Aavas Financiers IC

5 April 2021
INDIA | NBFC | COVERAGE INITIATION
Aavas Financiers
A premium affordable play
Disciplined growth Sector leading return Initiate with BUY & TP

strategy with asset quality ratios with c.4% ROAs of INR 2,750, implying
at its core 14% Upside
5 April 2021
INDIA|NBFC | COVERAGE INITIATION
TABLE OF CONTENTS
Introduction ....................................................................................... 3
Key focus charts ................................................................................. 4
Investment Rationale ......................................................................... 5
Valuation and Recommendation ...................................................... 21
Key Risks ......................................................................................... 22
Company Background ..................................................................... 23
Peer Comparison.............................................................................. 26
Financial Tables ................................................................................ 28
Aavas Financiers is a low- and middle- income, self-employed focused

(~65% of book) housing finance company with presence in 10 states via
263 branches (Dec’20). The lender is focused on semi-urban and rural
locations with limited presence of large HFCs or banks with an aim to drive
~85% tehsil level penetration in states it enters. With T1 of 51%, Aavas is
well-capitalized to clock in 24% AUM CAGR over FY21-23E generating
sector leading ROAs of 4% (vs. 2% for peers).
RECENT REPORTS
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JM Financial Institutional Securities Limited Page 2

5 April 2021
INDIA | NBFC | COVERAGE INITIATION
Aavas Financiers
A premium affordable play
Niche focus offers long runway for growth: With a focus on LIG/MIG segment
We initiate coverage on Aavas Financiers (Aavas) with a BUY predominantly self-employed (~65% of book) and living in semi-urban/ rural
rating and a target price of INR 2,750. Coming from the locations, Aavas has tapped into a market where mortgage penetration is a mere
parentage of AU Financiers (now AUSFB), which has built a ~1%. With presence in 10 states via 263 branches with overall tehsil penetration
successful bottom-up, service-led model for vehicle financing, of ~60% (vs. target of 85%), we believe Aavas can deliver 24% AUM CAGR
Aavas (earlier called AU Housing Finance) was founded to over FY21-23E as it brings its successful credit delivery model to newer markets
provide home loans to low income borrowers. Since its and goes deeper into existing markets. We see its market share in affordable
separation from AUSFB in Jun’16, Aavas has built its business housing improving to 2.8% by FY23E vs 2.0% as of FY20.
in a well-defined, calibrated fashion with asset quality at its
core. With a motto of helping customers move from kuccha to
Margins to remain healthy aided by favourable COF and lower negative carry:
pucca homes, Aavas today services c.118,400 loan accounts –
With increased use of data analytics, Aavas is increasingly able to offer sharper
CAGR of c.46% over FY15-21, with a loan book of INR88
risk adjusted pricing which has managed to keep book yields c.14% in recent
billion – CAGR of c.48%.
years. However, with falling wholesale rates, we foresee some pressure on yields
The robust asset growth has been supported by a conservative –already announced 25bps of cuts since Jan’21, but this is expected to be offset
liability side - ~80% banks (incl DA) and NHB, zero CPs despite by favourable funding costs – incremental COF at 7.04% as of Dec’20, and
strong short term rating of A1+. Significant investment in reduction in negative carry as BS liquidity comes down to 3-4mth buffer vs 5-
hyper-local presence and underwriting (“4 eyes approach”) has 6mth now. We build in NII CAGR of 21% over FY21-23E with NIMs of ~8%.
helped Aavas perfect its risk pricing resulting in consistent 5%+
spreads. We expect investment into geographic expansion Best in class asset quality: Aavas reported 0.5% GS3 ratio in FY20 vs 1.8% for
(expected to identify atleast 4 new states for development over peers with credit costs of 23bps vs 60bps for peers. This was driven by, a) a
2021-26 in keeping with past trend) and going deeper will strong underwriting team (~400 people) consisting of MBAs and CAs and b)
continue to be aided by strong PPOP (22% CAGR) over FY21- stringent screening with high rejection rates of c.70%.
23E. Aavas’s unrelenting focus on asset quality, non-metro
focus, and rigorous customer profiling using 60+ templates has To generate ROAs of c.4% vs 2% for peers; deserves premium valuation:
helped the model withstand the COVID19 disruption. Current valuations of 6.0x FY23E P/B are justified given granular book, long
growth runway and best in class asset quality. Initiate coverage with a BUY
Aavas deserves a premium valuation which is justified in light
rating and target price of INR 2,750, valuing Aavas at 50x FY23E EPS (implied
of its super-granular asset mix, long growth runway and best
P/B 6.9x) for PAT CAGR of 26% over FY21-23E with ROEs of c.15% (on low
in class asset quality with 0.5% GS3 ratio in FY20 vs 1.8% for
leverage of less than 4x).
peers. Protracted COVID-19 disruption and inability to
successfully scale up newer states remain key risks.
Recommendation and Price Target Financial Summary (INR mn)

Recommendation and Price Target
Y/E March FY19 FY20 FY21E FY22E FY23E
Current Reco. BUY
Net Profit 1,760 2,491 2,758 3,495 4,359
Current Price Target (12M) 2,750
Net Profit (YoY) (%) 89.2% 41.5% 10.7% 26.7% 24.7%
Upside/(Downside) 13.7% Assets (YoY) (%) 39.3% 36.1% 15.9% 16.4% 22.1%
ROA (%) 3.6% 3.8% 3.3% 3.6% 3.8%
ROE (%) 11.6% 12.7% 12.3% 13.7% 14.8%
Key Data – AAVAS IN EPS (INR) 22.5 31.8 35.2 44.6 55.7
Current Market Price INR2,418 EPS (YoY) (%) 67.6% 41.1% 10.7% 26.7% 24.7%
Market cap (bn) INR189.8/US$2.6 PE (x) 107.4 76.1 68.8 54.3 43.5
Shares in issue (mn) 78.3 BV (INR) 235 268 303 348 403
BV (YoY) (%) 36.7% 13.9% 13.1% 14.7% 16.0%
52-week range 2,675/936
P/BV (x) 10.29 9.04 7.99 6.96 6.00
Sensex/Nifty 50,030/14,867
Source: Company data, JM Financial. Note: Valuations as of 01/Apr/2021
INR/US$ 73.4
JM Financial Research is also available on: Bloomberg - JMFR <GO>, Thomson Publisher & Reuters, S&P Capital IQ,
FactSet and Visible Alpha
Price Performance You can also access our portal: www.jmflresearch.com
Please see Appendix I at the end of this report for Important Disclosures and Disclaimers and Research Analyst
% 1M 6M 12M
Certification.
Absolute 6.8 70.2 102.9
Bunny Babjee Karan Singh Anuj Narula
Relative* 7.3 31.6 14.6 bunny.babjee@jmfl.com karan.uberoi@jmfl.com anuj.narula@jmfl.com
* To the BSE Sensex Tel: (91 22) 66303263 Tel: (91 22) 66303082 Tel: (91 22) 62241877
Sameer Bhise Akshay Jain Ankit Bihani

sameer.bhise@jmfl.com akshay.jain@jmfl.com ankit.bihani@jmfl.com
Tel: (91 22) 66303489 Tel: (91 22) 66303099 Tel: (91 22) 62241881

Aavas Financiers 5 April 2021
Key Charts
Exhibit 1. AUM – expect 24% CAGR over FY21-23E Exhibit 2. AUM mix – stable product mix
AUM (INR bn) YoY Growth (%) Home loan Other mortgage loans
160 143.7 70%
100%
140 60% 18%
115.7 22% 24% 27% 26% 26% 26%
120 80%
50%
93.4
100
78.0 40% 60%
80
59.4 30%
60 40% 82% 78% 76%
40.7 74% 74% 74% 74%
40 20%
26.9
20%
20 10%
0 0% 0%
FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Source: Company, JM Financial Source: Company, JM Financial
th
Exhibit 3. AUM mix – self-employed to remain mainstay of business Exhibit 4. AUM mix* – over 3/4 book controlled by top 4 states
Rajasthan Maharashtra Gujarat
Self employed Salaried
Madhya Pradesh Delhi 2015-20 states
100%
100% 5%
4% 5% 4%
36% 36% 36% 35% 35% 8% 9% 10%
80% 39% 14%
80% 16% 18% 17%
60% 60% 27%
20% 19% 20%
40% 40%
61% 64% 64% 64% 65% 65%
20% 51% 49% 48% 46%
20%
0% 0%
FY15 FY16 FY17 FY18 FY19 FY20 FY15 FY16 FY17 FY18
Source: Company, JM Financial Source: Company, JMFL; *FY20 Rajasthan ~42% of overall AUM while other top 3 states ~15-17%.
Exhibit 5. NIMs to remain healthy Exhibit 6. Superior asset quality aided by data analytics, tech
NIM (%) Spread (%) Gross NPLs (%) Net NPLs (%) Coverage (RHS) (%)
10.0% 2.0% 35%
8.8%
9.0% 8.0% 30%
7.9% 7.7% 7.9% 8.1%
8.0% 1.5% 25%
6.9%
7.0% 6.0% 6.3% 20%
1.0%
6.0% 15%
6.1%
5.0% 5.8% 6.1% 10%
5.4% 5.4% 5.5% 5.5% 0.5%
4.0% 4.6% 4.4% 5%
3.0% 0.0% 0%
FY21E
FY22E
FY23E
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY15
FY16
FY17
FY18
FY19
FY20
Exhibit 7. Expect PAT CAGR of 26% over FY21-23E Exhibit 8. Highest return ratios in sector with ROAs of 4%
PAT (INR bn) YoY Growth (%) ROA (%) ROE (RHS) (%)
5.0 100%
4.4
35.0% 3.6% 3.8% 3.6% 3.8% 4.0%
4.5 3.3%
4.0 3.5 80% 30.0% 3.0% 2.9% 2.9% 3.5%
3.5 2.6% 3.0%
2.8 25.0%
3.0 2.5 60% 2.5%
2.5 20.0%
1.8 2.0%
2.0 40% 15.0%
1.5 1.5%
0.9 10.0%
1.0 0.6 20% 1.0%
0.2 0.3 5.0%
0.5 0.5%
0.0 0% 0.0% 0.0%
FY21E
FY22E
FY23E
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY15
FY16
FY17
FY18
FY19
FY20

