Aavas Financiers Limited (AAVAS) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good evening, and welcome to the Hours Financials Limited Q1 FY27 Earnings Conference Call. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions, and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involve risks and incentives that are difficult to predict. As a reminder, all participant lines will be in a listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Please note that the conference is being recorded. I now hand the conference over to Mr. Rakesh Shinde, Head Investor Relations of Harvest Financials Limited. Thank you, and over to you, sir.

Thank you, Sapnil. Good evening, everyone. And a very warm welcome to all participants joining us today to discuss the financial and operating performance of Avast Financiers Ltd. for Q1 FY27. The results and the investor presentation have been uploaded on the stock exchanges and are also available on our website. I hope you have had a chance to review them. We have also uploaded an Excel fact sheet containing historical data on our website for your easy reference. Joining me today is the entire management team of ours. We will begin this call with an opening remark from our CEO, Manu Singh, and Interim CFO, Kansham Gupta. This will be followed by a Q&A session. With that, let me now hand over call to Manu. Over to you, Manu.

Thank you, Rakesh, and a very good evening to everyone joining us today. We appreciate you being here. Quarter 1 FY27 has been a strong quarter for Awas and marks an important milestone in our growth journey. The strong performance during the quarter reflects a business that is becoming faster, fitter, more productive, with greater accountability and sharper execution across our organization. We have started the year on a very strong note. During the quarter, we disbursed loans worth $16.1 billion, delivering a robust growth of 41% YOY, albeit on a lower base. This performance was broad-based and driven by a strong pickup in volumes, meaningful improvement in resource productivity, and healthy 38% YOY growth in the homegrown segment. The quarter reflects the early benefits of our focused execution strategy. Stronger field level accountability. And continued emphasis on customer acquisition. The momentum witnessed during the quarter strengthens our confidence in our strategic initiatives which are underway and provide a solid foundation for the rest of the year. Our AUM grew by 15.4% YOY to 239.3 billion INR as of June end. Encouragingly. Our monthly AUM edition improved by nearly 50% YOY during the quarter, enabling us to achieve in three months what previously took close to five months. This reflects the positive impact of our efforts around customer acquisition, productivity, and execution sharpness. It's a long journey ahead. These improvements give us confidence that Avaas is well-positioned to accelerate growth and deliver sustainable 20% growth over the medium term. We deliver 23% YOY growth in net profits, driven by a healthy 18% YOY growth in NII, supported by robust business growth. In addition, improved operating efficiency is reflected in a 254 BIPs YOY improvement in our cost-to-income ratio, which further strengthened profitability during the quarter. As we move ahead, Our focus remains on unlocking the full potential of our franchise and translating it into superior operating performances. Our priorities are accelerating customer acquisition, improving productivity, driving higher revenue per resource, enhancing our branch profitability, and getting our product and sourcing mix right with increased operating leverages. We are also leveraging data and technology to strengthen decision-making. Improving conversion across the login to disbursement funnel, strengthening governance, processes, and deliver superior customer experiences across our lifecycle. Importantly, our credit-first approach continues to underpin our best-in-class asset quality. Our OnePlus DPD improved by 39 BIPs YOY, reflecting the strength of our underwriting as well as corrections. As a result, Our gross NPAs improved by 11 BIPs YOY, further reinforcing the resilience of our portfolio. During the quarter, we expanded our branch network to 440 across 15 states. We will continue to invest in branch expansion to further deepen and diversify our presence. At the same time, our focus firmly remains on ensuring faster branch-level break-events. and closely monitoring performance of newly opened branches to drive better productivity and profitability both. With clear accountability across functions and a strong alignment throughout the organization, we are embedding greater execution, discipline, and rigor at every layer of the business, underpinned by an unwavering commitment to compliance and governance. Our collective ambition is anchored in a simple philosophy, people, performance, perseverance. With that preamble, I now take you through our quarterly performance. Our net profit for Quarter 1 FY27 grew by 23% YOY to Rs. 1.71 billion, led by a robust 18% YOY growth in NII on account of healthy improvement in our names. Our net worth continues to compound steadily, growing at 16% YOY, with the strength of our capital position driven by consistent compounding internal accruents. Our NIMS expanded by 22 BIPs YOY to 7.70 during the quarter, supported by improvement in cost of borrowing, coupled with our continued focus on risk-adjusting pricing. Our cost-to-income ratio improved by 254 BIPs YOY to 43.7% in Q1 F527, driven by better cost efficiencies. As a result, our operating cost-to-assets ratio improved by 9 BIPs YOY to 3.37%. We continue to deliver industry-leading asset quality with all key indicators trending positively and remaining well within our guided range. Our OnePlus DPD improved by 39 BIPs YOY to 3.76% in quarter 1, remaining comfortably below 5%. Gross stage 3 improved by 11 BIPs, YOY to 1.11%, while net stage 3 improved by 13 BIPs, YOY to 0.71%. Underscoring the resilience of our portfolio over time, And effectiveness of our credit-first approach which continues to be the pivot of our operating mechanism. Credit costs stood at 24 BIPs, well within our guided ranges. Our ROA improved by 25 BIPs, YOY to 3.19, and ROE improving by 78 BIPs to 13.34% in this quarter. We remain focused on delivering quality. Profitable growth with a strong risk discipline, tech-lead efficiencies, consistently creating long-term value for all our stakeholders. With that, ladies and gentlemen, I would now hand over to Mr. Gansham Gupta to discuss the financials in detail with you.

