Cholamandalam Investment and Finance Company Ltd
NSE:CHOLAFIN
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Cholamandalam Investment and Finance Company Ltd
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Ladies and gentlemen, good day and welcome to Cholamandalam Investment and Finance Company Limited Q4 FY '24 Earning Conference Call, hosted by Kotak Securities.
[Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities. Thank you.
And over to you, sir.
Thank you. Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited.
To discuss the 4Q performance of Chola and share industry and business updates, we have with us the senior management today. I welcome Mr. Vellayan Subbiah, Chairman and nonexecutive director; Mr. Ravindra Kundu, executive director; and Mr. Arulselvan, President and CFO.
I would now like to hand over the call to Vellayan for his opening comments, after which we will take the Q&A.
Nischint, thank you. And good morning, everybody.
So we'll just go through the key financial results for the quarter and for the year ended March 31, 2024.
The disbursements were at INR 24,784 crores for the quarter, which is up by 18%; and INR 88,725 crores for the year, which is up by 33%. The total AUM stood at INR 1,53,718 crores, which is up by 36% year-on-year.
The net income for the quarter was at INR 2,913 crores, which is up by 41%; and INR 9,986 crores for the year, which is up by 38%. The PAT was at INR 1,058 crores for the quarter, which is up by 24%; and INR 3,423 crores for the year, which is up by 28%.
So in terms of our performance, we have delivered the best-ever disbursals, collections and profitability in Q4 FY '24. Vehicle finance grew by 6%, aided by steady growth. LAP grew by 55% and home loans grew by 24%, driven by geographical expansion into Tier 3 and Tier 4 locations. Disbursement growth in the other businesses was at 24%.
Aggregate disbursements were at INR 24,784 crores, as against INR 21,020 crores in Q4 FY '23, which is a growth of 18%. And like I said, for the year, the growth has been 33%. Vehicle finance disbursements were at INR 12,962 crores in Q4 FY '24, as against INR 12,190 crores, which is a growth of 6%. And disbursements for the year were at INR 48,348 crores, as against INR 39,699 crores, which is a growth of 22%.
The loan against property business disbursed INR 4,273 crores in the quarter, as against INR 2,762 crores in Q4 FY '23, which is a growth of 55%. And disbursements for the year were at INR 13,554 crores, as against INR 9,299 crores, which is a growth of 46%. Home loans disbursed INR 1,747 crores in Q4, as against INR 1,405 crores, which is a growth of 24%. And for the year, disbursements were at INR 6,362 crores, as against INR 3,830 crores, which is a growth of 66%.
SME disbursed INR 2,136 crores in the quarter, which is a 2% growth. And disbursements for the year were at INR 8,106 crores, which is a 27% growth. Consumer and small enterprise loans disbursed INR 3,301 crores in the quarter, as against INR 2,364 crores in the same quarter last year, which is a growth of 40%. And disbursements for FY '23, '24 were at INR 11,281 crores, which is a growth of 64% over the INR 6,865 crores in FY '23, '24. Secured business and personal loans disbursed INR 366 crores in the quarter, as against INR 196 crores, which is a growth of 87%. And for the year, disbursements were INR 1,074 crores, which is a growth of 138% over INR 451 crores in FY '23, '24.
The AUM as of March 31, 2024, stood at INR 1,53,718 crores; and that's a growth of 36%.
PBT growth in Q4 was at 24%. And for the year, PBT growth was at 27%. PBT-ROA for the quarter was at 3.9%, and PBT-ROA for the year was at 3.4%. ROE for the year was maintained at 20.6%.
So the company continues to hold a strong liquidity position with INR 7,899 crores as cash balance as of the end of March 2024, including INR 1,500 crores each invested in G-Sec, T-Bill; and INR 765 crores invested in strips shown under investments, with a total liquidity position of INR 8,315 crores, including undrawn sanctioned lines. ALM is comfortable, with no negative cumulative mismatches across all time buckets as per regulatory norms.
The consolidated PBT for the quarter was at INR 1,428 crores, as against INR 1,163 crores, with a growth of 23%; and for the year, INR 4,605 crores, as against INR 3,615 crores, which is a growth of 27%.
In terms of asset quality, Stage 3 reduced to 2.48% as of March '24 from 2.82% at the end of December '23, so we've continued our improving trajectory here. GNPA as per RBI norms reduced to 3.54% as of March '24, as against 3.92% in December '23. And NNPA dropped to -- per RBI norms dropped to 2.32%, as against 2.56% on December '23. NNPA is below the threshold of 6% prescribed by RBI as the threshold for PCA.
