As of December 2019, Aavas had >97,000 active loan accounts, up 41% y-o-y. In light of the lower disbursements in Q3FY20, we now model a 19% disbursement growth in FY20.
Aavas Financiers (Aavas) reported Q3FY20 disbursements of Rs 753 crore, up 6% y-o-y. Important to note here that, incrementally, the number of loan application logins have been about 20%-25% higher y-o-y. Even with this strong demand, the disbursements were low primarily because of the conservatism that the company adopted in a weak macro-economic environment.
We expect the disbursements to normalise on the back of higher productivity and the branch/capacity additions in the quarter. With seasoning, the LAP book reported some asset quality deterioration but the headline GNPA (0.57%) and 1+ dpd (3.4%) remained impressive. Our unchanged target multiple of 4.8x December 2021E P/BV leads to a target price of Rs 1,700. Maintain ‘reduce’ given low margin of safety in valuations.
As of December 2019, Aavas had >97,000 active loan accounts, up 41% y-o-y. In light of the lower disbursements in Q3FY20, we now model a 19% disbursement growth in FY20. But Aavas is positioned to deliver healthy AUM growth supported by lower run-off in the portfolio.
Balance-Transfer-OUT (BT-OUT by value) was down ~20% y-o-y in 9MFY20. Aavas will be looking to penetrate deeper in its nine core states of presence for the next three years. Given its distribution network and the under-penetration in Tier-3 and Tier-4 cities, Aavas appears set to achieve an AUM CAGR of ~33% over FY19-FY22E.
Credit costs (as % of AUM) stood at 8bps in Q3FY20. Except for some seasoning in LAP loan-book, GNPA up 20bps y-o-y, headline GNPA at 0.57% (down 5bps/1bps q-o-q/y-o-y) and 1+dpd at 3.4% (down 50bps y-o-y) once again vindicated the strong underwriting and collections franchise of Aavas. We now model NII/PPoP/PAT CAGR of 27%/32%/38% over FY19-FY22E. The company is currently trading at 6.2x FY21E P/BV.