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Dolat Capital Report
The Aavas Financiers Ltd.'s profitability metrics were slightly behind, impacted by rise in leverage and higher opex, even as spreads (+10 basis points QoQ) benefitted from 40 bps prime lending rate hike effective April.
Aavas Financiers' asset quality was impacted by seasonality, in line with peers, with gross stage 3% up 8 bps QoQ and one plus days past due up 38 bps. Assets under management growth at 3% QoQ/23% YoY was somewhat below expectations.
Despite 200 bps prime lending rate hike through the cycle and 60% of loans floating rate, reported yields have increased by only 60 bps over last four quarters, resulting in spreads decline of 20 bps over the period. Cost/assets at 3.9% was elevated.
With unchanged estimates, maintain 'Accumulate' with target price of Rs 1700 (from Rs 1650), valuing housing finance company at three times FY25E price to book value against return on asset/return on equity of 3.5%/15% for FY24E.
Assigned multiple is lower versus peers given its relatively modest growth and profitability metrics.
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