Aavas Financiers (Aavas) saw a good quarter with PAT beat at ₹116 crore (PL expectation ₹99 crore) mainly led by better NII and asset quality.
Due to Sarfaesi initiation stage-3 materially reduced QoQ. AuM growth at 20 per cent y-o-y was in-line and the management suggested that AuM could grow by 20-25 per cent consistently as penetration beyond the top-60 cities is low however asset quality would be preferred over faster growth. 200-250bps.
Credit quality in terms of GNPA materially improved QoQ as the company initiated SARFAESI and within the first 60 days, customers repaid as they were living in the same house. Last quarter there was sharp spike in NPA owing to daily NPA recognition. Restructured pool (included in stage-2) also reduced QoQ from ₹150 crore to ₹136 crore with a coverage of 13.5 per cent maintained.
The company also intends to arrest the repayment rate by 2-3 per cent with technology support which would protect AuM from run down. Opex intensity may soften and cost to income is targeted to reduce by 2.0-2.5 per cent over the medium term.
While Aavas has delivered strong earnings growth with a focus on asset quality valuation at 4.8x FY24E ABV is steep. We lower multiple from 7.5x to 5.0x FY24 ABV and revise TP to ₹2,300. Change rating from Buy to Accumulate.
Risks: Higher slippages.