Arman Financial

Services Ltd.
Equity Research Report
“Money should not stop a person from dreaming or realizing their own potential”

Palak Mittal palak.mittal713@[Link] November, 2025

Arman Financial Services Ltd.
By Palak Mittal

TABLE OF CONTENTS

About the Company 3

History & Evolution of the Business 4

Board of Directors 5

Business Segments & Segmental Analysis 6-7

Geographic Presence 8

Branch & Customer Base Analysis 9

Industry Overview: NBFCs 10-11

Financial Analysis: Return & DuPont Analysis 12-13

Asset Quality Analysis 14-15

Profitability Analysis 16-17

Efficiency Analysis 18

Balance Sheet Analysis 19

Management Guidance & Strategy 20

Valuation 21

Investment Rationale 22
 Arman Financial Services Ltd.
By Palak Mittal

About the company NSE: ARMANFIN

Arman Financial Services Limited is an RBI-registered
CMP: ₹1,675 (as of Feb 14, 2026)
Category ‘A’ NBFC focused on providing credit to
under-served rural and semi-urban markets in India. Stock Performance-1Y
Founded in 1992 by Mr. Jayendra Patel and 2,000.00
headquartered in Ahmedabad, Gujarat, the company 1,900.00

is listed on the BSE (1995) and NSE (2016) and 1,800.00

1,700.00
operates through a network of over 500 branches

Price (Rs.)
1,600.00
across 11 states, serving more than six lakh 1,500.00
customers primarily from the informal and small 1,400.00
entrepreneur segment. 1,300.00
1,200.00
1,100.00
Its product portfolio includes Group-Based 1,000.00
Microfinance (JLG) via its subsidiary Namra Finance
Ltd., MSME and Micro-Enterprise Loans, Two-
Wheeler Finance, and Loans Against Property (LAP).
The company’s competitive moat is driven by its focus Key Market Data
on small-ticket retail lending and an in-house,
bottom-up credit appraisal and collection framework Particulars FY25
that supports scalable, volume-led growth and Market Capitalization (Cr.) ₹ 1,748
geographic diversification.
Price-to-Earnings 61.6
Shareholding Pattern Book Value ₹ 830
52W High/Low ₹ 1850/1110
22%
Earnings Per Share ₹27
Promoters
1.69%
FIIs
DIIs
5.03%
Public
Financial Summary
Particulars FY25 FY24
71.29%
Net Interest Income (Cr.) 618.8 593.08

AUM (Cr.) 2245 2639

Key Ratios
Loan Book (Cr.) 1683.6 2032.91
Particulars FY25 FY24
Return on Equity (%) 6.17% 27.8% NIM (%) 15.4% 15.2%

Return on Assets (%) 6.2% 7.6% Operating Profit (%) 14.1% 57.61%
Capital Adequacy Ratio 48.37% 32.8%
Profit-After Tax (Cr.) 69.09 228.08
Provision Coverage 205.15% 154.06%
Ratio Cost to Income (%) 32.1% 26%
GNPA (%) 3.4% 2.88%
Profit Margin (%) 14.08% 57.59%
Portfolio Yield (%) 25.1% 25.1%
Arman Financial Services Ltd.
By Palak Mittal

History & Evolution of the Business

FY1992-FY2016

FY 1992: Company Incorporated

FY 1995: Listed on BSE
FY 1998: Launched 2W Urban Loans
FY 2010: Launched Microfinance Business
(Later Namra Finance Ltd.)
FY 2014-16: Listed on NSE & Expanded into 4
New states

FY2017-FY2020

FY 2017: Launched MSME business, Crossed

100+ Branches across 5 states
FY 2019: Expanded into Rajasthan &
Incorporated 100% cashless disbursement
Model.
FY 2020: Disbursements crossed Rs. 875 Crores

FY2021-FY2023

FY 2021: AUM crossed 1000+ crores

FY 2022: Operations Expanded into Haryana &
Bihar
FY 2023: Namra Finance received CARE rating’s
highest MFI-1 Grading. AUM doubled to Rs.
2000+ Crores in 18 months.

FY2024-FY2025
FY 2024: Namra Ltd. & Arman Ltd. upgraded to
A stable Rating by Acuite Ratings.
Expanded into new states of Telangana,
Jharkhand & Karnataka
FY 2025: Rural LAP loan product launched into
key states of Gujarat, MP & Telangana
Arman Financial Services Ltd.
By Palak Mittal

Board of Directors-Promoter Group

Jayendra Bhai B. Patel Alok N. Prasad Aalok J. Patel

Vice Chairman Chairman Joint Managing Director
& Managing Director

Ritaben J. Patel Akash J. Patel

Non-Executive Director Non-Executive Director

Board of Directors-Independent Directors

Yash K. Shah Pinakin S. Shah Geeta H. Solanki

Independent Director Independent Director Independent Director
Arman Financial Services Ltd.
By Palak Mittal

Business Segments
Asset Under Management Microfinance-Namra Finance Ltd.
As of FY25 Namra Finance Ltd., a wholly owned subsidiary of Arman Financial Services
Ltd., manages the Group’s microfinance vertical and is registered with the
Reserve Bank of India as a Non-Banking Finance Company. It primarily
provides collateral-free, income-generating loans to women borrowers
through the Joint Liability Group (JLG) model. In FY2023, Namra introduced
75.1% Individual Business Loans (IBL) for established micro-entrepreneurs seeking
higher-ticket financing. The company operates across 11 states through 391
microfinance branches, serving over 6.97 lakh active customers, mainly in
rural and semi-urban areas. Its high-touch model includes 100% cashless
disbursements, structured credit checks & loan utilization monitoring.

