Aavas Financiers stock sees 7% gain amid attractive valuations

Synopsis

Aavas Financiers' stock is recovering after a subdued June quarter, fueled by expectations of improved loan disbursement and attractive valuation. Despite a change in disbursement recognition policy impacting AUM growth, the company anticipates double-digit growth, driven by branch expansion and controlled credit costs. Analysts have revised target prices, with some upgrading their ratings on the stock.

ET Intelligence Group: The stock of Aavas Financiers has gained 7% in the past 10 trading sessions, reducing the decline since August 12 when it declared subdued June quarter numbers to 5%. Expectations of a recovery in loan disbursement in the second half of the current fiscal year and attractive valuation have rekindled investors' interest in the affordable housing finance company. The company expects to maintain a double-digit growth in the assets under management (AUM) in the medium term aided by branch additions while keeping credit costs under control.

The performance of Aavas in the June quarter was impacted by a change in recognition policy for disbursements and lower asset quality. The lender has started recognising disbursements after the funds are credited to the beneficiary account instead of the earlier policy of identifying them after cheque issuance. Due to this, reported disbursements fell by 5% year-on-year to ₹1,145 crore. In the absence of any change in the policy, they would have increased in double digits.

The new method also restricted the year-on-year growth in the assets under management (AUM) at ₹20,739.7 crore to 16% compared with 22% growth in the year-ago quarter and 17% increase in the previous fiscal year.

The company management expects the method change to affect the disbursement growth for the next two quarters. It has reduced the AUM growth guidance to 18-20% for FY26 from the earlier expectation of 20-25% growth.

Agencies

The asset quality showed marginal drop due to seasonal factors. The gross nonperforming asset (GNPA) ratio increased by around 20 basis points to 1.2% in the June quarter. It is expected to moderate in the coming quarters given the improving collections. On the positive side, the spread (difference between yield and cost of borrowings) improved by 10 and 20 basis points year-on-year and sequentially in that order to 5.1% due to benign cost of funds.

The lender has been expanding across various parts of the country, which has reduced the share of the three top states including Rajasthan, Maharashtra and Madhya Pradesh in the AUM to around 65% in FY25 from 80% seven years ago. It had 397 branches across 14 states and union territories as of June 2025; of this, 80% were in the tier three regions.

The company's net interest income rose by 17.8% year-on-year to ₹322.8 crore while net profit grew by 10.4% to ₹139.2 crore.

Given the weakness in the June quarter, analysts have revised target prices downwards while either retaining or upgrading the call on the stock. IDBI Capital has changed the rating to 'buy' from 'hold' while reducing the target price to ₹2,250 from ₹2,340. The stock was traded at ₹1,633.2 on Wednesday on the BSE.

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