Aavas Financiers Q2 Results Review - Earnings Inline; Lower Margin Was A Dampener: Systematix

Systematix Research Report

Aavas Financiers Ltd.’s Q2 FY24 net interest income was marginally lower than expected at Rs 2.2 billion (versus our estimate of Rs 2.3 billion) due to 35 basis points QoQ contraction in net interest margins, even as assets under management growth remained steady at 22%.

However, with higher other income and lower opex, operating profit/ profit after tax were inline at Rs 1.6 billion/ 1.2 billion. Operating expenses declined 2% QoQ led by 13.6% QoQ decline in employee cost, on account of one off in Q1.

Asset quality remained broadly stable, with gross stage-III.net stage-III marginally up by 4 basis points/ 3 bp to 1.04%/0.76%. Provision coverage ratio on stage-III assets was slightly up from 26.9% in Q1 to 27.5% in Q2.

One plus days past due improved by ~10 bp QoQ to 3.6%.

We estimate a 23% compound annual growth rate in Aavas Financiers’ AUM to deliver 21% CAGR in earnings over FY23‐25E.

We expect the return on asset to remain stable at 3.5% and return on equity to improve to 15.7% by FY25 (versus 14.1% in FY23) as the leverage builds up.

Key risks:

Inflation pressure might impact the demand for home loans.

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