Micro Enterprises (MSMEs) Loans

Arman Financial Services Ltd.’s MSME division, launched in August 2016,
offers individual enterprise and working capital loans ranging from ₹50,000 to
₹5,00,000 to underserved, non-salaried rural and semi-urban micro-
entrepreneurs. The business operates across five states through a network of
20.2% over 95 branches, serving a growing base of 1 lakh active customers in low-
competition rural markets and is the highest ROA product of Arman. The
high-touch operating model features 100% cashless disbursements, dual
credit bureau checks using CIBIL and CRIF scores, detailed cash flow
assessments, and in-house field investigations with centralized credit
approvals, with a strong focus on asset quality through conservative
underwriting and rigorous monitoring.

2-Wheeler Vehicle Loans

The Company’s Urban Two-Wheeler and Rural Two-Wheeler loan segment
comprises secured loans extended to self-employed and cash-salaried
customers in the informal sector across semi-urban and rural geographies.
3.45% The business currently operates exclusively in Gujarat, supported by a
network of 50+ dealer partnerships. As of FY25, the segment catered to
approximately 18,000 active customers. The operating model 100% cashless
disbursements, and robust credit evaluation through CIBIL and CRIF bureau
checks, supplemented by home & business field investigations. Collections
are executed through a combination of E-NACH and digital modes for urban
2W loans, alongside doorstep cash collections for rural customers

Rural Loan Against Property Loans

The Company introduced its Loan Against Property (LAP) product in Q4 FY24
as part of its secured lending portfolio. The segment currently operates
1.25% through 19 branches across Gujarat, Telangana, and Madhya Pradesh, with a
growing presence in semi-urban and rural markets. The operating framework
emphasizes conservative loan-to-value thresholds, centralized credit approval,
and in-house legal and field-level due diligence to ensure portfolio quality and
controlled expansion.
 Arman Financial Services Ltd.
By Palak Mittal

Segmental Analysis
Arman Financials’ AUM continues to be predominantly anchored in its MFI-JLG (women-focused)
portfolio, which historically accounted for 75–85% of consolidated AUM over FY21–FY24,
followed by MSME/Micro-Enterprise lending as the highest ROA and profitability driver, and
Two-Wheeler (2W) financing as a complementary, consumption-linked product supporting
customer lifecycle coverage. However, from FY23 onwards, the company initiated a strategic pivot
toward product diversification, driven by management’s long-term objective to reduce
concentration risk and transition high-quality rural customers into higher-ticket, individual-
based lending formats.

MFI MSME 2W LAP MFI MSME 2W LAP

1.25%
100.00% 5.64% 3.74% 2.92% 3.47%
40%
3%
90.00% 13.39% 13% 13.91%
15.40% 20.22%
35% 36.50%
80.00% 32.20% 35.10% 35.40%
33.80%
70.00%
30% 28.70%
26.90%
60.00% 28.90%
25.20%
24.40%
50.00% 25% 26.50%
22.80%

40.00% 82.27% 82% 83.10% 23.80%

78.96% 75.10% 23%
22.20%
20% 22.20%
30.00%
20.00%
15%
10.00%
0.00% 10%
FY 21 FY 22 FY 23 FY 24 FY 25 FY 21 FY 22 FY 23 FY 24 FY 25
Segment-Wise AUM Segment-Wise Yield

Diversification Initiatives & Future Guidance:

• Individual Business Loans (IBL): Introduced within the MFI vertical, it aimed at retaining
mature, credit-seasoned customers graduating from the group-based JLG model. As of the
latest period, IBL contributes ~2% of total AUM and is positioned as a key growth lever over
the medium term.
• Rural Loan Against Property Loans (LAPs): Introduced in FY24, the Rural LAP segment
represents Arman’s strategic entry into secured, asset-backed lending, with an initial rollout
across Gujarat, Telangana, and Madhya Pradesh.
• Rural Two-Wheeler (2W) Lending: Arman Expanded into rural markets in FY21 to complement
the urban 2W portfolio, enabling deeper geographic penetration and broader customer
lifecycle coverage.

