Aye Finance Ltd (AYE) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day and welcome to Aye Finance's Q2 FY '27 earnings conference call hosted by IIFL Capital. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Viral Shah from IIFL Capital. Thank you, and over to you, Mr. Shah.
Viral Shah (IIFL Capital): Yeah. Thanks Renju. Good morning, everyone. This is Viral Shah from IIFL Capital. Welcome to the 2Q FY '27 earnings conference call of Aye Finance. On behalf of IIFL Capital, I would like to thank the management of Aye Finance for giving us this opportunity to host the call. From the management team today, we have Mr. Sanjay Sharma, Managing Director and Co-Founder, and other senior members of the management team. We will have opening comments from the management team, post which we will open the floor for Q&A. With that, I would like to transfer the call to Sanjay ji for his opening remarks. Over to you.
Sanjay Sharma (Aye Finance Ltd): Thanks Viral. Good morning, everyone, and thank you for joining us today. I am Sanjay Sharma. In behalf of, and on behalf of Aye Finance Limited, I extend a warm welcome to all participants on our Quarter 2 FY '27 earnings call. Joining me today are Mr. Niraj Kaushik, Deputy CEO, Mr. Gaurav Seth, Chief Financial Officer, and Mr. Sovan Satyaprakash, Chief Strategy and Investor Relations Officer. Also joining us is our Investor Relations Advisor from the, from SGA. Our financial results, investor presentation and press release are all available on the stock exchanges, as well as on the website for your reference. Aye Finance continues to make a solid headway towards our mission to provide inclusive formal credit to micro-entrepreneurs across India. And with 6.9 lakh active borrowers, which are, which span over 18 states and three union territories. Lending to Indian micro in MSME segment continues to remain a significantly underpenetrated area, and this offers a substantial long-term structural opportunity to us. We occupy a dominant position in this market and have a deep understanding of this segment. Our differentiated approach, which combines proprietary underwriting models, physical branch origination enhanced with AI and machine learning, uniquely position us to capture this market responsibly. To summarize Quarter 2 FY '27, this was a quarter of steady and encouraging progress. Year-on-year, the AUM grew by 26%. The credit cost decreased to 3.82%, improving for the seventh consecutive quarter, and it now lies within our guided range. The operating expense ratio also declined to 8.6%, roughly a 32 basis points improvement over last quarter, and all this resulted in profit after tax more than doubling. So this solid first half has significantly enhanced our conviction to deliver on our stated FY '27 guidance. Now, let me briefly touch upon the operating environment before I get into the quarterly performance in a little more detail. The grassroot micro-MSME segment in India is showing a steady momentum supported by government initiatives for increasing formalization, and we continue to see this constructive demand in our markets for working capital across our core segments. The year FY '27 has started on a good note as reflected in the robust trends in our business metrics. Our performance in Q1, which is typically a slower quarter, was rather robust, and the Quarter 2 performance has continued to build a positive growth trajectory. And we are today trending happily towards our guidance target for the year on all the salient metrics. The possibility of inflation or El Niño effects on rainfall have not materially impacted our customer segment and their credit demand. I had highlighted in my last quarter call the IMD forecast of below normal rainfall in central India and southern peninsula. Droughts have finally been declared in some parts of Maharashtra, Karnataka, and Madhya Pradesh, so that's not a surprise. Together these states account for
Sanjay Sharma (Aye Finance Ltd): as we believe that in lending, discretion should be a better part of valor. Otherwise, the lending environment remains encouraging, with resilient asset quality through the seasonally weaker July to September quarter. Our largest states, Bihar, Uttar Pradesh, and Rajasthan were largely unaffected by the monsoon as can be seen in the slide 24 in the in this presentation. The credit demand held up well, and we are seeing early signs of festive pick up as we move into the second half of the year. On growth, our assets under management stood at 7,597 crores, which is up 26% year on year and 4% quarter on quarter, keeping us within our full year guidance of 25% to 