Aditya Birla Capital Ltd

NSE:ABCAPITAL

Earnings Call Analysis

Aditya Birla Capital Reports Strong Q2 Growth and Strategic Developments

In Q2 FY '25, Aditya Birla Capital reported a consolidated revenue growth of 36% year-on-year, reaching INR 12,007 crores, while profit after tax soared 42% to INR 1,001 crores, aided by a one-time gain from selling its insurance subsidiary. The NBFC segment grew its portfolio by 23%, with SME loans up 39%. The housing finance business expanded 51% to INR 23,236 crores. Notably, the company aims for a consistent 25% CAGR in its overall portfolio over the next 2-3 years, while maintaining a credit cost forecast of around 1.5%. Strategic initiatives include a focus on digital platforms and a notable collaboration for health insurance.

Aditya Birla Capital's Resilient Growth Amid Economic Optimism

In the recent earnings call for Q2 FY '25, Aditya Birla Capital Limited showcased a robust performance, aligning with the positive trends in the Indian economy. The company reported consolidated revenues of INR 12,007 crores, marking a substantial growth of 36% year-on-year. Consolidated profit after tax (PAT) surged by 42% compared to the previous year, amounting to INR 1,001 crores. This growth reflects the company's strong positioning in its diverse business segments, particularly in the non-banking financial company (NBFC) sector.

Strategic Focus on Quality and Risk Management

The company emphasized its commitment to prudent risk management, which has formed the cornerstone of its business strategy. This has enabled Aditya Birla Capital to protect capital while delivering sustainable returns. Notably, in its NBFC business, the loan portfolio increased by 23% year-on-year to INR 1.15 trillion, with the focus shifting to secured loans following tighter underwriting norms in unsecured lending. The company anticipates maintaining a credit cost around 1.5%, currently improved to 1.25%, underscoring its stringent credit evaluation processes.

Accelerated Growth in Housing Finance and SME Loans

The housing finance business continues to exhibit strong momentum, achieving a remarkable loan portfolio growth of 51% year-on-year, reaching INR 23,236 crores. The highest quarterly disbursement recorded was INR 4,010 crores, bolstered by strategic investments in digital technology and distribution networks. Similarly, business loans to SMEs showcased a growth rate of 39% year-on-year, reflecting a strategic pivot towards tapping into this expanding market. Aditya Birla Capital is set to double its housing loan book within the next 18 to 24 months.

Asset Management and Insurance Sector Performance

In the Asset Management segment, average assets under management (AUM) increased by 23% year-on-year to INR 3.8 trillion, supported by a robust 47% rise in monthly Systematic Investment Plans (SIPs) to INR 1,425 crores. The insurance division also demonstrated impressive performance, with first-year premiums surging 33% year-on-year, outpacing industry growth rates. Group new business premiums experienced a significant increase of 45% in the first half of FY ’25, showcasing the company's successful outreach and product diversification strategies.

Future Guidance and Company Outlook

Looking ahead, Aditya Birla Capital expects to continue its impressive growth trajectory, projecting an overall CAGR of 25% in its NBFC portfolio over the next 2 to 3 years. With enhanced digital capabilities and a strong focus on customer acquisition through its ABCD platform, the company is committed to capturing emerging market opportunities. The guidance for individual first-year premium growth is set at 20% over the same period, with a targeted Value of New Business (VNB) margin of 17% to 18%. This positions the company favorably amidst a recovering economic landscape.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Aditya Birla Capital Limited Q2 FY '25 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Vishakha Mulye, CEO Aditya Birla Capital Limited. Thank you, and over to you.

[Vishakha Mulye, executive]

Good evening, everyone, and welcome to the earnings call of Aditya Birla Capital for Q2 of FY 2025. Joining me today are senior members of my team, Bala, Rakesh, Tushar, Pankaj, Kamlesh, Mayank, Pinky, Vijay, Ramesh and Sanchita. I will cover our strategy and business performance, and Vijay will cover key financial highlights, followed by a discussion on performance of our key businesses by our business CEOs.

The Indian economy has remained resilient. We were the fastest growing economy in Q1 with a GDP growth rate of 6.7%. Manufacturing activity continues to gain ground on the back of improving domestic demand and service sector remains buoyant. Improved agricultural activity brightened the prospects of rural consumption. Central Bank across the board have started reducing interest rates. RBI has changed its stance from a withdrawal of accommodation to neutral, while highlighting an upside risk to inflation from food prices and crude oil prices among the global uncertainties.

At Aditya Birla Capital, we continue to focus on driving quality and profitable growth by leveraging data, digital and technology. We follow a customer-centric approach to build deep understanding of the needs of our customers and provide them simple and holistic financial solution in a seamless way. This approach has helped us to accelerate our growth trajectory, build scale and increase market share across our businesses.

Prudent risk management practices from the bedrock of our approach, which has enabled us to protect capital and deliver risk-calibrated and sustainable return across our businesses. We also continue to strengthen our omnichannel distribution network.

Coming to the performance highlights for the quarter: growth and profitability. Consolidated profit after tax, excluding one-off items, grew by 18% year-on-year and 12% sequentially to INR 834 crores in the quarter. The total consolidated revenue grew by 34% year-on-year to INR 11,804 crores. As we had mentioned in our previous calls, we are focused on growing our portfolio with a strong emphasis on return of capital. We have been calibrating our portfolio over the last 12 months proactively.

In our NBFC business, we made an interventions and tightened underwriting norms in certain segments, such as smaller ticket size unsecured personal and consumer loans to improve our customer selection. We identified target customer segments, such as SMEs and increase our focus on growing secured business loans to SMEs. Further, looking at the market opportunities, we have also accelerated the growth of our HFC portfolio. These steps have helped us in a good stead in the current volatile and uncertain environment with an improvement in the growth stage 2 and stage 3 loans in both our lending businesses while maintaining the growth momentum.