Management has articulated a long-term target of shifting the portfolio mix toward a 2/3rd
individual and ancillary lending model (IBLs, MSMEs, LAPs and 2Ws) versus 1/3rd group-based
lending, envisioning a gradual evolution of rural customers into full-spectrum banking clients
over the next FEW years.
Arman Financial Services Ltd.
By Palak Mittal

Geographic Presence
State Wise Concentration-
By Branches

• The company maintains a diversified presence across India’s western, northern, and eastern
corridors, complemented by selective entry into southern markets. Its primary focus on rural and
semi-urban catchments allows Arman to tap into underserved borrower segments while driving
scalable, region-balanced AUM growth.

• Gujarat remains the company’s operational anchor and headquarters, reflecting its highest-vintage
market and a stable base for portfolio performance and branch-led expansion.

• Over the years, the company has pursued a phased, product-led geographic expansion: FY21 focused
on North India, with Haryana and Uttar Pradesh driving rural and semi-urban AUM growth; FY23
marked entry into Bihar, now a strong-performing, high-growth market; and FY24 saw expansion into
Jharkhand for MFI operations and Telangana for MSME lending.

• This phased expansion approach supports controlled risk diversification, mitigates regional
concentration, and enables the company to leverage its existing branch infrastructure to cross-sell
newer products across geographies.
 Arman Financial Services Ltd.
By Palak Mittal

Branch & Customer Base Analysis

600
Active Customer Base (YoY)
500
489 Arman’s customer base is predominantly
anchored in the MFI segment, led by women
402 borrowers under the Joint Liability Group (JLG)
400
model, typically representing low- to middle-
No. of Branches

336
income households engaged in livelihood-
291
300 based activities. This is complemented by the
239 MFI Individual Business Loan (IBL) product and
200 the MSME/Micro-Enterprise segment, catering
to small business owners and self-employed
borrowers, followed by 2W financing and Rural
100
Loan Against Property (LAP) customers.

0 Active customers expanded steadily through

FY 21 FY 22 FY 23 FY 24 FY 25
FY24, supported by deeper penetration into
rural, semi-urban, and Tier II–III markets via a
Growth In Branches (YoY) branch-led acquisition model. In FY25, the
customer base witnessed a modest
Arman has steadily expanded its branch moderation, driven by borrower
network from 239 branches in FY21 to 489 overleveraging and the RBI’s regulatory
branches in FY25, nearly doubling its guardrails, reflecting the company’s prudent
physical footprint and reinforcing its branch- prioritization of credit quality and sustainable
led presence across rural and semi-urban customer acquisition over volume-led growth.
markets.

Year-on-year branch growth has remained

broadly stable in the ~13%–22% range,
indicating a disciplined, demand-aligned
expansion strategy.

A key operational shift has been the

separation of credit and recovery functions
from branch sales, aimed at strengthening
underwriting quality and portfolio
monitoring, even at the cost of higher near-
term operating expenses to support
improved long-term asset quality.
 Arman Financial Services Ltd.
By Palak Mittal

Industry Overview: Non-Banking Financial Company (NBFCs)

Non-Banking Financial Companies (NBFCs) play a critical role in deepening financial inclusion and
complementing the formal banking system in India. Unlike traditional banks, NBFCs operate with
greater flexibility in product design, underwriting frameworks, and geographic reach, enabling
them to serve customer segments that remain underpenetrated by scheduled commercial banks.

Their strong on-ground presence, localized credit assessment models, and relationship-driven
lending allow them to assess borrower risk beyond formal credit scores and documented income.
This has positioned NBFCs as key enablers of last-mile credit delivery, particularly in Tier-2, Tier-
3, and rural markets.
NBFCs Banks NBFCs Banks

25% 19.%
23%
18.% 18.40%
22% 22%
20% 17.%
20%
16.%
15% 14.80% 14.80%
15% 15.%
13%
12% 14.90%
14.%
13% 13.00% 13.90%
10% 13.%

12.%
5%
5% 11.% 10.60%
5% 10.90%
10.%

0% 9.%
FY21 FY22 FY23 FY24 FY25 FY22 FY23 FY24 FY25

AUM Growth Sector ROE

As of FY25, the sector’s Assets Under Management (AUM) crossed approximately ₹61 trillion,
reflecting a strong annual growth rate (CAGR) of around 18.9%. The GNPAs also improved to
2.9% and a strong profitability growth of 25.6%.

The NBFC sector has sustained a structurally higher growth and profitability profile, with AUM
growth rising from 13% in FY22 to a peak of 23% in FY23 and moderating to a resilient 20% in
FY25, while continuing to outperform banks in both balance sheet expansion (NBFC: 20% vs
Banks: 12% AUM growth) and returns (NBFC ROE: 14.8% vs Banks: 13.9%), reflecting stronger
yield generation despite elevated credit and funding risks.

