Neutral AAVAS Financiers; target of Rs 1680: Motilal Oswal

Motilal Oswal's research report on AAVAS Financiers

1QFY24 disbursements declined 2% YoY to ~INR10.7b because of teething issues caused by the pan-India rollout of the Salesforce platform across all its branches. This transformation will enable accelerated disbursements through higher throughput and productivity. 1QFY24 PAT grew 23% YoY to INR1.1b (7% miss). NII increased by 26% YoY to INR2.3b. Other income rose 42% YoY, aided by higher assignment income of INR330m (PY: INR217m) and fee income of ~INR170m (PY: ~INR140m). Despite healthy NII growth, a higher cost-income ratio at ~48% (PY: 47%) led to an earnings miss. Opex included one-off items in employee expenses related to ~INR13m for KMP retiral benefits and ~INR70m in ESOP expenses (vs. reversal of ~INR50m in 4QFY23). We model a 24% AUM CAGR and a 22% PAT CAGR over FY23-25E, with RoA/RoE of 3.5%/16% in FY25E. We cut our FY24E/FY25E EPS by ~6%/ 3% to factor in lower AUM growth and higher margin compression.

Outlook

Valuations have de-rated over the last six months and the stock now trades at 2.8x FY25E P/BV. Before turning constructive, we would monitor the execution on asset quality and would observe how the IT transformation accelerates disbursements and improves productivity for AAVAS. Maintain Neutral rating with a TP of INR1,680 (based on 3x Mar’25E BVPS).

For all recommendations report, click here