Aavas Financiers Limited — Q2 FY26 earnings call

Call held 11 Nov 2025

Management summary

AAVAS Financiers delivered a strong Q2 FY26 performance characterized by significant margin expansion and robust disbursement growth following a transition in their recognition framework. The company is aggressively expanding its footprint into South India while maintaining industry-leading asset quality despite localized stress in certain pockets. Management's outlook is highly optimistic, backed by a clear roadmap to more than double AUM by FY30.

Highlights

  • Assets Under Management (AUM) reached ₹213.6 billion, growing 16% YoY.

  • Net Profit for Q2 FY26 stood at ₹1.64 billion, an 11% YoY increase.

  • Net Interest Margin (NIM) expanded significantly to 8.04%, up 56 bps sequentially.

  • Disbursements grew 36% QoQ and 21% YoY to ₹15.6 billion.

  • Asset quality remained stable with GNPA at 1.24% and 1+ DPD improving to 3.99%.

  • Return on Assets (ROA) improved to 3.40% and Return on Equity (ROE) to 14.31%.

  • Management set an aspirational AUM target of ₹55,000 crores by FY30.

  • CARE Ratings revised the long-term rating outlook from 'Stable' to 'Positive'.

Key financials

  1. AUM 213.6 Bn +16%YoY
  2. Net Profit 1.64 Bn +11%YoY
  3. NIM 8% +3.3%YoY
  4. GNPA 1.2% 0%QoQ
  5. ROA 3.4% +15.6%QoQ
  6. ROE 14.3% +13.9%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.

Guidance & targets

Volume

  • Full-year AUM Growth Volume · FY26 · High confidence 18%
    Given the current momentum and positive market environment, we now anticipate full-year AUM growth of around 18%.

    — Sachinder Bhinder, MD & CEO

  • AUM Target Volume · by 2030 · Medium confidence ₹55,000 crores
    your aspiration of where you want to scale up your AUM by FY30, which is about Rs. 55,000 crores... we are confident as a management team that we will be able to deliver on the guided level of 20% plus annual growth over the next 5 years.

    — Sachinder Bhinder, MD & CEO

  • Monthly Disbursement Run Rate Volume · H2 FY26 · High confidence ₹700 crores plus

    Previously ₹500 crores → ₹700 crores plus

    over the last 5 months, our monthly disbursement run rate has remained above Rs. 500 crores and with H2 being seasonally strong for us, we are working towards taking this run rate to Rs. 700 crores plus kind of a range.

    — Sachinder Bhinder, MD & CEO

Profitability

  • Credit Costs Profitability · Sustainable basis · 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

Margin

  • Opex-to-Assets Ratio Margin · Medium term · Medium confidence <3%
    We have actually guided that we are committed to bringing the OPEX to asset ratio below 3% over the medium term.

    — Sachinder Bhinder, MD & CEO

Risks & concerns

  • Localized Asset Quality Stress

    medium

    Stress noted in Eastern MP, Karnataka (MFI related), and Surat (tariff related industries like textiles/diamonds).

    Both acknowledged

  • Yield Compression

    medium

    Incremental yields are lower than portfolio yields due to competitive pricing and focus on high-quality customers.

    Analyst acknowledged

  • Balance Transfer Out (BT Out)

    low

    BT Out rose to 5.7% in Q2 from 4.9% in Q1, though management views this as normal seasonal variation.

    Analyst downplayed

Areas of evasion (1)

  • Specific ticket size mix between 5-15 lakhs was withheld as 'business intelligence'.

Q&A highlights

3 direct
Yield Compression and PLR Revision Direct
Our incremental business yield is still lower than our existing portfolio yield, which naturally pulls down the blended portfolio yield... based on how the MCLR transmission plays out in the coming quarter, the ALCO will review and take a considered view on revising the PLR.

Investors are concerned about NIM sustainability as cost of funds drops and competitive pressure might force a Prime Lending Rate (PLR) cut.

Asked by Renish Bhuva, ICICI

Localized Asset Quality Stress Direct
We are seeing pockets of stress, but not material at the portfolio level... states like Karnataka, Madhya Pradesh had seen and Gujarat had some part of tariff industry related disruptions in Surat... less than 1.8% of AUM would be having exposure to those tariff related items.

Identifies specific geographic and sectoral risks (MFI spillover, US tariffs) that management is actively monitoring and mitigating.

Asked by Abhijit Tibrewal, Motilal Oswal

AUM Growth Roadmap to FY30 Direct
8% will be driven by branch expansion in our existing footprint and the new states, 7%-8% comes from our productivity enhancement and 5% is expected from an inflation-led increase in the ticket size.

Provides a granular breakdown of how the company intends to achieve its ambitious 23% CAGR target for AUM.

Asked by Abhijit Tibrewal, Motilal Oswal

2 min read 5 chapters

Detailed narrative

Margin Expansion and Liability Optimization

AAVAS reported a significant sequential expansion in NIMs to 8.04%, driven by a 17 bps improvement in the cost of funds. The company strategically shifted 61% of its borrowings to EBLR-linked and short-tenure MCLR structures, allowing them to benefit faster from falling interest rates than peers. Spreads improved to 5.23%, and management expects this trend to continue as liabilities reprice faster than assets.

Asset Quality Resilience Amid Localized Stress

Despite industry-wide concerns, AAVAS maintained a stable GNPA of 1.24% and improved its 1+ DPD to 3.99%. Management acknowledged localized stress in the Eastern belt of Madhya Pradesh and MFI-related disruptions in Karnataka but noted that exposure to tariff-impacted sectors in Surat is less than 1.8% of AUM. They have proactively tightened credit filters and strengthened field verification in these specific micro-markets.

Strategic Expansion into Southern Markets

The company successfully entered Tamil Nadu with eight new branches and plans to add eight more in H2 FY26. This is part of a contiguous, cluster-based expansion strategy that identifies Andhra Pradesh and Telangana as the next natural growth opportunities. The total branch network is expected to reach 405 across 14 states by the end of the fiscal year.

Vision 2030: The Roadmap to ₹55,000 Crores

Management articulated an ambitious long-term target to reach ₹55,000 crores in AUM by FY30, implying a 20%+ CAGR. This growth is expected to be fueled by branch expansion (8%), productivity enhancements (7-8%), and inflation-led ticket size increases (5%). The company is leveraging its completed digital transformation and in-house sourcing model to drive this scale efficiently.

Operational Efficiency and Productivity

While the Opex-to-Assets ratio saw a marginal sequential increase to 3.51% due to front-loaded investments in employees and branches, the Cost-to-Income ratio improved by 262 bps to 43.7%. Management is committed to bringing the Opex-to-Assets ratio below 3% in the medium term as operating leverage kicks in from higher disbursement volumes, which are targeted to exceed ₹700 crores per month in H2.

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