In terms of capital adequacy, the CAR of the company as of March 31, 2024, was at 18.57%, as against a regulatory requirement of 15%. And Tier 1 capital was at 15.1%.
The Board of Directors of the company has recommended a final dividend of INR 0.70 per share, which is 35% on the equity shares of the company, subject to the approval of the members of the company at the ensuing Annual General Meeting. This is in addition to the interim dividend of INR 1.30 per share for the financial year '23, '24 declared by the company on January 25, 2024. The Board of Directors of Cholamandalam Home Finance have also approved an equity infusion of INR 25 crores in Cholamandalam Securities, which is -- both of which are wholly owned subsidiaries, subject to the approval of the regulators.
So Nischint, I'm going to stop with those comments. And we'll be happy to turn it over to you. Thank you.
Yes, let's start the Q&A session, yes.
[Operator Instructions] The first question is from the line of Avinash Singh from Emkay Global.
Two questions. First, on the disbursement and AUM growth outlook for FY '25, can you just please help with some sort of a breakdown among the different segments? That's one. And second, if you can also help with the balance transfer trends across your different products, that will be helpful.
So disbursement growth. [ Highs ] will be 20% to 25% and the AUM will be 25% to 30%; the best case scenario 30%, but in worst case scenario we will do 25%. The balance transfer is really particular -- pertaining to LAP and maybe the home loan, but home loan, we don't do much balance transfer.
So 45% of -- generally of our disbursement. He's asking more about the disbursement. So 45% of our disbursement comes from balance transfer.
Yes.
And what sort of a transfer you are seeing. I mean the loan going out of your portfolio maybe [indiscernible].
Interestingly, out of the closures, the -- about 40% are balance transfers out of the total closures.
You were asking the segmental growth for the businesses. We are giving cumulative for the Chola in terms of disbursement and AUM growth. As of now, segmental disbursement and AUM growth, we are [ not talking ].
Yes. I mean I asked that because, I mean, on the CV side there is kind of a bit of a slowdown that's sort of expected. So then -- and of course, now incrementally, I mean over the years, your non-vehicle portfolio also had gain in size. And that is where, I mean, sort of we're trying to get an idea that, okay, if the vehicles were to slow down -- and then of course, [ on larger, just ] how much sort of [ this ] can pull it off, the nonvehicles. And that is why sort of any color on that, whether it's LAP or any sort of a new product you are thinking of, that will be helpful.
See. On the contrary, the vehicles number, CV numbers, for the month of April, we got it. Cumulative number of [ published ] or data from the manufacturer for the April is actually looking better. So if you take that number as industry number, obviously what we are committing [ or talking about is ] 20% disbursement, including the [ used ] business growth and the mix of the disbursement and our reach in the country. Because today we are present in 1,300-plus branches and 600 [indiscernible] 1,900 touch points are available for us. And we are not only focused in commercial vehicles, but we are also focused in passenger vehicle, construction equipment, tractor, two wheeler, three wheeler, all used vehicle [ of ] commercial vehicle, passenger vehicle, tractor and construction equipment. So therefore, we are quite comfortable that we can deliver 20% growth in [ vehicle segment ].
Yes. Quickly, last one, I mean, [ if asked ]. Because you are now into [indiscernible] passenger vehicles. And a lot of your passenger vehicles typically will be entry level as well, so what kind of a trend you are seeing in the passenger vehicles entry-level segment. Because that has been under stress for quite some time.
It's been good only. For last year, it was actually small double-digit growth in passenger cars. And entry-level cars, especially on Tier 4, Tier 5 towns, also started [ phasing the sales ], so that is helping us to get the number [ at our rate ]. Because we are not into salaried class, which is being funded by banks mostly. The self-employed customers who are buying entry-level cars in Tier 2, Tier 3, Tier 4 towns are actually our customers. We are doing that.
Next question is from the line of Dhaval from DSP.
Congrats on good performance. I just have 2 questions. First is on Slide 67. The question is on each of these subsegments, CSEL, SME and SBPL. How do you see the normalized PBT-ROA over the next couple of years? And specifically on CSEL, if you could talk about the net credit loss after the FLDG. How does that stabilize in the next couple of years? So that's the first question, profitability of each of these businesses.
The second is on Slide 18. You've given this new -- I mean, color coded your last-15-year trajectory. And given this idea of new growth over the last couple of years, should we expect on a more medium-term basis, the current growth trajectory, where we are, over a period of time, that's the CAGR that one should think of, somewhere around 25% to 30-odd percent over the next few years? And just, if you could give some perspective around that, that would be useful, medium-term growth.