Thank you, Manu. Good evening, everyone, and a warm welcome to our earnings call. To provide an update on the borrowing side, The quarter closed on a constructive note with Avast maintaining a stable cost of borrowing despite a volatile interest rate environment and uncertain geopolitical break drop. This underscores the strength of our diversified liability franchise and strong lender relationships. We continue to enjoy broad-based lender support, providing us access to diversified, long-term, and cost-effective funding to support future growth. We continue to borrow judiciously, raising around Rs. 14.74 billion at a competitive rate of 7.74% per quarter one. Total outstanding borrowings stood at Rs 207 billion. A well-diversified library franchise linked with various benchmarks and competitive price, we were able to deliver a 38 basis points year-over-year improvement in our cost of funds for current year Q1. During the quarter, we implemented an additional 10 basis point reduction in our PLR, effective June 2026. Taking the cumulative reduction Of 25 basis points since March 2026 and passing on the benefit for the interest of the customer. As a result, our spread moderated and stood at 5.06% during the quarter. Our average tenure of borrowing continued to be longer than our assets, ensuring a positive LM across all the time buckets. We have optimum mix of various benchmarks of interest rates, such as 42% of borrowings linked to external benchmarks, such as Repo, T-Bill, and MyBowr, and 34% linked to sub-3 months MCLR, enabling faster repricing to nearly 76% of our borrowings in line with interest rate movements. As of 30th June 2026, We maintained ample liquidity, including cash and cash equivalent and unavailed CC limits up to Rs.18.8 billion. Documented unavailed sanctions are 4.85 billion. In terms of profitability and capital position, our NII for the quarter grew by 18% YOY. Our NIMS. In absolute terms, grown by 17% year-over-year, and the NIMS as a percentage of total assets expended by 22 BPS year-over-year to 7.70%. Our disciplined cost management approach, coupled with a continued focus on profitable growth, has started yielding encouraging results, reflected in a 254 basis points year-over-year improvement in our cost-to-income ratio to 43.7% in Q1 FI 27. Our pre-provisioning operating profit grew by 22% year-over-year to Rs. 2.33 billion. Our pet growth was 23% YOY, leading to a ROI expansion of 25 basis points year-over-year to 3.19% and ROI improvement by 78 PPS YOY to 13.34%. We remain well capitalized with a net worth of Rs.52.2 billion. And a capital to risk-weighted assets ratio CAR of 44.66%, significantly above the regulatory requirements. With these words, I just open the floor for Q&A.