Our NBFC portfolio grew by 23% year-on-year and 7% sequentially to about INR 1.15 trillion. The business loans to SME grew by 39% year-on-year and 9% sequentially. The corporate and mid-market portfolio grew by 25% year-on-year and 8% sequentially. As we had highlighted earlier, in personal loan businesses, we are focused on increasing our sourcing from direct channel as such as branches and the newly launched ABC app, and we expect the growth in the personal loans to normalize in the next few quarters.

We remain confident of growing the overall NBFC portfolio by a CAGR of 25% over the next 2 to 3 years. The overall gross stage 2 and 3 loans in NBFC business declined by about 100 basis points year-on-year and 21 basis points sequentially to 4.24% as of September end. Our credit loss has improved from 1.43% in Q1 to 1.25% in Q2 FY '25, which is the best-in-class in the industry. While our credit quality has held up very well, we remain watchful given the current environment, and we will continue to calibrate our portfolio with a paramount focus on return of capital. The profit after tax of the NBFC business grew by 15% year-on-year to INR 629 crores.

The ROA and ROE remained healthy at 2.34% and 15.6% (sic) [ 15.56% ] respectively. In our HFC business, we have built significant capacity over the past few quarters by making investments in digital properties, technology, people and distribution. I'm delighted to share that we've reached a monthly disbursement run rate of about INR 1,400 crores. This has resulted in our HFC portfolio growing by 51% year-on-year to INR 23,236 crores as of September end.

The Indian housing sector continues to offer growth opportunities and is also aided by various government measures such as expansion of PMAY and investments in affordable urban housing. We believe the investments, which we have made, will enable us to capture these opportunities and further accelerate our growth in HFC portfolio. The credit quality in HFC portfolio remains robust with gross stage 2 and stage 3 loans declining 218 basis points year-on-year and 42 basis points sequentially to 2.22% as of September end.

Moving on to Asset Management business. Our mutual fund average AUM grew by 23% year-on-year and 9% sequentially to about INR 3.8 trillion in Q2 of FY '25. We had mentioned earlier that we have taken steps to strengthen our investments and retail sales team and investment processes in FY '24. These initiatives have started showing results. We have seen an uptick in the equity fund performance across various categories. Monthly SIP flows increased by 47% year-on-year to about INR 1,425 crores in September. The profit after tax grew by 36% year-on-year to INR 242 crores.

Moving on to the Insurance businesses. We have seen a strong revival in the growth in our life insurance business. The individual first year premium grew by 33% year-on-year in H1 FY '25, which is significantly higher than the private industry growth. The year-on-year premium growth across in the partnership channel was 34% as compared to 11% in Q1. We are seeing the traction in the mindshare in our new tie-ups in the Bank of Maharashtra and IDFC First Bank, and we are commencing sourcing business at Axis counter as well.

We continue to be in the top quartile in the industry in terms of our 13th and 61st month persistency. The new surrender guidelines, which have come into effect from October 1st, will impact net VNB margin to a certain extent. To address this and mitigate some of this impact, we have realigned our commission structure in line with most of the industry players and also initiated changes in the product construct and the product mix. Kamlesh will cover these steps in detail. We remain confident of growing the individual first year premium by a CAGR of 20% over the next 2 to 3 years and our endeavor is to maintain a VNB margin of about 17% to 18%.

In the health insurance business, we continue to be the fastest-growing stand-alone health insurer. Our gross written premium grew by 39% year-on-year in H1 of FY '25 driven by a differentiated health-first model and data-enabled approach towards customer acquisition. Our market share among the SAHIs has increased by about 120 basis points year-on-year to 11.9% in H1 FY '25. Omnichannel architecture for distribution. Our omnichannel architecture allows customers to choose the channel of their choice and interact with us seamlessly across digital platforms, branches and VRMs, fostering engagement and loyalty. Our D2C platform, ABCD, went live in April 2024. It offers a comprehensive portfolio of more than 20 products and services such as payments, loans, insurance, investments and helps customers to fulfill their financial needs.

During the quarter, we have introduced new products such as DigiGold Gifting, Family Health Scan and Pocket Insurance. ABCD serves as an acquisition engine for us. As we had communicated earlier, we aim to acquire 30 million customers over the next 3 years. I'm delighted to share that ABCD has witnessed a robust response from about 2.5 million customer acquisitions till date. We are seeing a strong traction in payments at more than 1.2 million VPAs created till date. Our moto behind the design of UI and UX of the app has been everything financed as simple as ABCD, and I'm happy to share that ABCD has been awarded the fintech solution of the year under the best-in-class user-friendly interface category at Global Fintech Festival 2024.

In line with our commitment to enhancing one experience for our customers, we will launch a [indiscernible] servicing app in the next 3 to 6 months. This app will be built on the modular platform offering and unified and a common servicing infrastructure across all our businesses. Our comprehensive B2B platform, the MSME ecosystem, Udyog Plus continues to scale up quite well with more than 1.6 million registrations. Udyog Plus has reached an AUM of INR 2,900 crores, and it will now contribute about 25% of the disbursement and total portfolio of the unsecured business loans.

We further enhanced our integration with the ABG ecosystem to provide credit and supply chain financing solutions to our dealers and vendors. About 45% of the disbursements of Udyog Plus are sold from ABG ecosystem. We had 1,470 branches across all our businesses as of September end. We are focused on capturing white spaces and driving penetration into Tier 3 and Tier 4 towns and new customer segments. In line with our One ABC approach, we continue to expand our co-located branches, which increased by 41 during the quarter to 866 branches across 238 locations.

Talking about strategic initiatives. Our Board of Directors approved an amalgamation of a Aditya Birla Finance with Aditya Birla Capital in March, subject to regulatory and other approvals. We are happy to share that the proposed amalgamation has received no objection from RBI. We've made an application before NCLT Ahmedabad and expect the amalgamation to get completed in the next 6 months. During the quarter, we concluded the sale of our booking insurance subsidiary, also received of all regulatory approvals. Going forward, we will continue with our approach of driving quality and profitable growth.

