Arman Financial Services Limited — Q3 FY26 earnings call

Call held 16 Feb 2026

Management summary

Arman Financial Services Limited delivered a strong Q3 FY26, with consolidated AUM growing 7% sequentially to INR2,274 crores and PAT increasing 177% QoQ to INR22 crores. The MFI subsidiary, Namra Finance, returned to profitability with INR13 crores PAT, driven by improved asset quality (GNPA at 3.4%) and collection efficiency (96.3%). The company is focusing on calibrated growth, product innovation, and strengthening its institutional framework, while managing increased operating expenses related to new structures and CGFMU coverage.

Highlights

  • Consolidated AUM grew 7% sequentially to INR2,274 crores, reflecting improving demand.

  • Consolidated disbursements increased 30% sequentially to INR612 crores in Q3 FY26, supported by sharper credit screening.

  • Consolidated PAT rose 177% sequentially to INR22 crores in Q3 FY26, indicating broader normalization.

  • Namra Finance, the MFI subsidiary, returned to profitability with INR13 crores PAT in Q3 FY26 after four consecutive quarters of losses.

  • Consolidated GNPA improved to 3.4% in Dec 2025 from 3.69% in Q2 FY26, with NNPA at 0.77%.

  • Collection efficiency improved to 96.3% in Dec 2025, reflecting strengthening borrower behavior.

Concerns

  • Operating expenses increased due to investments in BCM structure, separated teams, recovery teams, and CGFMU premiums.

  • Namra Finance still reported a 9-month FY26 loss of INR16 crores, despite returning to profitability in Q3.

  • The market for MFI clients is becoming smaller due to auto-rejection of past defaulters, leading to higher rejection rates (75-77%).

Key financials

  1. Consolidated AUM ₹2,274 Cr +7%QoQ
  2. Consolidated Disbursements ₹612 Cr +30%QoQ
  3. Consolidated Gross Total Income ₹160 Cr
  4. Consolidated PPOP ₹55 Cr
  5. Consolidated Impairment Costs ₹26 Cr
  6. Consolidated PAT ₹22 Cr +177%QoQ
  7. Consolidated GNPA 3.4%
  8. Consolidated NNPA 0.77%
  9. Consolidated Collection Efficiency 96.3%
  10. Stand-alone Arman CAR 38.3%
  11. Namra Finance CAR 52.3%

What they filed

Q1 FY27: revenue up 33.8%, net profit up 400.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue181 165 199 151 159 −12%160 −3%176 −12%202 +34%
Net profit15 -7 13 -15 8 −47%22 +414%41 +215%45 +400%
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

Share of PAT
₹22.4 Cr Total
  • Namra Finance (MFI Subsidiary) ₹13 Cr 58.0%
  • Stand-alone Arman (Non-MFI) ₹9.4 Cr 42.0%

Capital allocation

high confidence
  • Debt Debt disclosed
    • New borrowing Board approved raising up to INR500 crores through NCDs on a private placement basis. ₹500 Cr
    • New borrowing Raised INR522 crores of debt for balance sheet strengthening. ₹522 Cr
    On the liquidity and capital front, the Board has approved raising up to INR500 crores through NCDs on a private placement basis, providing us with additional financial flexibility to support future growth. During the quarter, we also raised INR522 crores of debt for the strengthening our balance sheet.
  • Liquidity Cash ₹247 Cr INR247 crores in cash and bank balances, liquid investments, and undrawn CC limits ensures adequate headroom for business expansion.
    In addition, our liquidity position remained healthy with INR247 crores in cash and bank balances, liquid investments, undrawn CC limits which ensures adequate headroom to support business expansion.

Guidance & targets

Growth

  • Overall AUM Growth Growth · FY27 · Medium confidence 25%
    I would say in FY '27, roughly speaking, I would be comfortable growing maybe 25%, just throwing a figure in the air.

    — Aalok Patel

Leverage

  • Debt to Equity Ratio Leverage · Medium confidence 3x-3.5x
    Right now, our debt equity is less than 2x, in fact, less than 1.5x for that matter. But having said that, I mean, with the new normal, the first milestone would be to reach a debt equity of at least 3x, 3.5x.

    — Vivek Modi

Efficiency

  • Opex Ratio (as % of AUM) Efficiency · Medium confidence 4.5-5%
    I would love for them to at about 4.5%. Well, for Microfinance consol level, let's say, about probably 4.5% to about 5% of total AUM. Typically, I think, the good new target to see.

