Aavas Financiers Q2 Results Review - Yields Under Pressure: Dolat Capital

We expect pressure on spreads to continue for the sector over the medium term.

A residential complex. (Source pexels)

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Dolat Capital Report

Aavas Financiers Ltd. reported weak net interest income growth at 19% YoY (-2% QoQ) led by sequential decline in yields. Lower opex however limited impact on profit after tax (Cost/assets declined to 3.5% versus 3.9% in Q1).

Assets under management growth was in-line at 5% QoQ and 22% YoY.  Yield decline was driven by both retention of existing customers and new customers coming in at lower rate.

Aavas Financiers' asset quality metrics were marginally higher (stage 3% up 4 bps QoQ), partly led by seasoning of non-home loan book.

We downgrade earnings by ~4% for FY24/25E led by lower spreads versus earlier. Rolling over to September-25E, maintain 'Accumulate' with target price of Rs 1750, valuing housing finance company at 2.9 times price-to-book value against return on asset/return on equity of 3.6%/16%.

Assigned multiple is lower versuss peers given its relatively modest growth and profitability metrics.

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Dolat Capital Aavas Financiers Q2FY24 Result Update.pdf
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Also Read: Home First Finance Q2 Results Review - Superior Growth Trends Continue: Dolat Capital

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