Now I request Vijay to briefly cover the financial performance of our key subsidiaries for the quarter. Over to you, Vijay.

[Vijay Deshwal, executive]

Thank you, Vishakha, and good evening to all of you. The total consolidated revenue grew by 36% year-on-year to INR 12,007 crores during the quarter. Consolidated PAT grew by 42% year-on-year and 32% sequentially to INR 1,001 crores. The consol profit after tax in Q2 of the current quarter includes a onetime gain of INR 167 crores from sale of our entire stake in ABIBL, the insurance looking subsidiary.

In our NBFC business, the loan portfolio grew by 23% year-on-year and 7% sequentially to about INR 1.15 trillion. NIM, including fee income, was 6.28% for the quarter. The credit quality of our NBFC business continues to remain robust with a credit cost of 1.25% in quarter 2. During the quarter, we also infused INR 500 crores equity capital in the NBFC to support our growth momentum. Our housing finance business continues to see strong momentum. The loan portfolio grew by 51% year-on-year to INR 23,236 crores. During Q1 FY '25, we further infused equity capital amounting to INR 300 crores in our HFC subsidiary, taking the cumulative infusion during the year to INR 600 crores. This infusion was done to support the growth momentum and maximize our share of opportunities, which Vishakha mentioned earlier.

Coming to our AMC business. The average AUM increased by 9% sequentially and 23% year-on-year to INR 3.8 trillion in the current quarter, of which equity AUM was approximately 47%. Alternate AUM grew by 66% year-on-year to about INR 3,852 crores in Q2 FY '25. In the life insurance business, our first year premium increased by 33% year-on-year, and group new business premium grew by 45% year-on-year in H1. The VNB margin was 7.4% in H1 of FY '25.

In our health insurance business, our unique and differentiated health-first model helped us to deliver a growth of 39% year-on-year in gross written premium during H1 of FY '25. Our combined ratio has improved from 119% in H1 FY '24 to about 113% in H1 FY '25.

I now hand over to Rakesh, MD and CEO, ABFL, to cover the NBFC business performance in detail.

[Rakesh Singh, executive]

Thanks, Vijay, and good evening, everyone. In our NBFC business, we saw a 23% year-on-year and 7% quarter-on-quarter growth in our AUM, taking it to INR 1,14,710 crores in quarter 2. We continue to focus on SME segment and the business loans to SME grew at a market-leading rate of 39% year-on-year. This segment now comprises 55% of our overall portfolio. A large share of growth in this segment has come from secured loans, which grew by 45% year-on-year. .

Our disbursement in quarter 2 was at INR 19,322 crores, which is our highest-ever quarterly disbursements. Disbursements grew 17% year-on-year for the quarter and 10% as compared to H1 of last year. This comes despite the calibration measures in small ticket personal and consumer loans, which I have spoken about in our earlier earnings call.

Disbursement to MSME grew at 27% year-on-year. Secured business loans to SMEs contributed 38% to overall disbursements, more than 58% of our sourcing in business loans is done via direct channels, and we foresee this to inch upward with continued scale-up of our B2B platform for MSMEs Udyog Plus. I'm happy to share that we now have more than 1.6 million MSMEs registered on this platform. We are scaling up our direct sourcing model in both our personal and consumer loans and business loan segment, and I'm confident that the growth in these segments will pick up further in the next few quarters.

Our effort to tighten our scorecards and credit filters to improve the customer selection over the past few quarters have produced positive outcomes. Our credit cost has improved by 18 basis points quarter-on-quarter to 1.25%, which is well within our stated guidance of 1.5%. However, we continue to calibrate our portfolio, taking into account the current market environment. We continuously monitor offers exposure of our customers and have carried out policy modifications to filter out customer cohorts with high leverage in our unsecured segment. As we have highlighted in our previous call, we have taken several steps to calibrate sourcing from digital partners in the smaller ticket size segment.

To improve through the quality, apart from leverage filter, we also continue to monitor and when required, tighten underwriting rules such as number of inquiries, recency of unsecured exposure count, et cetera. All these measures help us safeguard against any stress that might be getting created owing to extraneous reasons. Our asset quality has shown consistent improvement with stage 2 plus stage 3 book reducing by 100 basis points year-on-year to 4.24%.

The gross stage 3 book has declined by 14 basis points year-on-year to 2.5%. Our stage 3 book is well provided with a PCR of 46%. PAT for the quarter 2 registered a strong growth of 15% year-on-year and it stood at INR 629 crores. The return on assets for the quarter was 2.34%. The return on equity for the quarter stood at 15.6% (sic) [ 15.56% ]. Our net interest margin was at 6.28%, and cost-to-income ratio stood at 31.02% for the quarter.

Moving forward, we remain focused on developing a granular portfolio and increasing the mix of business loans to MSMEs. This will be supported by the scale-up of our Udyog Plus platform with new product offerings and increased investment in distribution across emerging regions aimed at driving growth. All digital customer acquisition processes on the ABCD app and Udyog Plus are designed for end-to-end control, covering everything from underwriting to connections, ensuring complete customer ownership.

As we have mentioned in our previous earning calls, we remain confident to grow the overall portfolio at a CAGR of 25% over the next 2 to 3 years. As we scale up, strengthen our capabilities and invest in technology, our primary commitment remains to deliver sustainable returns in the upcoming quarters.

With that, I will now hand over to Pankaj Gadgil, MD and CEO of our Housing Finance business.

[Pankaj Gadgil, executive]

Thank you, Rakesh, and good evening, everyone. I'll now present ABHFL's performance for Q2 FY '25. I'm happy to share that we have achieved the highest ever disbursement for 5 consecutive quarters now driven by our investments in digital and distribution. Business from the ABC ABG ecosystem has consistently contributed 9% to 10% of disbursements over the last 4 quarters, and we've consistently upheld strong performance in both portfolio and onboarding quality.

