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.