Aditya Birla Capital Ltd

NSE:ABCAPITAL

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Q4 FY '22 earnings conference call of Aditya Birla Capital Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ajay Srinivasan, Chief Executive, Aditya Birla Capital. Thank you, and over to you, sir.

[Ajay Srinivasan, executive]

Thank you. And good afternoon everyone. It's a great pleasure to present the business performance and the financial results for the quarter and the year ended March 31, 2022.

Let me start with Slide 3. I'm hoping you have the decks with you because I am going to be referring to slide numbers. So let me start with Slide 3, which provides a snapshot of the key highlights for the quarter. We have profit after tax of INR 450 crores in the fourth quarter. We've ended the year with a PAT of INR 1,706 crores. The quarterly profit and annual profits are both record highest for ABC. Our profit over the last 5 years has grown at a compound annual growth rate of almost 25% per annum and has catapulted us into the top 100 listed companies in India in terms of profitability.

As you will note from a subsequent slide, we are on track to deliver the targets we've announced for each business in FY '24. In some cases a year ahead of target and in some cases, 2 years ahead. Building a material retail franchise has been one of our focus areas and through an expansion in our own branch network, which are now over 1,000 and 150-plus ecosystem partners, we have grown our customer base exponentially. Today, we have a significant retail franchise with over 35 million active customers, a growth of 36% year-on-year.

Slide 4 provides the progress made across our platform in terms of growth, in terms of margins and in terms of profitability. Our NBFC's focus on the retail and SME segment has led to that book growing by 25% year-on-year and making that segment 62% of our group, an all-time high. That has led to Q4 margins expanding to an all-time high of 6.37% and an ROA of 2.4% for the quarter. The focus of our housing business on the affordable segment has led to very similar results, mainly high growth in that segment, all-time high margins and an ROA of 1.9%.

In our Asset Management business, we have seen our focus on retail and equity lead to the equity mix going to the highest level it's been at of 41%, and our profits for the year being an all-time high with an ROA of almost 35%.

In our Life Insurance business, we have seen strong growth in new business and in renewals, and we've delivered a net VNB margin of 15%, which is an all-time high and well ahead of the guidance given earlier. In our Health Insurance business, our growth and differentiated model has led to us breaking even in Q4, excluding, of course, COVID claims, thus making us the fastest stand-alone health insurance company to breakeven.

Moving on to Slide 5. The top left of the chart, we show that we've almost doubled our profits over FY '20 and have grown 51% year-on-year. This has been possible by a very strong performance across all our businesses, as you will see on the right-hand side of this slide, with the lending businesses, in particular, leading the wave with a 44% increase in profitability year-on-year. With our platform profit before tax of INR 2,666 crores, we are a significantly profitable player operating in the financial services industry.

Slide 6 speaks to the diversification benefits that ABC enjoys versus some of its monoline peers. If I can draw your attention to the bottom half of the slide, you will note there that our PAT growth at 18% per annum over the last 3 years is actually significantly ahead of the average of a group of our peers, consisting of 10 large NBFCs, 5 large private banks, 5 large HFCs, 3 listed AMCs and 5 large life insurers, who delivered an average PAT CAGR of 2% over the same period. In fact, the benefit of our diversified model shows up in the fact that our profit growth is much greater than the median profit growth of any individual sector, which you will notice on the extreme right of the bottom table on this slide. In fact, therefore, ABC has become the fastest-growing company in terms of profitability amongst the top 16 listed nonbank companies in India over the last 3 years.

Slide 7 shows the progress made by businesses on each of the key metrics we have set out for ourselves for FY '24. I will not go into each line, but I will say that other than on our protection mix in the life business, which is lagging a bit due to industry issues, COVID and other such issues and which Kamlesh will cover in his section. We are well ahead of plan on each and every metrics and in some cases, have already hit our FY '24 target in FY '22.

Slide 8 shows the track record we've built in terms of building scale, a leading retail franchise and profitability. Our total gross premium of INR 13,867 crores makes us an insurer of scale operating in the country, and this journey from negative VNB to a positive VNB by shifting our net VNB over the last 2 years in our life insurance business or the breakeven of our health business in record time shows our strong focus on value creation.

On the asset management side, our equity mix has jumped by 17%, but our overall AUM has grown strongly, and we today among the leading fund managers in the country in terms of scale. Again, the journey from 19 basis points of PBT to 31 basis points this year has been a result of our strong focus on profitable growth.

In the lending businesses with a book of INR 67,000 crores, we are bigger than some midsize banks operating in our country. The journey of our retailization and focus on profits is very visible here too and will be covered by Rakesh in some detail in his session. And finally, when you look at our other businesses, we have turned a loss of INR 10 crores in FY '17 into a profit of INR 190 crores through our focus on portfolio optimization.

Slide 9 sets out the many advantages of the ABC platform, but let me illustrate the value of the ABC platform with just a couple of examples. I'd like to draw your attention to Slide 10, which illustrates 2 important facts. First, the technologies that we have deployed to drive better outcomes and the fact that unlike many others, we have been able to leverage synergies and rapidly deploy these technologies across our platform. You will note from the x axis on the chart that several of these technologies are implemented across 4, 5, 6 and sometimes 7 of our businesses. That's really achieving economies of scale and the benefits of synergies that we can arrive at, at such a platform. I cannot stress enough the value of this to our platform.