Niche focus offers long runway for growth

Within a highly commoditised mortgage business, Aavas has identified to differentiate itself
by choosing to focus on the undocumented and unbanked segment specifically on the self-
employed. With formal mortgage penetration ~10%, the company has chosen to target the
c.1 billion population living outside India’s top 50 cities where mortgage penetration is ~1%.
Even a 100bps increase in this penetration implies atleast 1 million incremental homes - as of
Dec’20, Aavas has financed ~142,420 housing units.
Affordable housing poised to clock in double-digit growth over FY21-25

Affordable housing defined as HFCs disbursing housing loans with ticket size (at the time of
disbursement) of less than INR1.5 million make up c.20% of overall housing market as of
Mar’20 and are c.INR 4 trillion in size. As per RBI & CRISIL study, aggregate housing finance
demand based on projected housing unit demand (2022) stands at INR5 trillion in EWS
category and INR30 trillion in the LIG category – the key target segments for players like
Aavas.
Exhibit 9. The affordable housing sector is expected to clock 10% CAGR over FY21-25
A ffordable housing loan outstanding (INR billion)
7,000
6,242
Sep’18 IL&FS, Dewan
6,000 “Housing for HFC triggered a liquidity
All” scheme crisis
launched
5,000
4,223
3,870 3,965
4,000 3,652
3,000
2,376
2,000
1,000
0
FY15 FY18 FY19 FY20 FY21E FY25E
Source: CRISIL
While the market has grown at a tepid pace over FY18-21 i.e. at 5% CAGR, some of the
macro tailwinds to drive future growth include:
 Recovery in GDP growth post COVID19 disruption
 Government support in the form of budgetary allocation to PMAY alongside state specific
incentives like lower stamp duties
 Increased supply of affordable homes
 Rising demand for affordable homes from Tier 2/3/4 cities as some WFH continues to stay
post-COVID19
 Attractive home loan interest rates driving preference for ownership

Exhibit 10. Aavas Financiers – In a league of its own…
Source: Company, JM Financial
Aavas Financiers – niche focus on self-employed segment in the hinterlands

Aavas’s focus customer can be categorised as a) low and middle income, b) self-employed, c)
living in a semi-urban or rural location and d) with or without documented income proofs.
Hence, bottom-of-the-pyramid customers normally identified as chaiwallah, sabziwallah,
chauffeur, local tradesmen, daily wage labourers, domestic assistants, cooks, car washers,
garage mechanics and shopfloor workers, among others. Aavas helps fill the home financing
gap for this segment that large NBFCs/HFC/banks normally do not cater to because of
operational costs and lack of proven credit history. With its proprietary credit underwriting
and assessment tools, the company has helped ~118,400 customers own a home since its
inception in 2012.
In terms of products, Aavas offers
a) Home loans consisting of repairs and renovation loans (~2-3% of volumes),
construction loans (~58% of volumes but lower in value terms) and purchase loans
(~40% of volumes); and
b) Other mortgage loans consisting of LAP (~16% of AUM), top-up loans (INR0.2-0.4
million) for customers with 18-24yr vintage (~3-4% of AUM), and fee/insurance
products (~3-4% of AUM)
Given the customer segment (average income level of c.INR50,000 p.m.), the ticket size focus
for Aavas is under INR 1 million for both home loans and LAP.
Exhibit 11. Product portfolio

Products ATS Share of Key features Yields Target customer
book base
Purchase loans End use single unit houses
Home Construction loans ATS: under End use single unit houses; loan capped at ~INR ~12.5-
~75% 1,000 per sqft; atleast 85-95% completion
Loans INR1.0 million 13.0%
Repairs & renovation Majorly EWS and
Fees and insurance ~3-4% LIG earning less
Top loans ATS: ~INR0.2- Pre-approved product 18-24yrs vintage customer than INR 50,000
Other 0.4 million ~3-4% for home extension / business space expansion per month
mortgage and miscellaneous needs
loans LAP ATS: ~INR0.75 Used for expansion of business, working capital 15.5-
million ~16% needs 16.0%
Source: Company

Over FY14-20, Aavas has delivered a robust AUM CAGR of 64% on the back of
disbursement CAGR of 48% with loan accounts growing 57% over the same period.
Accordingly, the company improved its market share to 2.0% of affordable housing loans in
FY20 from 0.4% in FY15. In the overall housing loans market, Aavas is a very small player
with a share of 0.4% in FY20.
Exhibit 12. Market share – overall housing loans Exhibit 13. Market share – affordable housing loans
Aav as market share - ov erall Aav as market share - affordable
0.6% 0.5% 3.0% 2.8%

0.5% 2.5%
0.5% 0.4% 2.5% 2.2%
0.4% 2.0%
0.4% 0.3% 2.0% 1.5%
0.3% 0.3% 1.5%
0.2% 1.1%
0.1% 0.9%
0.2% 1.0% 0.6%
0.1% 0.4%
0.1% 0.5%
0.0% 0.0%
FY21E
FY22E
FY23E
FY21E
FY22E
FY23E
FY15
FY16
FY17
FY18
FY19
FY20
FY15
FY16
FY17
FY18
FY19
FY20
Source: Company, JM Financial, RBI, CRISIL Source: Company, JM Financial, CRISIL
The book remains c.100% retail with a 65:35 self-employed:salaried mix. Product wise, home
loans account for c.75% of AUM while the high-yielding other mortgage business which was
started in June’17, is expected to be capped at 25%.
Exhibit 14. AUM mix – by occupation Exhibit 15. Loan accounts – by occupation
Self employed Salaried Self employed Salaried
100% 100%
80% 39% 36% 36% 36% 35% 35% 80% 41% 38% 38% 37% ~35% ~35%
60% 60%
40% 40%
61% 64% 64% 64% 65% 65% 59% 62% 62% 63% ~65% ~65%
20% 20%
0% 0%
FY15 FY16 FY17 FY18 FY19 FY20 FY15 FY16 FY17 FY18 FY19 FY20
Exhibit 16. AUM mix – by credit history Exhibit 17. Loan accounts – by credit history
New to credit With credit history New-to-credit
100% 60%
52%
80% 43% 41% 40-45% 40-45%
58% 38%
67% 71% 65% 40%
60%
40%
20%
20% 42% 35%
33% 29%
0% 0%
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18 FY19 FY20

Exhibit 18. AUM mix – by product Exhibit 19. AUM mix – by borrower type
Home loan Other mortgage loans Retail Corporate
100% 100% 0.2% 0.5% 0.6% 0.6% 0.5% 0.5% 0.5%
18% 22% 24% 27% 26% 26% 26%
80% 80%
60% 60%
99.8% 99.5% 99.4% 99.4% 99.5% 99.5% 99.5%
40% 82% 78% 76% 40%
74% 74% 74% 74%
20% 20%
0% 0%
The focus will remain on borrowers making c.INR50,000 per month in rural and semi-urban
locations with ticket sizes capped at under INR1.0 million.
Exhibit 20. AUM mix – by income category Exhibit 21. AUM mix – by ticket sizes
EWS - <INR0.3m pa LIG - INR0.3-0.6m pa <INR0.2m INR0.2-1.0m INR1.0-2.5m INR2.5-5.0m >INR5.0m
MIG - INR0.6-1.8m pa HIG - >INR1.8m pa 100% 2%
100% 6% 6% 6% 8%
10% 13% 14% 13% 9% 10% 10%
80% 80%
32%
35% 32% 28% 26% 37% 37% 35%
60% 60%
40% 39% 39% 40%

40% 39% 58%
48% 47% 46%
20% 20%
15% 16% 19% 21%
0% 0% 1% 1% 1% 1%
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18
The company has identified branch expansion and customer addition as two pillars of growth
going ahead given the low penetration. District wise, as of FY20, Aavas was present in only
45% of the 295 total districts in the 10 states that the company has operations. Population
wise, out an addressable market of c.620 million in the 10 states, as of FY20, Aavas’s
network only covers c.360 million. In terms of tehsil penetration, as of FY20, Aavas had an
overall presence in c.57% tehsils across the 10 states – Aavas targets 10% incremental
penetration per year; with a target of 60-75% tehsil penetration for existing branches over
coming years.
Given the company’s DNA, it is not expected to deviate from the INR0.9m ticket size or the
50% LTVs in order to chase growth. Moreover, another wheel for growth is customer
retention. In this context, and given the high new-to-credit (NTC) customer share (~40-45%
of live accounts), Aavas has to tackle the threat of on-boarded borrowers moving to formal/
banking channels 24-36 months into the loan cycle. To address this, Aavas has taken the
following potent initiatives which have been able to reduce BT-out to 0.3% per month
during FY21 vs 0.8% per month levels during FY18.
 The company has engaged a dedicated team for customer retention. Further, it provides
training to cluster heads, branch heads in the field of customer retention apart from sales
and collections
 Data analytics: The company maps customer journey within and outside Aavas with a
quarterly tracking of the same. Once the customer starts exhibiting signs of significantly
improved credit worthiness or achieves a high score on the company’s proprietary
scorecard, Aavas proactively reaches out to the customer to assess needs in order to pre-
empt BTs.

