Arohan Financial Services Show Recovery: FY26 Results Analysis

Arohan Financial Services Ltd, India’s leading NBFC-MFI (Non-Banking Financial Company Microfinance Institution), released its audited financial results for FY26, showing reduced revenue but increased profitability and better provisions ahead of its IPO DRHP filing.

In this blog, we will discuss the financial statements, changes in profitability, and asset quality recovery of Arohan Financial Services.

Financial Year 2025-26 Overview

A. Revenue declined, but core income is still stable

Arohan Financials recorded a revenue from operations of Rs 1,544.88 crore in FY26, which is 8.7% less than the FY25 figures of Rs 1,691.75 crore. The major contributor is interest income:

• FY26 Interest Income: Rs 1,415.50 crore.

• FY25 Interest Income: Rs 1581.18 crore.

This could be pressure on loan disbursements due to the visible slowing of lending activity across the MFI industry. This is sector-wide and not just related to Arohan.

However, the fees and commission income improved from Rs 69.54 cr in FY25 to Rs 95.43 cr in FY26, showing some diversification of income. 

B. 24% Reduction In Credit Costs

Arohan Financials reduced its impairment costs by 24% in just 1 year.

This is a highly significant improvement for an NBFC-MFI, indicating better collection rates, improved asset quality, and reduced credit losses. This can be a great investment signal because in the microfinance business, profitability often depends more on falling credit costs than revenue growth. 

C. Visible Profitability Recovery

Despite lower revenue. The NBFC improved its profitability due to better cost control and lower provisions. PAT grew by 11% from Rs 109.69 cr in FY25 to Rs 122.33 cr in FY26.  Have a look at Arohan’s quarterly recovery:

This is a direct, visible turnaround of operational normalisation, shown from quarterly losses to profits in the latest two quarters.

D. Balance Sheet Analysis

23% Loan Book Expansion despite sectoral challenges, showing a continued borrower demand.

34% Borrowing Increase

Higher borrowings support loan growth. Investors should monitor leverage carefully.

The debt-to-equity ratio is 2.73 times, which is less than the usual 3-6 times in the lending-focused NBFC. (Carehealth Ratings India). 

E.Improvement in Asset Quality and Capital Strength

Overall, this sharp improvement in Stage 3 assets, along with stable provisions, is a direct signal of Arohan’s stronger balance sheet in FY26.

Risks In Arohan’s Business Model 

Investing in NBFC MFI companies comes with high growth potential but also with unique cyclical risks. Here are some of them:

A) Credit Risk And Asset Quality Stress

Microfinance loans mostly lack collateral. Income shocks faced by borrowers, like inflation or agricultural stress, can directly affect repayment capacity and increase the company’s NPA.

B) Socio-Political Climate 

MFIs are heavily dependent on the local economy. Any local sociopolitical movements like protests, farm loan waivers, or local political changes create a “no repayment” atmosphere, directly affecting MFI’s income.

C) Regulatory Risks

RBI heavily regulates the microfinance sector to protect low-income borrowers. Heavy compliance requirements like income caps or lending margin limit changes directly impact profitability.

Is Arohan On A Recovery?

Arohan Financial’s FY26 results have shown some significantly positive indicators, such as:

• Lower Credit Costs

• Improved Profitability

• Strong provisioning 

• Better Asset Quality &

• Strong Capital Adequacy

Although the revenue growth remains weak, the financial health of Arohan Financial Services has recovered significantly compared to FY25. Thus, Arohan Financial Services Unlisted Shares can attract major eyeballs from investors, especially when the company files its DRHP for an IPO.