Aavas Financiers: Should you buy this stock after a long underperformance?

Aavas Financiers has faced a challenging period over the past year, underperforming its peers due to significant management and promoter transitions, alongside a moderation in its asset under management (AUM) and return on equity (RoE) profile. Aavas Financiers saw its stock price decline by about 10% over the last year, in contrast to mid-teen gains for rivals such as Aadhar and IndiaShelter, and mirrored muted growth in the Nifty index. Over a three-year period, the stock is down roughly 24%.

The underperformance has been attributed to the exit of Aavas Financiers’ founder, the subsequent change in promoter from Kedaara Capital and Partners Group to CVC Capital Partners, and a deterioration in financial metrics. Notably, AUM growth slowed from 25% year-on-year in FY23 to 16% in Q1 FY26, and RoE fell from 14.1% in FY23 to 12.6% in Q1 FY26. The stock’s valuation currently stands at 2.5 times one-year forward price-to-book (P/B), a steep 44% discount to its long-term average and the lowest among peers.

Amidst these challenges, JM Financial has expressed optimism about the company’s trajectory. "JM Financial believes its performance in 1Q has bottomed out and should improve from hereon, driven by a) pick-up in disbursement growth as accounting/tech related changes are now complete; b) focus onexternal sourcing channels and earlier investments in branch/employees should lead toimprovement in growth/operating leverage; c) spread should improve as CoF comes down;and 4) benign credit cost as stressed asset pool remains the lowest amongst peers."

According to JM Financial, the company’s key metrics are expected to display a marked uptick. "JM Financial expected EPS CAGR of ~17% during FY25-27F with avg. RoA/RoE of ~3.3%/14% duringFY26/27F." The current valuation of "2.5x 1-year Fwd P/B is at ~44% discount to the LT averageand lowest amongst peers."

In July 2025, both Kedaara Capital and Partners Group exited completely, making CVC Capital Partners the majority stakeholder with approximately 49%. This change is seen as bringing much-needed stability at the promoter level. JM Financial maintained a positive stance: "JM Financial maintained BUY on the stock with a revised TP of INR 2,000(INR 1,990 earlier), valuing it at 2.7x FY27E BVPS."

JM Financial also outlined potential drivers for improved future performance, stating, "JM Financial alsoexpect financial performance to improve from 2Q onwards driven by: i) Normalisation indisbursement run-rate, ii) Focus shifting to other sourcing channels, iii) Increasingoperating leverage and geographical diversification, iv) Possibility of NIMs expansion, andv) Best-in-class asset quality. (Details inside)."

Reflecting on recent stock price movements, JM Financial highlighted that "JM Financial believed that the ~10% correction in stock price over the past 1year is just a reaction to a multiple sequence of events and the seasonality effect in 1Q." The brokerage expects the second half of the year to be stronger, stating, "JM Financial expect 2H to be stronger, led by a) pick-up in disbursement growth momentum, b)margin stabilisation/expansion with CoFs re-pricing and c) improvement in asset quality."

"We have upgraded our FY26-28F EPS estimates by ~13%-26% and maintain BUY on thestock with a revised TP of Rs  2,000 (Rs 1,990 earlier), valuing it at 2.7x FY27E BVPS inreturn for avg. RoA/RoE of ~3.3%/14% over FY26E/FY27E." The stock remains under close observation amidst ongoing sector competition and anticipated improvements in financials and operating performance.