Prabhudas Lilladher has initiated coverage on AAVAS Financiers with a target price of ₹1,685. The brokerage highlights the company's strong disbursement growth and stable interest spreads as key indicators. Investors will track the firm’s ability to maintain asset quality and operational efficiency as it targets 16-17% AUM growth for FY27.
Prabhudas Lilladher has initiated coverage on housing finance company AAVAS Financiers with a target price of ₹1,685. The brokerage report points to the company’s strong disbursement momentum and ongoing efforts to improve operational efficiency as key factors that may influence future performance. This comes as the company continues to focus on its core market of affordable housing finance.
The firm reported a 21% year-on-year increase in loan disbursements for the second quarter, demonstrating sustained demand. Its assets under management (AUM) also recorded a 16% growth over the same period. Looking ahead, the company’s management has set a guidance for 16-17% AUM growth for the fiscal year 2027, with aspirations for faster growth in the long term. Analysts expect these growth rates to remain steady, forecasting AUM expansion of approximately 17% in FY27 and 18% in FY28.
A central focus for the company is its ability to maintain interest rate spreads above 5%. These spreads, which represent the difference between the interest earned on loans and the interest paid on borrowed funds, are a critical measure of profitability in the finance sector. To protect these margins, AAVAS Financiers is investing in technology and focusing on increasing employee productivity at the branch level. These operational improvements are expected to help lower overall operating expenses over the medium term, providing better financial leverage.
While the growth outlook is positive, investors in the housing finance sector often closely monitor asset quality, particularly within the affordable segment. AAVAS maintains a portfolio with limited exposure to borrowers dependent on agricultural income, which helps reduce risks related to seasonal rural income volatility. The brokerage has forecast credit costs to remain relatively low, estimated at 20 basis points for FY27 and 18 basis points for FY28. However, the company’s ability to manage these credit costs while expanding its loan book in a competitive environment remains a key monitorable.
The brokerage has adjusted its valuation methodology for the company, assigning a value of 1.9 times the September 2028 price-to-adjusted book value. For investors, the next important updates will be the actual realization of AUM growth against the guided 16-17% range and the company's success in managing its branch-level operating expenses in the coming quarters.