The key highlights for Q2 FY '25 are as follows. We recorded our highest ever quarterly disbursement of INR 4,010 crores, which is an increase of 113% Y-o-Y and 31% Q-o-Q. Our AUM as of September '24 stands at INR 23,236 crores, an increase of 51% Y-o-Y and 14% Q-o-Q. Our customer base is now at 75,300 customers and has grown by 29% Y-o-Y with the average ticket size of retail segment at INR 27 lakhs. We also recorded the highest ever PBT of INR 104 crores, which is an increase of 7% Y-o-Y and 22% Q-o-Q. Net interest margin to average loan book is 5.24%. Stage 2 and 3 has reduced to 2.22%, which is a reduction of 218 bps Y-o-Y and 42 bps Q-o-Q. ROA for the quarter is 1.53%, and ROE is at 11.54%. For more detailed financial information, please refer to Slide 26 of the presentation.

I would now like to provide you a brief update on the few pillars of our growth. First, on portfolio quality with a focus on quality of originations, 95% of our disbursements in Q2 FY '25 remain directed towards 700-plus CIBIL or new to credit. Gross NPA has reduced both in absolute and percentage terms, which is at 1.3% in Q2 FY '25, the lowest level in the past 12-plus quarters. As we are building our portfolio, we've increased our stage 3 provision coverage to 40.9%. This has resulted in the credit cost of 24 basis points in this quarter, and we expect our credit cost to normalize at the current level. For more details on portfolio quality, please refer to Slide 24 of the presentation.

On our second pillar, which is distribution, we now operate from 150 branches across 18 states. Our sales CRM has enabled last-mile planning, leading to increased efficiency. The contribution of ABG ecosystem for Q2 FY '25 is at 9.2% of our disbursements.

Moving to third pillar, digital reinvention. Finverse, our unified digital lending platform continues to see 100% adoption. With Finverse, we are also now onboarding our channel partners instantly, and it's encouraging to see positive adoption rates among them as well. Lastly, on data and analytics, we have successfully deployed various models till date, spanning across the customer journey from demand generation to correction. Our pre-delinquency model and flow prediction model has played an important role in improving portfolio quality, resulting in a 218 basis points Y-o-Y reduction in stage 2 plus stage 3 as compared to September '23.

Going forward, our growth momentum will be driven by evolving opportunities within the housing finance sector. And this growth will be enabled by robust digital platforms, penetration led by ABC ABG ecosystem, strong analytics and effective portfolio management. Thank you for your attention.

With that, I'll now hand over to Bala, MD and CEO of our Asset Management Company.

[A. Balasubramanian, executive]

Thank you, Pankaj, and good evening to everyone. I'd like to share the highlights of ABSL AMC quarter 2 performance. The ABSL AMC of an overall average assets under management, including alternate assets reached INR 4 lakh crores, reflecting 21% year-on-year growth. Our mutual fund quarterly average AUM reached INR 3,83,000 crores, growing by 23% year-on-year. Our quarterly equity average assets stood INR 1,81,000 crores, growing by 39% year-on-year.

The SIP book during the quarter crossed INR 1,400 crores, a 47% year-on-year increase from INR 968 crores in September '23 to INR 1,425 crores in September '24. We also added about [ 11.55 ] lakh new SIPs, a 5% increase compared to the previous year. I'm happy to share that the overall investors portfolio have across INR 1 crores with over 19 lakh new folios added during the quarter. I'd also like to mention that the strong investment performance supported by the increased level of engagement at the ground level is helping us narrowing the dip in the market share on a quarter-on-quarter basis. This in fact created a positive perceptions among our distribution partners and investors at large, leading to an increase in the overall Net Promoter Score.

As we have been highlighting about our commitment to building our alternate assets and passive business, we are making good progress on this segment. Our PMS and AIF assets grew by 66% from INR 2,300 crores to INR 3,900 crores. Our offshore assets grew by 31% from INR 9,700 crores to INR 12,700 crores. We did have some inflows in the offshore asset management this year -- this quarter rather. Our GIFT City operation, the gateway for inward and outdoor remittance has also gathered momentum. We are currently raising funds from global emerging market equity funds and India ESG engagement funds. We also have ABSL flexi cap fund for ABSL Bluechip funds in pipeline.

On the credit front, we have launched the ABSL Structured Opportunities Credit Fund under the AIF to offer -- to create our presence in the private credit market. On the passive front, as of September '24, our assets approximately about INR 30,000 crores. Our customer base has grown by about 9.5 lakh folios. We also have a diverse product portfolio of over 47 products. I'm also happy to share that during the quarter, we also won ESIC mandate under advisory route and documentation under progress. With respect to financials, our total revenue is about INR 520 crores versus [ INR 391 ] crores of the same period last year, grew by 33%.

Our profit after tax is about INR 242 crores versus INR 178 crores for the same period last year, 36% year-on-year growth. For first half FY '25, our total revenue is about INR 1,001 crores, up by 28% year-on-year. And profit after tax is about INR 478 crores, up 32% year-on-year. With this, I'll hand it over to Kamlesh Rao, MD and CEO of our insurance business.

[Kamlesh Rao, executive]

Thank you, Bala, and I will now do some highlights of the life insurance business performance with our first half of the year. Overall life insurance industry saw robust growth in H1 of financial year '25. Individual first year premium for the overall industry grew by 21% and for the private players by 24%. For ABSLI, during the same period, it was at 33%, with healthy growth across both proprietary as well as our partnership channels.

Our new business policies have grown by 27% in the first half of the year. It was a very good second quarter for ABSLI, at 19% growth in Q1 ended in a 33% growth for the first half of the year. For ABSLI, the proprietary channel saw a robust growth of 30%. And our direct business grew by 69% over last year in the first half of this year.

Like Vishakha mentioned, a new tie-ups in Bank of Maharashtra and IDFC Bank saw us gain mindshare in the first 6 months of launch and business has now started with the Axis Bank counter 2. These, combined with our existing bank partners saw a growth of 34% in H1 for ABSLI.