 Market intelligence: The company uses data analytics to divide markets by population –
above 1 million and below 1 million. This information is then used to frame customized
customer offerings. For example, in mature markets (population above 1 million), a
seasoned borrower will normally look for lower interest rates given higher presence of
competitors (banks and HFCs). In such situations, Aavas is able to pass on some of its
funding cost advantage to increase retention. For smaller markets, borrowers are normally
looking for high loan amounts. Here, Aavas uses data analytics designed scorecard to
make preapproved loan offers.
We are building in AUM CAGR of 24% over FY21-23E driven by a) branch expansion, b)
higher customer acquisition implying a rise in affordable market share for Aavas from 2.0%
as of FY20 to 2.8% as of FY23E.
Exhibit 22. Trend in AUM Exhibit 23. Trend in loan book

AUM (INR bn) YoY Growth (%) Loan book (INR bn) YoY Growth (%)
160 143.7 70% 140 70%
140 114.3
60% 120 60%
115.7
120 50% 100 92.1 50%
93.4
100 74.4
78.0 40% 80 40%
80 61.8
59.4 30% 60 47.2 30%
60
40.7 34.4
40 20% 40 20%
26.9 21.3
20 10% 20 10%
0 0% 0 0%

Well-defined, hyper-local distribution strategy

Taking a leaf out of the FMCG industry, the distribution strategy of Aavas is based on going
where its core customer lives which has resulted in a hyper-local rural and semi-urban
presence. As of Dec’20, Aavas had 263 branches spread out across 10 states in India.
High-touch model demands borrower proximity; targets ~85% tehsil level

penetration per state
Given the rigorous underwriting model, Aavas follows a thumb-rule of 4/5 in terms of
geographic expansion i.e. four states to be developed in five years with a target to achieve a
tehsil level penetration of 60-75% before the next cohort of 5 states is selected. During the
first cycle, from 2011-15, Aavas developed Rajasthan, Gujarat, Maharashtra, MP and Delhi
nd
NCR. During the 2 cycle, i.e. from 2015-20, the company is developing Chhattisgarh,
Haryana, UP, Uttarakhand and Himachal Pradesh.
Within a state, Aavas follows a data-driven branch placement i.e. analyse census patterns and
CIBIL data to map prospective markets – low delinquency and low penetration (under 5%).
Each branch does sourcing and appraisal work within a 50 kms radius going as deep as
village clusters with population levels of ~2,000. This tehsil level targeting will be a key factor
in allaying competition from larger players – Aavas targets a tehsil level penetration of ~ 85%
in all the states in which it operates. Currently, Aavas services 1,073 tehsils (~57% overall
penetration) across its 10 states and has active loans in 10,928 villages/towns. However,
despite the hyper-local presence, Aavas has ensured look, feel and processes in the branches
are institutionalised to ensure same standards across states.
Exhibit 24. Branch network as of Dec’20

State Branches as Dec'20 Operations Commenced in
Rajasthan 88 2012 1st cycle
Maharashtra 44 2012 1st cycle
Gujarat 37 2012 1st cycle
Madhya Pradesh 39 2013 1st cycle
Delhi NCR 6 2013 1st cycle
Haryana & Punjab 15 2017 2nd cycle
Chhattisgarh 5 2017 2nd cycle
Uttar Pradesh 16 2018 2nd cycle
Uttarakhand 9 2018 2nd cycle
Himachal Pradesh 4 2020 2nd cycle
263
The company has grown branch network by c.40% over FY14-20, with a target to add 35-40
branches annually in a contiguous way. We expect the branch network to reach 365 by
FY23E with the overall branch productivity improving to INR10 million disbursement/ month/
branch after dropping to c.INR8 million level in FY21E – the company has a target of INR15
million disbursement per branch per month.
Exhibit 25. Trend in branch network Exhibit 26. Branch geographic mix
Rajasthan Maharashtra Gujarat
Branches YoY Madhya Pradesh Delhi 2015-20 states
400 365 120%
114% 100% 2% 1%
350 325 1% 13% 17%
100% 10% 11% 17% 15%
285 1%
300 80% 15% 2%
250 17% 16% 14%
80% 17% 16%
250 210 15%
60% 19% 20% 15%
200 165 60% 19% 20%
18% 17%
150 40%
94 40%
100 27% 50% 48%
42 44 20% 44% 44% 37% 35%
50 19% 14% 14% 12% 20%
0 0% 0%
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY15 FY16 FY17 FY18 FY19 FY20

Hiring strategy - “hire young, hire fresh, hire local”

Not just branch location, Aavas’s hiring strategy also revolves around its core customer. It
follows a philosophy of “hire young, hire fresh, hire local” ensuring the employees have an
open mind and fresh to the mortgage finance business (no biases from previous mortgage
company experience) and are well-versed with ground realities include dialect, customs, social
norms etc.
With a 100% in-house sourcing model, Aavas has one of the largest employee bases among
peers with 3,545 employees as of Dec’20. In terms of split, business:credit/operations ratio is
2:1. However on an employee cost-to-asset or cost-to-income ratio, Aavas is in line with
peers.
We are building in 23% growth in employee count to 4,380 – lower than 46% growth in
branch network, as higher technology integration increases productivity.
Exhibit 27. Trend in employee count Exhibit 28. Employee base vs peers (FY20)
Employees YoY Employees (#)

5000 4,550 4,380 120%
4,000 3,564
98% 3,990 100%
4000 3,564 3,500
80% 3,000
3000 2,500 2,097
34% 2,384 60%
2,000
1,862 49% 40%
2000 1,500 994
13% 696 838
940 28% 20% 1,000
1000 623 704 12% 14% -4% 0% 500
0
0 -20% Aavas HomeFirst Aadhar HFC CanFin Repco
FY15 FY16 FY17 FY18 FY19 FY20 FY21EFY22EFY23E
Exhibit 29. Employee cost to assets Exhibit 30. Employee cost to assets vs peers (FY20)
Emp. cost to assets (%) Employee Cost to Assets (%)
4.0%
3.44%
3.5% 2.5% 2.21%
2.05%
3.0% 2.0%
2.40% 2.30% 2.43% 1.53%
2.5% 2.21% 2.12% 2.17% 2.13%
2.07% 1.5%
2.0%
1.5% 1.0%
0.58%
1.0% 0.5% 0.27%
0.5% 0.0%
0.0% Aavas HomeFirst Aadhar HFC CanFin Repco
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Exhibit 31. Employee cost to income (%) Exhibit 32. Employee cost to income vs peers (FY20, %)
Emp. cost to income (%) Employee Cost to Income (%)
40.0% 37.4% 28.2%
30.0% 27.1% 27.0%
35.0%
29.8%31.3% 25.0%
30.0% 26.5% 25.9%27.1%26.4%26.4%25.3%
20.0%
25.0%
15.0% 12.6%
20.0%
15.0% 10.0% 7.9%
10.0% 5.0%
5.0% 0.0%

Diversified borrowing mix

Aavas has a very conservative approach to borrowing given its presence in the highly niche
customer segment. It has panel of ~30 lenders including marquee names like Asian
Development Bank (ADB), CDC group plc (CDC) and International Finance Corporation (IFC).
Broadly, c.80% of borrowings are sourced from term loans, assignment, NHB financing and
cash credit facility with only c.20% funds coming from capital market. Despite the recent
credit rating upgrade (long term AA- by both ICRA and CARE) the company continues to
steer clear of raising commercial paper (short term rating A1+ by both ICRA and CARE).
ALM profile has improved since its separation from AU reaching a peak of 24% (positive
mismatch in under-1yr bucket) in FY19 during the IL&FS crisis. In light of COVID19, the
company increased on-BS cash and CE to 5-6mths buffer at INR21bn as of Dec’20 vs 3-4
mths buffer ranging INR8-10bn.
This liability strategy has survived major liquidity events facing the NBFC sector – IL&FS and
COVID19 with support from a focussed business model - c.100% retail franchise with over
95% funded customers living in the property, ~50% LTVs and ticket sizes under INR1m. With
incremental funding costs hovering around 7% as of Dec’20, we expect funding costs to
remain at 7.5% levels into FY23E.
Exhibit 33. Trend in borrowings growth Exhibit 34. Trend in borrowing mix
Borrowing (INR bn) YoY growth (%) Term loans DA NHB NCDs Cash credit/ others
100 91 120%
90 100%
80 73 100% 17% 14% 13% 11% 18% 18% 19% 17%
21%
70 63 80% 19%
80% 2% 13% 24% 10% 14% 14% 14% 15%
60 54
60% 25% 28% 17%
50 60% 25% 23% 20%
37
40
27 40% 40% 74% 69%
30 62%
18
20 14
20% 46% 42% 43% 45% 47% 52%
7 20%
10
0 0% 0%
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Exhibit 35. Trend in funding costs Exhibit 36. Healthy ALM profile
Cost of funds
11.0% Upto 1yr mismatch
30.0% 23.6%
10.0% 20.0%
12.3%
10.0%
9.0% 10.0% 4.1% 3.3%
9.0% 0.0%
8.8% 8.7%
8.0% -3.7%
8.1% 8.0% -10.0%
7.8% 7.7%
7.0% 7.5%
-20.0%
-19.7%
6.0% -30.0%
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY15 FY16 FY17 FY18 FY19 FY20
Given the rural, semi-urban locations,

Exhibit 37. Fixed/Floating rate BS view
certain borrowers prefer to opt for fixed
FY15 FY16 FY17 FY18 FY19 FY20
rates given the low volatility. The
Assets
company has a conservative policy where
Fixed 23% 32% 40% 45% 44% 41%
it lends fixed rate loans with fixed rate
Floating 77% 68% 60% 55% 56% 59% liabilities and same for floating rates.
Liabilities Further, the fixed rate loan products are
Fixed 28% 32% 28% 29% 43% 33% repriced every three years thus
Floating 72% 68% 72% 71% 57% 67% cushioning the margins/ spreads.

