01 — At a Glance
The Kirana Banker That Just Went Public. And The Market Is Still Figuring Out If It Likes Them.
- 52-Week High / Low₹150 / ₹93
- Q3 FY26 Revenue₹443 Cr
- Q3 FY26 PAT₹43 Cr
- TTM EPS₹8.93
- Annualised EPS (Avg Q1-Q3 × 4)₹6.68
- Book Value / ShareNot Disclosed
- AUM (Dec 2025)₹6,028 Cr
- Gross NPA (Jun 2025)4.6%
- 90+ Days Past Due (Sep 2025)5.1%
- IPO Size₹1,450 Cr (Feb 2026)
Flash Summary: Aye Finance went public in February 2026 after ~33 years as a private NBFC. Q3 FY26 PAT of ₹43 crore represents 87% YoY profit growth, but here’s the kicker — asset quality is deteriorating faster than collection efficiency is improving. Gross NPA at 4.6% (Jun 2025), 90+ DPD at 5.1% (Sep 2025). The company says it’s just a speed bump. ICRA says it’s worth monitoring. And the stock, at ₹108, trades at 13.9x P/E with an ROE of just 12% — not exactly premium pricing for a high-growth NBFC. The real question: is this a diamond in the rough, or a rough diamond that’s about to get rougher?
02 — Introduction
Delhi’s Quiet Lender to India’s Forgotten Businesses
Imagine 8 PM on a Monday evening in a small town in Madhya Pradesh. A shopkeeper is sitting outside his kirana store, counting the day’s cash. He needs ₹2 lakh for inventory, but HDFC Bank won’t return his calls. SBI will ask for 47 documents and an affidavit signed by a witness from the Mughal era. So he calls Aye Finance. Forty-eight hours later, ₹2 lakh hits his account. No GST certificate. No ITR. No formal documentation. Just business survival.
This is Aye Finance’s universe. A Delhi-based NBFC-ML (Non-Banking Financial Company – Middle Layer) founded in 1993, lending ₹1–2 lakh tickets to micro-scale MSMEs — the businesses that comprise 98% of all enterprises in India but get zero love from the formal financial system. Think kiranas, dairies, small manufacturers, traders, and service providers. The kind of businesses that make a nation work but nobody knows their names.
The company has grown at a 25% CAGR in AUM since FY20, reaching ₹6,028 crore as of H1 FY26. It just went public in February 2026 with a ₹1,450 crore IPO (₹710 crore fresh, ₹565 crore offer for sale). The stock opened at ₹100, bounced to ₹150, and is now hanging around ₹108. Management is confident about growth. Investors are nervous about credit quality. And the rating agencies are watching like parents at a school report card meeting.
ICRA Rating Note (Nov 2025): [ICRA]A (Stable) assigned to the ₹400-crore NCD programme; reaffirmed for bank facilities. The rating acknowledges comfortable capitalisation and growth plans but flags “deterioration in asset quality and earnings profile” as a key concern. Translation: “You’re growing fast and your balance sheet is fine, but the quality of that growth is getting sketchy. Watch the delinquencies.”
03 — Business Model: Lending to People Banks Won’t Touch
The Underwriting Model That Google Capital Mentored (Apparently)
Aye Finance’s core innovation: lending to businesses without formal documentation. In the world of traditional banking, this is heresy. In Aye’s world, it’s the entire business. The company has built what it calls “cluster-based underwriting” — a proprietary assessment model covering 70+ business clusters. Instead of asking for an ITR, they ask: “What do you do? How many days of inventory do you hold? What’s your cash cycle?” Then they calculate loan size based on monthly cash flows, not annual income statements.
The loan book breaks down as: Hypothecation loans (83% as of Jun 2025) — secured against business assets like machinery, inventory, finished goods. Property-backed loans (17%) — mortgages and LAP against self-owned residential or commercial property. The target mix (per management): 70% hypothecation, 30% mortgage by FY27-28. Why? Mortgage loans have lower yields but better credit quality. The hypothecation customers are bread-and-butter high-touch lending, but they’re volatile.
Distribution is “phygital” — 527 branches across 18 states and 3 UTs for collections and sourcing, combined with AI/ML models for underwriting. Management claims 32% of underwriting is done via AI/ML (developed over 6+ years), 68% via cluster-based rules embedded in the core system. Originations: 100% paperless. Collections: 96.8% via ACH (automated clearing house), 84.1% digital. Sounds advanced. The asset quality metrics suggest the system has some… friction.
Hypothecation83%of AUM (Jun 2025)
Mortgage/LAP17%of AUM (Jun 2025)
Avg Ticket Size₹1.8LFY26 guidance
Target Customers₹30L–₹1Crannual turnover
Here’s where management gets cheeky: they claim Aye’s borrowers are “business owners, not self-employed workers or salaried employees” — implying their portfolio is more resilient than MFI books. The data on asset quality suggests this distinction is mostly semantic. A self-employed kirana owner is still vulnerable to income shocks.