In the group life insurance segment, the private industry grew by 2%, overall industry by 20% and ABSLI registered a growth of 45% in the first half of this year. Better growth was contributed by superior performance both in the fund as well as the credit life business. Our group business AUM has now crossed INR 25,000 crores as on September and contributes to 25% of the overall ABSLI AUM.

Our total premium for the period of INR 8,657 crores, registered a growth of 27% over the last year same period with a 2-year CAGR now of 17%. This growth came from new business as well as renewal premium growing at 12%. Our digital collections now accounts for 81% of our renewal premium. We continue to work on customer lifetime value, which is reflected in our upsell ratio which touched 29% and helped productivity growth, both in our proprietary as well as partnership channels.

In the product mix for the individual business, traditional business, including protection contributed 64% and ULIP was at 36%. This increasing trend in sale of ULIP business has continued into this quarter for the industry as well as for ABSLI. We launched a new ULIP product called Param Suraksha, which was a combination of ULIP with in-built higher protection as well as critical illness riders, which was a big success in our bank accounts. We grew our ULIP mix with the combination of products to garner higher mindshare at some of our large counters, which worked successfully. Having achieved this, our outlook in the second half of the year is to optimize ULIP mix to ensure sustainable value and growth. Some drop in margins was planned for the first half, and we have a plan to get in place our projected net margins for the year.

Our quality parameters continue to trend better across various areas. Persistency across all buckets did well with 13 months now at 88% and the 61st month at 67%, which will make us top quartile in the industry. our consistent efforts on bringing cost efficiency to the business has resulted in OpEx to premium being fairly consistent at 20.6% versus 20.2% last year. Our assets under management now stands at INR 95,553 crores with a Y-o-Y growth of 24%. 25% of this AUM is in equity and the balance 75% in debt. We continue to outperform in our investment performance in respective benchmarks across all 3 categories of equity, debt or even balanced funds, either from a 1-year or a 5-year perspective.

Our digital adoption across various areas is demonstrated in Slide 42. 100% of our new business customers are onboarded digitally. 83% of all our services now is available digitally covering about 67% of our customer transactions and our customer service -- sales service ratio now stands at 94%.

As we move ahead, we will continue to be best in class in our digital infrastructure across prospecting and onboarding in sales, underwriting as well as customer service and claims. Based on the new surrender regulations, as we called out last quarter, we do expect some impact on our margins. Approach on realignment of commission structure that Vishakha mentioned has been finalized for the distributor. We have also initiated changes in product constructs in terms of customer benefits to ensure this impact is mitigated.

We have relaunched major top-selling products in compliance with the new surrender regulations in October as desired by the regulator. No adverse impact is expected on new business on account of this. We also raised sub debt of INR 550 crores in Q2 to support our growth aspirations and our solvency continues to remain at a healthy rate of 188%.

The H1 focused on beefing up distribution by increasing capacity in our proprietary channels, covering both agencies as well as our direct business. We invested in capacity in our newly acquired bank partners, which helped us garner incremental mindshare. With this, we have a reasonable ground set for penetrating in H2, and we have an opportunity to get triple-digit premiums in the next 12 months in some of these counters. All this has resulted in net margins of H1 at 7.4%, given the [indiscernible] investment into channels as well as our planned higher ULIP sales.

Focus on H2 will be on moderating ULIP and higher productivity on investments that in H1. For the full year, we are estimating the same to be at projected guidance levels of 17% to 18%. On the back of strong growth and quality of our book, we are now reporting an embedded value of INR 12,368 crores with a growth of 21% over September of last year.

With this, I'll hand over to Mayank, MD and CEO of our health insurance.

[Mayank Bathwal, executive]

Thank you, Kamlesh. Let me now share the overview of our performance of our health insurance business. We had a very strong quarter 2. And we continue to build on the growth momentum that we built in Q1 of this financial year.

Our Q2 growth accelerated to 43% versus 35% that we experienced in Q1. We achieved a gross premium of INR 2,171 crores with a strong 39% Y-o-Y growth in the first half of the year. The growth is significantly higher compared to the SAHI growth of 25%, thus further strengthening our position as the fastest-growing SAHI player...

[Operator]

I'm sorry to interrupt, a little closer please.

[Mayank Bathwal, executive]

Our market share in SAHI has increased from 10.7% to 11.9%, a Y-o-Y increase of 123 basis points. The growth continues to be driven by retail franchise diversified across all major distribution channels. The proprietary channel with a adviser count of over 1.25 lakh agents has experienced a 38% Y-o-Y growth. But all our major bank and digital alliance partnerships have also experienced impressive growth leading to our retail franchise growing at 51% in H1. .

Flagship product Activ One launched late last year continues to be the most comprehensive indemnity product in the industry. The product position another theme 100% Health, 100% Health Insurance continues to be exceptionally well received by the market, helping us penetrate into newer customer segments, including the underpenetrated HNI segment and the segment comprising of people with existing chronic conditions. Our recently introduced category-defining maternity product aimed at expected parents has been received well in the market.

We've also collaborated with India's leading wearable device manufacturer to introduce a product, integrating wearable-based health tracking to promote proactive health behavior, but more importantly, to get access to a very large base of young and healthy customers.

The corporate business experienced a strategically controlled 27% Y-o-Y growth, driven by a sharp focus on profitability with careful customer segmentation, cross-sell and upsell strategies and also industry-leading corporate benefits. We are strategically concentrating on mid-corporate and SME segments to continue to build one of the very few sustainable and profitable corporate businesses in the industry. By prioritizing both growth but also profitability, we are building a resilient franchise.

Our net loss improved to INR 115 crores in H1 compared to INR 140 crores in the same period last year. Thus, the combined ratio also improved to 113% from 119% in the previous year. Importantly, both our claims and expense ratios have trended positively at the company level, and we'll continue to maintain a positive outlook as we work towards meeting AUM guidelines in the next financial year.