Margins to remain healthy despite some pressure on yields

Presence in a niche segment, capability to offer risk-adjusted pricing, deep understanding of
core customer segment alongside continuous engagement with lenders has supported
spreads which have historically remained close to the management guided range of 5%
through crises. The company’s yields have become more refined as the underwriting models
have improved – delta between self-employed and salaried improved to 185bps in FY18 vs
10bps in FY15 while delta for new-to-credit yields vs borrowers with credit history improved
to c.240bps in FY18 vs 41bps in FY15. This differentiation has been possible with scorecard
based sourcing and higher use of data analytics.
With wholesale rates falling and incremental funding costs at 7%, Aavas has announced two
rate cuts 10bps in Jan’21 and 15bps in Feb’21. However, spreads are expected to improve to
6% by FY23E aided by funding cost benefit. Similarly, margins (incl DA) remain healthy
reaching 8.1% aided by excess capital, healthy DA income and reduction in negative carry.
We expect NII CAGR of 21% over FY21-23E with margins improving to 8.1% by FY23E.
Exhibit 38. Trend in spreads and NIMs (incl DA) Exhibit 39. Trend in NII income
NII (INR bn) YoY Growth (%)
NIM (%) Spread (%)
10.0% 10.0 120%
8.8% 9.0
9.0% 8.0% 9.0
7.9% 7.7% 7.9% 8.1% 100%
8.0% 6.9% 8.0 7.3
7.0% 6.0% 6.3% 7.0 6.1 80%
6.0% 6.0 5.0
5.0% 6.1% 6.1%
4.0% 5.4% 5.4% 5.5% 5.5% 5.8% 5.0
4.1
60%
4.6% 4.4% 4.0
3.0% 2.6 40%
3.0
2.0%
1.0% 2.0 1.3
0.8 20%
1.0 0.4
0.0%
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E 0.0 0%
FY15 FY16 FY17 FY18 FY19 FY20 FY21EFY22EFY23E
Exhibit 40. Yield mix – by credit history Exhibit 41. Yield mix – by occupation
Yield - New to credit Yield - With credit history Yield - total Yield - salaried Yield - self employed Yield - total
18.9%
18.8%
18.8%
18.7%
18.7%
18.7%
18.5%
20.0% 20.0%
18.0%
18.0%
18.0%
17.9%
17.3%
19.0% 19.0%
16.9%
16.5%
16.3%
18.0% 18.0%
15.9%
15.9%
15.3%
15.1%
17.0% 17.0%
14.9%
14.8%
14.8%
14.1%
16.0% 16.0%
13.5%
15.0% 15.0%
14.0% 14.0%
13.0% 13.0%
12.0% 12.0%
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18
Exhibit 42. Average yield – by product Exhibit 43. High yield mortgage share to be ~25%
Yield - Home Loan Yield - Other Mortgage Loan Yield - Total Home loan Other mortgage loans
100%
16.6%
16.5%
18% 22% 24% 27% 26% 26% 26%

17.0% 80%
15.6%
15.5%
15.4%
15.1%
15.1%
15.0%
14.7%
16.0%
14.5%
60%
14.0%
13.8%
13.6%
15.0%
13.6%
40% 82% 78% 76% 74% 74% 74% 74%

14.0%
20%
13.0%
12.0% 0%
FY15 FY16 FY17 FY18 FY19 FY20 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Stable opex ratios as investment in growth continues

Given the 100% in-house sourcing model, the company has higher fixed cost base (~65%),
as such as growth accelerates operating leverage is expected to play out. However, given the
expansion blueprint including the recent foray into brand-building – we expect cost-to-asset
ratio to stabilise at ~3.4% levels into FY23E. Management has internally targeted to work
towards reducing cost-to-asset ratio by c.40bps annually. Technology will be the centrepiece
of the improving productivity as the company uses machine learning and automation to
improve TATs – a key moat in a unbanked low income segment.
Exhibit 44. Trend in opex growth Exhibit 45. Trend in cost-to-asset ratio
Opex (INR bn) YoY growth (%) Cost to Assets (%)
5.0 160% 6.0%
140% 5.0%
3.9 5.0%
4.0
3.3 120% 3.8%
2.8 4.0% 3.4% 3.4% 3.5% 3.4%
3.0 100% 3.1% 3.2% 3.2%
2.3 80% 3.0%
1.9
2.0 1.6 60%
2.0%
40%
1.0 0.7
0.4 1.0%
0.2 20%
0.0 0% 0.0%
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Data analytics is another key focus area as Aavas aims to become “more intelligent” about
sourcing, underwriting, asset quality and retention. The management’s serious intent on
being a data driven firm is evident in ‘Data Science’ being a separate department reporting
directly to the CEO. The use of analytics has moderated customer attrition, which fell to
0.3% per month currently vs 0.8% per month during FY18 thereby reducing the cost of
customer acquisition.
Together, the company employs 80 people under technology and 15 people under data
analytics in-house.
Exhibit 46. Snapshot of recent tech initiatives

Technology initiatives Operational area Results
Robotics Replaced manual intervention in Reduced time taken to log
credit assessment information from 45-60 minutes
to just 5 minutes through robot-
induced automation
Default model algorithm Leveraged bureau report Algorithm helped in generating
information, capturing static and cases vulnerable to defaults
dynamic information which was shared with the
collections team for proactive
redressal
Automated underwriting Created a differentiated Accelerated the process and
underwriting model suited reduced the TAT. During FY20,
for automatic approvals Aavas disbursed loans to 55%
customers within 10 days
Bounce prediction model Provides data of cases that can Pre-emptive action aided 6%
potentially default in 3 months decline in bounce incidence
With 100% data geo-tagged, the company has converted its whole portfolio into a “Heat
Map”, where at the touch of a finger, the MIS will display real-time within a 5km radius of
the click, the number of customers funded by Aavas and their demographic and collection
patterns for the last seven years. Such real time mapping has transformed an erstwhile highly
risky, unpredictable segment into manageable “patterns” where the company can apply
analytics and predict bounce rates with ~85% accuracy – during COVID19, the accuracy had
fallen to 30-40%, however as on-the-ground normalcy returns, the accuracy is expected to
go back to 75-80% levels going into FY22.

Data analytics is also making collections more targeted to ensure higher efficiencies.
Emerging from the COVID19 lockdown/ moratorium, all the above investments into tech and
data resulted in Aavas witnessing 1+ DPD levels of 6-8% against management expectation of
c.10%.
Apart from operations, even the customer facing side has been digitised where the
borrower/customer can find solutions to c.85% of their queries via an app. This has improved
productivity by freeing up employees to focus on customer acquisition and retention.
Moreover, the company has made significant investment into cyber security as well to ensure
data protection.
All of the above are creating a clear competitive advantage for Aavas, where the level of
attention and detail shown by the company for ATS INR0.9 million (similar to the analysis a
big financier would do for an ATS INR10 million+) will be very difficult to replicate for a new
player and very uneconomic for a larger player.
Exhibit 47. TAT Exhibit 48. Target TAT of 10days
TAT (Days) % of cases processed within 10 days

25 70.0%
21
20
60.0% 55.00%
54.22%
14
15 13
12
10 50.0%
10
40.0%
5
0 30.0%
FY14 FY18 FY19 FY20 Target FY18 FY20
In FY18, the company set itself an ambitious target of a TAT of 10 days vs a month taken
historically. Aavas is driving its team in the achievement of this target by penalising delays in
processing files and linking incentives to delivery improving TATs. Alongwith, indepth
customer data which will give Aavas an edge over competitors in risk-adjusted pricing,
superior TATs in a segment with undocumented, cashflow based underwriting, will be
another moat for the ‘bottom-of-the-pyramid” financier.

Unrelenting focus on asset quality

Coming from AU’s parentage, Aavas has prioritised a robust collection system over
underwriting model. The company exhibits single-minded focus on asset quality from the
beginning i.e. the branch set-up phase where Aavas first sets up its underwriting and
collections teams in a new state before sales given the high fixed costs involved (~65%).
Prospective markets are selected based on the data analytics looking at delinquency levels
and mortgage penetration (preferably under 5%).
Some business model features that work to ensure better asset quality are:
 Borrower mix: Aavas runs a 100% retail book, staying away from loan to corporates,
builder funding or funding for investment purposes and higher ticket sizes in general. For
~95% of borrowers funded by the company, it is their first house and they reside in it
too.
 Product mix: Sticky LTVs at ~50% with ATS capped at under INR 1.0 million with FOIR
ratio ~40% (on average EMIs come to INR12,000). The company does not underwrite
construction risk by refusing to fund properties that are not 85-95% complete or ready to
move in. Moreover, loan in the construction category is capped around INR 1,000 per
square feet. Further, top-up loans are only offered to existing customers with 18-24mth
of spotless credit record with the company, and the purpose too is thoroughly
investigated.
 Sourcing: Distribution/sourcing is done using 100% in-house model – ensuring quality

leads. Moreover, geographically, the company sets up presence in areas where top five
companies are absent and where housing penetration is less than 5% - ensuring Aavas is
the first choice for a home loan and not appraising rejected cases of the other lenders.
Further, referral based sourcing to tap into society structure in T3-6 cities via “Saathi”
interface is another source to generate high-quality leads.
 Stringent screening: The company runs rejection rates of ~70% - indication of both the
latent demand and the company’s stringent underwriting. In this context, it has to be
noted the proprietary “Scorecard” filters out non-fundable cases immediately at pre-
sourcing thereby improving the quality of the rejection rate.
 ‘Four Eyes’ approach involves dual underwriting, in-house and an empanelled/ external
agency: The company has made significant investment in creating a credit delivery model
with robust risk processes along four verticals, 1) underwriting risk, 2) legal risk, 3)
technical risk, and 4) operational risk. Aavas has accordingly employed, a) c.400
underwriters of which 150 are CAs, b) almost 100 civil engineers in-house alongside 250
external engineering firms, c) c.120 lawyers in-house alongside 200 external law firms for
the security creation processes and d) a very strong operational risk framework. Further, a
high touch model where employees make regular and surprise visits to the customer
throughout the lending process.
 “Smart” collections: Use of technology like geo-tagging (for effective collections) and
predictive analytics (identifying potential bounce rates with 75-80% accuracy) has aided
the company in taking corrective actions early.
This conservative approach has allowed Aavas to reduce net bouncing rate by 5%, keep 1+
DPD ratio within comfort level of 5% and reporting GNPA of <1% over close to 30 quarters.
Exhibit 49. Credit appraisal framework
Source: Company

