Aavas Financiers Upgraded to Buy: IDBI Capital Sees 30% Upside Despite AUM Growth Slowdown

IDBI Capital has upgraded Aavas Financiers Ltd. from ‘Hold’ to ‘Buy’ with a revised target price of Rs 2,250, citing an 18% stock correction and an expected 30% return from current levels (CMP Rs 1,725). The stock is valued at 3.2x FY27E P/ABV.

Slowdown in AUM Growth

Aavas Financiers reported a decline in disbursements post-change in recognition process, with disbursements de-growing by 5% YoY. This led to a slowdown in AUM growth to 16% YoY, compared to 18% YoY in Q4 FY25. The management has revised its guidance downwards to 18-20% AUM growth for FY26, compared to the earlier estimate of 20-25%.

Reasons for the Slowdown

The decline in disbursements was attributed to a policy change that now recognizes disbursements only upon fund credit rather than on cheque issuance. This created delays in recognizing revenues, especially for the builder and resale segments. Under the old policy, the company asserts that disbursements would have grown in double digits.

Normalization Expected by Q3

Normalization is expected by Q3, as July already saw a 16% disbursement growth. The company is confident that the growth momentum will pick up in the coming quarters.

Asset Quality Sees Seasonal Weakening

Asset quality saw a seasonal weakening, with GNPAs at 1.22% (vs 1.08% QoQ) and a notable jump in early delinquency indicators (1+ DPD rose to 4.15%). However, the management expects the credit cost to stay under 25 bps going forward, with the gross Stage 3 ratio to remain under 1.25%.

IDBI Capital’s Upgrade

IDBI Capital has upgraded Aavas Financiers to ‘Buy’ due to the 18% stock correction and the expected 30% return from current levels. The brokerage firm believes that the company’s strong fundamentals and growth prospects make it an attractive investment opportunity.

Investment Opportunity

Aavas Financiers is a leading housing finance company in India, with a strong track record of growth and profitability. The company’s focus on affordable housing and its robust distribution network make it well-positioned to capitalize on the growing demand for housing in India.

Investors looking to invest in the Indian stock market can consider Aavas Financiers as a potential investment opportunity. However, it is essential to do your own research and consult with a financial advisor before making any investment decisions.

Conclusion

In conclusion, Aavas Financiers has been upgraded to ‘Buy’ by IDBI Capital despite a slowdown in AUM growth in Q1. The company’s strong fundamentals and growth prospects make it an attractive investment opportunity. Investors can consider Aavas Financiers as a potential investment opportunity, but it is essential to do your own research and consult with a financial advisor before making any investment decisions.

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