I was relooking at my thesis in light of the market correction, and I am not very concerned.
- My expectation: 2X every 3-5 years
- Can they pull it off? My guess is yes. Guidance and delivery have been spot on at about 20-25% growth which meets my objective. They have displayed a rare combination of being patient (ex: with MSME products) and nimble (providing loans to returning customers at lower interest rates)
- My concerns: The broader market is very attractive, with a YoY growth of 21% (wow!). However, I am concerned about the segment/proposition that Aavas caters to – ‘banking for the unbanked’. A few open questions (1) * What % of HFC market is represented by the unbanked? (2). Is (1) increasing or decreasing? While for Aavas, I hope it is increasing, but the Government’s objective is the exact opposite. Unless Aavas has a strong moat – execution, loyalty, low opex, risk models, they will be run over by the big banks.
IMO ‘Banking for the unbanked’ may only be a market entry strategy, as they are super keen on retaining acquired customers even at low-interest rates.
I won’t be surprised if, in a few quarters, they operate like any other HFC, which may mean lower margins for high-quality customers.
Next steps: Convinced on the macro story. Have to build conviction from a customer’s POV which is a little difficult given that Aavas primarily operates in Tier-2 cities (If anyone has advice here, I will owe you one!)
| Subscribe To Our Free Newsletter |