Exhibit 50. 1+ DPD ratio trend Exhibit 51. Stage 1&2 ratio trend
1+ DPD Stage 1 Stage 2

0.08 120.0%
6.8% 98%
0.07 6.2% 97% 98%
100.0%
0.06 5.1% 4.8% 80.0%
0.05
0.04 3.4% 60.0%
0.03 2.4%
40.0%
0.02
20.0%
0.01 2% 2% 1%
0 0.0%
FY15 FY16 FY17 FY18 FY19 FY20 FY18 FY19 FY20
Mortgage loan GNPAs are lower than home loans as the business was only stared in June’17
and hence vintage effects are yet to playout, however management expects the same to be
under the guided range of 1%.
Exhibit 52. NPA – by product Exhibit 53. NPA – by customer segment
Home loan - NPA Mortgage loans - NPA Salaried NPA Self employed NPA
1.0% 0.9% 1.0% 0.9%
0.8% 0.8%
0.6% 0.6% 0.6% 0.6% 0.6% 0.6%
0.6% 0.5% 0.6%
0.6% 0.5% 0.6%
0.4% 0.4% 0.5%
0.4%
0.4% 0.4% 0.3% 0.3%
0.3% 0.3% 0.2%
0.2% 0.1% 0.1% 0.2%
0.0%
0.0% 0.0%
FY15 FY16 FY17 FY18 FY19 FY20 FY15 FY16 FY17 FY18 FY19 FY20
Source: Company, JM Financial Source: Company, JM Financial; Data for FY20 as of Dec’19.
COVID19 was the most-rigorous stress test of the company’s underwriting till date, with
24% morat book as of April’20 crystallising into a 1+ DPD ratio of 8.2% by Dec’20 – below
management estimates of 10%. Moreover, the company undertook detailed
customer/portfolio slicing by 60+ customer’s categorization (in SENP), FOIR cut, and LTV cut
to make positive and negative lists in order to curtail fresh exposures to the most affected
segments such as hospitality, taxis and school related businesses. As such on a fully baked
basis, the company reported GS3 ratio of 1% as of Dec’20 with 1.07% GS3 ratio in home
loans.
Exhibit 54. Quarterly movement of asset quality

Gross S3 (%) Net S3 (%) Coverage Ratio (RHS)
1.2% 50.0% 3QFY21 includes outstanding

1.0%
45.0% amount of INR413.8 million (~

1.0% 0.59%) which has not been
0.8%
40.0%
declared NPA on account of SC
35.0%
0.6%
0.8% order.
0.6%
0.6%
0.6%
0.6%
0.6%
30.0%
0.5%
0.5%
0.5%
0.5%
0.5%
0.6% 25.0%
20.0%
0.4%
15.0%
10.0%
0.2%
5.0%
0.0% 0.0%
4Q18
1Q19
3Q19
4Q19
2Q20
3Q20
1Q21
2Q21
3Q18
2Q19
1Q20
4Q20
3Q21

Credit costs jumped to 33bps in 4QFY20 (vs 8bps in 3QFY20 and 24bps in 4QFY19) and
further jumped to 75bps as of Dec’20 as the company revised its PD, LGD assumptions and
added a 25% contingent buffer - overall additional provision for COVID19 impact stands at
INR190.3m Dec’20 with Stage 1&.2 cover improving to 41bps as of Dec’20 vs 18bps last
year. We build in credit costs of 44bps in FY21E vs 23bps in FY20 which will taper off to
c17bps by FY23E.
Exhibit 55. Stage 3 mix – by LTV Exhibit 56. Asset quality trends
0%-40% 41%-60% 61%-80% More than 80% Gross NPLs (%) Net NPLs (%) Coverage (RHS) (%)
2.0% 35%
100%
30%
80% 1.5% 25%
59% 49%
20%
60% 1.0%
15%
40% 10%
33% 0.5%
24% 5%
20%
15% 13% 0.0% 0%
FY21E
FY22E
FY23E
FY15
FY16
FY17
FY18
FY19
FY20
0%
FY19 FY20
Aavas has demonstrated far superior asset quality vs a) other affordable HFCs – 0.5% vs 6%
average for peers and b) for ticket sizes under INR0.75 million – 0.5% vs 5% for peers
offering same ticket size. This has resulted from the hyper-local, high-touch model with a
collections engine powered by tech and data analytics.
Exhibit 57. Trend in credit costs Exhibit 58. CC – lower vs peers owing to stringent underwriting
Provision-to-assets (%) Provision-to-assets
0.50%
0.44%
0.45% 1.2%
0.40% 0.37%
IndAS 1.00%
1.0%
0.35%
0.28% 0.8%
0.30%
0.24% 0.23% 0.55%
0.25% 0.6% 0.52%
0.18% 0.17%
0.20%
0.13% 0.4% 0.30%
0.15% 0.23%
0.08% 0.2%
0.10%
0.05% 0.0%
Source: Company, JM Financial Source: Company, JM Financial, CIBIL, CRISIL
Exhibit 59. Superior asset quality vs sector peers Exhibit 60. GNPA – lowest 90DPD vs peers (FY20)
GNPA - Affordable HFCs GNPA - ATS under INR0.75mn
GNPA - Aavas GNPA
6.60% 5.0% 4.35%

7.0%
6.0% 5.40% 4.0%
5.20% 5.30%
5.0% 4.50%
4.00% 3.0%
4.0%
3.0% 2.0% 1.47%
2.0% 0.78% 0.76%
1.0% 0.46%
1.0% 0.45% 0.47% 0.46%
0.0%
0.0%
Aavas HomeFirst Aadhar HFC CanFin Repco
FY18 FY19 FY20
Source: Company, JM Financial, CIBIL, CRISIL Source: Company, JM Financial

Robust capital adequacy to support growth

With a T1 ratio of 51% Aavas is currently significantly overcapitalised which will easily
support growth over the next 3-5 yrs. We forecast T1 of 49% in FY23 with leverage of 4x.
With a capital efficient model, where the company raises ~20% of borrowings using
assignment, we believe Aavas is well-capitalised to capture growth for the foreseeable future.
Exhibit 61. Capital adequacy Exhibit 62. Leverage

Leverage (x)
Tier I (%) Tier II (%)
90% 10.0
8.4 8.4
9.0
80% 8.0
68%
70% 62% 7.0
60% 56% 54% 53% 6.0
50% 4.3
47% 5.0 3.7 3.7 3.8 3.9
50% 3.4
4.0 3.1
40% 3.0
27%
30% 21% 2.0
20% 1.0
0.0
10% FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Exhibit 63. HFC Tier-1 vs peers

HFC Tier-1 FY20 FY21E
Aavas 53.7% 52.7%
Can Fin Homes 20.1% 22.4%
Repco 25.9% 27.4%
Home First 47.7% 51.0%
HDFC 16.5% 20.0%
LICHF 12.2% 13.9%
PNBHF 15.2% 17.4%

Right focus translates into highest return ratios in sector

Aavas has delivered a strong 67% CAGR in PAT over FY15-20 driven by single-minded focus
on correct risk pricing and asset quality. We expect Aavas to deliver 26% CAGR in earnings
over FY21-23E with ROAs of c.4% levels on the back of a niche business model, proven asset
quality prowess and massive opportunity size in the under INR1.0 million ATS.
Exhibit 64. Trend in earnings Exhibit 65. Trend in return ratios

PAT (INR bn) YoY Growth (%) ROA (%) ROE (RHS) (%)
5.0 100%
4.4
35.0% 3.6% 3.8% 3.6% 3.8% 4.0%
4.5 3.3%
4.0 3.5 80% 30.0% 3.0% 2.9% 2.9% 3.5%
3.5 2.6% 3.0%
2.8 25.0%
3.0 2.5 60% 2.5%
2.5 20.0%
1.8 2.0%
2.0 40% 15.0%
1.5 1.5%
0.9 10.0%
1.0 0.6 20% 1.0%
0.2 0.3 5.0%
0.5 0.5%
0.0 0% 0.0% 0.0%
FY21E
FY22E
FY23E
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY15
FY16
FY17
FY18
FY19
FY20
Exhibit 66. Aavas – Dupont view

Dupont Analysis (%) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
NII / Assets (%) 5.90% 6.17% 7.91% 8.54% 7.58% 7.39% 7.60% 7.80%
Other income / Assets (%) 1.43% 1.65% 1.28% 0.81% 0.60% 0.67% 0.61% 0.59%
Total Income / Assets (%) 7.34% 7.82% 9.19% 9.35% 8.18% 8.05% 8.22% 8.40%
Cost to Assets (%) 3.16% 3.24% 4.98% 3.83% 3.40% 3.39% 3.48% 3.42%
PPP / Assets (%) 4.18% 4.58% 4.22% 5.52% 4.78% 4.66% 4.74% 4.98%
Provisions / Assets (%) 0.28% 0.24% 0.08% 0.18% 0.23% 0.44% 0.13% 0.17%
PBT / Assets (%) 3.90% 4.35% 4.14% 5.33% 4.55% 4.22% 4.61% 4.81%
Tax Rate (%) 34.38% 33.64% 30.70% 31.73% 17.52% 21.00% 21.00% 21.00%
ROA (%) 2.56% 2.88% 2.87% 3.64% 3.75% 3.34% 3.64% 3.80%
Leverage (%) 8.4 5.4 3.7 3.2 3.4 3.7 3.8 3.9
ROE (%) 21.5% 15.6% 10.6% 11.6% 12.7% 12.3% 13.7% 14.8%