Slide 11 shows some other assets of ours that bring to life the synergy benefits of ABC. Our mobile app, for instance, allows our customers to access some of the utility services across ABC businesses seamlessly. Our data analytics allows us to offer preapproved product offers across ABC to our direct customers when they view their ABC dashboards. And our 1 ABC branch format is allowing each of our businesses to expand their branch presence across the country in a highly cost-effective manner, while providing them revenue synergies as well.

Let me end with Slide 16, which shows our key financials from FY '17 to FY '22. With a 5-year PAT CAGR of about 25% per annum, we've effectively nearly doubled our profits over the last 2 years and tripled our profits over the last 5. Given how challenging the environment has been over this period, this is really a testimony to our business model and the absolutely incredible efforts of our teams.

With that, I will now pass you over to Rakesh to walk you through the lending businesses.

[Rakesh Singh, executive]

Thanks, Ajay, and good afternoon, everyone. I will now walk you through the performance of our lending businesses, starting with NBFC and then Housing. In the NBFC business, we had a very strong quarter 4 with our loan book growing 11% quarter-on-quarter, NIM hitting all time high of 6.4% and ROA at 2.4% for the quarter.

As we have mentioned before, our focus in the NBFC business is on growing the higher-margin retail and SME segments. As the environment started to normalize, we focused on expanding our business and as a result of which NBFC disbursements for quarter 4 increased by a solid 49% over last quarter and 51% over quarter 4 last year. 65% of these disbursements have been to retail and SME segments in line with our stated strategy. As a result of this, our SMEs plus retail book has grown by 15% quarter-on-quarter and 25% year-on-year and now accounts for 62% of our total growth, the highest it has ever been.

Our focus on growing retail has resulted in our active customer count growing to 3.6 million. We have also started cross-selling to customers acquired through the digital ecosystem, which will help us monetize this acquisition engine and result in better returns. Our focus on driving value by optimizing the product mix has led to continued upward momentum in our financial metrics. For the full year, FY '22, our margin expanded by 91 basis points over last year. Cost-to-income ratio reduced by 106 basis points and credit costs reduced by 12 basis points. Margin expansion further supported with our continued focus on reducing cost income ratio and improving asset quality has led to NBFC delivering a full year PAT growth of 44% over last year, taking our ROA to 2.3% for the full year compared to 1.7% last year.

I would like to especially call out the focus we have put in collection, resulting in a much better quality of book. Our Gross Stage 3 book reduced to 3.1% from 3.9% last quarter. We reserved INR 130 crores of Stage 3 assets in quarter 4 and are on track to resolve another INR 220 crores by H1 of this year. Our collection efficiency has further improved to 99.6% better than last quarter as well as pre-COVID levels, and we are confident we will be able to sustain this quality of growth going forward. This coupled with our Phase 2 portfolio going down to 5.4% from 7.5% and reduction in 60-plus DPD book to 1.1% versus 1.5% in the previous quarter. We are looking at a much better financial performance for the next quarter and the financial year. With a healthy capital adequacy ratio, we plan to grow our loan book by at least 20% in FY '23. The financial numbers bear out the fact that the strategy we are following is delivering the desired results. And as we continue down this path, we will see better returns.

Let me now spend some time setting out what has driven growth in retail and SME segments and give you some tens of where we are headed. Like I had described to you in previous quarter, our focus is on 4 below, product suite expansion with a strong customer focus, enhanced distribution capacity, third cutting-edge technology by creating consumer and MSME lending platform; and fourth, strong risk management featuring to multiple product segments and delivering stable risk-adjusted returns.

Let me share the progress we have made in these areas, starting with our retail segment. The contribution from new products grew nearly 3x in the last 2 years. This includes small different loans for the emerging income segments and customized ecosystem products like buy now pay later, shutout financing, education loans, merchant loans, et cetera. We plan to grow the portfolio by more than 2x in this year. We have also increased our sourcing from direct and digital ecosystem channels to 49% as compared to 19% 2 years ago and plan to increase it further.

Talking about enhancing distribution, we added 41 branches in quarter 4. Overall, 76% of our branches are in Tier 3 and 4 locations. Our retail book from Tier 3 and 4 markets have grown nearly 3x in 2 years -- in the last 2 years. As before expand to 320 plus locations this year, we will enhance direct sourcing in the retail business. We will also continue to build a digital ecosystem to augment our sourcing capacity.

From a technology perspective, our agile plug-and-play API tech stack allows us to integrate seamlessly with a diverse set of ecosystem partners and drive digital sourcing at state with consistent investment in technology across the lending value chain, 96% of our customer acquisition and 98% of our EMI collection is now through digital platforms. All these capabilities have enhanced exponential volume growth.

While these initiatives will continue to be significant growth drivers for the retail segment, we have started implementation of our SME strategy like I had described last quarter. And let me give you a quick update on it. On driving focus in my industry micro market clusters underserved by banks, we are already live in 30 cluster locations and target to grow to 120 by the end of this year. We have also gone live with our digital MSME platform in quarter 4, enabling simplified processes and better turnaround time. We hence expect our strategy to yield the desired growth in the SME portfolio over the next 12 to 18 months.

The growth of our loan book has been accompanied by strong credit appraisal and risk management practices. This has helped us deliver stable risk-adjusted returns, improve the quality of our book and deliver strong collection efficiency of 99.6% at a higher than pre-COVID levels. Our strong balance sheet growth supported by adequate liquidity, low cost of borrowing, investment in technology and efficient processes, along with bespoke product offerings provide us the right to win in our children segment.

