Aavas Financiers: Growth With a Watchful Eye

Aavas Financiers is gaining ground in affordable housing finance. In the June 2026 quarter, loan disbursements jumped nearly 41% year on year to ₹1,613.9 crore. Faster disbursement can expand the loan book. Yet growth must be assessed alongside credit quality, funding costs and valuation. About 83% of loans were below ₹15 lakh, highlighting its focus on economically weaker and lower-income borrowers. PMAY-U 2.0, which targets 1 crore urban poor and lower-middle-class families, could support demand. Aavas also provides SME loans and loans against property (LAP), which earn higher yields. In FY26, housing loans formed 64% of the portfolio, SME loans 23% and LAP balance. This mix helped net interest margin rise to 7.7% from 7.48% a year earlier. It was well above Bajaj Housing Finance’s 3.7%, though Bajaj has a much larger balance sheet. A higher NIM strengthens earnings per asset, but may also mean greater risk in non-housing lending. Net interest income rose 16.5% to ₹323.9 crore, while net profit rose by a solid 23% to ₹171.3 crore. Asset quality stayed very stable, with net Stage 3 assets at 0.7% against 0.84% a year earlier. Aavas also had 440 branches across 15 states in FY26. The shareholder case is positive: disbursements, wider margins, faster profit growth and stable asset quality. Caution: its valuation. At ₹1,400.9, the stock traded at about 2.9 times price to book, while consolidated return on equity was 13.9%. Future returns depend on sustaining growth without rising credit losses and on earnings catching up with valuation. Aavas merits a place on the watch list, not an automatic buy label. Shareholders should track credit costs, SME and LAP exposure, funding costs, ROE and valuation. The opportunity is attractive, but execution will decide investor returns.