Aavas Financiers Limited — Q1 FY26 earnings call

Call held 12 Aug 2025

Management summary

AAVAS delivered a resilient performance in Q1 FY26, characterized by steady AUM growth and margin expansion despite a temporary dip in reported disbursements due to a conservative accounting change. The company successfully navigated a promoter transition while maintaining best-in-class asset quality metrics. Management expressed strong confidence in a growth rebound for the remainder of the fiscal year, supported by robust July disbursement data.

Highlights

  • Assets Under Management (AUM) reached ₹207 bn, representing a 16% YoY growth

  • Net Profit for Q1 FY26 grew by 10% YoY to ₹1.4 bn

  • Net Interest Margin (NIM) expanded to 7.48%, up 17 bps YoY

  • Spread improved sequentially by 22 bps to 5.11%

  • Asset quality remained stable with GNPA at 1.22% and 1+ DPD at 4.15%

  • Disbursements stood at ₹11.5 bn, impacted by a strategic shift to realization-based accounting

  • Cost of borrowing declined by 22 bps QoQ to 8.02%

  • Successfully transitioned to a new promoter, CVC Capital Partners

Key financials

  1. AUM 207 bn +16%YoY
  2. Net Profit 1.4 bn +10%YoY
  3. NIM 7.5% +2.3%YoY
  4. GNPA 1.2% +13%QoQ
  5. Spread 5.1% +4.5%QoQ
  6. Opex to Asset Ratio 3.5% -6.7%QoQ

What they filed

Q1 FY27: revenue up 12.9%, net profit up 23.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue579 597 636 628 667 +15%674 +13%715 +12%709 +13%
Net profit148 146 154 139 164 +11%170 +16%182 +18%171 +23%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Home Loan
    Severe qualitative Disbursement ImpactSelf-construction qualitative Product Focus
  • NHL (MSME/LAP)
    None qualitative Disbursement Impact100 % RTGS Disbursement Method

Guidance & targets

Volume

  • AUM Growth Volume · FY26 · High confidence 18-20%
    Based on the current trends, we now expect the full year’s growth in the range of 18 to 20 %.

    — Sachinder Bhinder, MD & CEO

  • Long-term AUM Growth Volume · FY27 · Medium confidence 20-25%
    As we get into the next financial year, we come back to our guidance of between 20-25% once this everything settles down.

    — Sachinder Bhinder, MD & CEO

Profitability

  • Credit Cost Profitability · Sustainable · High confidence <25 bps
    We continue to maintain our guidance of keeping credit costs below 25 bps on a sustainable basis.

    — Sachinder Bhinder, MD & CEO

Other

  • 1+ DPD Range Other · FY26 · High confidence <5%
    we are confident of rolling it back and being in a guided range of less than 5%.

    — Sachinder Bhinder, MD & CEO

Risks & concerns

  • Stress in Small Ticket Loans (<₹5 Lakhs)

    medium

    Elevated delinquency levels observed specifically in the sub-₹5 lakh segment in Maharashtra, MP, and Karnataka.

    Management acknowledged

  • Operational Impact of Accounting Change

    low

    Transition to realization-based accounting reduced the sanction-to-disbursement ratio by ~10% to <75% in Q1.

    Both acknowledged

  • High Employee Costs

    low

    Analysts questioned if high headcount per branch negates opex efficiency gains from tech transformation.

    Analyst downplayed

Areas of evasion (1)

  • Slightly vague on the exact quantum of opex benefit expected from tech transformation in the near term.

Q&A highlights

3 direct
Impact of Realization-Based Disbursement Recognition Direct
Starting Q1, we had moved to cheque realization-based recognition process... any cheque which is issued close to 15th or 20th of the month may get realized within the same month, effectively pushing the month end for recognition purposes earlier.

Explains why Q1 disbursements appeared weak (5% decline) and why a significant rollover is expected in Q2.

Asked by Kunal Shah, Citigroup

Asset Quality Deterioration in 1+ DPD Direct
There is a 14-bps Q-o-Q increase in the GNPA, and this is largely seasonal in nature... As for the 1+DPD, it has risen approximately 76 bps Q-o-Q... Encouragingly, we've already seen a reversal in July, which has closed below the 4% mark.

Addresses concerns about a sharp spike in early-stage delinquencies, attributing it to seasonality and specific geographies like Maharashtra and MP.

Asked by Abhijit Tibrewal, Motilal Oswal

High Employee Count per Branch Direct
In the direct distribution model, the employee on roles would be higher than what typically intermediate-led or channel-led kind of distribution would happen... this has a positive impact... the quality which we demonstrate over a period of the last 13 years.

Defends the company's higher opex structure (18 employees/branch vs peers at 11-12) as a deliberate choice for better credit control and lower balance transfer (BT) out rates.

Asked by Raghav Garg, Ambit Capital

2 min read 5 chapters

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.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Financial Services earnings calls