Yes. So let's start from CSEL. CSEL is at 2.9%. You good -- you asked a good question actually. I am also asking Balraj to deliver more and more [indiscernible] in terms of ROA. He's also committing to increase it. We don't want to disclose what target we have given here to Balraj, but definitely we will go -- from 2.9%, it will definitely go up. And in 2 years time, we will reach the peak, so the opportunity to grow ROA will not get over in this year only. Next year also, we will further grow. In SME and -- the ROA growth opportunity is slightly less than CSEL, but Pankaj is also committing that, next 2 years, he will be taking it up one -- slowly. And SBPL is a great opportunity for us. From 3.9%, I mean, a huge number we can take it. I mean that is one of the highest-ROTA division -- going to be in the Chola, so that's what we are committing -- or Ashish is committing to me. I am not committing to you. We are expecting that we will be touching good numbers in 2 years time.
Coming to the NCL line. NCL line [indiscernible] CSEL is actually [ 3.4 ] -- or less than [ 3.4 ]. And as we -- basically we also said that we have already decided, defined what will be our strategy in partnerships, as we have defined profile partners who are doing very well. So including [ that ], the performance of the CSEL partnership will further improve. And NCL will go down. So the ROA increase, expected from 2 lines. On the expenses, we'll go down. The losses will improve. And that is applicable for all SME and SBPL also.
Yes. And your second question: Broadly yes is kind of -- is the answer [indiscernible].
Next question is from the line of Umang Shah from Kotak Mutual Funds.
Congratulations on a good quarter. I just have one question. Is there any one-off in the OpEx line item? And also, going forward, if you could just give us some color as to by when can we expect the operating leverage to kick in given that we are anticipating good asset growth. How should we [ reflect ] this OpEx line item going forward?
Yes. See, in Q4 generally, a lot of catching up happens with regard to CSR expense et cetera. So in Q4 -- and then we also, Q4 being [ best of these quarters ], increase -- I mean you need to provide for it, incremental incentives et cetera. So such one-off expenses happens in -- every Q4, likewise this time also. And we stick to our original stance that we should be at the 3% [ to AUM, the ] OpEx line. We are working towards that, yes. For the full year, we missed it by 10 basis points this year, but I think, next year, we should be there. We still work at 3%, [ just keeping it below 3% ].
Next question is from the line of Abhijit Tibrewal from Motilal Oswal.
Sir, congratulations on another good quarter. Sir, I'm -- just wanted to kind of take forward what you commented upon OpEx. So sir, very clearly, I mean, if I look at the fourth quarter employee expenses up almost 100% year-over-year. You just explained there are some annual incentives also. So I mean I just wanted to understand. These annual incentives are always there in the fourth quarter. Or we kind of keep providing for it in all the 4 quarters. And maybe a related question here on OpEx is, I mean, very clearly, some of the newer businesses, because we were in investment mode over the last 2 years, were a drag, I would say, but now how do you see economies of scale from the newer business, especially on the OpEx? And Arul, sir, you've already guided that you'd want to stick to that 3% OpEx [indiscernible], but just some more color there will be helpful.
[Technical Difficulty]
Ladies and gentlemen, the management line has been connected back.
All right, okay. So we'll respond to your question...
Abhijit asked the question...
Abhijit, can you repeat the question...
Sir, I think, I mean, it was more on the OpEx again. Arul, sir, you already guided that there were some annual incentives and CSR expenses and that, for the next year also, we want to stick to a 3% OpEx [indiscernible]. I just to understand. A lot of the drag on the OpEx, especially in employee expenses, could also have been coming from the newer businesses given that you are expanding it to more number of branches. I just wanted to understand, I mean, for how long we'll remain in this investment more in the newer businesses. What is the thought process there? Do we want to offer these 3 products, CSEL, SME and SBPL, across all our branches is what I was just trying to understand, just some more color there on the OpEx.
Abhijit, I've mentioned that the ROA expansion for CSEL, SME, SBPL is going to come majorly from the OpEx reduction because their, now, [ base ] is going up. And the productivity of the people who have been recruited in last 2 years have started delivering more. And we have seen that -- Q4, that they have delivered a little better ROA than annual ROA; and this is going to be continued because the branches are set. I am talking from -- more from the traditional point of view. Because, CSEL traditional, they opened up branches and now they are delivering close to 600 crores per month. That is going to go out with the same manpower. They are going to increase, definitely, some more branches, but those branches will have the similar concept of vehicle finance where we are opening up with lesser manpower and then expanding it after achieving the threshold of the volume. So that way, expenses will be controlled. And it will go down from 5.1% of CSEL to -- I mean we are expecting reduction in a phased manner. In 2 years, it should come down to at least a good number.
