Aavas Financiers To See Better Loan Growth In FY25 With Tech Upgrade, Says Jefferies
Jefferies sees the company's productivity metrics improving as the new loan origination system has reduced the average turn-around time.
Aavas Financiers Ltd.'s loan growth is expected to improve after the technology rollout is complete, according to Jefferies.
The adoption of new technology platforms in its more than 350 branches and attrition affecting loan sourcing had an impact on loan growth, the brokerage stated in a note on Wednesday.
Adding to this, the various initiatives undertaken by the financer too will help boost credit growth, the brokerage said. The company is targeting loan growth at the top end of its 20–25% guidance.
Now, the company is aiming to diversify the loan sourcing channels by connecting with local sourcing ecosystems rather than relying on direct sourcing channels. It intends to expand branches by 10%, Jefferies said.
The company has already tied up with e-mitra, the Rajasthan government's network, to offer multiple services.
The brokerage sees the financier's productivity metrics improving as the new loan origination system has reduced the average turn-around time.
To tackle the attrition issue, Aavas Financiers has revamped the incentive structure, offering restrictive stock units and decentralising HR to manage people issues locally.
Aavas Financiers has hiked its lending rates by 25 basis points with effect from March 1 in order to offset the pressure on its margin. Management expects the cost of funds to rise by 40 basis points due to tighter liquidity, the brokerage said.
The brokerage forecasts NIM to fall to 7% over FY25–26, from 7.1% in FY24, as it expects NIM to stay under pressure in the near term.
The company's yield came under pressure despite hiking lending rates as its core lower-ticket housing loan sourcing reduced its owning to attrition at the field level, Jefferies said.
Operating expenditure will also moderate once the impact of tech rollout expenditure fades, the brokerage said.
Jefferies has maintained a 'buy' rating on the stock with a target price of Rs 1,940 apiece, implying an upside of 32.91% from Tuesday's closing price.
Key Takeaways
Jefferies maintains 'buy' on Aavas Financiers with a target price of Rs 1,940 apiece, implying an upside of 32.91% from Tuesday's closing price.
The financier is diversifying sourcing channels by tying up with local ecosystem channels, the brokerage said.
Productivity metrics to improve and turnaround time to fall from 13 days to 9 days.
Hiking of lending rates to offset pressure on NIM; NIM expected at 7% in FY25–26.
Jefferies expects a 25% CAGR on EPS and ROE expansion over FY24–26.