Aavas Financiers Q2 Results Review - Growth Momentum Continues; Spreads Decline: Nirmal Bang

Nirmal Bang Report

Aavas Financiers Ltd.'s Q2 FY24 net interest income/pre-provision operating profit/profit after tax stood at a variation of 3.1%/12.2%/10.8% versus our estimates due to higher than expected other income and lower operating expenses.

PAT grew by 14% YoY to Rs 1.2 billion on the back of 22.1% YoY growth in assets under management.

Aavas Financiers is confident of achieving 20-25% AUM growth; we build 22% in FY24E.

Reported spread declined to 5.29% (versus 5.6% in Q1 FY24) on account of higher competitive intensity impacting yields and higher cost of borrowings.

We expect borrowing from National Housing Bank in subsequent quarters to help control cost of funds and maintain spreads at ~5%. While opex is likely to remain elevated in FY24E (opex to AUM ratio of 3.7%), we expect operating leverage to play out in FY25/FY26E.

We marginally adjust our estimates and expect FY25E return on asset /return on equity at 3.2%/14.8%.

Maintain 'Buy' with a target price of Rs 1,935 at 3.4 times Sep-2025E adjusted book per share (versus Rs 2,000 earlier).

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