Initiate coverage with BUY and TP of INR 2,750

Aavas is currently trading at 6.0x FY23E BV and 43x EPS FY23E. We are valuing Aavas at 50x
FY23E EPS (implied P/B of 6.9x) implying TP of INR2,750 for AUM CAGR of 24% with PAT
CAGR of 26% and ROA/ROEs of c.4/15% by FY23E as the company continues to invest into
distribution and brand-building.
We believe the premium valuation - target multiple of 50x P/E FY23E vs peers is justified
given a) strong growth story as Aavas is only 0.4/2.0% of the overall housing/ affordable
housing market, b) robust asset quality even with ~40% new-to-credit borrower share, c)
right investment focus on tech, data analytics and building moat around TATs and d) highest
return ratios with ROAs of c.4% vs 2% for peers.
Exhibit 67. HFC Comps

HFC comps RoA RoE P/E (x) P/B (x)
FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E
Aavas 3.8% 3.5% 3.8% 4.0% 12.7% 13.0% 14.3% 15.4% 76.1 68.8 54.3 43.5 9.0 7.9 6.9 6.0
Can Fin Homes* 1.9% 2.1% 2.1% 2.1% 19.8% 19.0% 17.6% 17.1% 20.4 17.8 16.1 14.1 3.7 3.1 2.6 2.2
Repco* 2.5% 2.3% 2.4% 2.5% 17.5% 15.0% 14.5% 14.2% 7.0 7.2 6.5 5.8 1.2 1.1 0.9 0.8
Home First 2.7% NA NA NA 10.9% NA NA NA 55.9 NA NA NA 4.8 NA NA NA
HDFC 3.6% 2.1% 2.2% 2.2% 21.7% 11.8% 11.8% 12.3% 10.7 17.2 14.7 12.8 2.2 1.8 1.7 1.5
LICHF 1.2% 1.3% 1.4% 1.4% 13.9% 15.2% 14.4% 14.2% 9.1 7.3 6.7 6.0 1.2 1.0 0.9 0.8
PNBHF 0.8% 1.3% 1.4% 1.5% 8.3% 10.6% 9.2% 9.0% 10.2 9.1 8.8 8.2 0.8 0.8 0.8 0.7
Source: Bloomberg, Company, JM Financial; * as per BBG estimates
Exhibit 68. P/B trend Exhibit 69. P/E trend

Aavas Fwd. P/BV (x) SD+1 SD-1 Average Aavas Fwd. P/E (x) SD+1 SD-1 Average
8.0x 60x
7.0x 50x
6.0x
5.0x 40x
4.0x 30x
3.0x 20x
2.0x
1.0x 10x
0.0x 0x
Dec-18
Dec-19
Dec-20
Dec-18
Dec-19
Dec-20
Jun-19
Jun-20
Jun-19
Jun-20
Apr-19
Apr-20
Apr-21
Apr-19
Apr-20
Apr-21
Feb-19
Feb-20
Feb-21
Oct-18
Oct-20
Aug-19
Oct-19
Aug-20
Oct-18
Aug-19
Oct-19
Aug-20
Oct-20
Feb-19
Feb-20
Feb-21
Source: Company, JM Financial, Bloomberg Source: Company, JM Financial, Bloomberg

Key risks
 Ability to raise cost-effective funds from banks and capital markets: The company’s
survival depends on its ability to raise funds from banks, capital markets on competitive
terms and in a timely manner. They currently raise funds using a variety of sources
including term loans and working capital facilities, assignment / securitisation (target level
20-25%), NCDs and NHB refinancing. In terms of lenders, the company has relationships
with ~30 banks and after recent credit rating upgrade to AA-, is now eligible to raise
funds from the insurance sector and provident fund sector (targets 10-20% share in
borrowing mix going forward).
 Asset quality shocks: Aavas is primarily focused on serving low and middle income
customers in semi-urban and rural areas that have limited access to formal banking credit.
Additionally, often they do not have credit histories (new-to-credit) supported by tax
returns and other documents. Self-employed customers are often considered to be higher
credit risk due to their increased exposure to fluctuations in cash flows. As such, a player
like Aavas’s balance sheet is more vulnerable to vagaries of the income streams of its
borrowers. The company has taken several steps to mitigate the same including relying on
a system of customer referrals and the value of the property provided as underlying
collateral rather than focusing solely on the credit profile of borrower while sanctioning
loans. The company has further improved its collections with the use of tech and data
analytics that enables it to assess real-time creditworthiness of its customers.
 Concentration risks: Three-fourths of the book remains concentrated in the top 4 states –
Rajasthan, Gujarat, MP and Maharashtra i.e. mainly western India. The real estate and
housing finance markets in these states may perform differently from, and may be subject
to market conditions that are different from, the housing finance markets in other regions
of India. Consequently, any significant social, political or economic disruption, or natural
calamities or civil disruptions in this region, or changes in the policies of the state or local
governments of this region, could disrupt the company’s business operations. However,
given Aavas’s tehsil distribution strategy, geographic diversification of book is expected to
be slower than peers focused on district level presence.
 Heightened competition risks: The housing finance industry is highly competitive. Aavas’s
primary competitors are banks, other HFCs, small finance banks, NBFCs well as private
unorganized lenders who typically operate in semi-urban and rural markets. Competitors
may have more resources, a wider branch and distribution network, access to cheaper
funding, superior technology and may have a better understanding of and relationships
with customers in these markets. This may make it easier for competitors to expand and
to achieve economies of scale at a faster pace than Aavas. In addition, its competitors
may be able to rely on group synergies i.e. retail presence of group companies or banks.
Aavas has primarily relied on data analytics to reduce BT-out to 0.3% per month in FY21
vs 0.8% per month in FY18. Further, considering competition from AUSFB’s home loan
business, it is pertinent to note the non-compete agreements signed between the parties
during seperation, which includes among other things;
- Top 50 employees of Aavas and top 50 employees of AU cannot work for each other
in during their lifetime.
- Outside top 50, employees of a company, AU or Aavas, cannot work for the other for
5 years.
- Any customer of Aavas and AU cannot do balance transfer with each other for a
lifetime.

Company Background
Aavas Financiers Limited (formerly known as AU Housing Finance Limited) started operations
in 2011 in Jaipur, Rajasthan. The Company was promoted by AU Small Finance Bank (earlier
AU Financiers) until 2016. Currently, it is backed by marquee PE investors Kedaara Capital
and Partners Group holding 30% and 21% equity share respectively. The Company is a retail
affordable housing finance company primarily serving low and middle income salaried, self-
employed customers in semi-urban and rural areas of India. A majority of these borrowers
have limited access to formal banking credit. Aavas’s product offering consists of home loan
for purchase, loan for construction of residential properties and loan for extension and repair
of existing housing units. The Company has 263 branches, and is spread across 10 states as
on Dec’20.
Exhibit 70. Timeline
Exhibit 71. Organisation structure

Highly experienced management team

Aavas is led by a qualified and experienced management team, who are supported by a
capable and motivated pool of managers and other employees. Further, the company has an
attractive ESOP plan to motivate employees – as of Dec’20, management and employees own
7% equity stake in the company.
Exhibit 72. Key management personnel

Name Position Background
Mr. Agarwal He has been associated with Aavas since its incorporation in 2011. He was
previously associated with AU SFB as its Business Head-'SME and Mortgages'. Prior to that he
Sushil Kumar Agarwal Managing Director and CEO has worked with ICICI Bank as its Chief Manager and with Kotak Mahindra Primus Limited as
an Assistant Manager. He has more than 19 years of experience in the field of retail financial
services. He is a qualified Chartered Accountant and Company Secretary.
Mr. Rawat has been associated with Aavas since 2013. He presently heads finance and
treasury; accounts; internal audit; compliance; budget and analytics departments. He has been
previously associated with First Blue Home Finance Limited, Accenture India Private Limited and
Ghanshyam Rawat CFO
Deutsche Postbank Home Finance Limited. Further, he has also worked with Pan Asia Industries
Limited and Indo Rama Synthetics (I) Limited. He is a fellow member of the Institute of
Chartered Accountants of India.
Prior to CRO, Mr. Atre was serving as Chief Credit Officer. He has developed effective
underwriting methodologies in a high risk customer segment. He has over 31 years of
experience in sales, credit and risk across retail and SME products. Prior to joining Aavas, he
worked with leading banks, NBFCs and HFCs including Equitas Housing Finance Private
Ashutosh Atre Chief Risk Officer
Limited, Equitas Micro Finance India Private Limited, ICICI Bank Limited, ICICI Personal Financial
Services Company Limited, Cholamandalam Investment & Finance Company Limited. He holds
a Diploma in Finance and Engineering from NMIMS and from M.P. Board of Technical
Education respectively.
Mr. Naresh is responsible for building an effective sales team at Aavas. He has experience in
distribution and has been instrumental in setting up the rural distribution model for Aavas. He
Sunku Ram Naresh Chief Business Officer has over 23 years of experience across FMCG and Financial Services. He has experience in
working with reputed brands like Nestle India Limited, ICICI Bank Ltd, GE money and Bajaj
Finance limited. He holds an MBA from Sri Krishnadevaraya University, Andhra Pradesh.
Mr. Sinhag has experience in implementing techniques and procedures for maintaining end to
end collections including legal filings. He started his career with law firm initially, and then he
Senior Vice President-
Surendra Kumar Sinhag joined Cholamandalam in 2004. His stint before Aavas was with Bajaj Finance, where he
Collection
served as 'National Head of Collections'. He holds a Degree in Law from University of Rajasthan
and an MBA from Periyar University.
Mr. Srivastava has been instrumental in introducing cutting edge solutions that have enabled
Aavas to move towards a data driven decision making ecosystem by making disruptive
interventions in areas of Customer Acquisition, Credit Risk Assessment, Collections
Senior Vice President-Data Management, Alternate Channel Sales, and Customer Life-Cycle Management He is an
Anurag Srivastava
Science analytics professional with over 14 years of experience in Housing Finance, Banking, Other
Financial Services, Insurance, Healthcare, Utilities and Market Research domains. Prior to
joining Aavas, he has been associated with companies like Deloitte, WNS and American
Express.
Mr. Sinha is responsible for Operations and Alternate Business Channels at Aavas.
Through his tenure, he has helped established many operational efficiency operations including
digital disbursements, regional center processing and development of alternate channels. He
Senior Vice President-
Rajeev Sinha has 19 years of experience in the field of Banking and Financial Services. Prior to joining Aavas,
Operations
he was associated with Cointribe Technologies and with Indiabulls Housing Finance as
'National Operations Head'. He holds a Degree in Physics and holds a Certificate in Customer
Relationship Management from IIM Ahmedabad.
Mr. Pathak has been previously associated with Star Agriwarehousing & Collateral
Management Limited as its Company Secretary. He has been associated with Aavas since its
Sharad Pathak Company Secretary
inception, having experience of more than 9 years in corporate sector. He holds a bachelor’s
degree in commerce from the Rajasthan University and is a qualified company secretary.
Source: Company