30% growth. Against this backdrop, our disbursements for quarter two FY '27 stood at 1,403 crores, up 10% year on year and 15% quarter on quarter, and we added 49,000 new borrowers added in this quarter. While the fresh disbursements grew at a brisk pace, and fresh disbursements of 49,000 new customers translates to about 23% growth in our disbursements year on year and 11% growth quarter on quarter. It is a repeat loans where we saw some deferment of loans, and I think it's primarily because the festive season has shifted into the third quarter. In repeat loans, we saw against the year-on-year 16% lesser disbursement and against quarter-on-quarter, we were plus 5% of disbursements. Repeat is an area where I think we will make up because the customer ultimately needs money before the festive season, so we should see a better quarter in quarter three. This took our first-half FY '27 disbursements to 2,622 crores, which is 15% up year-on-year. During H1 FY '27, sorry. Historically, the first half-year typically accounts for around 40% of our annual disbursements. The approaching festive season typically provides a lift in disbursements in the second half of the year, so we are well positioned to benefit from this seasonality. We ended quarter two without adding to our tally of 577 branches which we started the year, but in quarter three, 30+ new branches will also become operational, and this will further add fillip to our disbursements, and this for This is as per plan. Looking at efficiency and portfolio quality, driving efficiency by reducing unit costs and improving the asset quality remain the two key priorities for FY '27. I had said that in my earlier investor call, and I repeat that again. And you can see demonstrated performance against these two parameters. First of all, our AUM per employee increased to 0.67 crores in quarter two as compared to 0.57 crore in the corresponding quarter of last year, which is an improvement of almost 18%. The AUM per branch also improved to 13.3 crores in quarter two versus 12.8 crores in quarter one. The operating expense ratio, which fell down to 8.61% in quarter two versus 8.93 in quarter one, so in a single quarter, we have seen a 32 basis points reduction in operating expense ratio. This is the reason our cost-to-income has reduced to 49%. All these summarize our efforts to make better use of our existing operational infrastructure infrastructure and drive greater efficiency as we scale the business. And we see further room for improvement in the year remaining year to come. Turning to asset quality, portfolio performance continued to improve during the quarter. Our GNPA has now declined for seven consecutive quarters and stood at 4.20% as of September 2026. This is 30 basis points lower than the last quarter and 70 basis points lower than lower year on year. PAR X stood at 6.94%, which is down 7 basis points sequentially and 109 109 points year on year from the 8.03 in quarter two FY '26. These trends reflect the progress we have made in strengthening our portfolio quality. We target to get the PAR X to move gradually to a range below 6.5% by the end of the year. The vintage of our portfolio provides further comfort, as of
Sanjay Sharma (Aye Finance Ltd): September 2026. September 2027. Sorry, September 2026, 95% of our current book was originated after June 2024. So, this is a book that has been originated after the volatile period of industry-wide overlending. On the credit cost, our credit cost for the quarter came in at 3.82%, which is an 21 basis point improvement from 4.03% in quarter one and 119 basis points year-on-year. We are now within our FY '27 guided range for credit cost, where we have guided for 3.5 to 4%. This reduction in credit cost was driven by three factors: tighter underwriting, stronger collections, and better repayment behavior of our customers as their business cash flows improved. We expect credit cost for the full year to remain within our guided range. Collections remained healthy with the overall non-OD collection efficiency at 99.2% and bucket one collection efficiency at 52.8%. As mentioned earlier, these are very good collection efficiencies, and the large states of Bihar, Uttar Pradesh, and Rajasthan, which account for a significant share of our portfolio, continue to deliver very good collection efficiencies, which is shown in our investor presentation. Looking at balance sheet and debt funding, our balance sheet is ready for growth with a capital adequacy of 41%. As we mentioned last quarter, our current capital is sufficient to support our growth for around the next two years without needing fresh