Arman Financial Services Limited — Q4 FY26 earnings call

Call held 29 May 2026

Management summary

Arman Financial Services Limited delivered strong Q4 FY26 results, with record AUM and significant PAT growth, driven by improved asset quality and collection efficiency. The company has implemented structural changes to its credit and recovery functions, leading to higher operating costs but enhanced portfolio resilience. Management aims for disciplined growth and cost optimization in FY27, while acknowledging ongoing macroeconomic uncertainties and competitive pressures in certain segments.

Highlights

  • AUM crossed record INR2,728 crores in FY '26, representing 22% YoY growth, demonstrating consistent execution and disciplined efforts.

  • Consolidated PAT for Q4 FY '26 stood at INR41 crores, an 85% sequential growth and 220% YoY growth, driven by improved operating environment and lower impairment cost.

  • Asset quality trends improved significantly throughout FY '26, with GNPA at 3.4% and NNPA at 0.95%, reflecting benefits of separated credit and recovery structure.

  • Collection efficiency for all segments stood above 96% in Q4 '26, with zero bucket collections at 99.5% plus, indicating delinquencies returning to normal pre-cycle levels.

  • The company maintains a healthy liquidity profile with INR229 crores available liquidity and INR275 crores in undrawn sanctions, supporting future business growth.

Concerns

  • The operating environment remains uncertain due to broader economic factors, domestic stress in pockets of the economy, and global uncertainty including the West Asia conflict.

  • Elevated rejection rates and significantly higher operating costs due to the new individual-based credit model, which requires a larger team for detailed underwriting and monitoring.

  • Growth in the LAP segment is expected to be moderate (20-25%) due to its competitive environment and the extensive paperwork involved.

Key financials

3 periods

Headline

  • Consolidated AUM
    ₹2,728 Cr
    YoY +22%
  • Consolidated Quarterly Disbursements
    ₹951 Cr
  • Consolidated GNPA
    3.4%
  • Consolidated NNPA
    0.95%
  • Microfinance AUM
    ₹1,999 Cr
    YoY +19%
  • Stand-alone AUM
    ₹730 Cr
    YoY +30%
  • Stand-alone Quarterly Disbursement
    ₹213 Cr
  • Average Cost of Borrowing
    12%
  • Marginal Cost of Borrowing (past 2 quarters)
    11.8%
  • Consolidated ROA
    2.3%

Q4 FY26

  • Consolidated PAT
    ₹41 Cr
    YoY +220% QoQ +85%
  • Microfinance Disbursements
    ₹738 Cr
    YoY +88% QoQ +62%
  • Collection Efficiency
    96%

FY26

  • Consolidated PAT
    ₹57 Cr
    YoY +9%

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 AUM
₹2,729 Cr Total
  • Microfinance ₹1,999 Cr 73.3%
  • Stand-alone (MSME, LAP, 2-Wheeler) ₹730 Cr 26.7%

Capital allocation

high confidence
  • Liquidity Undrawn ₹275 Cr Company maintains a healthy liquidity profile with available liquidity of INR229 crores, comprising of cash bank balances, liquid investments, undrawn CCs, FDOD limits, etcetera. In addition, we have undrawn sanctions of INR275 crores from existing lenders as of March end, providing adequate financial flexibility to support future business growth.
    The company continues to maintain a healthy liquidity profile with available liquidity of INR229 crores, comprising of cash bank balances, liquid investments, undrawn CCs, FDOD limits, etcetera. In addition, we have undrawn sanctions of INR275 crores from existing lenders as of March end, providing adequate financial flexibility to support future business growth.

Guidance & targets

Profitability

  • Consolidated ROA Profitability · future consistent growth · Medium confidence 3.5% - 4% plus
    figure, to be honest, but definitely 3.5%, 4% plus is sort of easy to expect, all things considered, if our growth trajectory remains consistent.

    — Aalok Patel

  • Microfinance Opex to Asset Ratio Profitability · this year (FY27) · Medium confidence 7%

    From 9% today

    This year, we are probably targeting to bring it around 7%-odd. That is the target that we have set ourselves. So from 9% to 7%.

    — Aalok Patel

  • Microfinance Opex to Asset Ratio Profitability · short to medium term · Low confidence 6%
    It may be possible to bring it down to, let's say, around 6% in the short to medium term.

