Target: ₹220CMP: ₹171.80Aye Finance’s Q1-FY27 PAT grew 144 per cent y-o-y and was in-line (adj. for ₹5.86 crore overlay), driven by NIM expansion and improving AQ. Excluding the overlay, CC would have been about 30 bps below reported levels.After just 6 per cent PAT CAGR over FY24-26 despite around 25 per cent AUM CAGR, we believe Aye is at an inflection point and expect AUM/EPS CAGR of 28/41 per cent over FY26-28 on back of: 140 bps CC improvement over FY26-28, operating leverage as the branch network matures, and COF tailwinds from the recent rating upgrade and lower incremental COF.Management indicated that the core micro-enterprise financing segment is showing positive signs, with business momentum remaining healthy despite the seasonally softer Q1 and no meaningful impact from the monsoon risks or from fuel price hike. Management continues to evaluate new product opportunities such as gold loans (around 10-12 per cent of customers have gold loans) or Affordable HL over the medium term, although this remains a longer-term strategic initiative.Aye Finance added 44,000 new borrowers (+38 per cent y-o-y) this Q, while maintaining underwriting discipline and AQ.Despite the improving earnings profile, Aye trades at FY28 PB/PE of 1.2/8.9x which is similar to MFI peers despite a more secured book and superior AQ outcomes vs MFIs (link) and comparable returns trajectory as Fivestar.Retain Buy with TP of ₹220 (from ₹180) implying FY28 PB/PE of 1.6x/11.5x for ROA/ROE of 4.2/16.3 per cent.Published on July 24, 2026