And same, SME -- actually we see that, SME, their ROA -- their expenses of 2.3%, which is higher than the LAP, but their customers [indiscernible] LAP customers. Obviously they should deliver lower OpEx than LAP's. That is what -- their target, so they are doing it. SBPL [indiscernible] see that 13.4%. We will come down. So in spite of we expanding in all 3 divisions, we will be reducing our OpEx as well. And that's the main important thing for increasing the ROA in these businesses.
Got it, sir. And just one last question, maybe -- sorry, 2 questions that I had. One is, sir, I mean, we've been hearing that the -- in the last 2, 3 months, right, I mean, elections have had some slowdown, I mean, particularly in the vehicle finance segment, in terms of demand and activity, so -- I mean, do you expect that, I mean, post elections, post budget presentation, maybe by August, September, when we start the festive period, demand can start recovering? That's the first question -- I mean, the second question that I have. And the third question I had was -- or to Arul, sir, again. Sir, I mean, cost of borrowings look like they are peaking out. Margins are stable for the last couple of quarters. How are we thinking about cost of borrowings and margins, sir?
So from demand side, as you said is right. There are 2 things happening. One is the elections [ of, I think, in May end. And June only ] we will get a full 3 month to start working in fullest capacity across the country. Second is that it is Q1. So both put together, [ there is a ] slight slowdown in the first quarter, but as far as the vehicle industry is concerned, in the first month or in the month of April, we see that we have delivered better numbers than last year. Last year, their growth was negative. This year, they started with [indiscernible] growth. Across other products put together, the growth has been actually 20%-plus in April month. So that is...
[indiscernible].
[ 23% ] growth over...
Previous April.
Previous April. That is a good news because, if at all it is a wholesale number, if the wholesale number is good, the retail number will happen better in the month of May and June. And our numbers are also in line with that, so...
Yes.
And this is only new vehicle we are talking about. In addition to new vehicle, we have 34% used vehicle. We are doing it. And new vehicle -- with new commercial vehicle, where the growth is 13%, new vehicle, put together all our segment is 26%. It looked like it is actually moving in the right direction. And as we mentioned, that -- demand in terms of the commercial vehicle has been at the lower side even in this last [ financial year ] also. And we have done better last year. That is because we -- our used vehicle business has gone up from 27% disbursement portfolio mix to 34% disbursement mix. And [ high ] businesses like two wheeler, three wheeler also, we have done better. We will continue to do that. And that is the reason we are comfortable in delivering 20% disbursement growth and 25% AUM growth in vehicle finance. And the growth will start looking better in the Q3, onwards.
With regard to cost of funds, see. The cost of funds, we will endeavor to hold it at these levels, but as we widen the borrower profile, some banks to -- or other sources like ECBs and -- that can be in slight increase. But we will continue our negotiations to keep it at this level. And hopefully, by H2, as predicted or as expected, if there are reductions in the market, that should also flow through.
Got it, sir. So it essentially means that, I mean, there is still that scope for a margin expansion given that cost of borrowings, like you are suggesting, could stabilize...
[indiscernible] comment -- or commit anything on margin expansions. We are back to the pre-COVID levels. I would say they should be better. As portfolio mix changes, as cost-of-funds benefits come through or not come through, accordingly, there will be marginal changes in the margin, but I don't see any large shifts happening. But the ROA level, we are expecting that, 3.4%, it can go up to 3.5%. Overall across OpEx...
And if you see, that we have given 10 years data, where pre-COVID level, we were at 3.70%, where the cost of funds used to be 6.9% to 7.1%. And that time, our income was 14.7%. So we are at 14.4%, so that income line has to go up. The income line will go up with the help of vehicle finance which is actually if -- fixed rate. And we are continuously doing higher-yield business for last 1 year, and this year, we will see that the income will go up.
Next question is from the line of Sandeep Jain from Baroda BNP Paribas Mutual Fund.
Yes. Just to -- addition to what Dhaval has asked about the new business. What kind of credit cost we are building in when we are kind of pricing, especially the SBPL and SME product. Because it looks like the majority of the -- apart from the yield improvement, you see the year-on-year credit cost has declined. And as a thought process, how provision coverage will look like for this new business. It would be lower than the company overall provision coverage business. Or you would like to have a higher provision coverage on these 2, 3 new businesses.
Yes. See, these loan losses in the new businesses -- in SBPL, [ we'll assume ] it will increase the bit over the years, but that will be more than offset by the savings in OpEx, as we were saying earlier. So SBPL is a slightly riskier business where the loan losses will be slightly higher [ up, but ] -- this is the trend of industry, but we will try to keep it lower. But with regard to the...