    — Aalok Patel

Disbursements

  • Solar Loan Disbursements Disbursements · March 2026 · Medium confidence INR1 crore/month
    The goal is in this quarter to reach about INR1 crores of disbursement monthly by March, hopefully.

    — Aalok Patel

Portfolio Size

  • LAP Portfolio AUM Portfolio Size · next 2-3 years · Medium confidence INR500 crores
    It's definitely possible even going pass that, because the LAP ticket sizes are larger and the stickiness is higher as well because the tenure is higher.

    — Aalok Patel

Asset Quality

  • Consolidated GNPA Asset Quality · Q4 FY26 · High confidence further reduction
    My judgment tells me that, yes, definitely, in Q4, it should go down further.

    — Aalok Patel

What to watch in Q4 FY26

Consolidated GNPA

Q4 FY26
Current 3.4% (Dec 2025)
Target Further reduction

Why it matters

Continued improvement in asset quality is crucial for sustained profitability and investor confidence.

My judgment tells me that, yes, definitely, in Q4, it should go down further.

Risks & concerns

  • Macroeconomic pressures and industry-specific challenges

    medium

    The industry faced challenges including over-leveraging, low rural incomes, JLG culture change, regulatory uncertainties, and political developments, which created short-term uncertainty but also led to more disciplined MFI practices.

    Management acknowledged

  • Shrinking serviceable market for MFI clients due to auto-rejection of past defaulters

    medium

    For most MFIs, past defaulters are auto-rejected, leading to a smaller client pool and higher rejection rates (75-77%), which the industry needs to address.

    Management acknowledged

  • Increased operating expenses due to strategic investments

    low

    Opex has increased due to the implementation of the BCM structure, separated underwriting and recovery teams, and CGFMU premiums, though management views these as value-accretive investments.

    Management acknowledged

Q&A highlights

6 direct
Future growth rate and strategy post-crisis Direct
I would say in FY '27, roughly speaking, I would be comfortable growing maybe 25%, just throwing a figure in the air. But I think we are going to stop doing those kinds of things that, okay, we want to grow at 40% and what do we need to get there. I think it needs to be a function of many, many different things.

Management outlined a more calibrated and sustainable growth strategy post-crisis, targeting approximately 25% growth in FY27, driven by product innovation rather than aggressive expansion.

Asked by Karthik Srinivas

Impact of CGFMU coverage on provisioning and Provision Coverage Ratio (PCR) Direct
Yes. You're right. Because you're paying for the default guarantee cover and you're covered. For every INR100 that you kind of take a coverage for, the default guarantee cover applies to about 75% of it. So the provision requirement to that extent will come down.

Management confirmed that CGFMU coverage, now at 82% of the MFI book, will lead to a reduction in provisioning requirements, although it will increase operating expenses due to premiums.

Asked by Karthik Srinivas

Progress and scale-up of Micro LAP and new solar loan pilots Direct
I think, we are out of that project phase because today, we're doing it across at least three states. And we have move into UP, -- I mean, that way, we can clearly say that it's definitely not a project phase, and we are looking at scaling it up in all these geographies where we are comfortable with. ... The goal is in this quarter to reach about INR1 crores of disbursement monthly by March, hopefully.

Management indicated that Micro LAP has moved beyond the pilot phase and is scaling across multiple states, while the new solar loan product shows promising early traction with a target of INR1 crore/month disbursement by March.

Asked by Ronak Chheda

Reasons for increased operating expenses and target opex ratio Direct
So opex has definitely increased. There is no denying it. I mean, I've covered this in previous calls as well, but largely, I added the whole BCM structure, which is expensive. We separated operations completely from credit. And so that adds to the opex. We have a big recovery team, which is in place, which is collecting a good bit of money that otherwise would have gone into NPAs and provisioning and write-offs. ... I would love for them to at about 4.5%. Well, for Microfinance consol level, let's say, about probably 4.5% to about 5% of total AUM.

Management attributed the rise in opex to strategic investments in the BCM structure, dedicated recovery teams, and CGFMU premiums, viewing these as value-accretive, with a target opex ratio of 4.5-5% of AUM.