NBFC sector opportunities are supported by strong policy tailwinds through government-led
financial inclusion and MSME credit schemes (ECLGS & PLI schemes) & Digital Inclusion
programmers, RBI’s strengthened regulatory framework enhancing sector credibility, and rising
credit penetration in Tier-2 and Tier-3 markets enabled by digital infrastructure and alternative-
data-driven underwriting. Source: BCG Sector ROUNDUP & SCANX
Arman Financial Services Ltd.
By Palak Mittal

Industry Overview: Credit Growth Trend in Microfinance

The Microfinance (MFI) industry remains a critical driver of financial inclusion in India,
primarily serving low-income households and micro-entrepreneurs through small-ticket,
unsecured lending under the Joint Liability Group (JLG) model, with structurally strong
demand across rural and semi-urban markets.

25% 40
35 33
23.30% 30
20% 30

AUM Growth (Rs. Lakh Crores)

25

15% 20
15%
15

10% 10
5
0
5% 6.30%
FY23 FY24 FY25
-5
-10 -8
0% 1%
FY22 FY23 FY24 FY25 -15

AUM Growth Sector ROE

In FY23, the RBI introduced a harmonized regulatory framework for microfinance, including
a revised annual household income cap of ₹3 lakh, a Fixed Obligation to Income Ratio
(FOIR) ceiling of 50% across all household borrowings, removal of interest rate caps to
enable risk-based pricing, and a reduction in qualifying asset requirements from 85% to
75% of net assets.
The moderation in sector performance in FY25 reflects a combination of elevated borrower
over-leverage in high-penetration geographies, climate-related disruptions such as
heatwaves impacting income generation and collections, operational disruptions during
election periods, limited uplift in effective borrower incomes despite the revised eligibility
threshold, and the impact of RBI’s borrower-level guardrails, which tightened underwriting
standards, slowed fresh disbursements, and increased compliance and monitoring intensity
across the sector.
The microfinance sector’s near-term outlook remains cautious amid borrower
overleveraging and tighter RBI guardrails in FY25, though improving funding access and
disciplined risk management are expected to support gradual stabilization over the medium
term.
Arman Financial Services Ltd.
By Palak Mittal

Financial Analysis-Return Analysis

ROA ROE

35.00%
32.40%

30.00%
27.80%

25.00%

20.00%

15.60%
15.00%

10.00%
5.90% 6.17%
7.60%
5.00% 6.20%
5.90%

3.10%
0.00% 1.30%
FY21 FY22 FY23 FY24 FY25

Return on Equity:
ROE rose sharply from 5.9% in FY21 to a peak of 32.4% in FY23, before moderating to 27.8% in FY24 and
6.2% in FY25. The decline was partly due to equity dilution following capital raises of ₹115 crore in FY23
and ₹230 crore in FY24, which expanded the equity base.

This was compounded by weaker profitability amid heightened competition post RBI easing, leading to
spread compression, asset quality stress from borrower overleveraging resulting in higher impairments
and write-offs, and elevated operating costs due to employee attrition, separation of credit and
collection functions, and CGFMU-related insurance expenses.

Management’s shift towards slower disbursements and stricter underwriting further weighed on near-term
returns due to lower credit fee income, though the strong ROE in FY23–FY24 demonstrates the company’s
ability to outperform during upcycles.
Return on Assets:
ROA improved steadily from 1.3% in FY21 to 5.9% in FY23 and further to 7.6% in FY24, before moderating
to 6.2% in FY25 in line with the broader profitability slowdown. Despite this moderation, ROA remains
comfortably within the company’s long-term target range of 3–5%, reflecting strong asset-level
profitability. The relative resilience in ROA underscores the company’s disciplined & calibrated branch-led
expansion, and focus on yield optimization rather than aggressive volume growth.

Moreover, prudent risk selection, measured loan growth, and controlled operating leverage have enabled
the company to sustain healthy returns on assets across cycles, highlighting the inherent stability and
scalability of its operating model.
Arman Financial Services Ltd.
By Palak Mittal

Financial Analysis- DUPONT Analysis

Return on Return on Financial

Equity (ROE) = Assets (ROA) x Leverage

Particulars FY21 FY22 FY23 FY24 FY25

Return on Assets 1.3% 3.1% 5.9% 7.6% 6.2%

Financial Leverage 4.54x 5.03x 5.49x 3.66x 1x

Return on Equity 5.9% 15.6% 32.4% 27.8% 6.17%

Summary:
Return on Assets (ROA):
Arman Financial Services Limited reported a steady improvement in ROA from 1.3% in FY21 to a
peak of 7.6% in FY24, before moderating to 6.2% in FY25. The improvement was driven by margin
expansion, operating leverage benefits, and disciplined balance sheet growth during a favorable
credit cycle. The moderation in FY25 reflects normalization in spreads post RBI tightening, higher
credit costs due to borrower overleveraging, and elevated operating expenses arising from
structural initiatives such as the separation of credit and collection functions.