To sum up, on the NBFC front, we are very well positioned to deliver stronger growth momentum in FY '23, as I mentioned before. Targeting 20%-plus overall book growth with 65% plus retail and SME mix. With our current growth trajectory and continued focus on key segments and leveraging our technology platform, doubling the distribution of the branch footprint to 320 plus branches, we are confident we will achieve the guided metrics for '24, which we have provided ahead of time.

Now I'll move to the Housing Finance business. Coming to the HFC business, we have seen strong growth momentum in quarter 4 in our chosen segments. It's very similar to our NBFC business. In this business, we have earlier stated that we are growing our affordable mix as we expect that to drive superior returns. Quarter 4 disbursements were up 20% over last quarter and by 16% over quarter 4 last year. Of this, the affordable segment disbursement mix was at 47%. This has taken the affordable mix to 38% from 27% last year. The shift in the segment mix supported by lower cost of borrowing has helped the organization report the highest ever margin of 4.52%, an increase of 89 basis points over last year. Not only have our margins expanded, but our customer selection and calibrated underwriting strategy has helped risk-adjusted returns, defined as NIM minus less credit costs expanded by 127 basis points over the previous year. With improvement in margin and reduction in cost-to-income ratio, Housing Finance's PAT for FY '22 was up 44% year-on-year, taking our ROA to 1.7% and ROE grew 13%.

Efficient collection efficiency was seen in this business also at 98.8% has led to a lower grade cost of 55 basis points previous year, this was at 0.73 basis points. We also have a very comfortable ALM asset liability management, and our capital adequacy is at a very comfortable level of 24%. Growing our affordable book continues to be our focus as we drive affordable penetration further, we have expanded our branch count to 120 with 68% of these branches are in Tier 3 and 4 cities, which is our focus market. We have also augmented our frontline capacity to drive affordable volumes and create additional distribution capacity. Direct sourcing is already at a very healthy 73% in quarter 4. And this we want to really take it up to 80%. This ensures higher customer stickiness and we want to really take it to 80% by end of this year. Our progress in digital capability gives us confidence of scaling our ecosystem partnerships and core-lending as an alternate sourcing channel.

On the technology front, we have made some good progress. Overall, 85% of our files are sourced digitally and over 98% of collections are through digital means. We have also enabled multichannel servicing, including WhatsApp, e-bots, Google Assistant and self-serve portals, leading to 77% of our customer interactions coming from digital channels.

With this, I would like to sum up the Housing Finance business. The structured shift in our business mix, wider geographical footprint and increased distribution capacities we expect to see 20% growth in portfolio and steady margins as we keep changing the product mix. We are already at a margin and ROA we had targeted for FY '24. And our focus is on growth as the operating leverage will only improve these metrics further. So completely poised to meet the guidance, which we had provided for FY '24, ahead by a year.

Now I will pass it on to Bala for asset management business.

[A. Balasubramanian, executive]

Thanks, Rakesh, and good evening to everyone. As we presented in our AMC Analyst Call about a few weeks back, and I'll just repeat some other and give a quick update on the AMC business for the growth. The mutual fund AUM grew about 10%, backed by very strong consistent development performance. Our equity assets on a year-on-year basis grew by 25%. And overall mix in the assets and management of equity improved to 41% from 36%.

And this income the external margin was about 1% toward INR 1.75 lakh crores. And overall leadership position in the asset management industry we continue to maintain with about 10% year-on-year growth in the overall asset management. With respect to building our strong retail franchise in fact, in the year 2022-'23, '21, '22. We added about 12 lakh folios to take the overall folios about 8 million, 7.9 million customer folios. Our individual assets under management grew by 9% to about INR 1.38 lakhs crores, which is again contribution of the overall asset under management to 48% in the overall asset mix coming from individual contribution. And vis-a-vis AUM, we continue to see steady momentum, which again grew by about 5%.

We maintain about 16% coming from the [indiscernible] market. The other area where we have made a significant progress is on the FAB registration, we have seen a quarter-on-quarter basically a month-on-month basis the permanent FAB's subscription keeps improving. In fact, the Q4 of the last year improved by about 46% to 3.2 lakh registration that we had again growth about 46% compared to the previous year.

As a result of this, our monthly SIP book contribution has now improved about INR 895 crores just short of about INR 5 crores to INR 900 crores that they can build on days -- building on the base of the building a sustainable business for building our retail. With input to financial performance, clearly, this year is one of the best year from a profitability point of view, we registered highest ever profit ever in the lifetime of a local agency in FY 2022. And total dividend, as we had indicated during our [indiscernible] 50% of our PAT have been distributed in the form of dividend. In fact, the total dividend distributed for the full year is about INR 11.45 per share and interim dividend was INR 5.6 and the balance of INR 5.85 we give in the current quarter.

And FY '22 revenue grew by about 17% to INR 1,409 crores and PAT improved by 28% with INR 673 crores, which again as I mentioned, the highest ever PAT reported in the AMC business. In terms of distributed network while, of course, continue to maintain our momentum in dealing with all the key channel partners like IFAs, MFBs, banks, national distributors. In fact, we have made some kind of progress there with respect to our organized channel contribution, especially the banking channel contribution. In the current -- in the last year, we saw an incremental growth coming from the banking channel, which again, nothing but a reflection of the product being part of recommendation list of the bank. And therefore on the base of endorsement performance. And therefore, the sales are getting pushed. And that's something I just wanted to highlight. While doing that, MFDs continue to be a dominant component of [indiscernible] asset management coming from MFDs, again, continues to remain very, very strong and healthy.