Our Health First model continues to scale and mature and show visible improvement in both consumer engagement and therefore, financial outcome for the company. Our scaled digital health assessment provides us with valuable insights for customers' health. The percentage of customer influence by participating in a healthy behavior has now increased to 33% of the enlarged customer base. These customers continue to exhibit lower loss ratios ranging from 20% to 40% at various cohort level. Likewise, customers earnings health behavior-based incentives also experienced loss ratios up to 34% lower than the baseline case. This has shown in Slide 53.

We've also invested in building deep capabilities in managing customers with high health risk, which happens because of the aging of the portfolio. We have created a combination of first-of its-kind product offering and also humans from digital capacities to manage the disease burden of these set of customers. The customer engagement capabilities and insights are disclosed on Slide 54. Through a combination of our in-house health coaches and our partners, we've intervened in more than 120,000 high-risk clients to improve their health vital, leading to a lower claim ratios, thus removing a challenge that most of the vintage and health insurance companies are facing in the market today.

Our promise of insurance is centered on providing industry-leading experience, investment in state-of-the-art AI stroke, ML-driven claims, auto authentication engine witnessed very encouraging results. This will further enhance customer satisfaction and at the same time, enable claims cost management more effectively. The industry-leading Activ Health app has been renounced with multiple payment services. The app now provides the opportunity for non-policyholders to experience a comprehensive app ecosystem. Our Y-o-Y app downloads have increased by 95% with Y-o-Y MAU, monthly active users, increasing by 88%. And therefore, overall, looking ahead, we remain optimistic about the growth prospects of the health insurance sector. The recent regulatory changes, including the current changes are laying the foundation for the more transparent and robust industry, and we believe we have positioned well to capture the future growth opportunities.

Thank you. And now I'll hand it back to Vishakha for her closing comments.

[Vishakha Mulye, executive]

Thank you so much, and we're very happy to take if there are any questions.

[Operator]

[Operator Instructions] We'll take a first question from the line of Punit Bahlani from Macquarie Capital.

[Punit Bahlani, analyst]

So on your PCR has declined, while the credit costs have also declined. PCR has declined and especially when I look at secured segments, they are like close to 30% now. So what's the reason here? Any guidance here like we are comfortable with these levels? And second is on earlier stage 2 assets sales, they have declined, but has your stage 2 coverage also declined, just on that? That's it from my side.

[Rakesh Singh, executive]

So Punit, if you look at our secured book has grown from 67% to 74%. So now of the total loan book, 74% of our loans are secured by our real estate collateral or listed security. So that is the reason why the PCR because this follows the ECL model, and that is the reason why the PCR has dropped marginally because of the change in the product mix. And there is no decline in terms of stage 2 provisioning.

[Punit Bahlani, analyst]

Right. So we can expect these levels to continue, right, once you're growing the secured book as well. So we can expect the PCR levels around these to continue?

[Rakesh Singh, executive]

Yes. Depending on the product mix and the ECL model is what our provision will be.

[Operator]

[Operator Instructions] Next question is from the line of Avinash Singh from Emkay Global.

[Avinash Singh, analyst]

Again, on this PCR, I am...

[Operator]

Mr. Avinash Singh, please use your handset mode.

[Avinash Singh, analyst]

Is it better now?

[Operator]

Are you on your handset now?

[Avinash Singh, analyst]

Yes, yes.

[Operator]

Please go ahead.

[Avinash Singh, analyst]

Yes. So again, on PCR, I mean if you see the movement, I mean, again, the 2 businesses in the housing finance and your Aditya Birla Finance. On one hand, Aditya Birla Finance stage 3 PCR has been taken down to -- I mean one PCR down to 46%, particularly sharp drop in secured where, of course, there is no sort of changes and no government guarantee has seen. But on the housing finance side, you are taking it higher to a closer to 40%. I mean, that's secured. So what is sort of, I mean, the change that your ECL model is showing just in the quarter, but there are kind of a divergent move particularly if we compare secured with secured.

So in housing going to 40%, whereas I mean in the secured piece of your NBFC, it's going to 31%. So it's a bit of, I mean, divergence in move. And NBFC also related. That loan book acquired in the quarter still remains reasonably and close to [indiscernible]. So when you're tightening your credit filter, I mean what kind of comfort you have typically. If I understand this is typically SME LAP book and with a kind of 12-month holding period. So what's the comfort you have on this acquired book?

[Rakesh Singh, executive]

Avinash, your first question was on the provision cover in the NBFC, I will address that, and maybe Pankaj can add on the housing one. The reason in NBFC, what happens is what is the security? We have EAD, exposure at default, into LGD, loss given default, which is basis the over last 5, 10 years of our recovery rates on the security. So it depends on what is the security cover I have, and that is the basis on which the provision is created.

So if my provision -- if my security cover is 2x or 2.25x, the provision will be lower because the LGD will be lower. So that's the logic with which the -- yes, both of the businesses are secured. But on one side, in the housing, the LTV might be different, different customer segments. So Pankaj can add there. But in the NBFC one, it all depends on what is the security cover which we have. So that's the reason why the PCR or the ECL will change.

Your second question was on the acquired book. So on the acquired portfolio, if you look at the last quarter, we have acquired securitization closer to INR 1,107 crores. That's what if you look at out of the INR 19,000 crores of the disbursement, which we would have done for the quarter, INR 1,107 crores is -- and if you look at sequentially, it has been -- it has come down significantly from quarter 1, it's almost 50%.

[Pankaj Gadgil, executive]

Yes. Avinash, Pankaj here. I think the question is on the higher provisioning coverage ratio on housing, which has gone to 40.94% from 34.55%, which was there in quarter 1. So here, first, I would want to say that if you look at the stage 2, stage 3, it is true reflection of the portfolio. And in stage 3, you would have seen from INR 315 crores you have come down to INR 288 crores here. So that is one side of the story.