Thank you so much. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may click on the raise and icon from the participants tab on your screen. We request participants to restrict to two questions each and then return to the queue for more questions. To rejoin the queue, you may click on the raise and icon again. We will wait for a few minutes until the question queue assembles. We'll wait for a few minutes more. We'll take a first question from Prashant Poddar of ADI. Prashant, you can unmute your microphone and go ahead, please.

Hello. Hi, everyone. Manu, quickly, if you can help us understand two things. One, on competitive environment in the two or three categories of loans that you participate in, any geographical, you know, heat map also, if you can share, in terms of competitive environment, and therefore its impact on potential profitability outlook or margin outlook on the spread outlook on the business. Thank you very much for the full year. Second question is, if at all you expect any spread compression, how much of that can be addressed by operating leverage? Yeah, these are my two questions.

Thanks, Prashant. I think I'll answer both the questions together. First, on the question of competitive environment, I do think that we are witnessing healthy competition across geographies. Yes, there is pressure on spreads. As I look for the complete year, I do believe that spread compression from the existing point will go down to sub 5. However, I am pretty clear on the operating levers that we have put in action and are showing results in quarter 1 that the ROE and ROA outlook remains stable. There are enough and more opportunities. To work levers on the cost to income side, more so on the income side. And hence, we are acutely focused on productivity per resource and revenue per resource being driven day in and day out at each of our 440 branches. Reasonably confident to make sure that the ROE and ROA that we have planned for the year remains where it is. Even if some slight compression does take place on the competitive environment, more so, Prashant, I am heavily focused on regaining our market share in the HL segment, which is the primary aim of the HFC. Doubling down on that business will have a little bit of impact on NIMS, but we are confident of making sure that. We cover it up through both cost measures as well as improved operating levers on the income side.

That's great. I'll join Dr. Q. Thank you.

Thank you, Prashant. We are now moving to our next participant. We have Ranish Bhuva of ICICI. Ranish, please unmute and go ahead with your question. Ranish, please unmute your microphone. Am I audible now? Yes, yes. Please go ahead.

Yeah, hi. Congrats, Manu, on a good set of numbers. Just two things, you know, first on this per repayment rates, right? So, historically, our repayment rate has always been around 6% to 17%, which has gone up to more than 19% since the last two quarters. So, just wanted to check, is it due to some change in product mix? You know, since, you know, we are doing more of a shorter than a loan-like lab, I'm just wondering why the repayment rate on a sequential basis is so sticky.

Yes, Anish. We did see a small uptick in the early part of the fiscal opening, which is April and early May. In specific segments, especially interest rates upwards of 14%, small ticket. But as we close the quarter in the month of June, it has rallied back to its usual trend. I don't expect this to continue. Parallelly, we are focused on improving our AUMs, as I mentioned in my opening comments. The speed at which... We are feeling our leaking bucket is increasing across our branches. So to your question of BT out, I don't see any specific trend which is alarming. Has tapered down in June and I expect it to be normal. Yes, part prepayments did see some uptick, but that was more in the early part of the month, not in June.

Got it, got it. And secondly, on this disbursement run rate, right, so obviously this quarter we close at 1600 crowd plus, which is basically highest, you know, in first quarter. So how one should look at this trajectory over next nine months, and also if you can share the June month disbursement number will be helpful.

So, on the next nine months, Yes, we were very conscious of making sure that the early part of the year, which is quarter one, gets us on to the right footing on run rate. For two reasons, we are now heavily oriented towards P&L, and the more that you upfront your business, the more earnings you have in the entire part of the year. That has been the guiding force across the businesses. Secondly, June numbers are upwards of 600 crores. For the next nine months, we are committed to delivering our yearly commitment of 22-23% top-line growth,

and that remains steadfast

on disbursement, and that moves to about 16-17% on AUM.

Hello, Dennis, could you hear me? Yes, I actually I missed one part. So you said 22 to 23 percent top line growth and 16, 17 percent EUM growth. Is that correct?

The disbursement growth, yes, 22 to 23 percent and 17 to 18 percent on EUM.

