AAVAS | Long Term | 60% Return!

Sep 10, 2023

CMP: 1668
Target: 2669
Return: 60%
Pattern: Descending broadening wedge

Apr 6, 2024

Note

Started moving from bottom. HOLD it for long term.

Dec 1, 2024

Trade active

AAVAS Financials Limited reported a strong Q2 FY25, with a 20% YoY increase in assets under management (AVM), reaching 1.84 billion. The company achieved a net profit of 1.48 billion, marking a 22% YoY growth. This performance was driven by strong asset quality, improved operating leverage, and strategic initiatives like technology adoption and geographic expansion.

Key Highlights:
Robust Loan Growth: Despite challenges like the extended monsoon season and the implementation of a new loan management system, the company achieved a 22% YoY disbursement growth in September and October. This growth was attributed to a robust login system fuelled by diversified channels, including digital platforms, CSCs, and strategic partnerships.

Solid Asset Quality: AAS Financials maintained its focus on risk-adjusted returns, resulting in strong asset quality metrics. 1+ DPD remained below 4% at 3.97%, while GNPA stood at 1.08%. Management reiterated its guidance to maintain 1+ DPD below 5% and GNPA below 1.25%.

Improved Operating Efficiency: The company realized a 40 bps YoY improvement in its OPEX to AIF ratio, reaching 3.25% in H1 FY25. This improvement was attributed to cost optimization efforts and technology adoption. Management aims to further reduce the OPEX ratio to below 3% in the coming quarters.

Strategic Initiatives: AAS Financials continued its strategic initiatives, including geographic expansion and technology upgrades. The company opened five new branches during H1 FY25, including one in the new state of Tamil Nadu. On the technology front, AAS Financials implemented bank-level systems, a new loan management system, and a lead management system, all aimed at enhancing operational efficiency and customer experience.

Strong Capital Position: The company maintains a robust capital position, with a net worth of 4.48 billion rupees and a CAR of 46.48%. Additionally, AAS Financials successfully raised 6.3 billion rupees in NCDs from IFC in October, further strengthening its funding position.

Future Outlook:
Management remains optimistic about the future, guiding for 20%+ AUM growth for FY25. They aim to achieve 1 trillion rupees in AUM by 2033 and expand pan-India.

Potential Risks:
While the company boasts strong fundamentals, potential risks to consider include:
Interest rate volatility: Fluctuations in interest rates could impact the company's spread and profitability.

Competition: The affordable housing finance sector is witnessing increasing competition.
Management believes its focus on risk-adjusted returns, sound underwriting practices, and technology adoption will help mitigate these risks.