Summary
Aavas Financiers Limited - Q3 FY26 Earnings Call Summary Thursday, February 05, 2026 05:30 P.M. IST
Event Participants
Executives 4 Ashutosh Atre (CRO), Ghanshyam Rawat (CFO), Rakesh Shinde (Head IR), Sachinder Bhinder (MD & CEO)
Analysts 6 Abhijit Tibrewal (Motilal Oswal), Chintan Shah (ICICI Securities), Kunal Shah (Citigroup), Raghav Garg (Ambit Capital), Rajiv Mehta (Yes Securities), Shreepal Doshi (Equirus), Sonal Gandhi (AM Securities)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Assets Under Management (AUM) | ₹22,200 crores | +15% YoY; Crosses ₹20,000 cr milestone, supported by stable demand in core segments. |
| Disbursements | ₹1,720 crores | +10% QoQ; Normalizing after Q1 transition; Sanction-to-disbursement ratio improved to >80%. |
| Gross NPA (Stage 3) | 1.19% | -5 bps QoQ; Pristine asset quality maintained with 1+ DPD improving to 3.80% from 3.99% QoQ. |
| Net NPA (Stage 3) | 0.79% | Indicates strong provisioning and recovery efforts. |
| Net Interest Margin (NIM) | 8.01% | +27 bps YoY; Benefited from yield management and lower cost of funds. |
| Spreads (Reported) | 5.34% | +40 bps YoY; Calculated spread increased 65 bps YoY due to proactive liability repricing. |
| Cost of Funds | 7.66% (9M) | -16 bps QoQ; Shift toward EBLR and market-linked benchmarks (69% of book) aided faster repricing. |
| PAT | ₹170 crores | +16% YoY; Driven by strong NII growth of 17% YoY and operational efficiency. |
| Cost-to-Income | 42.9% | -75 bps QoQ; Efficiency gains realized despite ESOP costs and digital investments. |
| ROA / ROE | 3.43% / 14.29% | ROA +6 bps YoY; ROE +8 bps YoY; Net worth compounded at 16% YoY. |
| CRAR | 46.4% | Significantly above regulatory requirements; Tier-1 remains robust. |
Geographic & Segment Commentary
- Rajasthan & Core Markets: Rajasthan continues to grow at ~20% CAGR despite a high base (₹7,400 cr AUM); the state remains the bedrock of asset quality with 111 branches. Focus remains on deeper penetration via the Resident Relationship Officer (RRO) model.
- Uttar Pradesh & Emerging States: Management identifies UP as a key acceleration state for FY27, targeting deeper district-level expansion after 5 years of stable performance. Haryana and Delhi are also viewed as growth drivers.
- Southern Expansion: Entered Tamil Nadu with 17 branches (10 new + 7 planned); Karnataka operations are stabilizing post-regulatory hurdles (e-Khata) with improving credit environments. Strategy remains cautious to ensure “first-time-right” credit culture in new markets.
Company-Specific & Strategic Commentary
- Branch Excellence Program: Launched five sub-projects (Neev, Nipun, Sampoorn, Setu, RISE) to institutionalize discipline, improve turnaround times, and enhance frontline productivity.
- Liability Transformation: Strategically shifted 69% of borrowings to floating/short-term benchmarks (35% EBLR, 34% sub-3-month MCLR), allowing the company to lead peers in cost of funds reduction.
- Digital Sourcing: Digital channels like CSC and eMitra are projected to contribute incremental disbursements of ₹500 crores in FY27 as the digital ecosystem matures.
- Customer Benefit Pass-through: Decided to pass on 15 bps of the repo rate cut to 70% of the floating-rate book effective March 1, 2026, while targeting 5.20-5.25% sustainable spreads.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Disbursement Growth | 25%+ for FY27 | Driven by ₹500cr from digital, ₹300cr from new branches, and ₹400cr from inflation/ticket size. |
| AUM Growth | 17% - 18% for FY27 | A 300 bps improvement over FY26 growth as macro headwinds ease. |
| Branch Expansion | 50 New Branches in FY27 | Focus on “Model Branches” with lower infra costs and RRO conversions. |
| Spreads | 5.00% - 5.25% (Long-term) | Management confident of maintaining >5% despite passing interest benefits to customers. |
| Credit Cost | < 25 bps | Sustained by “Credit First” approach and predictive analytics for collections. |
| Opex Savings | ~25 bps reduction in FY27 | Benefits from scale, digital integration, and productivity gains. |
Risks & Constraints
| Risk | Context |
|---|---|
| Yield Compression | The 15 bps PLR cut and competitive intensity from larger HFCs may pressure yields; however, 30% of the book is fixed, mitigating the immediate impact. |
| Asset Quality (Specific States) | Karnataka and certain pockets of MP faced headwinds; while improving, these require calibrated credit tightening. |
| Reliance on NHB Refinance | NHB contribution fell to 12% due to the CVC transition; new sanctions are pending, though alternative liquidity remains high (₹4,400 cr). |
Q&A Highlights
Growth & Productivity
- Question: What drives the confidence for 25% disbursement growth in FY27 given the H1 drag? (Kunal Shah)
- Answer: We have a clear bridge: ₹500cr from existing monthly run-rate acceleration, ₹500cr from digital channels (CSC/eMitra), ₹300cr from new/recent branches, and 6% from inflationary ticket size growth. Productivity is already up with 30% more sales visits (Sachinder Bhinder).
Competitive Intensity & Spreads
- Question: Will larger HFCs moving into affordable housing impact Aavas? (Abhijit Tibrewal)
- Answer: Our average ticket size is ₹12.5 lakhs; peers targeting “affordable” are often at ₹25 lakhs+. 60% of our customers are self-employed compared to 80-90% salaried for banks. 92% are first-time mortgage seekers (Sachinder Bhinder/Ghanshyam Rawat).
Asset Quality & Collections
- Question: Did the 1+ DPD improvement come from better bounces or better collection efforts? (Rajiv Mehta)
- Answer: It is a combination. We use predictive analytics to forecast bounces before they happen. We expect traditional Q4 pullbacks in buckets to resume as the macro environment stabilizes (Sachinder Bhinder/Ghanshyam Rawat).
Operating Leverage
- Question: How will the 50 new branches impact the Opex-to-Assets ratio? (Sonal Gandhi)
- Answer: New branches are in deep markets with lower infra costs (4+1 manpower). Excluding one-time ESOP costs, opex is on a downward trajectory. We expect 25 bps opex saving in FY27 (Ghanshyam Rawat).
Key Takeaway
Aavas Financiers delivered a resilient Q3 FY26, marked by the AUM crossing the ₹20,000 crore milestone and a 16% YoY growth in PAT. Despite a transition-led drag in H1, disbursements grew 10% sequentially to ₹1,720 crores, supported by the Branch Excellence Program which has already increased sales activity by 30%. The company successfully leveraged its liability franchise to reduce cost of funds by 16 bps QoQ, enabling a 15 bps rate cut for customers while maintaining healthy spreads of 5.34%. Asset quality remains best-in-class with GNPA at 1.19% and 1+ DPD improving to 3.80%. Management has pivoted toward an aggressive FY27 outlook, targeting 25%+ disbursement growth and 17-18% AUM growth, underpinned by digital sourcing channels and a 50-branch expansion plan. Aavas appears well-positioned to capitalize on the recovery in affordable housing demand while maintaining its rigorous “Credit First” underwriting standards.
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