Yes, 17 to 18 percent of EUM. Okay, okay. Okay, that's it from my side. In fact, I have a couple of more, but maybe I will come back and thank you. Thank you. Thank you, Manu, and best of luck.

Thank you, Ranish. We are moving to our next participant. We have Shripal Doshi of Equiras. Shripal, please go ahead.

Hi, sir. Congrats on a decent number, and thank you for giving me the opportunity. My question was on the asset quality trends and also, you know, heavy. So basically, on the asset quality trends, there is some pinch up there, but I think that's because of seasonality. However, are we seeing any trends in any specific geography, which is, let's say, a little more alarming or showing signs of stress? And have we taken any additional measures on underwriting side, given the macros as well as uncertainty on the rain as well? So, any caution or any measures taken on these two, because of these two events?

To answer your first question, no. We continue to see healthy trends on both lead and lag indicators. Absolutely no geographical customer segment stress coming in. Having said that, we are very cautious about the fact of keeping our collections in complete control. Towards the same, in the early part of February, proactively, the teams have taken certain policy changes looking at the macro environment, certain segments which would be affected by both the ongoing war as well as the ensuing expectation of shortfall of rainfall. We are also constantly looking at indicators across industries. For example, tractor grow, tractor sales have shown rebound after a long period of time. All in all, all our eyes are on the rear view mirror as well as looking at what is happening around the industry today. We are very confident of keeping our guidance on our credit quality. To where it is.

All right, sir, could you just double-click on the changes that you were talking about at ground-level teams as well as on the underwriting side?

This is largely mainly focused on segments that we would have, we see could be impacted, which is tours and travels, restaurant, more so from the crisis in the Middle East and the fuel crisis.

Got it. Have you seen any, let's say, trends on rejection rates increasing in any particular category? Maybe it could be salaried or self-employed or any particular geography?

I wouldn't call any visible friend out to suggest change in our customer segment or our approach. Our business is about looking at risk, which is assessed at a branch level, that is continuously fortified on a monthly basis with training, outlook. Lead indicators of bounds, such that nothing creeps into the system to come up as a shock.

Got it. Got it, sir. Got it. I have more questions, sir. I will come in the queue. Thank you so much, and good luck for the next quarter.

Thank you. Thank you, Sripal. Requesting all participants, if they wish to ask any questions, please click on the raise and icon on the participants tab. We are taking our next question from Raghav Garg of Ambit Capital. Raghav, please go ahead.

Hi, thanks for the opportunity and good evening. I have a couple of questions. One, so when you guide for 20% sustainable AUM growth, what kind of disbursements per branch are you budgeting in that? I'm sure you've done the math. I think right now you're at 15.5 crores of disbursements per year. So when you guide for 20% AUM growth, what is that disbursement per branch that you're building into that? That's my first question.

Pagav, I think I'd like to be factually correct on your understanding and my understanding. The current year guidance is 17-18% AUM growth, 20% is a medium-term guidance.

Sure. So, when you write for the medium term, what is that disbursement program that you're talking about?

I'll come to, I'm coming to your second question. Today, when we look at Branch is a cumulative factor of small branch, large branch. I look at, when I drive teams together, we look at productivity per resource deployed on the field. So there could be large branches, small branches. There, from an average of about 8 to 10 lakhs. Productivity per resource. We are looking at doubling this to at least 20 to 22 lakhs per resource deployed on the field.

By resource, you mean employee, right? Yes. Okay. So, so, so essentially you're saying per employee you're going to double the disbursements, right?

Yes.

That's essentially what you're saying, and say over a period of three years, is that understanding correct?

I will shorten it.

Sure.

Yeah, I will shorten it to about, yes.

Understood. Second question is, I also hear you on increasing your market share in home loans. Now, when I look at home loan dispersal growth on a two-year CAGR basis, that's been about 5%. And then when I look at that number in terms of home loan files, that's just 1%. So, what exactly do you plan to do to regain your home loan market share from, say, a two-year CAGR of about 1% in volumes, 5% in overall disbursements value to, say, a higher number? What are the steps that you're taking on the ground to do that?