Then the next area where we are high focus in building our alternate business. In fact, since the time we set up a separate team of people, our focus on passive assets as an AIF asset continued to gain strength. In fact, our passive assets touched almost INR 9000 crores at March 2022, which again 6x growth compared to the last [indiscernible] last year. While doing that, while we had many fund launches, we have done in the case of ETF. We also have a pipeline of product or putting product pipelines in the current financial year. To do more launch of such kind of funds will also be undertaken in building our passive business.

And we also closed our first Aditya Birla Sun Life the real estate fund credit opportunity by Sun with a collection under -- collection close to about INR 180 crores as the first tranche. And this I am thinking, again, we've done it after almost 10-year gap. Probably we'll see actually clients gaining momentum as we move forward. While we spoke about ECM in terms of the size, we also added close to about 3.27 lakhs customers in the ETL space, which I can feel on the back of our ATF products that are now being part of the complete list and also being made available in the economy platform for customer to buy. While doing that, we also cite an opportunity in building the passive debt ETF during the same period. Taking advantage of the rising interest rates. And also that difference in our product offering also helped us in selling our alternate business.

Lastly, of course, I would just like to highlight in terms of digital, though the update order he has given there is no significant change in the update order we gave on the digital platform. But I can only say that on the digital platform, we have been incremental adaption to digital platforms, and therefore, the incremental volume coming to the digital platform. While doing that the digital partners, then we have a [ dip ] we continue to expand the list, with more and more platforms that are coming either from RIA or any or any other corporations' platform. We continue to step up our engagement in order to ensure our products are being part of the recommendation list and as soon as -- now it comes as a part of the overall content coming from these platform. This of course the update we want to give on AMC business.

I'll now hand it over to Kamlesh Rao, the MD and CEO of Aditya Birla Sun Life Insurance.

[Kamlesh Rao, executive]

Thank you, Bala, and I'll give you a snapshot of the life insurance business. All the numbers I'm referring to are on Slide # 57. The growth for ABSL in Q4 at 11% was better than the industry, and this is the second year consecutively that we have grown at 14% in the individual life insurance business. In the group business, this growth is more than double the industry growth for Q4 and here too we have grown at 30% plus for 2 consecutive years. What is happening is that a large part of this growth has come on the back of higher productivity and now at net VNB margins of 15%. We are now demonstrating superior performance across relevant industry peers, also in areas of persistency across the various markets, growth in absolute admitted value as well as OpEx to premium ratios in the last 2 years.

Our renewal premium grew at 24% for the year, and we ended at a total premium of INR 12,140 crores. Both these numbers of renewal premium as well as total premiums have grown at a CAGR of 20% plus for the last 2 years. Our enhanced digital capabilities allow us to collect 85% of this renewal premium selected digitally in terms of NOPs. Our renewal bot that we spoke about a few quarters back that we call Zara, collected INR 440 crores of renewal premiums this year, at the rate we are going, our bot alone will give us the capability of collecting close to INR 1,000 crores.

Our balance product mix has consistently helped us take our net VNB margins up. We ended the year at 15% net VNB margin, which is 1 year ahead of our last guidance. At this rate, we have tripled our net margins in absolute value in the last 2 years, reaching an absolute number of INR 369 crores this year. The performance of net VNB is an outcome of managing gross margins and expenses very efficiently, and we expect our margins to be in excess of 17% for next year. While that's a story of business numbers and margins, the quality parameters have also consistently done well for us across persistency in various markets with 13 months now at 85% and OpEx-to-premium ratios at 12.7%.

Both these numbers on persistency and OpEx to premiums are again 1 year ahead of our guidance given earlier. [indiscernible] manages an overall AUM of INR 60,000 crores, and we have had a credible year on our investment management doing better than the benchmark as well as our peers, and we are in the top 2 quartile on performance for majority of our funds.

Our average age for customers being younger in the 36 to 37 years range has helped us immensely in our upsell initiative this year with PASA contributing 22% of our new business and high digital adoption has led to better customer experience with DIY producing now at 83% level. COVID claims, which are in line with our market share of business was at INR 257 crores. And in spite of taking this dip, we have managed to grow our PBT by 16% this year, which has made us fare better than a lot of relevant industry figures during the COVID time. With absolute EV growth of 1.5x over the last 3 years, our EV now stands at INR 7,609 crores, which is a growth of 18% over last year, with strong ROEVs at 15.4% for the year.

Our key guidance for next year revolves around growth in business at 20%, fueled by productivity led growth in our proprietary channels as well as garnering larger mind share in our partnership channels for individual business and growing value-accretive segments in the group [indiscernible] business. This growth will come at higher net VNB margins at 17% plus. This trajectory will help us double the net VNB margins in the next 3 years and in terms of absolute value, getting us closer to the INR 750 crores mark.

So overall it has been 2 years of consistent growth of business for us with all our quality parameters doing well, resulting in net margin for us. The investments that we have made in the last year, we are confident of the 20% growth plan for next year with better net margins and consistent ROEs.

With this, I'll hand over to Mayank for update on the health insurance.

[Mayank Bathwal, executive]

Thank you, Kamlesh, and happy to share the performance of our Health Insurance business. We had another successful year, which ended the year at a premium of INR 1727 crores, growing at 33% year-on-year, ahead of the industry.

You actually have also had a mindset of completing our 5 years of operation, and we have consistently grown ahead of industry with the last 3 years, our growth being at 51% at 3x the average industry growth rate of 17%.