Asked by Sarvesh Gupta

Credit quality comparison between BCM-originated and non-BCM originated loans Direct
So on average, non-BCM originated customers post, let's say, November of 2024, compared to BCM originated cases post November 2024, there is almost a 50% difference in the default rates. So but the default rate is low as it is.

Management provided quantitative evidence that BCM-originated loans exhibit significantly lower default rates (almost 50% better) compared to non-BCM originated loans, validating the effectiveness of their new underwriting model.

Asked by Srinivas V.

Outlook on MFI GNPA and whether current levels represent the bottom of the credit cycle Direct
My judgment tells me that, yes, definitely, in Q4, it should go down further. ... But where the industry stands today, it would be hard for me to say, we will ever go below 3%, for example.

Management expects consolidated GNPA to reduce further in Q4 FY26, indicating continued asset quality improvement, though they expressed caution about sustained levels below 3% for the industry.

Asked by Shyam Sampat

3 min read 8 chapters

Detailed narrative

Leadership Transition and Strategic Direction

Arman Financial Services Limited announced key leadership changes, with Mr. Aalok Patel transitioning to Vice Chairman & Managing Director and Mr. Vivek Modi appointed Executive Director and Group CFO, both pending shareholder approval. Management emphasized a commitment to calibrated, value-driven growth, learning from past crises. The company's future strategy focuses on product innovation and improved underwriting, moving beyond traditional JLG models to better assess customers and offer diverse products.

Consolidated Financial Performance Overview

The company reported a strong Q3 FY26, with consolidated AUM reaching INR2,274 crores, a 7% sequential growth. Consolidated disbursements surged 30% sequentially to INR612 crores. Gross total income for the quarter stood at INR160 crores, contributing to INR470 crores for the nine months. Profit after tax (PAT) saw a significant 177% sequential increase to INR22 crores for the quarter, with nine-month PAT at INR16 crores.

Microfinance (Namra Finance) Performance

The MFI subsidiary, Namra Finance, demonstrated a strong recovery, returning to profitability with INR13 crores PAT in Q3 FY26 after four consecutive quarters of losses. Its MFI portfolio grew 7.3% sequentially to INR1,618 crores, supported by INR455 crores in disbursements. Net interest margins improved to 14.77%, and 82% of the MFI portfolio is now covered under the CGFMU scheme, providing additional risk protection.

Stand-alone Arman (Non-MFI) Business Growth

The stand-alone Arman business, focusing on non-MFI segments, saw its AUM grow 28% YoY to INR657 crores, with 74% in the MSME book. Disbursements for the non-MFI portfolio totaled INR163 crores in Q3 FY26, including INR115 crores in MSME, INR32 crores in two-wheeler, and INR16 crores in Micro LAP. The company also piloted solar loans, disbursing INR56 lakhs in two months, with a target of INR1 crore/month by March 2026.

Asset Quality and Collection Efficiency Improvements

Asset quality trends strengthened across the board. Consolidated GNPA improved to 3.4% in December 2025 from 3.69% in Q2 FY26, with NNPA at 0.77%. Collection efficiency for the consolidated entity improved to 96.3% in December 2025. Management noted that early delinquency indicators (PAR 30-90 bucket) showed sequential improvement, particularly in Microfinance, and expects GNPA to reduce further in Q4 FY26.

Capital and Liquidity Position

Arman Financial maintains a robust capital and liquidity position. The Board approved raising up to INR500 crores through NCDs via private placement, and INR522 crores of debt were raised during the quarter. The stand-alone entity's capital adequacy ratio (CAR) stood at 38.3%, and Namra Finance's CAR was 52.3%, both well above regulatory requirements. The company holds INR247 crores in cash, bank balances, liquid investments, and undrawn CC limits.

Operating Expenses and Efficiency

Operating expenses increased due to strategic investments in the BCM structure, separation of underwriting and recovery teams, and CGFMU premiums (INR7 crores this year). Management views these as necessary investments that enhance accountability and collection, providing more value than the cost. The company aims to settle its opex ratio at approximately 4.5-5% of total AUM for the Microfinance consolidated level.

Product Innovation and Diversification

Arman is actively pursuing product innovation, particularly in its stand-alone business. The Micro LAP portfolio is expanding across multiple states, moving beyond the pilot phase. A new solar loan product has been introduced, targeting rural households and small businesses, with initial disbursements of INR56 lakhs. This diversification strategy aims to build a more resilient company and capture new growth opportunities.

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