Financial Leverage:
Financial leverage increased from 4.54x in FY21 to 5.49x in FY23, reflecting balance sheet
expansion during a supportive operating environment. However, leverage declined sharply to
3.66x in FY24 and further to ~1x in FY25, primarily due to equity infusions of ₹115 crore in FY23
and ₹230 crore in FY24, which expanded the equity base. Management has indicated a target
debt-to-equity range of 4.0x–4.5x, suggesting that the sharp deleveraging is transitional and aimed
at balance sheet strengthening rather than a structural shift.

Return on Equity (ROE):

ROE increased sharply from 5.9% in FY21 to a peak of 32.4% in FY23, driven by simultaneous
improvement in ROA and elevated financial leverage. The subsequent moderation to 27.8% in FY24
and a sharp decline to 6.17% in FY25 was largely attributable to equity dilution and deleveraging,
which significantly reduced the equity multiplier effect despite ROA remaining relatively resilient.
Going forward, ROE is expected to normalize as leverage gradually moves toward management’s
targeted range, with returns increasingly dependent on sustained asset-level profitability and credit
cost management.
Arman Financial Services Ltd.
By Palak Mittal

Financial Analysis-Asset Quality Analysis

GNPA NNPA
Provision Coverage Ratio
5.00%

4.50%
The company has maintained a consistently high
4.60%
Provision Coverage Ratio across FY21–FY25,
4.00%
4.10% remaining well above 150% and rising to 205.15%
3.50% in FY25.
3.40%
3.00%

2.50%
2.88% The increase in provisions during FY25 aligns with
2.70%
the rise in GNPAs, driven by borrower
2.00%
overleveraging, slower income growth, regulatory
1.50% guardrails, and external disruptions.
1.00% 0.70%
0.60% 0.55%
0.50% 0.31% It is important to note that the PCR has been
0.20%
calculated using cumulative provisions rather than
0.00%
FY21 FY22 FY23 FY24 FY25
year-on-year provisioning.

The elevated PCR reflects the company’s prudent

Non-Performing Assets and conservative provisioning approach, aimed at
The company’s GNPA has shown a declining trend creating adequate buffers during periods of stress.
post-COVID, falling from 4.60% in FY21 to 2.70% in As per management guidance, with improved
FY23. However, GNPA inched up again in FY24 and portfolio quality and tighter underwriting
FY25 to 2.88% and 3.40% respectively, reflecting standards, provision levels are expected to trend
fresh stress in the loan portfolio. downward going forward, indicating
In contrast, NNPA has remained consistently low normalization from current elevated levels.
across the period, ranging between 0.20% and
0.70%, and stood at 0.55% in FY25, highlighting
strong provisioning and conservative asset 250.00%
recognition.
205.15%
• The marginal rise in GNPAs towards FY25 were 200.00%
due to overleveraging, rising indebtedness,
and income growth not keeping pace with 161.48%
150.64% 150.59% 154.06%
credit growth. 150.00%
• Additional pressures such as RBI’s guardrails,
heatwaves impacting rural cash flows, and
100.00%
election-related disruptions also contributed to
stress in repayments.
• Defaults were more pronounced in the 50.00%
microfinance segment, especially after
regulatory easing in FY24 (removal of margin
caps, and increase in income eligibility to ₹3 0.00%
lakh), which led to borrower overleveraging. FY21 FY22 FY23 FY24 FY25
Arman Financial Services Ltd.
By Palak Mittal

Financial Analysis-Asset Quality Analysis

70.00%
Arman Ltd Namra Ltd Credit Cost
Credit cost moderated from 6.9% in FY21 to 4.3%
60.00% 62.80% in FY23, before rising sharply to 7.0% in FY24,
driven by elevated impairments in the MFI
50.00% portfolio. The increase was largely due to
48.80% 48.37% borrower overleveraging following RBI easing
40.00% measures, as household debt growth outpaced
37.34% income growth, weakening repayment capacity.
30.00% 32.16% 32.80%
29.10% Going ahead, credit cost is expected to gradually
25.62%
20.00% normalize over H1FY26, supported by tighter
20.32%
18.78% underwriting standards & improved income-
10.00% based borrower assessment. Additionally, the
company has prudently and selectively covered
0.00% 50% of its MFI AUM under the CGFMU
FY21 FY22 FY23 FY24 FY25
guarantee scheme, which partially mitigates
downside risk and provides a buffer against
Capital Adequacy Ratio incremental credit losses. Management has
guided that while MFI credit cost may
The company has maintained a Capital Adequacy structurally increase from 200 bps to 250 bps, it
Ratio well above the regulatory requirement of is expected to remain broadly stable at this level
15% throughout FY21–FY25, from 48.8% to over the medium term.
37.34% for Arman Ltd, and from 20.3% to 46.37%
for Namra Ltd, including compliance with Tier I
and Tier II capital norms. This indicates that the 7.00%
company is adequately capitalised to absorb risk 6.93% 6.97%
arising from its asset portfolio, while continuing to 6.50%
support growth.
6.00% 6.17%
When analyzed alongside the high Provision
Coverage Ratio, the strong CAR suggests that the 5.50%

company is both well-capitalised and well-

5.00%
provisioned, providing a comfortable buffer
against credit stress.
4.50%
4.44%
However, rather than taking incremental risk, the 4.36%
4.00%
company is adopting a measured growth strategy,
gradually diversifying its loan book away from 3.50%
MFI–JLG towards MFI–IBL and MSME segments,
thereby reducing concentration risk and 3.00%
strengthening portfolio stability. FY21 FY22 FY23 FY24 FY25
Arman Financial Services Ltd.
By Palak Mittal