Our retail including rural creditor business constitutes about 76% of our overall franchise and grew by 23%. But what was also encouraging was a very profitable growth in our group set business, which is typically more price sensitive than the industry, aided by our balance-driven differentiation in the market. Today, we cover about 19 million lives, which grew 40% over last year.

But I think the key milestone for us last year was, as we have been guiding for the last few years, our first quarterly breakeven in Q4 of FY '22 sans COVID claims from whatever information we have as far as breakeven amongst [indiscernible] players from inception. We ended the year at 109% combined ratio clearly showing a persistent reduction towards breakeven.

All of this has been enabled by a very unique data driven health first business model, which we see as the first of its kind in India. And with this model, we not only cater to the existing population but also add the highly underpenetrated younger and healthier consumer pool, which actually gives us more years of relationship with this pool as we get them into insurance. As we gather more and more health data, we continue to engage with consumers around this whole hyper personalized health scheme. And we launched our IP around health risk score called healthy score we now cover close to 1 million of our retail lives with this giving us a clear ability to engage much of detail consumers than the traditional model.

We continue to launch newer type of products in the market, and our relaunched flagship product Active Health, which offers first of its kind 100% premium back, which is, I think unique globally, not just in India, has constituted about 39% of our fresh premiums last year. All of this also has helped us getting much better business outcomes with our average age of consumers being 5 years lower than industry, 4% lower claims and 25% higher persistency for our highly engage customers, which we will continue to add based on our differentiated model. We have ensured that we take this proposition fast to the market through a very highly scaled and diversified distribution model with the traditional agency model constituting around 25% of our business. But the bancassurance model, which actually not just gives us an inorganic capability to reach out to the last mark of Indian consumers, but there's also something where we can continue to grow aggressively because of the large capacity there.

We now are present in across 4,700 cluster teams through our 16,000 partner branches, but also 56 rural and MFI partners. Last year, we leveraged One ABC branch concept very well, adding newer locations and also new agents in those locations. One of the pleasing outcomes of last year was that we grew our digital franchise very, very fast, growing at 89% year-on-year. And the mix of our digital business is now 11% versus 7% in the previous year. Because our model is highly engaging, we have invested in digital and data capabilities from the very beginning, and we work with some of the best and traditional partners of products, the entire life cycle of traditional like health wise model but also around the theme of health and wellness ecosystem, which helps us create much better access for health and wellness for our consumers and also gather both structured and unstructured health data, which is then leveraged for the detailed analytics to be able to engage with customers at high personalized level, as I mentioned earlier.

Looking ahead, given the fact that we have demonstrated a superior economic model, which we follow. We are now looking at next year at a 40% growth in our gross written premium, which will be driven by both capacity addition and productivity announcements in our existing capacity. We look at doubling our agency, leveraging the One ABC branch concept, which actually gives us a low-cost agency expansion unlike when we do on a stand-alone basis. Similarly, we now work with 12 banks, but we continue to grow the banca franchise and also deepen our relationship there, but also expand our digital footprint given the trend that we have shown both in products and journeys.

And lastly, we'll continue to add new set of customers into the risk pool of insurance, which will be a clear growth lever for the years ahead.

With that, I now pass it back to Ajay for the concluding comments.

[Ajay Srinivasan, executive]

Thank you. In conclusion, let me just reiterate that ABC continues sales in terms of EVM, in terms of lending, in terms of his insurance premium, number of customers and of course, in terms of topics. We are today amongst the top 100 listed companies in India in terms of profitability. Our unique model and our strong focus on the value drivers in each business has led to the delivery of key metrics well ahead of our FY '24 guidance. Over a challenging 3-year period we have outperformed peers, tripled our profits over the last 5 years and doubled our profits over the last 2. We've strengthened the platform and the huge opportunity in financial services gives us confidence that the business is poised to continue to grow strongly into the future.

With that, we'd be happy to open up the session for any questions that you might have.

[Operator]

The first question is from the line of Naishi Shah from Acko General Insurance.

[Naishi Shah, analyst]

So congratulations on a great set of numbers. I see you all have grown phenomenally across all the business segments. So I just wanted to know regarding the new RBI regulation regarding the issuance of credit cards. Now that NBFCs don't need to tie up with banks for credit cards, do you think that's a segment you will be exploring?

[Ajay Srinivasan, executive]

I will get Rakesh to answer that question.

[Rakesh Singh, executive]

So we have got the in principal approval from RBI for co-branding with a large issuer, the largest issuer, and we are going live in quarter 1. We are also parallely at taking an RBI approval for having a license to issue credit cards for ADSL as well. Yes. So we would look at that.

[Naishi Shah, analyst]

And any plans for borrowing in the market anytime soon? And with the expectations of the like rate hike in the next -- in June itself?

[Rakesh Singh, executive]

So the borrowing, we have enough from a liabilities point of view, funding point of view, we have enough funding available. Capital adequacy is quite comfortable at around 22%. For both our businesses, 22% and 24% for housing. So we don't need a capital reach of funding. And in terms of increase in pricing or the cost of funds going up the rate hike, which you mentioned, we have a majority of our portfolio is floating-rate loans. And we have the ability to pass it on to our customers as the cost of funds goes up, and we have demonstrated that over a period of time.

[Naishi Shah, analyst]

So just the last question. So what would be the proportion of floating rate loans, if you could give us a breakup?

[Rakesh Singh, executive]

So we have a very well-matched asset -- ALM. We have 35% of our liabilities is fixed and 65% is floating. On the asset side, we have 34% of our assets are fixed and 66% of our assets is floating. So it's very well matched. Also majority of the fixed rate loans are on the retail side, where we have 2 years, 3 years with term loan, the personal loans or business loans, which we give it to them, which is at a much higher yield. So we don't have any rate risk which we see. If it goes up, we will be able to pass it on.