equity. Funding cost also continue to ease, and our incremental cost of borrowing declined to 10.04% in quarter two against the 10.20 in quarter one. And this decline seems to be against the grain of increasing interest rate, but this is driven by an improved funding mix and our recent rating upgrade to IND A+. Overall blended cost of borrowing also, not only the incremental cost, but blended cost overall has declined 15 basis points to 10.63% in quarter two FY '27, as compared to 10.78% in quarter one. As older, higher-cost borrowings are repaid, we expect this benefit to flow through progressively over the coming quarters. Our financial performance also strengthened during the quarter. And let's talk of profits and margins. Gross total income for quarter two FY '27 was 527 crore rupees, compared to 427 crore in quarter two FY '26, an increase of 23% year-on-year and 8% quarter-on-quarter. Net interest margin was 15.6%, comfortably above our full-year guidance of 14.25 to 14.75. A lot of people might think that there's a gap between what we are actually seeing in net interest margin and our guidance. The primary reason is that our guidance had factored in more aggressive increase in repo rate. Also, we had not factored in the rating upgrade, which we we were expecting, but we thought it prudent not to factor it into the into our forecast. Pre-provision operating profit grew to a 55% year-on-year and 11% quarter-on-quarter to Rs. 198 crores. This translated into stronger profitability with profit after tax of 87 crores, which is up 151% year-on-year and up 16% quarter-on-quarter. On cost, our operating expense ratio for quarter two was 8.6, compared to 8.9% in quarter one, which I mentioned before. These improvements have resulted in the ROA, and this is return on total assets, improving to 4% in quarter two compared to 3.7% in quarter one. For the first half of FY '27, gross total income was 1,117 crores, 1,017 crores, up 23% year-on-year with net interest margin of 15.9%. Pre-provi- Pre-provision operating profit also grew 48% year-on-year
Sanjay Sharma (Aye Finance Ltd): rupees and profit after tax was to 162 crore from 65 crore in the first half of, compared to the first half of FY27, which is an increase of 148%. Return on asset and return on equity for first half FY27 stood at 3.89% and 12.32% respectively. At the halfway mark, we are on track to deliver on each of the salient metrics of our annual guidance. At the start of the year we guided for AUM growth of 25% to 30%, credit cost of 3.5% to 4%, net interest margin of margin of 14.25% to 14.75%, and operating expenses of 8.25% to 8.75%, yielding a return on asset of 4% to 4.5%, and these are return on total assets. AUM growth and credit costs are already within our guided range and NIM continues to run comfortably ahead of our guidance. As volume builds in in the second half, we expect the operating expenses and return on asset to move into their guided ranges in line with the seasonal patterns of our business. As we enter the seasonally stronger second half, our aim remains to build on this momentum while remaining mindful of our operating environment. The rising interest rate environment is already factored into our NIM guidance as I mentioned. We are mindful of the prospective insurance commission recommendations and we shall work on levers to compensate for this impact and the levers are going to be reduction in operating expense ratio which will continue, the benefit that we are getting from reduction in the blended cost of borrowing, and the falling credit costs. We will continue to pursue our growth plans, strengthen our collection and improve operational efficiency and maintain discipline and underwriting standards. What is the vision beyond? Beyond this year, our focus remains on building a stronger and more sustainable lending franchise in line with the three-year vision that we had shared in July, which essentially targets 28% to 33% AUM growth CAGR, return on assets of 4% to 4.5%. And as part of this we are also evaluating gold loans and other secured products for our customers and will update you on this plans as they take shape. Our approach on this is to create a basket which addresses all the needs of our target segment which is micro enterprise borrowers and I think we hope to see this take shape later in the year. With that, I would like to conclude my opening remarks and open the floor to questions.
Moderator: Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Akhilesh Bhattar with Ampersand Capital. Please go ahead.
134 more turns of this transcript: log in to Stocksigma to read the full call.