Aye Finance, a non-banking financial company (NBFC) specializing in lending to micro, small, and medium enterprises (MSMEs), saw its shares jump 7.80% on Tuesday, closing at Rs 138.20. This significant climb was spurred by IIFL Capital initiating coverage on the stock with a 'Buy' rating and a target price of Rs 180.
Brokerage Highlights Strong Fundamentals
IIFL Capital's analysis underscored Aye Finance's strategic focus as a 'Middle-Layer NBFC' catering to underpenetrated micro-MSMEs. The company boasts an Asset Under Management (AUM) of Rs 7,000 crore, characterized by a granular ticket size averaging Rs 2 lakh.
The brokerage noted Aye Finance's strong geographic diversification, with its top five states contributing 57% of its AUM, a lower concentration compared to peers (67-97%). This is supported by 100% in-house sourcing and a cluster-based underwriting model tailored for the informal nature of its target segment.
Growth Projections and Valuation
IIFL Capital projects a 27% AUM Compound Annual Growth Rate (CAGR) for Aye Finance between FY26 and FY29. More notably, the brokerage forecasts a 44% Profit After Tax (PAT) CAGR, driven by operating leverage as the company's branch network matures and AUM scales. This growth is also expected to benefit from a normalization in credit costs, improving by 160 basis points, though partially offset by a slightly lower Net Interest Margin (NIM) due to a fast-growing mortgage book.
These factors are anticipated to significantly improve Return on Assets (RoA) and Return on Equity (RoE) to 4.1% and 14.5% respectively by FY28. The brokerage highlighted that Aye Finance currently trades at multiples similar to microfinance peers and at a 30-50% discount to MSME peers, despite possessing a more secured book and superior asset quality outcomes.
Market Activity and IPO Context
Tuesday's trading session for Aye Finance shares witnessed heavy activity, with approximately 19.80 lakh shares changing hands on the BSE, substantially higher than the two-week average volume of 1.88 lakh shares. The turnover on the counter reached Rs 25.80 crore, bringing the company's market capitalization to Rs 3,410.56 crore.
Aye Finance debuted on the bourses in February of this year. At Tuesday's closing price, the shares were trading 7.13% above their initial public offering (IPO) price of Rs 129, indicating positive investor sentiment following the brokerage's 'Buy' recommendation.