Shareholding Pattern
Exhibit 73. Shareholding as of Dec’20

Others
3%
FII Kedaara
31% 30%
Partners Group
DII
21%
8%
Management,
Employees and
BoD
7%
Source: Company

Peer Comparison – FY20

Exhibit 74. Peer size comparison
AUM (INR bn)
250
207.1
200 181.2
150
115.9 114.3
100
78.0
50 36.2
0
Canfin GRUH Repco Aadhar HFC Aavas HomeFirst
Home loan share for Aavas seems lower than peers as the company does not include 4-3% in
fee and insurance as part of home loans. Including the same, home loan share comes to
~80% level – similar to peers.
Exhibit 75. Loan mix – by product Exhibit 76. Loan mix – by customer
Home loans LAP / other mortgage Developer loan Salaried Self employed
100% 100%
9% 6% 14% 17% 17%
27% 27% 35% 29%
80% 80% 44% 52%
65%
60% 60%
40% 87% 90% 85% 83% 83% 40%

74% 73% 65% 71%
56% 48%
20% 20% 35%
0% 0%
Aavas GRUH HomeFirst Aadhar CanFin Repco Aavas GRUH HomeFirst Aadhar CanFin Repco
HFC HFC
Exhibit 77. Ticket sizes Exhibit 78. LTV
ATS (INRm) LTV
2.00 80.0% 68%

1.65 67%
1.50 70.0% 60%
56% 53%
1.50 60.0%
47%
0.95 1.01 50.0%
1.00 0.84 0.84 40.0%
30.0%
0.50 20.0%
10.0%
0.00 0.0%
Aavas GRUH HomeFirst Aadhar CanFin Repco Aavas GRUH HomeFirst Aadhar CanFin Repco
HFC HFC

Exhibit 79. Employee base Exhibit 80. Branches
Employees (#) Branches (#)
4,000 3,564 350 294

3,500 300 250
3,000 250 195 198
2,500 2,097 200 177
2,000 150
1,500 994 100 68
696 838
1,000 50
500 0
0 Aavas GRUH HomeFirst Aadhar CanFin Repco
Aavas HomeFirst Aadhar HFC CanFin Repco HFC
Exhibit 81. NIMs Exhibit 82. Cost to assets
NIMs Cost-to-assets
10.0% 4.0% 3.42%

3.40%
7.86% 3.5%
8.0%
3.0%
5.54% 2.33%
6.0% 2.5%
4.74% 4.31% 2.0%
4.0% 3.41%
1.5% 0.93%
1.0% 0.54%
2.0%
0.5%
0.0% 0.0%
Aavas HomeFirst Aadhar HFC CanFin Repco Aavas HomeFirst Aadhar HFC CanFin Repco
Exhibit 83. Provisions to assets Exhibit 84. GNPA
Provision-to-assets GNPA
1.2% 5.0% 4.35%

1.00%
1.0% 4.0%
0.8%
0.55% 3.0%
0.6% 0.52%
0.30% 2.0% 1.47%
0.4% 0.23% 0.78% 0.76%
0.2% 1.0% 0.46%
0.0% 0.0%
Exhibit 85. ROA Exhibit 86. ROE
ROA ROE
4.0% 3.75% 25.0%

3.5% 19.1%
2.67% 20.0% 16.9%
3.0% 2.44%
2.5% 15.0% 12.7%
1.73% 1.89% 10.9% 11.8%
2.0%
1.5% 10.0%
1.0%
5.0%
0.5%
0.0% 0.0%

Financial Tables
Income Statement (INR mn) Balance Sheet (INR mn)
Y/E March FY19A FY20A FY21E FY22E FY23E Y/E March FY19A FY20A FY21E FY22E FY23E
Net Interest Income (NII) 4,129 5,033 6,106 7,303 8,953 Equity Capital 781 783 783 783 783
Non Interest Income 391 401 550 588 682 Reserves & Surplus 17,589 20,196 22,954 26,449 30,808
Total Income 4,521 5,434 6,657 7,891 9,635 Stock option outstanding 0 0 0 0 0
Operating Expenses 1,853 2,260 2,804 3,342 3,926 Borrowed Funds 36,533 53,520 62,619 73,264 91,140
Pre-provisioning Profits 2,667 3,174 3,852 4,549 5,710 Deferred tax liabilities 0 0 0 0 0
Loan-Loss Provisions 56 115 161 125 191 Preference Shares 0 0 0 0 0
Others Provisions 33 13 0 0 0 Current Liabilities & Provisions 1,366 2,081 2,412 2,807 3,428
Total Provisions 89 153 361 125 191 Total Liabilities 56,269 76,580 88,768 103,303 126,160
PBT 2,578 3,020 3,491 4,424 5,518 Net Advances 47,245 61,808 74,374 92,099 114,340
Tax 818 529 733 929 1,159 Investments 147 45 74 92 114
PAT (Pre-Extra ordinaries) 1,760 2,491 2,758 3,495 4,359 Cash & Bank Balances 6,838 11,921 11,156 7,368 8,004
Extra ordinaries (Net of Tax) 0 0 0 0 0 Loans and Advances 0 0 0 0 0
Reported Profits 1,760 2,491 2,758 3,495 4,359 Other Current Assets 1,810 2,201 2,461 2,926 2,703
Dividend 0 0 0 0 0 Fixed Assets 229 606 702 817 998
Retained Profits 1,760 2,491 2,758 3,495 4,359 Miscellaneous Expenditure 0 0 0 0 0
Source: Company, JM Financial Deferred Tax Assets 0 0 0 0 0
Total Assets 56,269 76,580 88,768 103,303 126,160
Key Ratios Dupont Analysis

Y/E March FY19A FY20A FY21E FY22E FY23E Y/E March FY19A FY20A FY21E FY22E FY23E
Growth (YoY) (%) NII / Assets 8.54% 7.58% 7.39% 7.60% 7.80%
Borrowed funds 33.4% 46.5% 17.0% 17.0% 24.4% Other Income / Assets 0.81% 0.60% 0.67% 0.61% 0.59%
Advances 37.3% 30.8% 20.3% 23.8% 24.1% Total Income / Assets 9.35% 8.18% 8.05% 8.22% 8.40%
Total Assets 39.3% 36.1% 15.9% 16.4% 22.1% Cost / Assets 3.83% 3.40% 3.39% 3.48% 3.42%
NII 60.9% 21.9% 21.3% 19.6% 22.6% PPP / Assets 5.52% 4.78% 4.66% 4.74% 4.98%
Non-interest Income -6.1% 2.4% 37.3% 6.8% 16.1% Provisions / Assets 0.18% 0.23% 0.44% 0.13% 0.17%
Operating Expenses 14.8% 22.0% 24.1% 19.2% 17.4% PBT / Assets 5.33% 4.55% 4.22% 4.61% 4.81%
Operating Profits 94.9% 19.0% 21.4% 18.1% 25.5% Tax rate 31.7% 17.5% 21.0% 21.0% 21.0%
Core Operating profit 119.2% 22.1% 20.3% 18.5% 26.2% ROA 3.64% 3.75% 3.34% 3.64% 3.80%
Provisions 243.7% 72.4% 135.5% -65.5% 53.5% Leverage 3.1 3.7 3.7 3.8 4.0
Reported PAT 89.2% 41.5% 10.7% 26.7% 24.7% ROE 11.6% 12.7% 12.3% 13.7% 14.8%
Yields / Margins (%) Source: Company, JM Financial
Interest Spread 6.14% 5.50% 5.54% 5.85% 6.11%
NIM 7.09% 6.67% 6.25% 6.47% 6.62%
Profitability (%) Valuations
ROA 3.64% 3.75% 3.34% 3.64% 3.80% Y/E March FY19A FY20A FY21E FY22E FY23E
ROE 11.6% 12.7% 12.3% 13.7% 14.8% Shares in Issue 78.1 78.3 78.3 78.3 78.3
Cost to Income 41.0% 41.6% 42.1% 42.4% 40.7% EPS (INR) 22.5 31.8 35.2 44.6 55.7
Asset quality (%) EPS (YoY) (%) 67.6% 41.1% 10.7% 26.7% 24.7%
Gross NPA 0.47% 0.46% 1.02% 1.01% 1.04% P/E (x) 107.4 76.1 68.8 54.3 43.5
LLP 0.06% 0.08% 0.24% 0.15% 0.19% BV (INR) 235 268 303 348 403
Capital Adequacy (%) BV (YoY) (%) 36.7% 13.9% 13.1% 14.7% 16.0%
Tier I 64.25% 53.67% 52.39% 51.65% 49.07% P/BV (x) 10.29 9.04 7.99 6.96 6.00
CAR 67.77% 55.85% 54.27% 53.27% 50.40% DPS (INR) 0.0 0.0 0.0 0.0 0.0
Source: Company, JM Financial Div. yield (%) 0.0% 0.0% 0.0% 0.0% 0.0%

