PL Stock Report: AAVAS Financiers (AAVAS IN) - Q1FY24 Result Update - Better NII to drive earnings upgrade - HOLD
Prabhudas Lilladher Pvt Ltd
AAVAS Financiers (AAVAS IN) - Gaurav Jani - Research Analyst, Prabhudas Lilladher Pvt Ltd
Rating: HOLD | CMP: Rs1,560 | TP: Rs1,560
Q1FY24 Result Update - Better NII to drive earnings upgrade
Quick Pointers:
§ Earnings miss due to lower disbursals and higher staff cost.
§ Near to medium term opex/AuM guided to be stable at 3.7%.
AAVAS saw a weak quarter as PAT missed PLe by 14% due to (1) softer AuM growth at 23.2% YoY (PLe 25.6%) resulting in lower NII and (2) higher staff cost. AuM growth was affected as disbursals declined by 32.5% QoQ (usually Q1 fall is 15-20%) since a tech platform ‘Salesforce’ was implemented pan India in Apr’23. However, operations stabilized in May and June witnessed 17% MoM growth. AuM growth guidance of 20-25% has been maintained. Spike in employee cost was driven by retirement benefit expenses and normalization of ESOP cost. On employee stability, management suggested that there is no attrition at senior/mid-level while junior level attrition is in-line with industry. While we are watchful of senior level stability, better RoE profile (now 14-15%) could be the next trigger for re-rating which would hinge on stronger AuM growth or operating leverage. We maintain multiple at 3.0x on FY25E ABV and keep TP unchanged at Rs1,560.
§ PAT miss of 14% due to lower AuM growth and higher interest/staff cost: NII was a miss at Rs2.26bn (PLe Rs2.37bn) led by lower NIM and AuM growth. NIM declined by 19bps QoQ to 6.91% (PLe 7.14%) driven by higher interest cost. AuM grew by 23.2% YoY to Rs146.5bn (PLe Rs149.4bn) due to lower disbursals at Rs10.7bn (PLe Rs13.4bn). Other Income was beat at Rs540mn (PLe of Rs462mn) due to fees and higher off-book income at Rs330mn (PLe Rs269mn). Opex was a miss at Rs1.3bn (PLe Rs1.1bn) as employee expenses were higher at Rs949mn (PLe Rs718mn). Hence PPoP was lower to PLe by 14.3% to Rs1.46bn. Asset quality was in-line; GNPA/NNPA rose by 8bps/5bps QoQ to 1%/0.73%; PCR was stable QoQ. Company created provisions of Rs57mn (PLe Rs65mn). PAT was lower at Rs1.1bn (PLe Rs1.3bn).
§ Credit flow impacted due to tech change: Disbursal drop of 32.5% QoQ was higher than usual due to technology transformation wherein company initiated ‘Salesforce’ rollouts pan India in Apr’23. Management suggested operations stabilized in May and June witnessed a growth of 17% MoM. Near to medium term growth guidance was maintained at 20-25%. AUM mix would be 65-70% home loans and 25-30% non-home loans. Top 4 states AUM contribution is: RJ-30% while MH, MP and Guj at 15-16% each. Focus is to expand deeper in existing states and grow business in newer territories like Karnataka, UP and Orissa which saw good traction of 50-60%. BT-out for Q1 was stable at 1.4% of opening AuM and 0.5% each month is the normal run-rate.
§ Employee cost spiked QoQ; focus on TAT reduction: Staff cost spiked by 25% QoQ as (1) there was impact of Rs125mn towards retirement benefits and (2) Q4’23 had seen some ESOP schemes mature leading to reversal of Rs100mn while Q1’24 saw regular ESOP cost of Rs50-60mn. There is no employee attrition at senior/level while it is normal at junior level. Focus is to enhance productivity, stabilize processes and enhance customer experience and with integration of new technology, TAT would reduce from 10-12 days to 6-7 days. Aim is to grow distribution network without increasing branches. Company expects cost/AuM to remain stable at 3.7% over medium term.