04 — Financials Overview
Q3 FY26: The Numbers Look Good Until You Squint
Result type: Quarterly Results | Q3 FY26 EPS: ₹2.22 | Avg Q1–Q3 EPS: (₹1.60+₹1.80+₹2.22)/3 = ₹1.87 × 4 = ₹7.47. Note: TTM EPS from latest annual is ₹8.93, but quarterly basis annualisation = ₹7.47. Using Q1-Q3 average (more conservative): ₹7.47
| Metric (₹ Cr) |
Q3 FY26
Dec 2025 |
Q3 FY25
Dec 2024 |
Q2 FY26
Sep 2025 |
YoY % |
QoQ % |
| Revenue | 443 | 361 | 437 | +22.7% | +1.4% |
| Financing Profit | 49 | 27 | 38 | +81.5% | +29.0% |
| NIM (Financing Margin %) | 11.1% | 7.5% | 8.7% | +360 bps | +240 bps |
| PAT | 43 | 23 | 35 | +87.0% | +23.4% |
| EPS (₹) | 2.22 | 1.19 | 1.80 | +86.6% | +23.3% |
NIM Alert: Net Interest Margin of 11.1% in Q3 — up 360 bps YoY. That’s not normal. That’s not healthy growth. That’s what happens when your credit cost spikes and you’re making bigger provisions. Management attributed part of this to “normalization” from lower credit costs in Q2-Q3 vs Q1, but here’s the kicker from the concall: Credit cost was ₹83 crore in Q3, or 4.67% of AUM annualized. Management’s “comfort range” is 3.5% (±25 bps). You’re 117 bps above comfort. The fact that they’re still guiding for sub-4% credit cost in Q4 suggests either genuine improvement or…optimism.
💬 An NIM of 11.1% and Gross NPA of 4.6% — is this margin expansion sustainable, or is it just the sound of credit costs being paved over with higher rates? What’s your read?
05 — Valuation Discussion
Fair Value: The IPO Priced It, Now The Market Is Re-Pricing It
Method 1: P/E Based
TTM EPS = ₹8.93. CMP = ₹108. Current P/E = 12.1x. Quarterly annualised (Q1-Q3 avg × 4) = ₹7.47, implying 14.4x. For a high-growth NBFC with elevated credit cost but improving trends, a justified P/E band is 12x–16x (assuming credit cost normalizes to 3.5%).
→ 12x × ₹7.47 = ₹89.6 16x × ₹7.47 = ₹119.5
Range: ₹90 – ₹120
Method 2: EV / Financing Profit
TTM Financing Profit ≈ ₹202 Cr (FY25 actual). EV = Market Cap + Net Debt. Market Cap = ₹2,654 Cr. Net Debt ≈ ₹3,513 Cr (Borrowing ₹4,555 Cr – Cash proxy est). EV ≈ ₹6,167 Cr. EV/Financing Profit ≈ 30.5x. This is very high. For a micro-finance NBFC with this growth profile, 20x–28x is reasonable.
Back-solving from 20x–28x on financing profit implies equity value of ₹85–₹125 per share (assuming no debt change).
Range: ₹85 – ₹125
Method 3: Price to Sales (Quick Proxy)
TTM Revenue ≈ ₹1,460 Cr. Market Cap = ₹2,654 Cr. P/S = 1.82x. For growth-stage microfinance NBFCs, 1.5x–2.2x P/S is standard. At the midpoint, 1.85x on expected FY27 revenue (assuming ~30% growth) of ~₹1,900 Cr = ₹3,515 Cr equity value = ₹115 per share.
Conservative (1.5x on FY27 est revenue) = ₹95; Optimistic (2.0x) = ₹127.
Range: ₹95 – ₹127
Consolidated View: Across three methods, fair value converges around ₹90–₹127. The IPO priced at ₹80–₹89 per share; current price of ₹108 sits at the upper band. The premium pricing reflects post-IPO enthusiasm and 87% YoY PAT growth. The risk: if asset quality deterioration accelerates beyond Q4, or if credit cost doesn’t normalize to the 3.5% guidance, the margin compression story unravels. Upside to ₹127 exists if credit cost truly normalizes AND AUM growth sustains 25%+ AND mortgage scaling absorbs opex. Downside to ₹85 if delinquency trends worsen and the market re-rates credit risk.
⚠️ EduInvesting Fair Value Range: ₹90 – ₹127. This fair value range is for educational purposes only and is not investment advice. Asset quality trends and credit cost normalization are critical variables. Consult a SEBI-registered investment advisor before making any financial decision.
06 — What’s Cooking: News, Triggers & Drama
IPO Just Happened. Asset Quality Is Already Under Fire. Welcome To Public Markets.
