Aavas Financiers Upgraded To ‘Buy’ By IDBI Capital Despite AUM Growth Slowdown In Q1; Sees 30% Upside

Aavas reported decline in disbursements post change in recognition process; disbursements de-grew by 5% YoY. Thus, AUM growth slowed down to 16% YoY vs 18% YoY (Q4 FY25). Management revised guidance downwards to 18-20% vs 20-25% AUM growth for FY26.

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IDBI Capital Report

IDBI Capital has upgraded Aavas Financiser Ltd. from ‘Hold' to ‘Buy’ with a revised target price of Rs 2,250 (earlier Rs 2,340), citing an 18% stock correction and an expected 30% return from current levels (CMP Rs 1,725). The stock is valued at 3.2x FY27E P/ABV.

The decline in disbursements (-5% YoY) was attributed to a policy change that now recognizes disbursements only upon fund credit rather than on cheque issuance. This created delays in recognizing revenues, especially for builder and resale segments.

Under the old policy, the company asserts disbursements would have grown in double digits. Normalization is expected by Q3 as July already saw 16% disbursement growth.

Asset quality saw seasonal weakening, with GNPAs at 1.22% (vs 1.08% QoQ) and a notable jump in early delinquency indicators (1+ DPD rose to 4.15%). Management expects credit cost to stay under 25 bps going forward, with gross Stage 3 ratio to remain under 1.25%.

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