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    AAVAS Financiers

    AAVASGood
    Financial Services·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

    8
    • 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

    What Changed1

    vs Q2 FY26

    Guidance items5 → 4 (-1)

    Key financials

    Single quarter

    06 metrics
    1. 01AUM207 bn+16%YoY
    2. 02Net Profit1.4 bn+10%YoY
    3. 03NIM7.5%+2.3%YoY
    4. 04GNPA1.2%+13%QoQ
    5. 05Spread5.1%+4.5%QoQ

    Segment breakdown

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

    Guidance & targets

    4
    CategoryTargetPriority
    Volume
    AUM Growth
    18-20%
    High
    Volume
    Long-term AUM Growth
    20-25%
    Medium
    Profitability
    Credit Cost
    <25 bps
    High
    Other
    1+ DPD Range
    <5%
    High

    Risks & concerns

    4
    RiskSeverity

    Stress in Small Ticket Loans (<₹5 Lakhs)

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

    medium

    Operational Impact of Accounting Change

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

    low

    High Employee Costs

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

    low

    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

    “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

    2 min read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.