Aye Finance shares climb 8%; brokerage initiates coverage with 'Buy' call

Shares of Aye Finance Ltd jumped 7.80 per cent on Tuesday to settle at Rs 138.20. The counter also witnessed heavy trading activity during the session as around 19.80 lakh shares changed hands on BSE, sharply higher than the two-week average volume of 1.88 lakh shares. Turnover on the counter stood at Rs 25.80 crore, with the company's market capitalisation (m-cap) at Rs 3,410.56 crore.

IIFL Capital initiated coverage on the stock with a 'Buy' rating and a target price of Rs 180.

The brokerage said, "Aye Finance is a Middle-Layer NBFC lending to underpenetrated micro-MSMEs with AUM (Asset under management) of Rs 7,000 crore and granular ticket size of Rs 2 lakh."

"It is geographically well diversified, with top 5 states contributing 57 per cent of AUM (vs 67-97 per cent for peers), supported by 100 per cent in-house sourcing and cluster-based underwriting designed to address the informal nature of the segment," it added.

The brokerage further stated, "We forecast 27 per cent AUM CAGR over FY26-29, but a much higher PAT CAGR of 44 per cent, led by operating leverage as branch network matures and AUM scales, alongside normalisation in credit cost (improvement of 160bps), partly offset by lower NIM due to fast-growing mortgage book."

"This should drive sharp improvement in RoA/RoE to 4.1 per cent/14.5 per cent by FY28. Aye trades at similar multiples to MFI peers and 30-50 per cent discount to MSME peers, despite a more secured book and superior AQ (asset quality) outcomes vs MFIs and comparable returns trajectory vs MSME peers," IIFL also said.

"We initiate with a BUY rating and TP (target price) of Rs 180, implying FY28 PB/PE of 1.4/10x for ROA/ROE of 4.1/14.5 per cent," the brokerage concluded.

At Tuesday's closing level, shares of Aye Finance, which debuted on the bourses in February this year, were trading 7.13 per cent above their initial public offering (IPO) price of Rs 129.