Two things. First, the necessity of looking at this number arises from the fact that over the last year, year and a half, we would have graduated towards NHL. I want to be absolutely comfortable on both onboarding. Business matrix between HL and NHL to tend towards what the portfolio is, which is roughly 65-35. So that's the strategic reason why the focus on home loan. Next, when we are focused on going behind a particular segment, both tactically as well as orienting resources at every branch. Towards targeted customer acquisition, these have been rolled out at a branch level, resource level, on who is expected to furnish what and from where to be able to measure, monitor, and hence manage this change.

Should it also weigh on your yields? Because HL has lower yields versus a lap. So, maybe, you know, what you're expecting over the next one year, the yield compression could be more, maybe from the second or third year onwards because HL mix will increase.

As I mentioned earlier, yes, this is a conscious choice. It is a more competitive business. However, sourcing mechanisms of moving back to our main strength of doing direct business, making sure that branches are equipped with resources to go out and do that business which comes at a differential, much lower cost of acquisition, quality, And leavers to work on the income side at every transaction, in my opinion, is reasonable enough to counterbalance the small compression that we may see on being more healthier. If you look at our quarter 1 to quarter 1 numbers, this trend is already visible with 17% volume growth in HL in this quarter versus last year.

Sir, but last year was impacted, right, in terms of business. So, that's why I was referring to two-year CAGR because comparing YOY may not be…

I hear you. I am only substantiating that point by saying that strategically we are aligned when we know that we want to get healthier and fitter. The compensation of that small spread compression, we are cognizant in our everyday operating mechanics of getting better income from every transaction that we make, and there are enough and more opportunities.

Thank you, sir. That's all from my side, and thanks a lot for answering the questions. Thank you.

Thank you, Raghav. We are taking a next question from Rajiv Mehta of ES Securities. Rajiv, please go ahead. Rajiv, we are unable to hear you. Do you want to try again, Rajiv? Yeah, am I audible? Yes, yes, we can hear you now.

Sorry, sorry. Okay, so sorry if I've missed something because I've joined the call a little late, but sir, I just wanted to understand the context behind the recent PLR cut in June when the cost of fund is actually firming up. And just wanted to check on a reported basis. I think you've already taken that in the reported yield and spread because we report on contractual basis, right? While the PNL, while the whole PNL impact of it will flow in Q2. Is this understanding correct?

I'll take the first question, and possibly I would want to understand the second question a little more. On the PLR, we have adopted PLR derivation mechanics with detailed operating guidelines, which includes external as well as internal factors, and that formula being true. to the reflection of what both external as well as internal dynamics suggest goes through a route of ALCO discussion and is transparent in its conversion, whether it moves up or it moves down. And hence, as you asked the question, I feel very delighted that we stand testament to the fact that even if the external world feels or believes that cost of borrowing is going up, And my own mechanism within ALCO mentions that it has to go down. We are transparent and clear about maintaining it in both letter as well as spirit. That's on the PLR. May I request a little more detail on your second question, please?

Yeah, I'm saying, you know, what we report as a yield and a spread, you know, as of June in the presentation, that is already post the PLR cut, right? Because you report on a contractual basis.

Yes.

Correct. Okay. Okay. Got it. Sir, disbursement yield versus the portfolio yield after the latest PLR cut. What is the difference or what is the gap left? Because see, we've also been working on upping the disbursement yield to risk adjusted pricing. So that has been going up quarter and quarter. And now because of the two back to back PLR cuts, the portfolio yield would have come down. So what is the gap left?

It's almost equal to. See, when I know that a left pocket is being hit, the attempt is always to make sure that the right pocket compensates hurt. So, they are largely reading in tandem. Okay. So, they have come very close to each other. Yes.

Okay. And spread outlook for the year? I mean, given that you have done whatever you had to do on the yield side, and, you know, the markets will decide the funding cost, are we still looking for a slightly softer spread in the remaining part of the year?

Yes, I do think it will fall a tad below 5%. I mentioned it in the early part of the conversation that... Sorry, I missed that.

