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Dolat Capital Report
Aavas Financiers Ltd. reported slightly lower net interest income growth at 23% YoY. Higher other income and lower opex compensated for the same, aiding pre-provision operating profit growth of 23% YoY. Assets under management growth was ahead of estimates at 27% YoY and 7% QoQ.
Despite 160 basis points prime lending rate hike through FY23 and increased share of non-home loans, reported yields increased by only 50 bps YoY (60% floating rate loans), resulting in 30 bps YoY decline in spreads. Cost to assets moderated QoQ but remained elevated at 3.8% for full year FY23.
Aavas' asset quality metrics were healthy with stage-III assets at 0.9% (1.1% in Q3), 75 bps moderation in one plus days past due to 3.3%. stage-III provision coverage ratio was strengthened to 27% with overall expected credit loss provisions at 62 bps in Q4.
Even as spreads moderate, we expect stable net interest margin benefitting from utilisation of excess liquidity. Return on assets to be limited by higher opex in the near term.
The stock has corrected by over 25% in the last six months. However, with Sushil Agarwal's exit, the premium versus peers has disappeared, atleast for time being as incumbent's execution and strategy play out.
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