Aavas Financiers Limited — Q4 FY25 earnings call

Call held 24 Apr 2025

Management summary

AAVAS Financiers reported a strong Q4 and FY25, with AuM crossing INR 200 billion, robust net profit growth, and significant NIM expansion. The company demonstrated improved operational efficiency through cost optimization and maintained pristine asset quality. While spreads saw a slight sequential moderation, management expressed confidence in future growth, leveraging tech platforms and planned branch expansion, despite some caution in the MSME segment.

Highlights

  • AuM reached INR 204 billion, an 18% Y-o-Y growth, crossing the INR 200 billion mark.

  • Net Profit for FY25 grew 17% Y-o-Y to INR 5.74 billion, with Q4 FY25 Net Profit at INR 1.54 billion, up 8% Y-o-Y.

  • Reported NIMs expanded by 37 bps during the quarter to 8.11% in Q4 FY25.

  • Opex to asset ratio reduced by 26 bps Y-o-Y to 3.32% in FY25 due to cost optimization.

  • Asset quality remained pristine with 1+DPD of 3.39% and GNPA at 1.08%, down 6 bps Q-o-Q.

Concerns

  • Spread moderated by 5 bps sequentially to 4.89% in Q4 FY25 due to softening AuM yield by 5 bps to 13.13%.

  • Home loan disbursement for the quarter was about 3% lower compared to last year, with login-to-sanction ratio at 38% vs normal 42%.

  • Cautious optimism in the MSME segment due to rising delinquency in MFI unsecured loans and increasing over-leverage of customers.

Key financials

3 periods

Headline

  • AuM
    ₹20,400 Cr
    YoY +18%
  • 1+DPD (March-25)
    3.4%
  • Net Worth
    ₹4,361 Cr
    YoY +16%
  • CRAR
    44.5%
  • Live Accounts
    2,46,000
    YoY +13%
  • Total ECL Provisioning
    ₹101 Cr

Q4FY25

  • Net Profit
    ₹154 Cr
    YoY +8%
  • NIM
    8.1%
    YoY +14%
  • Calculated Spread
    5.9%
  • Reported Spread
    4.9%
    QoQ -0.05%
  • AuM Yield
    13.1%
    QoQ -0.05%
  • Cost of Borrowing
    8.2%
    QoQ 0%
  • GNPA
    1.1%
    QoQ -0.06%
  • Net Stage 3
    73%
  • RoA
    3.4%
  • RoE
    14.4%

FY25

  • Net Profit
    ₹574 Cr
    YoY +17%
  • NIM
    7.6%
    YoY +13%
  • Opex to Asset Ratio
    3.3%
    YoY -0.26%
  • Credit Costs
    15%
  • RoA
    3.3%
  • RoE
    14.1%
    YoY +18%

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.

Capital allocation

high confidence
  • Debt Gross ₹17,900 Cr Cost 8.2% · Maturity: Average tenure of borrowing continues to be higher than assets with a positive ALM across the buckets.
    • New borrowing Raised NCD from institutional investors, funds to be channelized towards retail loans and green home constructions. ₹630 Cr
    • New borrowing Total borrowings raised in FY25 at 8.42%. ₹6,180 Cr
    Total outstanding borrowing as of 31st March 2025 stood at INR 179 bn. Overall borrowing mix as of 31st March 2025 is 51% from term loans, 25% from assignment, 14% from National Housing Bank refinancing and 10% from Debt Capital Market.
  • Liquidity Cash ₹1,652 Cr · Undrawn ₹1,347 Cr Maintained sufficient liquidity in the form of cash and cash equivalents and unavailed CC limit of INR 16.52 bn and documented unavailed sanction of INR 13.47 bn.
    As of 31st March 2025, we maintained sufficient liquidity in the form of cash and cash equivalents and unavailed CC limit of INR 16.52 bn and documented unavailed sanction of INR 13.47 bn.