Yeah, okay.

No, no, I'm just repeating it. According to the scene and known this, we are already on our way to make sure that our operating engines churn out both cost reduction and income support to maintain our ROA and ROE guidelines.

Got that, sir. Thank you so much for answering my questions and best of luck.

Thank you.

Thank you, Rajiv. We are moving to our next participant. We are taking a follow-up question right now from Ranish Mbowa of FISA-ACI. Ranish, you can go ahead with your follow-up question. Yes, Ranesh, please go ahead.

Yeah, just one thing, one clarification on this recent RBI circular on the asset classification, you know, specifically on this repossessed assets for NPL. Have you guys assessed anything internally on this?

Hello?

Yes, Ranesh. Yeah, so... Dennis, currently this is under evaluation.

Okay. Okay.

And we will ensure that if any change has to be made, we will make it happen.

Okay. Sure. Okay. Okay. Thank you.

Ranish, do you have any more questions or?

No, no, that's all.

Thank you. Thank you, Ranish. We are moving to our next participant. We have Shivam Saria of Antic Stock Broking Limited. Shivam, please go ahead.

Yeah, hi. I just wanted, I actually wanted a data point. So, I wanted to understand what is your yield on elder loans, which is mainly your non-retail book, and also wanted to understand what are the kind of borrowers here. Yeah, that's it. Yeah, I basically wanted to understand what is your yield on the filter loans, which is mainly your non-retail book, and I also wanted to understand what are the kind of borrowers you have in this book.

So, Shivam, we don't do any builder loan kind of product, and we do have an NHL lab or MSME, and the difference between NHL to NHL, there is anything between 150 to 200 basis point difference is there, but we don't have any builder loan as such.

Okay, all right. Thank you. Thank you, Shivam.

We'll take a follow-up question from Rajiv Mehta. Rajiv, please unmute your microphone and go ahead, please. Rajiv, please unmute your microphone. We'll wait for the connection from Rajiv Mehta. Rajiv, would you like to ask a follow-up question? We have given you permission to unmute your microphone. Please go ahead. It seems we don't have a response from Rajiv. Requesting all participants, if you wish to ask any more questions, please click on the raise and icon from the participants tab. We'll wait for the question queue to assemble. We do have a follow-up coming in from Shivam Saria. Shivam, would you like to unmute your microphone and go ahead, please? Shivam, would you go ahead with your follow-up question? Team, you are able to hear me, right?

Yes.

Okay. Shivam, would you like to ask a question? I don't see.

No. No. Yeah. Thank you.

All right. Thank you, Shivam. Any more questions from any participants, please click on the raise-end icon. All right. Ladies and gentlemen, we will take that as the last question and now hand it over back to the management for closing remarks. Over to you, management.

This is Manu here again. Ladies and gentlemen, as we conclude today's earnings call, I would like to sincerely thank all of you for your time, continued engagement and support. We really value it. The progress we have made reflects the dedication of our team, the trust of our customers, and the confidence of our shareholders and lending partners. Q1 and FI27 has been an encouraging start to the year. We are beginning to see a faster, fitter, and more execution-focused organization. Looking ahead, we remain optimistic about the opportunities before us, with a clear focus on customer acquisition, productivity increase, discipline growth, Prudent risk management and superior asset quality, we believe AWAS is well positioned to accelerate growth and creating sustainable long-term value. Should you have any further questions or require additional information, please feel free to reach out to Rakesh Indyar, Head of Investor Relations. Thank you once again for your continued trust and partnership. We would also like to thank and place on record the support, guidance, We receive from our regulator, NHB. We remain committed to executing with discipline, delivering consistent long-term value, and look forward to sharing our progress with you in the quarters ahead. Thank you, and have a pleasant evening.

Thank you so much. On behalf of ours, Financials Limited, this concludes today's conference call. Thank you all for joining us, and you can now click on the leave icon to exit the meeting. Thank you all for your participation.

Thank you, Sukhul. Thank you.

Thank you, everyone.