The second time is -- the story is that while we use the ECL methodology, obviously, we keep looking at each and every account. And we also look at the aging of the account and also the probabilities of recovery from time to time. And when we looked at specific accounts, we felt that in some of the accounts that we have, the probabilities could be slightly higher there, and that is where we have taken the higher coverage. That is the philosophy there. And I think it is very range bound. If you look at the entire HFC industry, the PCR has ranged from between 25% to 50% as well. So I think it is very range bound, we are at 40%. And it's not only the -- but we keep looking at the accounts also individually to look at the [indiscernible].

[Avinash Singh, analyst]

If I can just have one follow-up -- sorry, one more question. That on life insurance, I mean first half VNB margin, 7%. You are hoping the margin uplift of 10-odd percent by the year-end. Now if I see this kind of a margin uplift had happened in FY '23, then the situation was different, that you had a kind of a strong sales of that non-par products in the month of March '23. But here, if we look big time, the ULIP continue to remain player of the season and in H2, the new product -- the new surrender regulation also comes into picture. Now what is it that -- I mean, you're still hopeful of taking up margin from 7% to 17% because it has not happened last year. It has not happened earlier in '22. It was only happened in '23 and there was a particular reason. This time, the reason is just the other way that if at all, there could be some negative impact from the new surrender regulation. So what is giving you the confidence that the margin can go up by 10% in the second half?

[Kamlesh Rao, executive]

If you look at last 2 or 3 years' time, I think you validly raised the point saying that in 1 year, there was an uptake also on account of the new regulation setting in. But prior to that, you would have instances of ABSLI would be in the range bound margin of 7% to 8%, and we have gone even actually to 23% in that year. But a fair point made that ULIP is on the growth angle. But like I said, all the new products that are getting launched in the second half of the year are non-ULIP products.

Protection, we have launched a suite of 2 new products, which actually happened in the month of September. So that will flow into the second half of the year significantly better. Typically, the margins, which accrued from our agency business is significantly higher. And between the first half of the year, the second half of the year, the investment in capacity that we have done in the agency business has been about 40%, 50% more. It takes time for that to fructify, which we think will happen in the second half of the year.

So all of this would combine. And of course, like you rightly said, the ULIP business will need to get moderated as compared to the ULIP business that happened in the second quarter. And we actually did that as part of a strategy because in some of our large bank counters, we wanted to garner additional mindshare. Normally, when you get additional mindshare in the bank counter, when you substitute your products, your mindshare typically remains the same, but you get your combination of suite of products.

And that's the strategy that we have played. And that's the reason whilst you see significantly larger growth rate in the second quarter, we want to use whatever we have created with the combination of products that we will launch in the second half of the year and like I said, in the agency, which we will see traction in the second half of the year more than in the first half is where the uptick of the margin is expected from 7.5% levels to about 17%, 18% that we are projecting for the end of the year.

[Operator]

We'll take our next question from the line of Subramanian Iyer from Morgan Stanley.

[Subramanian Iyer, analyst]

I just had one data keeping question. Can I get the total ECL for both -- for the NBFC for both the quarters?

[Rakesh Singh, executive]

So, we can share that -- I don't have readily available. I can share that offline.

[Operator]

We'll take our next question from the line of Mayank Mistry from JM Financial.

[Mayank Mistry, analyst]

Congrats on a good set of numbers. So my question is on the housing business. Actually, when we see from the March quarter, we have grown at 26%. So what is our AUM guidance over there? And second, also, there had been one -- there had been concerns on aggressive lending in the housing space by RBI recently. So has there been any communication with the regulators as such?

[Pankaj Gadgil, executive]

Yes. I think -- Pankaj here. I think the growth has been very consistent if you see over the last 6 quarters. And like you rightly said, I think the growth is now 51%, Y-o-Y 14% for the quarter. So I think -- like we've said earlier, I think, the focus is on doubling the book in the next 18 to 24 months. That has been the guidance that we've been giving because this is coming on the back of the huge opportunity that the industry has. And I think the investments that we have made on digital platforms and also distribution and also the ABG ecosystem. You would have seen the contribution of the business coming in from the ABG ecosystem also helping us in garnering shares.

The growth is coming across all the segments, which is the affordable informal, the prime business as well as the CF business. So guidance is that on that side. Particularly, we have not received any such indication from the regulator on aggressive housing loan growth, et cetera. But there have been in the past -- of course, on top [indiscernible]. And just to also mention that this growth that we have done over the last 6 quarters, I think we would be one of the very few companies which also speaks about our onboarding quality consistently.

And you would have noticed that 95% of our sourcing today, which is happening, is in the top quartile of Europe and also new to credit. And that is clearly showing also in the stage 2 and stage 3. So both in absolute numbers as well as in percentages. At all points of time, we've been speaking about the portfolio quality in consonance with growth that we have actually had.

[Mayank Mistry, analyst]

Sure, sir. But do we have any number on the growth that we are targeting?

[Pankaj Gadgil, executive]

Yes, I just mentioned that. I just said that we are -- we've been speaking about growing the book and doubling the book in the next 18 to 24 months, and that kind of stays, of course. And like I mentioned in the transcript also, we keep looking at the risk reward opportunity which exists in the sector. And appropriately, we look at leveraging the sector in the possible way.

[Operator]

We'll take a next question from the line of Chintan Shah from ICICI Securities.

[Chintan Shah, analyst]

Congratulations on a good set of numbers. So firstly, on the capital allocation so of the -- when we have -- after the latest fund raise of roughly INR 3,000 crores, which we have completed, so how much of that has been allocated to NBFC and HFC?

[Unknown Executive]

Chintan, out of the total -- see, we raised about INR 3,000 crores of capital in June '23. And after that, we also got about INR 570 crores of capital from the AMC OFS during March and June of this calendar year and about INR 167 crores recently from the ABIBL stake sale. So far, we have invested close to about INR 2,100 crores in the NBFC and about INR 600 crores in the housing finance business.

[Chintan Shah, analyst]

Okay. Okay. And how much of that would be into that digital arm?

[Unknown Executive]

Sorry.

