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IDBI Capital Report
Stocks To Buy: We maintain our estimates and a ‘Buy' rating on Aavas Financiers Ltd. with an unchanged target price of Rs 2,130 valuing it at 3.4 times price/adjusted book value FY26E.
We met the management of Aavas Financiers and discussed about the business momentum as well as asset quality trends. Management remains confident of achieving 20% AUM growth in FY25, aided by 20-25% growth in disbursements. The company remains positive on expanding into Southern markets due to pristine asset quality trends. Spreads are expected to improve to ~5% in Q3 FY25 (versus 4.89% in Q2 FY25), led by higher yield (due to BPLR hike) and lower COF (due to IFC borrowings).
In case of policy rate cut, the spreads will improve even further as 30% of liabilities are linked to External Benchmarks Lending Rate and 20% are linked to shorter duration marginal cost of fund based lending rate. Asset quality is expected to improve strongly in Q3 FY25 with 1+dpd now at 3.81% in Oct-24 versus 3.97% in Sep-24. This is seen declining further in Q3 FY25.
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