JM Financial raises target on Aavas Financiers; expects recovery from Q2

JM Financial has raised its target price on Aavas Financiers stock to ₹2,000 per share from ₹1,990, which implies 19 per cent upside from Monday’s close at ₹1,678.25 per share. The brokerage maintained its ‘Buy’ rating on the Aavas Financiers as it believes the stock has underperformed its peers/indices in the last one year, driven by management or promoter transition and moderation in asset under management (AUM)/ return on equity (RoE) profile. 

 

Further, the brokerage analysis suggests that the company’s performance in Q1 has bottomed out and should improve from hereon. 

Aavas Financiers Stock performance and financials

In one year, Aavas Financiers' shares have lost 11.4 per cent as compared to Sensex’s fall of 3 per cent. In the past three years, the stock has fallen 24 per cent owing to issues surrounding its founder’s exit and consequent change in promoter from Kedaara Capital/Partners group to CVC Capital Partners and deterioration in financial performance.  READ LATEST STOCK MARKET UPDATES LIVE 

 

According to JM Financial, the company’s AUM growth moderated from 25 per cent year-on-year ( Y-o-Y) in FY23 to 16 per cent Y-o-Y in Q1FY26, and RoE fell from 14.1 per cent in FY23 to 12.6 per cent in Q1FY26. As a result, the stock is currently trading at 2.5x 1 Year Forward price to book value (P/B), as against 3.4x 1 Year Forward P/B in March 2023, which is a 44 per cent discount to the long-term average.

Stability at the promoter level

The brokerage sees the company in a much-needed stable position at the promoter level, after a series of events in July 2025, when both Kedaara Capital and Partner’s group exited from the company completely, and CVC Partners held a major stake (49 per cent). 

Performance bottomed out in Q1; to improve Q2 onwards

Analysts believe from the September quarter (Q2FY26) onwards, financials will improve, driven by normalisation in disbursement run-rate, focus shifting to other sourcing channels, increasing operating leverage, and geographical diversification, and the possibility of net interest margins (NIM) expansion.

 

Q1FY26 disbursements were impacted by a one-time accounting change (cheque realisation-based recognition), leading to a 5 per cent Y-o-Y / 43 per cent quarter-on-quarter (Q-o-Q) decline. Excluding this, growth would have been double-digit, according to JM Financial. Post-Q1, monthly disbursements jumped to ₹550–600 crore (from ₹4.0 billion in Q1). Management is confident of achieving 18–20 per cent AUM growth in FY26E and 20–22 per cent thereafter, supported by completed IT transformation (login-to-sanction TAT reduced from 13 to 6 days).

 

Further, the brokerage expects Cost of Funds (CoF) to decline due to recent rate cuts, benefiting margins (22 per cent fixed, 38 per cent EBLR-linked, 40 per cent MCLR-linked bank borrowings). 

Asset quality remains best-in-class

Despite some seasonality and pressure in the micro, small, and medium enterprises (MSME) segment in Maharashtra, Karnataka, and Madhya Pradesh, the company’s stressed pool (Stage 2 + Stage 3 assets) increased moderately to 2.8 per cent of AUM in Q1FY26. Importantly, this remains the lowest stress level among affordable housing finance peers, underlining the robustness of Aavas’ underwriting and collections framework.