Aavas Financiers share rise post Q4 results; brokerages see up to 30% upside in stock

Shares of Aavas Financiers Ltd surged during Friday's trading session after the company announced a strong set of earnings for the quarter and financial year ending March 31, 2023. However, the stock saw some profit booking and gave up its gains partially as the session progressed.

Aavas Financiers' net profit grew 12.34 per cent on a year-on-year (YoY) basis to Rs 142.48 crore in the quarter ended March 31, 2024 as against Rs 126.83 crore during the previous quarter ended March 2023. Revenue from operations came in at Rs 546.02 crore for the quarter, rising 21.42 per cent YoY.

Aavas Financiers' PPOP and PAT were higher than estimates on the back of a significant rise in other income, improvement in operating expenses and lower-than-expected provisions. While FY24 disbursements trajectory was lukewarm, 4QFY24 saw a pick-up in momentum, said Nirmal Bang Institutional Equities maintaining its 'buy' rating with a target price of Rs 1,865.

"The company remains confident of achieving 20-25 per cent AUM growth and we are building in 23 per cent growth in FY25E.  Reported spread declined on account of higher cost of borrowings. With the cost of borrowings peaking at current levels and incremental focus on high-yielding business, we expect the company to maintain spreads in excess of 5 per cent," it added.

Following the results, shares of Aavas Financiers rose about 5 per cent during the trading session on Friday to Rs 1,687, commanding a total market captialisation of more than Rs 13,000 crore. The scrip had settled at Rs 1607.45 in the previous trading session on Thursday.

Aavas Financiers’ new management ended the year with 23 per cent loan growth, which was in line with the guidance and pristine asset quality performance, although slipped on margins, said Kotak Institutional Equities.

"With the most challenging period of transition behind us, we expect business trajectory and stock performance to be smooth. Trends in margins are monitorable with rising home loan rates to catch up with funding costs," it added with a 'buy' tag and a fair value target of Rs 2,100 apeice, suggesting an upside of 30 per cent from its previous close.

However, some brokerage firms are not gung-ho on the counter as they believe that company's performance in improved but its peers are performing better and valuations are reasonable there. They believe that operation matrix of the company is also on the mixed lines.

YES Securities' estimates 23 per cent and 24 per cent AUM and earnings CAGR over FY24-26 with RoE improving to 16 cent on the back of sustained brisk growth, spread recovery in FY26 and some improvement in operating cost metrics. Key near-term monitorables would be disbursements trajectory and stabilization of portfolio spread, it said.

Portfolio yield improved by 6 bps QoQ, while write-offs continue to be marginal. Aavas trades at similar valuation to Home First and Aptus at 17 times FY26 P/E, but its growth and RoE has been lower. Hence, ascribe 'add' rating to the stock with relative preference for Home First and Aptus," it added with a target price of Rs 1,800 on the stock.