Guidance & targets

AuM Growth

  • AuM CAGR AuM Growth · current year · High confidence 20%
    This gives us confidence to return to our guided 20% AuM CAGR, as we've always guided on.

    — Sachinder Bhinder

AuM Target

  • Total AuM AuM Target · next 5 years · High confidence INR 500 billion
    We aspire to reach a milestone of INR 500 bn in assets under management and in the in the coming 5 years and broaden our horizons as a pan India.

    — Sachinder Bhinder

Branch Expansion

  • Branch Expansion Strategy Branch Expansion · H1 FY26 · High confidence Accelerate expansion
    Going ahead, we aim to accelerate our branch expansion strategy in the first half of FY26.

    — Sachinder Bhinder

Opex to Asset Ratio

  • Opex to Asset Ratio Opex to Asset Ratio · sustainable basis · High confidence Below 25 bps
    Our focus continues to underwrite quality business with risk-adjusted return. As a result, our incremental business yield has gone up by 22 bps in FY25.

    — Sachinder Bhinder

Credit Costs

  • Credit Costs Credit Costs · sustainable basis · High confidence Below 25 bps
    We continue to guide credit costs of below 25 bps on a sustainable basis.

    — Sachinder Bhinder

Spread

  • Spread Spread · going forward · Medium confidence 5% plus
    Our first target and our efforts are there to go back to 5% plus spread that we are working around that.

    — Ghanshyam Rawat

Disbursement Growth

  • Disbursement Growth Disbursement Growth · current year · High confidence More than 20%
    And herein, when we talk about, we are confident that we will get across more than 20% disbursement growth in the current year.

    — Sachinder Bhinder

Login-to-Sanction Ratio

  • Login-to-Sanction Ratio Login-to-Sanction Ratio · couple of quarters · Medium confidence 40%
    And what trends or indicators would suggest it normalizing up to, say, maybe to 40% in a couple of quarters or something like that?

    — Yash Gujarathi

Gross NPA

  • Gross NPA Gross NPA · next 1-2 quarters · Medium confidence Below 1%
    Our guidance is 5%, which gives us a confidence that in another 1 or 2 quarters, we will come back to less than 1% of our gross NPA.

    — Ghanshyam Rawat

Stage 3 Provision Coverage

  • Stage 3 Provision Coverage Stage 3 Provision Coverage · going forward · High confidence 30-34%
    Going forward, we see it to remain in the same range of 30 to 33% for stage 3 as a posing requirement. ... Yes, you can take somewhere between 30 to 34%.

    — Ghanshyam Rawat

Opex to AuM Savings

  • Opex to AuM Savings Opex to AuM Savings · FY26 · High confidence 10-20 bps
    I think it's more or less a stabilization level of Opex to AuM. And on a full year basis, as you mentioned, there will be growth impact on Opex side, there will be the technology transformation will also have a positive impact. So, on a full year basis, definitely, we will have a saving of 10 to 20 bps.

    — Ghanshyam Rawat

Loan Mix

  • Home Loan to MSME/LAP Mix Loan Mix · maintain · High confidence 65%:35%
    In the entire loan book and the assets and mix, basically, we have our endeavoured to maintain at home loan between MSME and LAP loan mix is a 65%:35% ratio at the loan book level.

    — Ghanshyam Rawat

What to watch in Q1 FY26

Branch Expansion Acceleration

H1 FY26
Current 30 new branches in FY25, 25 operational in Q4
Target Accelerated expansion in H1 FY26

Why it matters

Indicates commitment to growth strategy and market penetration, crucial for future AuM growth.

Going ahead, we aim to accelerate our branch expansion strategy in the first half of FY26.

Risks & concerns

  • MSME segment asset quality

    medium

    Cautious optimism due to rising delinquency in MFI unsecured loans, increasing over-leverage, and potential waterfall effects from global changes.

    On MSME and overall HL (Home Loan) side, if you look at it, we have been cautiously optimistic. And this stems from the fact that there are certain segments in the industry where we see the rising delinquency in MFI unsecured loans and increasing over-leverage of customers and Waterfall effects, which can come across because of certain global changes in the tariff form.