[Chintan Shah, analyst]

How much of this would have gone into the digital arm, digital company?

[Unknown Executive]

As we had mentioned during March that till March, we had spent about INR 100 crores, and we would have additionally spent about INR 50 crores to INR 75 crores during the year in the digital proposition.

[Chintan Shah, analyst]

Sure. That is very clear now. And so on the unsecured piece, I think this quarter, we have done -- in the NBFC business, for the unsecured lending, we have seen some growth coming up in the Q-o-Q disbursements. So I think last quarter, we had mentioned that we would be changing -- we are working on better sourcing it via internally and refraining from any external sourcing. So how does it go now? Is it entirely internal sourcing for the unsecured? And how -- have we tightened the filters? Or how is it given that in current environment, unsecured probably is not the flavor of the town right now here?

[Rakesh Singh, executive]

So I covered this in my opening script and covered that we have tightened our underwriting or whatever cohorts, which was showing any performance, which was not in line. So we have tightened it across in terms of underwriting in different cohorts. So that has been done. In terms of depends, we have built our acquisition channel now. So if you see majority of our loans are coming through our direct acquisition channel, which is the digital journeys, which we have built internally.

Also the branches, which we have built over the last 2, 3 years, have started yielding results. So that also is helping us. So majority of our disbursement in personal and consumer loan is coming through -- yes, some bit will be coming through DACs, which is part of our branch.

[Chintan Shah, analyst]

Okay. So just I wanted to understand this because in the last quarter also, we had seen a steep decline in the disbursement. And this quarter, despite the environment, disbursements have been quite strong. So anything which has changed very much the cohorts and the tightening of the filters that has happened in this quarter itself? or how is it?

[Rakesh Singh, executive]

Most of the time, tightening has happened -- tightening has been happening over the last 3 quarters or 3, 4 quarters if you look at. And that the reason the disbursement has been coming down from -- we used to do close to INR 5,000 crores, INR 5,500 crores disbursement that came down to INR 2,000 crores and -- so it's been coming down. We have been tightening our underwriting norms over the last 3 to 4 quarters. And all the branch-led disbursements and our own digital journey, the ABCD app on which -- through which we acquire customers, those are the things which is growing at this point in time.

[Chintan Shah, analyst]

Sure, sir. And just last question, if I may ask. On the housing finance, I think, some instances here, we have seen certain accounts where probably there are some signs of stress, and that's why we have increased the higher provisions. So under what segments these accounts would cater into affordable or prime? And given that we already have the security, then probably why would we be so -- I would probably say concern on the asset quality of the -- on front for these accounts?

[Unknown Executive]

See the quantum is very minimal. It is -- we're talking about INR 8 crores, INR 9 crores in overall. That's how the PCR has changed broadly. And like I said, this is -- we still keep doing at all point of time, all those securities. The LGDs, we keep measuring what could be the LGDs that we will be getting on some of these assets. And I would just mention that it is spread across all the 3 segments, but the quantum itself is very, very small.

[Chintan Shah, analyst]

Sure. So I think the total -- so if you could just give the total provisions on the HFC book for this quarter and the last quarter, I think that data is not handy. So if you could share that with me as well, that would be helpful, sir.

[Unknown Executive]

Credit cost was INR 6 crores and now it is INR 12 crores...

[Chintan Shah, analyst]

Sorry?

[Unknown Executive]

The credit cost was INR 6 crores earlier. This is now INR 12 crores for this quarter. That is the incremental which is there. And on PCR -- anyways, if you want to know on the PCR as well, then we can share that with you subsequently as well.

[Chintan Shah, analyst]

Basically, ECL provisions -- entire ECL provisions on the book for the HFC business. So how much has that increased probably Q-o-Q?

[Unknown Executive]

INR 6 crores and INR 12 crores. INR 6 crores was the credit cost for quarter 1 and INR 12 crores the credit cost for this quarter.

[Operator]

We have a next question from the line of Kishore Agarwal from Bajaj Finserv AMC.

[Kishore Agarwal, analyst]

Congratulations on a good quarter. I have 2 questions. One on the margins on the NBFC side. We have seen the second quarter of sequential decline in margins. So is it primarily because of the increase in secured mix? And where do you see the margins settling? And my second question is on asset quality. Do you think that you can -- this improvement in asset quality can continue even in the second half?

[Rakesh Singh, executive]

First question was -- yes. So margins, if you look at that on the backdrop of change in the product mix. Our secured business going up from 67% to 74%. And also on the other side, unsecured business declining or degrowing from 20-odd percent to 14%. So that's the reason because of the change in the product mix, why the margins have come down. As I mentioned in the earlier reply, we are building our own acquisition channels and which is -- and we want to build the personal consumer segment through our own channels and which is what -- and also the MSME, small ticket MSME loans, the business loans, which we call it, I think these 2 things should be able to offset the yield compression, which is happening on account of the secured business growth.

But it might take a quarter or 2 because I think the shift will happen because the product mix is still in terms of also looking at the environment, if you -- the small ticket loans in unsecured, we have completely stopped doing it. Less than INR 50,000 unsecured loans, we are not doing it. We have tightened our all underwriting norms.

So that's the reason why the margins have -- but once that starts picking up and also our business loans picks up on our B2B Udyog Plus platform, we should be able to mitigate the margin. And to your second question in terms of whether we will be able to sustain the asset quality and the ECL, yes, it will be range bound. Our guidance has been that the credit cost will be around 1.5%. We have come down to 1.25%. We expect it to be in the same range, and we don't see this going up.

[Operator]

Mr. Agarwal, are you through with your questions?

[Kishore Agarwal, analyst]

Yes.

[Operator]

Thank you. Ladies and gentlemen, I would now like to hand the conference over to Ms. Vishakha Mulye for closing comments. Over to you.

[Vishakha Mulye, executive]

So thank you so much for all of you to join us today evening and very Happy Diwali to all of you and your families. Thanks.

[Operator]

Thank you. On behalf of Aditya Birla Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.