Aye Finance IPO: Raising Funds For Growth, But Should You Subscribe

Aye Finance Limited, one of India’s largest MSME lenders by customer count, opens its IPO on February 9, 2026

Aye Finance Limited, a mid-layer non-banking financial company (NBFC) incorporated in 1993, is set to list on the BSE and NSE through a fresh issue of approximately 24.7 crore shares at a price band of ₹122–129. The company is a specialized lender to micro and small enterprises (MSEs) — businesses with annual turnovers of ₹2–10 million that are largely shut out of traditional bank credit.

As of September 2025, Aye Finance serves 5,86,825 active customers through 568 branches across 18 states and 3 union territories, with assets under management (AUM) of ₹6,028 crore. The company offers secured and unsecured business loans for working capital and expansion, with ticket sizes ranging from ₹50,000 to ₹15 lakh.

There is size in the opportunity. SMIFS notes that “India’s MSME credit gap of approximately ₹117 trillion presents a massive long-term growth opportunity for specialized lenders like Aye Finance.” The brokerage adds that “MSME credit is expected to grow at 17–19% CAGR between FY25–FY27, supported by formalisation, GST adoption, digital payments, and government initiatives.”

Ventura Securities frames the company’s positioning more specifically: “Aye Finance primarily caters to underserved and informal MSMEs by offering secured and unsecured business loans for working capital and business expansion,” leveraging “a data-driven underwriting framework, field-based sourcing, and technology-led credit assessment to address structural credit gaps in the micro-enterprise segment.”

The company’s growth numbers back this up. BP Wealth highlights that “AUM increased from ₹2,722 crores in FY23 to ₹5,534 crores in FY25, delivering a 42.6% CAGR, while disbursements grew at a 34.9% CAGR to ₹4,291 crores over the same period.” Net worth expanded even faster — “at a 48.3% CAGR to ₹1,659 crores, reflecting internal accrual strength and capital support for growth.”

Profitability metrics are robust for the segment. Ventura notes that “in FY25, Aye Finance reported a Net Interest Margin (NIM) of 15.31%, supported by high yields on micro-enterprise loans and disciplined funding costs.” The company generated “a Return on Equity (RoE) of 12.12% and a Return on Average Assets (RoAA) of 3.13%, reflecting improving operating leverage as the loan book continues to season.” Profit after tax stood at ₹175.3 crore in FY25 — roughly double the prior year.

Aye Finance’s physical distribution network and its proprietary underwriting model.

SMIFS calls the branch network a “strong competitive moat,” noting that “mature branches generate significantly higher AUM — ₹135.47 million versus ₹61.83 million — highlighting strong scalability and operating leverage as branches mature.” The brokerage argues that “future growth will be driven by improving productivity of existing branches, supporting higher AUM per branch, better cost efficiency, and improved margins and return ratios.”

BP Wealth echoes this, noting that “the branch count increased from 398 in FY23 to 526 in FY25 and AUM per branch improved 24% over FY23–25, indicating productivity gains alongside scale.”

On underwriting, SMIFS describes the company’s “proprietary cluster-based underwriting model that leverages localized industry knowledge, field verification, and cash-flow analysis instead of relying solely on formal credit metrics.” The brokerage concludes that “the model creates a strong competitive advantage and high entry barriers for traditional lenders and fintech competitors.”

The Risks: NPAs, Unsecured Loans, and Interest Rate Sensitivity

While the growth story is compelling, the risk deserves equal attention.

The most prominent concern is asset quality. Gross NPAs have risen steadily — from 2.5% in FY23 to 4.21% in FY25, and further to 4.85% in H1 FY26. SMIFS characterizes the increase as likely “cyclical rather than indicative of structural underwriting weakness,” attributing it to “broader MSME sector stress.” However, BP Wealth strikes a more cautious tone, noting that “GNPA increased from ₹65 crores in FY23 to ₹217 crores in FY25” and that “credit cost grew in line with portfolio seasoning to ₹289 crores in FY25.”

Ventura provides some reassurance on provisioning, noting that “Net NPA was contained at 1.40%, supported by a Provision Coverage Ratio (PCR) of 67.56%.” The brokerage also highlights that “the company reported a low Stage-2 portfolio of 1.8% of gross loans, among the lowest within the peer set, highlighting prudent underwriting and collection efficiency.”

The second major risk is the unsecured loan book. BP Wealth flags that “in H1FY26, unsecured loans comprised 38% of total AUM,” warning that “if AYE are unable to recover such receivables in a timely manner or at all, the cash flows and financial condition may be adversely affected.”

Interest rate risk is also flagged. BP Wealth cautions that “volatility in interest rates could have an adverse effect on their net interest income and net interest margin, thereby affecting the results of operations and cash flows.” The current portfolio mix — 65% fixed-rate and 35% floating-rate — offers some buffer, but does not eliminate this exposure.

BP Wealth notes the inherent information risk in lending to informal businesses: “The operations depend on the accuracy and completeness of information provided by the customers and third party service providers and their reliance on any erroneous or misleading information may affect the judgement of their creditworthiness, as well as the value of and title to the collateral.”

The Valuation Question

At the upper end of the price band of ₹129, BP Wealth notes that “the issue is valued at a P/B of 1.84x based on FY25 earnings,” adding that “the valuation is broadly in line with industry peers.” Given a 12.12% RoE that has room to expand as operating leverage improves, the pricing appears fair — though it does not leave a wide margin of safety.

BP Wealth concludes: “Given its scalable model, expanding distribution footprint and improving earnings trajectory, we recommend a ‘Subscribe’ rating for the issue.”

SMIFS recommends that “investors subscribe to the issue with a long-term investment horizon, supported by structural industry tailwinds, scalable business model, and potential for long-term value creation.

Issue Details