    Management acknowledged

  • Impact of falling interest rates on spreads

    low

    Analyst concern that falling rates could compress spreads, but management expects to protect spreads due to liability repricing and focus on risk-adjusted disbursement yields.

    And the remaining 20% is linked to 6-month to 1-year MCLR. So, as we have a positive impact on cost of borrowing, which we will pass it on the floating rate asset side. So, we don't think in a falling interest rate scenario, there will be any negative impact on the spread.

    Analyst downplayed

  • Competition aggression from HFC peers or PSU banks

    low

    Analyst concern about increased competition, but management stated they do not directly compete with PSUs and larger HFCs in their target segments (new to credit, new to mortgage).

    One part is that in the segments which we serve, we do not have PSU and others really competing in. As we speak, we are around 20% of new to credit and 92% is new to mortgage customers. So, I think from a segment perspective, from a competition perspective and the market perspective, the PSUs and the bigger range housing finance companies do not really compete in this segment.

    Analyst downplayed

Q&A highlights

7 direct
Asset yields and spread trajectory in easing rate cycle Partial
So strategically, I think it is about the disbursement yields to be really sticking out. I think that will actually help across the spreads in the falling interest rate scenario, it's about whether we'll be able to source the customer at that interest rate. The answer is yes.

Analyst questioned how the company would maintain spreads given a 70% floating rate book and easing rate cycle, and when risk-based pricing would reflect in yields.

Asked by Renish Bhuva

Increase in staff cost sequentially Direct
If you look at it, we have increased 30 branches during the year with the last 25 branches got operational in Q4. So, that is the one which has increased the branch strength, the consequent employee deployment in those branches.

Analyst sought clarification on a sharp sequential increase in staff costs, which management attributed to branch expansion and associated employee deployment.

Asked by Renish Bhuva

Stage 3 provision coverage and negative net slippage Direct
Second piece, Stage 3 increase in the provision. As I mentioned in the last quarter's con-call, we have moved to a new system Bolton. It is an international-level computation of probability of default and ECL methodology. In which, we made two important changes in the system.

Analyst questioned the rising Stage 3 provision coverage and the absence of negative net slippage, leading to management explaining the new ECL methodology and its impact.

Asked by Shreya Shivani

Branch expansion strategy and focus on new territories vs existing states Direct
Even within the existing states, if you look at it, there were 10-plus branches in Karnataka. And as we have always guided, within a range of 3 to 4 years, we open up a new state. So, in the current year, we will have one of the other states, Tamil Nadu, getting opened up with this.

Analyst sought clarity on the branch expansion strategy, noting new branches were concentrated in existing states despite earlier mentions of new territories, and management clarified the phased approach.

Asked by Shweta Daptardar

Lower home loan disbursement and approval ratio Direct
I was talking that despite the logins being at 55,000, our conventional login-to-sanction ratio, which was hovering around 42%. For the quarter, it stood at around 38%, this translated into a lower disbursement.

Analyst questioned the lower home loan disbursements compared to last year and the reduced approval ratio, which management linked to cautious underwriting in emerging scenarios.

Asked by Raghav Garg

Net recoveries/slippage in Q4 and GNPA trend Direct
We, as I explained earlier, our bouncing trend is in control which is similar to what we see earlier, and our 1+DPD has already come down to less than 4%, which gives us a confidence that our rollback of NPA will happen in the next one to two quarters.

Analyst noted a deviation from usual Q4 net recoveries and a marginal increase in GNPA, prompting management to reiterate confidence in asset quality control and future NPA rollback.

Asked by Raghav Garg

Impact of falling interest rates on funding costs and spreads Direct
But we are seeing and observing this trend will change in the coming quarters, where the new borrowing will be at par or lower than my total liability book. And old liability book also gets reset in a faster mode as we see the repo cut, MCLR rate cut, T-bill rate cut that will give a further positive towards my old liability book.