Financial Analysis-Profitability
30.00% 100.00% NIM NII%

90.00% 93.43%
25.00% 26.70%
80.00% 90.08%
25.10% 25.10% 85.27%
82.72%
22.90% 77.34%
70.00%
20.00% 21.50%
60.00%

15.00% 50.00%

40.00%
10.00%
30.00%

20.00% 12.20%
5.00% 15.40%
10.00% 14.20% 15.90% 15.20%

0.00% 0.00%
FY21 FY22 FY23 FY24 FY25 FY21 FY22 FY23 FY24 FY25

Yield Net Interest Margin

Despite multiple headwinds affecting the MFI Arman Financials has also maintained relatively
segment, such as borrower overleveraging, rising stable Net Interest Margins, with NIM moderating
indebtedness, RBI’s three-lender guardrails, and marginally from 15.9% in FY23 to 15.4% in FY25.
periodic disruptions, Arman Financials has been
able to broadly maintain its portfolio yield, and FY23 marked a peak phase for MFI players,
even increase it marginally, over FY21–FY25. supported by favorable RBI measures such as the
increase in income eligibility limits and removal of
Yield remained stable from 21.5% IN FY21 to margin caps.
25.1% in FY25, even though MFI-JLG, the
company’s largest AUM contributor, was the most While margins normalized in subsequent years
impacted segment during this period. amid regulatory tightening and rising stress,
Arman Financials was able to preserve NIM
The stability in yield can be attributed to the through portfolio diversification into higher-
company’s strategic diversification into MSME, yielding segments, prudent cost of funds
Two-Wheeler (2W), and Rural LAP segments, management (Due to rating update for both
which helped offset pressure on MFI yields and Arman Ltd. And Namra Ltd to A-) and operational
improve portfolio mix. efficiencies (The separation of credit and
collection department at maximum branches).
Additionally, the structural separation of credit
and collection functions across most branches and Improved underwriting standards and disciplined
strengthened underwriting discipline have risk management further supported margin
protected yield from stress-related dilution. sustainability, underscoring the resilience of the
company’s business model.
Arman Financial Services Ltd.
By Palak Mittal

Financial Analysis-Profitability

70.00% Operating Profit Profit-after Tax

60.00%
57.59%
57.61%
50.00%
49.73%

40.00%
37.25%

30.00%
31.24%

21.80%
20.00%
10.51% 14.10%
10.00% 14.08%
9.16%

0.00%
FY21 FY22 FY23 FY24 FY25

Arman Financials witnessed a sharp improvement in profitability between FY21 (9.16%) and FY23 (37.25%),
with both Operating Profit (OP) and Profit After Tax (PAT) peaking in FY23. This surge was driven by elevated
interest income during a favorable regulatory phase for MFI players, marked by accommodative RBI policies for
microfinance. Additionally, the company benefited from a reduction in cost of funds following the credit rating
upgrade of both Arman Financials and its subsidiary, Namra Finance, to A-, which improved borrowing terms.
Consequently, profitability metrics expanded significantly during this period, reflecting the sector-wide boom
in microfinance lending.

However, profitability witnessed a sharp moderation in FY24 and FY25 due to the following factors:

• Heightened competition: Relaxed RBI guidelines led to increased competition among lenders, exerting
downward pressure on lending rates and spreads.
• Asset quality stress: Overleveraging and rising indebtedness among borrowers resulted in weaker
collections, higher impairments, elevated GNPAs, and increased write-offs.
• Cost pressures: Operating expenses rose due to high employee attrition, the structural separation of credit
and collection teams, and additional costs associated with loan insurance under the CGFMU guarantee
scheme.

In response, management has adopted a more cautious & disciplined approach towards growth. The company
has tightened underwriting standards & implemented stricter disbursement norms to contain incremental
stress. Emphasis has been placed on prudent credit appraisal, controlled expansion, and portfolio
diversification to restore asset quality and profitability over the medium term.
Arman Financial Services Ltd.
By Palak Mittal