    — Aalok Patel

  • Credit Cost Profitability · normalized year (FY27 implied) · Medium confidence 3%
    I think that's a ballpark a good number of 3%. Yes, I think we should be able to pull that off.

    — Aalok Patel

  • Consolidated Opex (as % of AUM) Profitability · future · Medium confidence 7%
    Amit on absolute terms probably will be slightly upward to 7%. It will depend on how many branches eventually we open up and, you know, how things pan out. But largely, as Aalok was saying earlier, the target is to maintain it or bring it down to about 7%.

    — Vivek Modi

Volume

  • MSME AUM Growth Volume · FY27 · Medium confidence 25%
    And MSME as well, we are targeting somewhere around 25%-odd growth in FY27. Can we push it more? Of course, we can.

    — Aalok Patel

  • LAP AUM Growth Volume · FY27 · Medium confidence 20% - 25%
    So definitely, we can expect it to grow by 20%, 25%, but not like a huge jump or anything like that.

    — Aalok Patel

  • Consolidated AUM Volume · 18-24 months (implied from previous discussions) · Low confidence INR5,000 crores
    The last cycle as a bit superstitious, so I'm not going to say anything. That aspiration amount still remains, but when and how we achieve it in the...

    — Aalok Patel

What to watch in Q1 FY27

Microfinance Opex to Asset Ratio

FY27
Current ~9%
Target ~7%

Why it matters

Management has explicitly targeted a significant reduction in this ratio, which is crucial for improving overall profitability and operational efficiency.

This year, we are probably targeting to bring it around 7%-odd. That is the target that we have set ourselves. So from 9% to 7%.

Risks & concerns

  • Broader economic uncertainty and global conflicts

    medium

    The operating environment is yet to fully normalize, with domestic stress in pockets of the economy and global uncertainty including disruptions caused by the West Asia conflict.

    Management acknowledged

  • Elevated operating costs due to new credit model

    medium

    The new credit model requires a larger team for detailed underwriting and monitoring, leading to significantly higher operating costs, which will be a key focus to control in FY27.

    Management acknowledged

  • Competition in LAP and MSME segments

    medium

    Increased competition from other NBFCs and MFIs entering the LAP product space makes it a competitive environment, though management prefers competition over quality issues.

    Management acknowledged

  • Sales team pushback on high rejection rates

    low

    While currently manageable due to past difficulties, there is a potential for sales teams to push back on high rejection rates in the future, requiring continuous communication and training.

    Analyst acknowledged

Q&A highlights

7 direct
Cost of borrowing trajectory and NIM outlook Direct
The marginal costs have been declining. Average cost of borrowing continues to be approximately 12%. While the marginal cost in the past 2 quarters would have been 11.75%.

Provides specific figures on funding costs and management's view on future trajectory, which impacts NIM.

Asked by Rohan Mehta

Consolidated ROA outlook for FY27 Direct
figure, to be honest, but definitely 3.5%, 4% plus is sort of easy to expect, all things considered, if our growth trajectory remains consistent.

Gives a clear numerical target for profitability, indicating management's confidence in future performance.

Asked by Rohan Mehta

Opex to asset ratio and path to normalization Direct
This year, we are probably targeting to bring it around 7%-odd. That is the target that we have set ourselves. So from 9% to 7%.

Addresses a key concern about rising operating costs and provides a specific target for improvement, crucial for long-term profitability.

Asked by Ronak Chheda

Growth outlook for MSME and LAP segments Direct
And MSME as well, we are targeting somewhere around 25%-odd growth in FY27. Can we push it more? Of course, we can.

Provides specific growth targets for key non-microfinance segments, indicating diversification strategy.

Asked by Ronak Chheda

LAP product asset quality (PAR 30-90 and GNPA spike) Partial
I mean, it's the same spike, what do you need to understand that, it's a relatively new portfolio. So yes, we've seen some few cases getting to the 90 in that LAP product. and I didn't think we had much of a problem. No, no, I mean, every NPA is a problem, but then it's -- the GNPA is 0.74%. So probably 4 or 5 cases there seems.

Addresses a potential red flag in a newer portfolio, clarifying the nature and scale of the issue and management's comfort level.

Asked by Rudraksh Raheja

Impact of CGFMU on asset quality and NPAs Direct
Absolutely. Yes. Correct. As long as you get the claims, it should cover about 72%. So yes, that risk hedge is always there in the form of CGFMU.