Analyst questioned potential spread compression due to higher incremental borrowing costs and falling yields in an easing rate cycle, to which management explained the lag effect and repricing of liabilities.

Asked by Raghav Garg

Reconciling growth trajectory with margin protection Direct
I think from a margin perspective, we are very clear that, what we have built across last year, we want to further scale up on the margins. And herein, when we talk about, we are confident that we will get across more than 20% disbursement growth in the current year.

Analyst challenged how the company would reconcile its growth aspirations with its focus on margin protection and lower login-to-sanction ratios, prompting management to affirm confidence in both.

Asked by Nischint Chawathe

3 min read 6 chapters

Detailed narrative

Q4 FY25 Performance and FY25 Highlights

AAVAS Financiers achieved a significant milestone, crossing INR 200 billion in AuM, reaching INR 204 billion with an 18% Y-o-Y growth. For FY25, the company disbursed INR 61.2 billion, a 10% Y-o-Y increase, and reported a net profit of INR 5.74 billion, up 17% Y-o-Y. In Q4 FY25, disbursements reached a record INR 20 billion, and net profit grew 8% Y-o-Y to INR 1.54 billion. The net worth compounded at 16% Y-o-Y, and RoE jumped 18 bps Y-o-Y to 14.12% in FY25.

Net Interest Margins and Spreads

The company's reported NIMs expanded by 37 bps during Q4 FY25 to 8.11%, with the FY25 NIM at 7.64%. The calculated spread improved by 15 bps sequentially to 5.87% in Q4 FY25. However, the reported spread moderated by 5 bps sequentially to 4.89% due to a 5 bps softening in AuM yield to 13.13%, while the cost of borrowing remained unchanged at 8.24%. Management aims to return spreads to 5% plus, leveraging risk-adjusted disbursement yields and the repricing of liabilities in a falling interest rate environment.

Asset Quality and Provisioning

AAVAS maintained pristine asset quality, with 1+DPD at 3.39% as of March 2025 and GNPA at 1.08%, down 6 bps Q-o-Q. Net Stage 3 stood at 0.73%. Credit costs improved to 15 bps in FY25 from 16 bps in FY24, with a guidance of below 25 bps on a sustainable basis. Total ECL provisioning, including COVID-19 impact, was INR 1.01 billion. The company updated its ECL methodology using a new system, Bolton, which factors in monthly slippages, rollbacks, and economic changes, leading to Stage 3 provision coverage stabilizing in the 30-34% range.

Operational Efficiency and Technology

The opex to asset ratio reduced by 26 bps Y-o-Y to 3.32% in FY25, reflecting successful cost optimization. The company completed the upgradation of all major tech platforms, which are now stabilizing, setting a foundation for sustainable and scalable growth. Management expects 10-20 bps savings in Opex to AuM for FY26 due to technology transformation and growth impact.

Growth Strategy and Branch Expansion

AAVAS strengthened its distribution network by opening 30 new branches in FY25, with 25 becoming operational in Q4. The company plans to accelerate branch expansion in H1 FY26, particularly in Southern States like Tamil Nadu. The long-term goal is to reach INR 500 billion in AuM within the next 5 years, supported by a guided 20% AuM CAGR and over 20% disbursement growth in the current year. The login-to-sanction ratio for Q4 was 38%, down from a normal 42%, attributed to cautious underwriting.

Liability Management and Liquidity

The company raised INR 6.3 billion in NCDs from institutional investors and total borrowings of INR 61.8 billion at 8.42% in FY25. Total outstanding borrowing as of March 31, 2025, was INR 179 billion, with a mix of 51% term loans, 25% assignment, 14% NHB refinancing, and 10% Debt Capital Market. AAVAS maintains sufficient liquidity with INR 16.52 billion in cash and cash equivalents and unavailed CC limits, plus INR 13.47 billion in documented unavailed sanctions.

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