Financial Analysis-Efficiency
50.00%
Collection Efficiency
45.00%
Collection efficiency remained strong and
42.70% 43.10%
40.00% largely stable throughout the period, improving
35.00%
from 94% in FY21 to a peak of 98.3% in FY23,
before moderating to 97.7% in FY24 and 95.3%
30.00% 32.10% 32.10% in FY25.
25.00%
26.00%
The limited decline during FY24–FY25, despite
20.00%
heightened stress from borrower
15.00% overleveraging and regulatory tightening,
highlights the resilience of the company’s
10.00%
collection framework. This stability was
5.00% supported by the operational separation of
0.00%
credit appraisal and collection functions, which
FY21 FY22 FY23 FY24 FY25 enhanced accountability, improved borrower
follow-ups, and strengthened early delinquency
Cost to Income management. Management’s continued focus
Arman Financial Services Limited reported a high on disciplined recovery practices has enabled
cost-to-income ratio of 42.7% in FY21 and 43.1% the company to sustain high collection
in FY22, reflecting elevated impairment costs, efficiency even during periods of sector-wide
higher collection-related expenses, & weak stress.
income generation due to halted disbursals in the
first half of FY21 followed by tighter credit
110%
policies.

The ratio improved to 32.1% in FY23 and 26% in 100%

FY24 as the company resumed growth post RBI 98.30% 97.70%

95.00% 95.30%
easing, with expenses largely driven by branch 90%
94%
expansion and operating scale-up.

80%
In FY25, CTI moderated to 32.1%, despite
continued pressure from higher provisioning,
write-offs arising from borrower overleveraging, 70%
costs related to the separation of credit and
collection functions, and CGFMU insurance
60%
expenses on MFI loans. Provisioning remains the
company’s largest cost component, reflecting its
conservative risk management approach, even at 50%
FY21 FY22 FY23 FY24 FY25
the cost of near-term efficiency.
Arman Financial Services Ltd.
By Palak Mittal

Financial Analysis-Balance Sheet Metrics

Loan Book Growth
2500

2032.91
2000
1683.6
1536.7
In Rs. Crores

1500
1057.6
1000
743.22
500

0
FY21 FY22 FY23 FY24 FY25

Arman Financial Services Limited’s loan book expanded strongly from ₹743.2 crore in FY21 to ₹2,032.9 crore
in FY24, supported by a favorable operating environment, including RBI easing measures such as the removal
of margin caps and an increase in household income eligibility to ₹3 lakh for microfinance borrowers.

However, the loan book moderated to ₹1,683.6 crore in FY25 as the company adopted a cautious
disbursement strategy amid rising borrower overleveraging and income growth lagging credit expansion.
Disbursements were selectively curtailed, with reduced evergreen and top-up loans, MFI lending largely
restricted to customers who had completed previous loan cycles, and significantly stricter underwriting in the
MSME segment, reflected in a high rejection rate of ~80%. The moderation highlights management’s focus on
asset quality and sustainable growth over aggressive balance sheet expansion.

Secured vs Unsecured Loan Book Growth

Unsecured Secured
1955.06

1800.00 1661.09
1600.00 1476.92
1400.00
In Rs. Crores

1200.00
1011.57
1000.00
800.00 696.60

600.00
400.00
200.00
46.62 46.03 59.89 77.85 22.51
0.00
FY21 FY22 FY23 FY24 FY25

Secured loan book growth has declined consistently over the period, moderating from 6.3% in FY21 to 3.9% in
FY23, remaining flat in FY24, before dropping sharply to 1.3% in FY25. The sustained slowdown indicates
weakening momentum in the secured lending portfolio, which may limit the company’s ability to offset risk in
its predominantly unsecured microfinance book. The sharp deceleration in FY25 is particularly concerning, as it
coincides with rising stress in the broader loan portfolio, suggesting constrained risk appetite, tighter
collateral standards, or subdued demand for secured credit.
Arman Financial Services Ltd.
By Palak Mittal

Management Strategy & Guidance

Financial Guidance and Return Framework
Management follows a well-defined guidance framework, targeting ROA of 3–5%, which reflects
steady profitability through credit discipline and operating leverage across cycles. Leverage is
expected to be maintained within a debt-to-equity range of 4.5x–5.0x, allowing balance sheet
expansion while remaining conservative for a microfinance-heavy lender. The company guides for a
loan book CAGR of 35–40%, driven by diversification into individual and secured products rather than
pure MFI-JLG growth.

Portfolio Diversification and Long-Term Strategy

A core strategic priority is to reduce dependence on group-based MFI–JLG lending by scaling MFI–
IBL, MSME, two-wheeler finance, and the newly launched rural LAP product. In the medium term,
management is targeting a more balanced portfolio mix of 50% group-based and 50%
individual/ancillary lending, enabling risk diversification without disrupting core cash flows. Over the
longer term, the company aims to transition toward a 2/3rd individual and ancillary lending model
and 1/3rd group lending, facilitating customer graduation into higher-ticket products.

Growth Execution, Scale and Operating Initiatives

The company has set a medium-term target of achieving monthly disbursements of ~₹180 crore,
supported by multi-product distribution in rural markets. Management expects performance to
strengthen in H2FY26, aided by a recovery in rural economic activity. Structural initiatives such as
clear separation of departmental functions and the rollout of insurance-linked schemes are
expected to improve execution efficiency and customer stickiness.