[Operator]

The next question is from the line of [ Pankaj Upadhyay ] from State Bank of India.

[Unknown Analyst]

Congratulations to the team whole team for putting a stellar performance. I have 2 questions. What is the breakup of restructured loan book in both NBFC and HFC? From which segment it is continuation is more like from retail, SME, certain light on that? And my second question is how many partnerships, both NBFC and HFC have and as a co-lending model?

[Rakesh Singh, executive]

So what was the first question -- restructure. So 17% of our restructure portfolio in NBFC is retail and close to around 25% is SME. That's the -- in terms of the mix of the restructured portfolio. And co-ending, we have partnerships. We have close to 16-odd partnerships where we do -- we have different models in terms of all arrangements with these partners. So whether we participate or we co-lend. But yes, we have 16-odd partnership, which is there at this point in time.

[Operator]

The next question is from the line of Nidhesh Jain from Investec.

[Nidhesh Jain, analyst]

Congratulations for a great set of numbers for Q4 and FY '22. Sir, on the AMC business, how should we think about PBT to AUM or core PAT to AUM ratio over the next 3 to 4 years, given that competitive intensity in the segment has gone up quite significantly, where we hear that incremental AUM is coming, incremental equity AUM is coming at just 20 basis points of net yield. So how should we think about core PBT to AUM over the next 3 years?

[Kamlesh Rao, executive]

Yes. So overall, looking at the PBT of the asset management business, it is a mix of the overall mix of assets, which will be equity, high margin debt and the alternate assets which we are trying to build. So over the period, we are trying to maintain or improve our overall revenue to the AUM bps to AUM and that will -- hat should flow in the bottom line also because our focus will be on rationalizing costs and bps of cost to the overall AUM to maintain at current level or reuse it further.

[Nidhesh Jain, analyst]

What will the driver of revenue -- revenue bps improving?

[Kamlesh Rao, executive]

So it will be the overall growth in the overall asset which we manage. Plus the growth of equity and high margin debt in the overall mix of domestic assets plus the ultimate asset, which we have created a very focused approach, will start contributing higher to the overall mix.

[Nidhesh Jain, analyst]

Secondly, on the life insurance business, if you can share what is the impact because of total of mortality in EV box for FY '22?

[Ajay Srinivasan, executive]

Like I said, the incremental impact from this year is obviously on account of claims, and we put that number on the cost of sales, INR 257 crores of COVID claims that we paid, non-COVID claims were by and large were on plan. And we see through the year, if I see quarter 4 of last year, we are back to the normalcy level. So I mean, that, impact we've been able to take. But like he said, in spite of taking that hit, we've been able to show PBT growth higher or better option.

[Nidhesh Jain, analyst]

And because we still after checking impact of COVID, we have reported positive operating brands. So if you can give a breakup of what has driven that positive operating brand that would be helpful.

[Ajay Srinivasan, executive]

No, no charging what are the assumptions if you -- brought about a change, like I said, between normal and COVID the exception was only on account of COVID and normal not having any impact. There are no change on long-term mortality assumptions into any of the products.

[Nidhesh Jain, analyst]

Because I believe that there will be a negative impact on the EV box in the operating brands. There would be some negative mortality impact. But despite that, we have reported a positive INR 17 crores of operating brands. So they must be something very positive for -- either on persistency or expenses. So I just wanted to understand if you can give the breakup of the INR 17 crores of operating brands.

[Ajay Srinivasan, executive]

If you see there is a bridge which starts on the opening EV and for the elements that are considered in the ROEV at 15.4%. There are a lot of positives in terms of OpEx management, a lot of positive in terms of the gross margins that we generated. And if you [indiscernible] on account of mortality, the large contributor of the 15.4% would be the unwind of the profits and the net acquisition that we have done. So of the 15.4% the contribution of that would be close to about 15.1%, 15.2%. And everything else that we've done would be offset against the higher mortality, it's not given us incremental data there. But like I said, on a long-term basis, net of COVID with mortality assumption is not changing, that number will look better over the next few years.

[Nidhesh Jain, analyst]

And last question on the health insurance business, there we have been able to scale bancassurance business really well. I don't see such high contribution coming from bancassurance for any other standalone health insurance company. So what are the key factors which has driven that? And how do we compute the renewability of this business, which is coming from bancassurance.

[Mayank Bathwal, executive]

Under, I think one of the reason we've got good success in bancassurance, our product so far and also the match that it has with the customer segment of the bank, it means that banks like HDFC Axis bank they have younger salaried customers so far. So for their product, kind of products it could be for the younger than the elder consumer segment is they have given us a big headway because it actually opened up a newer set of customers for these banks.

Of course, our brand strength always helped us. And we took that first mover advantage when in 2016 than other insurers were not necessarily looking at banks focusing on agency. We felt that it would give us an inorganic growth opportunity. And over a period of time, you've just strengthened our capabilities and over our competitors. And because of renewability, my sense is that there's no reason why in the medium to long term banks will have any more renewal than any other channel.

It's just that banks are kind of in a way maturing in the health insurance category just like they took a few years in the life insurance side and you very well now that in life insurance the consistency is much higher than agency. And I think as the processes, the way they will work along with manufacturers who start maturing, I think we start getting closer and closer to the agency. And we've already seen that trend in the last 18 months.

