ICICI Securities has retained its BUY call on Aavas Financiers, with a target price of Rs 1,725, implying 19% upside from the current market price of Rs 1,446. The brokerage argues that FY26 served as a rebuilding year for the affordable housing lender, but Q4FY26 marked a decisive inflection point, with record disbursements, improving margins, and an asset-quality rebound. The research house believes Aavas is now better positioned to pursue its medium-term ambition of 20% plus AUM growth and a mid-teen return on equity.

Rebuild phase is nearly over

FY26 was not a smooth year, but it was a consequential one. Aavas went through a leadership transition, welcomed CVC Capital Partners as a promoter, and appointed Mr. Manu Singh as MD and CEO along with Mr. Ripudaman Bandral as CBO. ICICI Securities said those changes, combined with internal restructuring and industry headwinds, depressed performance in the first three quarters. Yet the tone changed sharply in Q4FY26, when execution improved and the business began to regain traction.

The key message is that the company appears to have moved from repair mode to rebuild mode. That shift matters because the lender’s long-term growth story depends less on aggressive risk-taking and more on sharper execution, stronger sourcing, and disciplined underwriting. The report suggests that the temporary disruptions are now largely behind the company.

Growth strategy gets sharper

Management has laid out a three-part strategy to restore Aavas’ leadership in affordable housing. First, it wants to grow faster than the industry by leaning on deep micro-market expertise. Second, it is pushing risk-based pricing so that yields better reflect transaction-level risk. Third, it is determined to preserve its historically strong asset quality.

The brokerage sees this as a sensible pivot rather than a reckless chase for volume. Aavas is not trying to expand by loosening credit standards; it is trying to monetize its underwriting edge more efficiently. That distinction is important in a lending business, where growth without pricing discipline can erode returns just as quickly as it boosts headline numbers.

Q4 turned the corner

Operationally, the quarter was the strongest of FY26. Disbursements rose to Rs 23.5bn, up 36% sequentially, the best quarterly run in the year. Net interest margin expanded by more than 40 bps sequentially, while 1+ DPD improved by 63 bps to 3.17%, the lowest level in eight quarters.

For investors, the most encouraging signal is not one metric alone, but the simultaneous improvement in growth, spreads, and asset quality. That combination suggests the business is not merely growing again; it is doing so with greater operational balance. Credit cost fell to 13 bps in the quarter, underscoring the resilience of the book.

Margins and pricing

There was a modest pressure point on spreads in Q4FY26. Aavas had cut its PLR by 15 bps effective March 2026, which pulled reported yields down 20 bps sequentially to 12.82% and reduced spreads by 14 bps to 5.20%. Even so, borrowing costs continued to ease, limiting the damage and supporting a healthy 8.5% NIM.

ICICI Securities expects risk-adjusted pricing to help rebuild yields over the coming quarters. The company has already started recalibrating pricing, and management believes its micro-market intelligence allows it to charge more appropriately without materially increasing risk. The borrowings book also looks well positioned, with around 73% linked to faster repricing instruments such as EBLR and 3M MCLR.

Asset quality stays pristine

Aavas remains one of the cleaner stories in the NBFC space. GNPA improved to 1.05%, NNPA came down to 0.68%, and provision coverage rose to 35.9%. Management reiterated that it is not moving into riskier geographies or customer categories, which supports the company’s long-running sub-25 bps credit-cost guidance.

That guidance is a cornerstone of the investment case. In lending businesses, steady asset quality often matters more than a one-quarter growth burst. Aavas’ underwriting record, combined with low slippages and improving delinquency trends, gives the stock a degree of defensiveness that many growth names lack.

Cost base needs patience

Operating expenses rose because the company is investing ahead of the curve. Aavas added 31 branches in Q4FY26, taking the total to 435 across 15 states, and the company also absorbed higher manpower and ESOP-related costs. Cost to assets climbed above 3.5% in FY26, but management expects the ratio to trend below 3% over the medium term as new branches mature.

In plain terms, the expense pain looks intentional rather than structural. The company is laying the groundwork for future throughput, better conversion, and stronger productivity. That means investors may need to tolerate elevated near-term costs before operating leverage becomes visible in FY27 and FY28.

Targets and valuation

ICICI Securities has left FY27 and FY28 earnings estimates largely intact, with only small reductions to PAT of 4% each year. The broker now expects FY27 PAT of Rs 7,668mn and FY28 PAT of Rs 9,451mn, while EPS is projected to rise from Rs 82.6 in FY26 to Rs 119.2 in FY28. The stock is valued at 2.3x Mar’27E adjusted book value.

The target price of Rs 1,725 reflects confidence in a recovery that is already visible in the numbers. For investors tracking levels, the immediate reference point is the current price of Rs 1,446, with the broker’s upside case built around improved disbursement momentum, stable asset quality, and better yield discipline. The longer-term milestone is FY27, when management wants Aavas to be back on a sustainable 20% plus growth path.

What can go wrong

The report does flag two key risks. The first is lower-than-expected AUM growth if the turnaround takes longer than expected. The second is competitive pressure on yields, especially if market pricing remains aggressive. Either factor could delay margin recovery and compress valuation comfort.

Still, the larger narrative is constructive. Aavas has entered FY27 with cleaner execution, improving disbursements, and a management team that is clearly trying to combine prudence with ambition. If the company can sustain growth without compromising underwriting, the stock’s rerating case remains intact.