Funding Advantages & Key Risks

The recent A- rating upgrade by ACUITE for both Arman Financial and its MFI subsidiary Namra is
expected to provide a cost of funds advantage, supporting margins over time. Key risks include a rise
in MFI credit costs to ~2.5% (from ~2%) and high field-staff attrition, which could impact collection
efficiency if not adequately managed.
Arman Financial Services Ltd.
By Palak Mittal

Valuation
We value the company using the Price-to-book (P/B) multiple Approach, benchmarking
against its five-year historical Trading Range. The P/B ratio effectively captures the NBFC’s
long-term profitability, return ratios and capital strength, making it a relevant metric for
evaluation.

Case P/B Current Implied Weights Weighted

Scenarios Multiple BV/Share Market Price Implied Price

Bear Case 9.4x ₹830 ₹7802 0.1 ₹780.2

Base Case 3.9x ₹830 ₹3237 0.45 ₹1456.65

Bull Case 1.4x ₹830 ₹1162 0.45 ₹522.9

Implied Price ₹2759.75

Upside 72.38%

Assumptions:
• We take three scenarios, the base case (Median P/B value), the bear case (the lower P/B band
from five-year trading range and the bull case (the upper P/B band from five-year trading
range).
• To arrive at fair value, we assign weights to each case as probabilities, in this case 10% to bull
case, 45% to median case and 45% to bear case reflecting our outlook on growth visibility and
downside protection

Interpretation & Analysis:

• Based on the weighted P/B valuation, the implied share price of ₹2,759.75 indicates an
upside of 72.4% from current levels, suggesting that the stock is meaningfully undervalued.

• However, in the near term, the stock may continue to exhibit a bearish trend due to broader
macroeconomic uncertainties and structural stress within the NBFC sector, particularly in
the MFI segment.

• Despite this, the company’s consistent diversification across products and geographies,
coupled with a prudent, risk-aware operating approach, positions it well for long-term
growth. Consequently, the stock presents a compelling buy-on-dips and long-term buy-and-
hold opportunity for investors with a longer investment horizon.
Arman Financial Services Ltd.
By Palak Mittal

Investment Rationale
Diversified by Design- Product & Geographic Rebalancing
Arman has expanded across multiple rural and semi-urban states, reducing regional concentration risk
while deepening its branch-led franchise. On the product side, management is targeting a medium-term
50:50 mix between group-based and individual/ancillary lending, with a long-term goal of 2/3rd individual
& secured lending and 1/3rd group-based MFI. The gradual scale-up of MSME, MFI–IBL, Two-Wheeler and
Rural LAP strengthens the secured and higher-ticket portfolio mix, structurally improving portfolio stability
and reducing volatility from unsecured JLG exposure.

Strong Provision Buffers & Controlled Asset Quality

Across credit cycles, whenever GNPAs have risen, the company has consistently responded with prudent
and timely provisioning rather than deferring stress recognition. This disciplined approach has ensured that
NNPA levels remained consistently contained despite periodic normalization in gross delinquencies. The
company maintains a structurally elevated Provision Coverage Ratio, reflecting a conservative buffer-
building strategy. By front-loading provisions during stress phases and recognizing asset quality pressures
transparently, management prioritizes long-term balance sheet strength and sustainability over short-term
earnings volatility.

Crisis-Tested Execution
In response to borrower overleveraging and regulatory tightening, management adopted a cautious stance
in FY25, tightening underwriting norms, restricting fresh disbursements, separating credit and recovery
functions to strengthen accountability, and covering 50% of MFI AUM under the CGFMU insurance scheme.
These measures prioritized balance sheet protection and collection discipline over aggressive expansion.

Structured Profitability Framework

Despite moderation from peak-cycle returns, portfolio yield (25%), NIM (15%+), and ROA (6.2% in FY25)
remain structurally healthy. Management operates within a guided ROA range of 3–5% across cycles and
maintains a target debt-to-equity range of 4.5x–5.0x, reflecting a calibrated leverage strategy designed to
balance growth and solvency.

Rating Upgrade – Structural Cost of Funds Benefit

The A- rating upgrade for both Arman Financials and Namra enhances funding access and improves
borrowing terms. A structurally lower cost of funds supports margin resilience and competitive positioning,
while also diversifying funding sources and improving lender confidence during stressed cycles.

Valuation Implies Meaningful Upside Potential

Based on a weighted P/B valuation approach, the implied fair value of ₹2,759.75 indicates 72.4% upside
from current levels. While near-term performance may remain subdued due to sector stress and macro
uncertainties, the company’s diversification strategy, strong capital buffers, and disciplined growth
framework position it well for medium- to long-term normalization and value realization.
Arman Financial Services Ltd.
By Palak Mittal

DISCLAIMER
This report has been prepared solely for education
purposes. The author does not hold any responsibility
for financial losses arising from actions based on this
report. Readers are strongly advised to consult a SEBI
registered research analyst before making any
investment decision.