APPENDIX I
JM Financial Inst itut ional Secur ities Lim ited

Corporate Identity Number: U67100MH2017PLC296081
Member of BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.
SEBI Registration Nos.: Stock Broker - INZ000163434, Research Analyst – INH000000610
Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.
Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: jmfinancial.research@jmfl.com | www.jmfl.com
Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: sunny.shah@jmfl.com
Definition of ratings
Rating Meaning
Buy Total expected returns of more than 10% for large-cap stocks* and REITs and more than 15% for all other stocks, over the next twelve
months. Total expected return includes dividend yields.
Hold Price expected to move in the range of 10% downside to 10% upside from the current market price for large-cap* stocks and REITs and
in the range of 10% downside to 15% upside from the current market price for all other stocks, over the next twelve months.
Sell Price expected to move downwards by more than 10% from the current market price over the next twelve months.
* Large-cap stocks refer to securities with market capitalisation in excess of INR200bn. REIT refers to Real Estate Investment Trusts.
Research Analyst(s) Certification
The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that:
All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and
No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research
report.
Important Disclosures
This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the
company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select
recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written
consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.
JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst and a Stock Broker having trading
memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary
action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of the
investor.
JM Financial Institutional Securities renders stock broking services primarily to institutional investors and provides the research services to its institutional
clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrated investment banking, investment management,
brokerage and financing group. JM Financial Institutional Securities and/or its associates might have provided or may provide services in respect of managing
offerings of securities, corporate finance, investment banking, mergers & acquisitions, broking, financing or any other advisory services to the company(ies)
covered herein. JM Financial Institutional Securities and/or its associates might have received during the past twelve months or may receive compensation from
the company(ies) mentioned in this report for rendering any of the above services.
JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell
the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other
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or may have any financial interest in, such company(ies) or (d) considering the nature of business/activities that JM Financial Institutional Securities is engaged in,
it may have potential conflict of interest at the time of publication of this report on the subject company(ies).
Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individually own one per cent or
more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (Research Analysts) Regulations, 2014.
The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling
debt or equity securities, including but not limited to any option, right, warrant, future, long or short position issued by company(ies) covered under this report.
The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts) Regulations,
2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the company(ies) covered
under this report, or from any third party, in connection with this report or (c) do not have any other material conflict of interest at the time of publication of this
report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report.
While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or
developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities may
not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This
report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision.

The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk of
any use made of this information. The information contained herein may be changed without notice and JM Financial Institutional Securities reserves the right to
make modifications and alterations to this statement as they may deem fit from time to time.
This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any transaction.
This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country or
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eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform themselves of
and to observe such restrictions.
Persons who receive this report from JM Financial Singapore Pte Ltd may contact Mr. Ruchir Jhunjhunwala (ruchir.jhunjhunwala@jmfl.com) on +65 6422 1888 in
respect of any matters arising from, or in connection with, this report.
Additional disclosure only for U.S. persons: JM Financial Institutional Securities has entered into an agreement with JM Financial Securities, Inc. ("JM Financial
Securities"), a U.S. registered broker-dealer and member of the Financial Industry Regulatory Authority ("FINRA") in order to conduct certain business in the
United States in reliance on the exemption from U.S. broker-dealer registration provided by Rule 15a-6, promulgated under the U.S. Securities Exchange Act of
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This research report is distributed in the United States by JM Financial Securities in compliance with Rule 15a-6, and as a "third party research report" for
purposes of FINRA Rule 2241. In compliance with Rule 15a-6(a)(3) this research report is distributed only to "major U.S. institutional investors" as defined in Rule
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not a major U.S. institutional investor, you are instructed not to read, rely on, or reproduce the contents hereof, and to destroy this research or return it to JM
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This research report is a product of JM Financial Institutional Securities, which is the employer of the research analyst(s) solely responsible for its content. The
research analyst(s) preparing this research report is/are resident outside the United States and are not associated persons or employees of any U.S. registered
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securities held by a research analyst account.
JM Financial Institutional Securities only accepts orders from major U.S. institutional investors. Pursuant to its agreement with JM Financial Institutional Securities,
JM Financial Securities effects the transactions for major U.S. institutional investors. Major U.S. institutional investors may place orders with JM Financial
Institutional Securities directly, or through JM Financial Securities, in the securities discussed in this research report.
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Financial Conduct Authority. As a result, this report is for distribution only to persons who (i) have professional experience in matters relating to investments
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Services and Markets Act 2000) in connection with the matters to which this report relates may otherwise lawfully be communicated or caused to be
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Additional disclosure only for Canadian persons: This report is not, and under no circumstances is to be construed as, an advertisement or a public offering of the
securities described herein in Canada or any province or territory thereof. Under no circumstances is this report to be construed as an offer to sell securities or as
a solicitation of an offer to buy securities in any jurisdiction of Canada. Any offer or sale of the securities described herein in Canada will be made only under an
exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable
securities laws or, alternatively, pursuant to an exemption from the registration requirement in the relevant province or territory of Canada in which such offer or
sale is made. This report is not, and under no circumstances is it to be construed as, a prospectus or an offering memorandum. No securities commission or
similar regulatory authority in Canada has reviewed or in any way passed upon these materials, the information contained herein or the merits of the securities
described herein and any representation to the contrary is an offence. If you are located in Canada, this report has been made available to you based on your
representation that you are an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus Exemptions and a “permitted client” as
such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Under no circumstances is the
information contained herein to be construed as investment advice in any province or territory of Canada nor should it be construed as being tailored to the
needs of the recipient. Canadian recipients are advised that JM Financial Securities, Inc., JM Financial Institutional Securities Limited, their affiliates and authorized
agents are not responsible for, nor do they accept, any liability whatsoever for any direct or consequential loss arising from any use of this research report or the
information contained herein.

Aavas Financiers IC

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5 April 2021

INDIA | NBFC | COVERAGE INITIATION

Disciplined growth Sector leading return Initiate with BUY & TP

INDIA|NBFC | COVERAGE INITIATION

Aavas Financiers is a low- and middle- income, self-employed focused

JM Financial Institutional Securities Limited Page 2

INDIA | NBFC | COVERAGE INITIATION

Recommendation and Price Target Financial Summary (INR mn)

Sameer Bhise Akshay Jain Ankit Bihani

JM Financial Institutional Securities Limited Page 3

Source: Company, JM Financial Source: Company, JM Financial

Source: Company, JM Financial Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 4

Niche focus offers long runway for growth

Affordable housing poised to clock in double-digit growth over FY21-25

 Increased supply of affordable homes

 Attractive home loan interest rates driving preference for ownership

JM Financial Institutional Securities Limited Page 5

Exhibit 10. Aavas Financiers – In a league of its own…

Source: Company, JM Financial

Aavas Financiers – niche focus on self-employed segment in the hinterlands

Exhibit 11. Product portfolio

JM Financial Institutional Securities Limited Page 6

0.6% 0.5% 3.0% 2.8%

JM Financial Institutional Securities Limited Page 7

40% 39% 39% 40%

JM Financial Institutional Securities Limited Page 8

Exhibit 22. Trend in AUM Exhibit 23. Trend in loan book

JM Financial Institutional Securities Limited Page 9

Well-defined, hyper-local distribution strategy

High-touch model demands borrower proximity; targets ~85% tehsil level

Exhibit 24. Branch network as of Dec’20

JM Financial Institutional Securities Limited Page 10

Hiring strategy - “hire young, hire fresh, hire local”

Employees YoY Employees (#)

JM Financial Institutional Securities Limited Page 11

Diversified borrowing mix

Given the rural, semi-urban locations,

JM Financial Institutional Securities Limited Page 12

Margins to remain healthy despite some pressure on yields

18% 22% 24% 27% 26% 26% 26%

40% 82% 78% 76% 74% 74% 74% 74%

JM Financial Institutional Securities Limited Page 13

Stable opex ratios as investment in growth continues

Exhibit 46. Snapshot of recent tech initiatives

JM Financial Institutional Securities Limited Page 14

Exhibit 47. TAT Exhibit 48. Target TAT of 10days

TAT (Days) % of cases processed within 10 days

JM Financial Institutional Securities Limited Page 15

Unrelenting focus on asset quality

 Sourcing: Distribution/sourcing is done using 100% in-house model – ensuring quality

Exhibit 49. Credit appraisal framework

JM Financial Institutional Securities Limited Page 16

1+ DPD Stage 1 Stage 2

Exhibit 52. NPA – by product Exhibit 53. NPA – by customer segment

Exhibit 54. Quarterly movement of asset quality

1.2% 50.0% 3QFY21 includes outstanding

45.0% amount of INR413.8 million (~

Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 17

6.60% 5.0% 4.35%

JM Financial Institutional Securities Limited Page 18

Robust capital adequacy to support growth

Exhibit 61. Capital adequacy Exhibit 62. Leverage