[Nidhesh Jain, analyst]

And then this health insurance business that we are getting from Banca is it structured as a retail business or structured as a group policy for the bank customer.

[Mayank Bathwal, executive]

We virtually do working everything in retail. Like there's a small segment of what I call voluntary retail on the group platform, but we hardly do the corporate group business. There is hardly -- it's not even 1% in the banca franchise.

[Operator]

[Operator Instructions] Next question is from the line of Bhavik Dave from Nippon India.

[Bhavik Dave;Nippon India Mutual Fund;Co-Fund Manager and Research Analyst, analyst]

Couple of questions. One is on the retail side of the business, which you are scaling up well. Just wanted to understand the partnerships that we have with fintechs, right? So we've mentioned that 15% of the portfolio is currently there. So I'm assuming 15% of INR 17,600 crores odd is the one which is why are these digital partnerships, right? Is that a fair assumption?

[Ajay Srinivasan, executive]

Yes. That's true.

[Bhavik Dave;Nippon India Mutual Fund;Co-Fund Manager and Research Analyst, analyst]

And also, if you could just help us understand what is the kind of throughput that we are seeing with these digital partners like in the sense you mentioned that 37% of disbursals for the year has been via these partnerships. If you could just spell out the number for fourth quarter and how has the monthly run rate been on these platforms for us on the disbursement basis?

[Ajay Srinivasan, executive]

So we have built a very unique digital distribution capability which we integrate with the partners. And we have built a in-depth ecosystem across education, health care, e-commerce, payments, merchants. So that's how we are looking at across the industry segments. And in terms of throughput, we have close to 0.5 million customers, which gets onboarded through this ecosystem.

[Bhavik Dave;Nippon India Mutual Fund;Co-Fund Manager and Research Analyst, analyst]

And what would be the disbursement amount in the fourth quarter? Because you mentioned 37% for the year.

[Ajay Srinivasan, executive]

So disbursement in fourth quarter -- so 37% of our retail business is coming through the digital ecosystem in terms of disbursement, and that is 15% of the overall retail portfolio.

[Bhavik Dave;Nippon India Mutual Fund;Co-Fund Manager and Research Analyst, analyst]

15% of the overall -- because I think INR 9,800-odd crores are disbursement for the quarter 65% is retail plus SME. How much would be retail and SME separately, if you could just spell out?

[Ajay Srinivasan, executive]

So retail is close to INR 4,000 crores. And SME INR 1650 crores.

[Bhavik Dave;Nippon India Mutual Fund;Co-Fund Manager and Research Analyst, analyst]

So 15% of that INR 4,000 crores is roughly -- sorry, 37% of that INR 4,000 crores is roughly the digital partnership-led disbursement.

[Ajay Srinivasan, executive]

Yes.

[Bhavik Dave;Nippon India Mutual Fund;Co-Fund Manager and Research Analyst, analyst]

And sir, you've mentioned that you've like already got like 4.1 million customers via these digital partners and ecosystems. And we intend to do cross-sells of personal loans to these customers or BNPL. How does the economics work here? Because if the customer has come in via like suppose ABC fintech partner and now the customer is with us because we are lending our balance sheet. So can we cross-sell products to them without paying a fee to the digital partner -- or every time we interact with the customer, we have to pay out that 2%, 3% payout that we do to our digital partners [indiscernible].

[Ajay Srinivasan, executive]

So we have different arrangements, which is there with different partners. And through our own ecosystem also where we acquire customers directly and we have built our top sell and up sell journey. So it's similar to what we do it for our internal customers, we do it with the partner as well, and we have different arrangements with different partners.

And also on the economic side, if you -- I think I would just like to add, it's more a CapEx model than OpEx model, once we have built the capability, our digital capability, and we have built our analytics and analytics model and score card models, I think all that, I think the cost is very little in terms of onboarding the customer or -- onboarding the customer, in fact, even if we have to go and give them a top off. So very little variable cost which is involved here. It's more a CapEx model, which we have already invested in.

[Bhavik Dave;Nippon India Mutual Fund;Co-Fund Manager and Research Analyst, analyst]

And lastly, sir, on the affordable housing piece. And then I see that planned future planning on affordable housing. Just wanted to understand, if you read 65% of our home loans or housing business into affordable housing, why is the expectation of ROAs only 1.5%, 1.6%. What we see from the listed affordable housing players today, they generate anywhere between 3% to 4% ROA when they are like dealing with the subprime or lower end of the spectrum, low-ticket size customers. Just want to understand how different is our strategy versus them because the ROA expectations are fairly like a [indiscernible]

[Ajay Srinivasan, executive]

Expectation that was the target we had set for FY '24. So obviously, for sure, maybe ahead of that as we grow ahead with this supportable strategy, there should be upside to that number. We have not revised that number, but that was our target with [indiscernible].

[Operator]

[Operator Instructions] The next question is from the line of Aswin Balasubramanian from HSBC Asset Management.

[Aswin Balasubramanian, analyst]

Just wanted to understand on the housing finance book. The restructured portion under moratorium you've mentioned is 3.4%. So earlier, if I'm not wrong the overall restructured book used to be about 7%, 7.5%. So I just wanted to understand the rest of the book has it come out of moratorium and when will this remainder come out of moratorium? And what's been the performance of the book, which has already come out of de-moratorium?

[Ajay Srinivasan, executive]

So 4.6% of the restructured book has already come out of the moratorium and they have started paying their EMIs. So that's the reason why you see 3.4% is still under moratorium.