Clarifies the protective role of the CGFMU scheme in mitigating credit risk and its implications for reported NPAs, providing comfort on asset quality.

Asked by Prit Nagersheth

Discrepancy between LAP disbursements and book growth Direct
So, Amit, the loan book has not grown significantly because there was this INR10 crores A couple of large ticket loans that we've done, which has seen some early payments closure.

Explains why high disbursements in LAP did not translate to proportional book growth, attributing it to early payments on large ticket loans.

Asked by Amit Mantri

Competitive scenario in Microfinance and other segments Direct
So, the competition now is referring to one of the previous callers was regarding Micro LAP. Competition is always in flux. So, there was a time 6 months ago, where everybody was talking about diversifying, reducing MFI book and many other things that I think -- I'm not sure if I said it in one of the con calls.

Provides insights into the evolving competitive landscape and management's strategy to navigate it, highlighting shifts in market dynamics.

Asked by Vinay Ambekar

3 min read 8 chapters

Detailed narrative

Strong Q4 FY26 Performance and Full-Year Growth

Arman Financial reported a robust Q4 FY26, with consolidated profit after tax reaching INR41 crores, an 85% sequential and 220% year-on-year growth. For the full fiscal year 2026, PAT stood at INR57 crores, reflecting a 9% year-on-year increase. The company's AUM crossed a record INR2,728 crores in FY26, growing 22% year-on-year, supported by highest-ever quarterly disbursements of INR951 crores.

Asset Quality Improvement and Collection Efficiency

Asset quality trends improved significantly throughout FY26, with consolidated GNPA reducing to 3.4% and NNPA to 0.95%. These improvements are attributed to the separation of credit and recovery functions, disciplined credit assessment, and stronger monitoring efforts. Collection efficiency for all segments stood above 96% in Q4 FY26, with zero bucket collections at 99.5% plus, indicating a return to pre-cycle delinquency levels.

Strategic Realignment and Operational Changes

The company has undertaken significant structural changes, including the complete separation of credit and recovery functions from branch operations, which has been successfully implemented across most branches. This realignment has improved accountability, monitoring, and collection efficiencies. Furthermore, the underwriting approach has shifted from group-based JLG to a more individual-level credit evaluation, assessing customers based on prepayment capacity, cash flows, and credit history.

Microfinance Business Momentum

The Microfinance business saw its AUM grow 19% year-on-year to INR1,999 crores. Disbursements for Q4 FY26 were INR738 crores, an 88% year-on-year and 62% sequential growth, contributing to a full-year disbursement of INR1,798 crores. Gross total income for the Microfinance segment in Q4 FY26 was INR117 crores, with pre-provisioning operating profit at INR41 crores and PAT at INR29 crores.

Standalone Business (MSME, LAP, 2-Wheeler) Performance

The standalone AUM, comprising MSME, LAP, and 2-Wheeler businesses, grew 30% year-on-year to INR730 crores, with MSME contributing 76% of the portfolio. Quarterly disbursements for this segment stood at INR213 crores, leading to a full-year disbursement of INR636 crores. Asset quality remained stable, with GNPA for MSME at 3.84% and 2-Wheelers at 3.95%. The LAP business reached breakeven this year.

Elevated Operating Costs and Future Outlook

The new credit model and dedicated recovery teams have led to significantly higher operating costs, with the Microfinance opex to asset ratio currently around 9%. Management aims to reduce this to 7% in FY27 and potentially 6% in the short to medium term. The consolidated ROA is targeted to improve to 3.5%-4% plus, assuming consistent growth.

Liquidity and Capital Position

The company maintains a healthy liquidity profile with INR229 crores in available liquidity, including cash, bank balances, and undrawn credit lines. Additionally, INR275 crores in undrawn sanctions from existing lenders provide financial flexibility. Capital adequacy ratios remain strong, with Namra Finance at 27.86% and the standalone business at 41%.

Solar Loan Pilot and Future Growth Strategy

Arman Financial has launched a pilot for solar loans in Gujarat, targeting customers who can benefit from government subsidies for rooftop solar installations. This initiative aims to leverage the rural market where competition is less intense. The company's overall strategy for FY27 focuses on responsible and disciplined growth within defined risk parameters, emphasizing total quality over aggressive growth.

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