Aavas Financiers Target Price Set at Rs. 1,700 for 2027

Analyst Reaffirms Confidence in Aavas Financiers

Brokerage firm Prabhudas Lilladher has maintained a 'BUY' rating on Aavas Financiers Ltd, setting a target price of Rs. 1,700. The positive outlook is supported by a pickup in disbursements in the third quarter and expectations of sustained momentum. The firm projects Assets Under Management (AUM) to grow by 15% and 16% in FY26 and FY27, respectively, driven by operational efficiencies and stable asset quality.

Strong Growth Projections

Aavas Financiers reported an 8% year-on-year increase in disbursements for Q3, reaching Rs. 17.2 billion, while its AUM grew by 15% to Rs. 222.0 billion. The company's management indicated that the momentum seen post-festive season is expected to continue. To support this growth, Aavas plans to add approximately 20-25 new branches in the current quarter and another 50 in FY27. The company is targeting disbursements of Rs. 20 billion in the near term and anticipates a 25% YoY growth in FY27, fueled by contributions from new branches, business sourced from digital channels, and inflation-led increases.

Financial Health and Margin Stability

The company's financial metrics remain robust. In Q3, the reported yield moderated slightly to 13.02%, but a lower cost of funds at 7.68% led to an improved reported spread of 5.34%. Aavas successfully raised Rs. 9.8 billion through Non-Convertible Debentures (NCDs) at competitive rates and implemented a 15bps cut in its Prime Lending Rate (PLR) from March 1, 2026. Management has guided for a stable spread of around 5.25% for FY26, a trajectory that analysts find achievable due to lower borrowing costs. However, some moderation is anticipated in FY27 as the loan book reprices.

Asset Quality Remains a Key Strength

Aavas has consistently demonstrated strong asset quality. Across both its established and emerging geographies, key metrics like 1+ days past due (dpd) and Gross Non-Performing Assets (GNPA) remain healthy at below 4% and 1.25%, respectively. The company reiterated its guidance of maintaining credit costs below 25 basis points over the medium term, reinforcing confidence in its risk management framework.

A Journey from a Challenging IPO

The current optimism contrasts sharply with the market sentiment during Aavas Financiers' Initial Public Offering (IPO) in September 2018. The company launched its Rs. 1,734 crore IPO amidst a severe liquidity crisis in the NBFC sector, triggered by defaults at IL&FS. The issue, priced at Rs. 818-821 per share, struggled to gain traction and was subscribed to only 97%. The stock subsequently listed at a 9% discount to its issue price, debuting at Rs. 746.

At the time, many analysts flagged concerns over its high valuation. Despite industry-leading Net Interest Margins (NIM) of 7.3%, its Return on Equity (RoE) of 11.2% was among the lowest in the sector. The IPO was deemed aggressively priced with a Price-to-Book Value (P/BV) multiple of 3.9x.

Differentiated Business Model

Despite the initial skepticism, Aavas's 'differentiated' business model has proven resilient. The company focuses on providing small-ticket home loans, with an average size of under Rs. 9 lakh, to low and middle-income self-employed customers in semi-urban and rural areas. Its strategy of using a 100% in-house distribution model and avoiding exposure to builder funding or corporate loans has helped mitigate credit risk. This granular approach, targeting customers often overlooked by traditional lenders, has been a cornerstone of its success.

Evolution of Ownership

Originally established as AU Housing Finance in 2011, Aavas was acquired by private equity firms Partners Group and Kedaara Capital in 2016. After the 2018 IPO, these firms gradually divested their stakes. In a significant transaction in July 2025, CVC Capital Partners acquired a 26.47% stake, marking India's largest-ever investment in affordable housing finance and signaling strong institutional confidence in the company's future.

Concluding Outlook

Prabhudas Lilladher's analysis reflects a positive consensus that is building around Aavas Financiers. The brokerage has rolled forward its valuation to December 2027, applying a Price-to-Adjusted Book Value (P/ABV) multiple of 2.1x to arrive at its unchanged target price of Rs. 1,700. The company's ability to navigate market cycles, maintain asset quality, and execute its growth strategy in the affordable housing segment positions it well for sustained performance.