 as the accounting changes settle, with an aspirational return to 20-25% growth in FY27. The focus remains on optimizing yields, which saw a 35 bps YoY improvement in incremental business this quarter, driven by targeted pricing and portfolio mix initiatives.