[Aswin Balasubramanian, analyst]

And out of that 4.6%, how much should have sort of slipped?

[Ajay Srinivasan, executive]

So I'll tell you in terms of collection efficiency on this portfolio is also pretty high. In terms of slippages, I think I can share that detail with you, but it's not there...

[Kamlesh Rao, executive]

[indiscernible] come down in spite of the...

[Ajay Srinivasan, executive]

So even if you see after opening up of these reach 4.6% the restructured portfolio, which have opened up, our Phase III and Phase II both have come down. So that's a clear indication in terms of what is going forward and getting this out.

[Aswin Balasubramanian, analyst]

And the similar number for the [ NDS ], the restructured book used to be about 4%, and that's come to 3%. So the rest of the book is -- the 3% is still under moratorium? Or does this also include a portion which has come out of the moratorium?

[Ajay Srinivasan, executive]

So 67% of this 3% has already started paying their EMIs. And so that has opened up. So it should be very similar to what we have on the -- and I can give -- it will be around 1%, 1.2%, which will be less, 1%.

[Aswin Balasubramanian, analyst]

And in the housing finance book, the prime home loans, I mean if I look at it, let's say, year-on-year also has come down even in absolute terms. So I mean, is this more like a conscious strategy? Or I mean, is it because of higher BPs out in the segment? And a related question would be, what would be the yields across the various segments in terms of affordable and prime home loan and LAP and affordable LAP?

[Ajay Srinivasan, executive]

So your first question, it's in line with our strategy to focus on the affordable segment. And in the prime segment, we are primarily focused on loan against property and all. So that's the strategy. In terms of yield in different, I have it, I can share that with you separately -- yes.

[Operator]

[Operator Instructions] The next question is from the line of Abhijit Tibrewal from Motilal Oswal.

[Abhijit Tibrewal, analyst]

Just one question here. I mean you talked about digital partnerships in the digital ecosystem or probably the fintech ecosystem y already shared, I mean what disbursement numbers were in the fourth quarter. Just trying to understand, I mean, these different ecosystems that you talked about education, health care, travel, can you give us an idea around what are the typical ticket sizes? What I'm trying to understand here is, I mean, while everyone is talking about disbursing through ecosystem of fintech partners how have you worked around the collections aspect, especially given the fact that these are all predominantly unsecured low ticket size loans.

[Ajay Srinivasan, executive]

Well, if you look at, there are different products which are there, especially if you look at a product like BNPL where there the ticket size is fairly small, it's a short-term loan. And the idea is once you acquire the customer and you have the traffic code of the customer, we can go and cross-sell our higher ticket sizes and longer -- and loan to these customers. And that's the journey. And that's what we have mentioned in our investor deck also that we have started selling personal loans to these customers who have been acquired over the last 5, 6 months. So that's on the BNPL side. In terms of education that ticket side can be INR 60,000, INR 70,000 on MSME, it will be upwards of INR 1 lakh. So for different products, the different ticket sizes are there.

[Abhijit Tibrewal, analyst]

How are these collection mechanism setup, how is collection being done in case of a default?

[Ajay Srinivasan, executive]

So again, different partnerships should have different arrangements in certain cases, the partners manage the collection in certain we manage the collection. And we have an infrastructure to -- and we offer this wherever we have the collections infrastructure with certain partners wherever we have the collections infrastructure, we only operate and we provide loans there. So we have our own collections infrastructure, which we really -- because we also have a large retail franchise and a large retail collections as well.

[Abhijit Tibrewal, analyst]

And maybe just one last question here that I mean, in case there is default you are suggesting that either the partner or you are involved in collections, still early days. But I mean how is collections kind of panning out, I mean, particularly in these product segments. Because when we engage with a lot of -- I mean, I would say, fintechs who are in, let's say, consumer loans, education, health care, most of them seem to suggest that they are still not, I mean, worked out collection mechanisms as yet?

[Ajay Srinivasan, executive]

So these are not early days. We have been doing it for the last almost 3, 4 years in terms of we build the digital lending capability and the platform almost in FY '16, '17, and we have experience from those days. So -- and also, we track the performance and the floor rates of each partner or each customer, and we look at what we need to do in terms of the collection. And have -- so far, the performance on the pool is pretty decent. It's tough 2% is the credit cost on this portfolio.

[Abhijit Tibrewal, analyst]

And if I can squeeze in just one last question here. When I look at your bank term loans, I mean, large part of it would be linked to MCLR or some kind of an external benchmark rate or FO?

[Ajay Srinivasan, executive]

You're talking on the liability side?

[Abhijit Tibrewal, analyst]

Yes.

[Ajay Srinivasan, executive]

Yes. So I think it will be, and if it ECB or something it's fully hedged. And so as I mentioned earlier, we have close to around 35% of our liabilities, which is fixed in nature and 34% of our assets, which is fixed in nature.

[Operator]

[Operator Instructions] Ladies and gentlemen, as there are no further questions from the participants. I now hand the conference back to Mr. Ajay Srinivasan, Chief Executive Aditya Birla Capital, for closing comments.

[Ajay Srinivasan, executive]

Thank you very much. Thank you, everyone, ladies and gentlemen, for joining this call. Wish you a lovely weekend and the weeks ahead. Thank you.

[Operator]

Thank you very much. In case of any follow-up or further details, you can reach out to Mr. Pramod Vora, Investor Relations. Ladies and gentlemen, on behalf of Aditya Birla Capital, that concludes this conference. Thank you all for joining us, and you may now disconnect. Thank you.