[ Provision coverage ].
Provision coverage. We are now adopting provision in percentage which is not really driven on the ECL model because we don't have adequate data, [ fast ] data to prove it. We have taken industry norms and built sufficient and incremental provisions over that to make sure that they are conservative. As we reach 3 years of full run of these businesses, we will start creating these LGDs for this based on our own experience.
So just to elaborate it more. If I look at the current provision coverage ratio of all these 2, 3 new business, it is somewhere around range of kind of 33% for SME or 25% for SBPL kind of thing, right, the Slide #29 which shows, yes. So in terms of going ahead, probably when the ECL model has not developed. So just to understand the thought process, whether we would [ link it ] to somewhere around 50%, 60%. And then the ECL model will develop. Then we will see the -- what is the current thing which is happening. Because currently also ECL model has not been developed, right?
[ It seemed ], but that is why you see a difference in the provisioning for CSEL, which is an unsecured business where we have taken to 50%. And within the Stage 3, different provisioning numbers [indiscernible] as regards to the aging of the book even in [ the ECL ]. And SME is actually the most stable business. Still they are providing almost 39%, 40% out there, which is as good as like a LAP or HL where [indiscernible]. It's better than LAP and HL because the customer profile is different if you see the pyramid we have put out there, I mean, I think, Slide #12 or 13, you'll see that it is the best-quality customers out there [ and within that segment, yes ]. SBPL, it will increase a bit. Right now, because -- it is a very small number. And right now the portfolio which is [indiscernible] is very, very small. It is reflecting like that, but as it moves up, it will [ move this ], as I said [ earlier ].
Next question is from the line of Alpesh [ Jatin ] Mehta from 360 One Management Company, IIFL Asset Management Company.
Congrats for the good set of numbers -- can you hear me? Sorry.
Yes, yes. Go ahead.
Yes, we can hear you.
Okay. Sir, just one clarification. There is a lot of confusion related to this growth number. So I think you -- we are talking about overall AUM growth of around 25% to 30%, disbursement growth of 20% to 25%. [ The factors ] within the growth rate will change. Is that right?
Yes, yes.
Yes. AUM growth is around 25%. Keep it simple. There's -- any band and all. 25%, right. Because as we go into Q1, Q2, when we know -- more clarity emerges on the monsoon. And post elections, we can come with a little bit more specific numbers.
[indiscernible].
We are always conservative, yes.
Okay. So looking at the current scenario, at least you are confident about 25% overall AUM growth.
Yes.
Correct.
Okay, perfect. And secondly, sir, I see there has been -- we have done during the quarter large investments into the -- into corporate office. Any rationale related to that, if you can provide.
Which is land, purchased land...
Yes. We purchased a land to build our own corporate office. We are -- right now we are working out of more than 4 or 5 centers within Chennai itself, so we needed to bring all of them together. And I thought it would be -- I mean it was a general consensus among the management and the Board to look for a big corporate office. And it will take 2, 3 years to complete the whole construction et cetera, but this is the first step towards that.
Okay, perfect. But at least it will not have any immediate benefit on the P&L per se. Whatever benefit that will occur, that will come up in 2 or 3 years...
Yes, correct. It will happen. Once we move in, we will save some rent, but that would be the vehicle [ et cetera ].
Okay. And just lastly, on the repayment rate, since we are talking about 20% disbursement and 25% AUM, that means the longer-duration product concentration within the overall mix is increasing. And that is where you are confident that the repayment rate at the overall level will [ come down ], something like a LAP...
Yes. And the LAP [indiscernible]...
Longer tenors. And as a book, SBPL will also be longer-tenor book. CSEL is a much shorter-tenor book. So amongst them, there will be some carryforward of longer-tenor book [indiscernible].
Next question is from the line of Viral Shah from IIFL Securities.
Congratulations on a great set of numbers. Actually I have 2 questions. And if the operator permits, I will add 1 more, but sir, to begin with, you mentioned that the new business profitability will improve, right, and -- but will it still be higher than the overall company-level ROA? So right now we have a PBT-ROA for FY '24 of 3.6%, whereas the new businesses are at 2.4%.
Yes...
It will improve. It will improve because, again as Ravi was saying, their OpEx should come down. And so there will be a reasonable shift [indiscernible].
Yes, but on a weighted average basis, across the new businesses, it will be higher than the ROA of the overall.
Correct.
Right. And Vellayan, do you want to give that number? Like what could that ROAs look like steady state...
I already asked Ravi for that number. He said he won't give that number, so -- yes. So I think we've given you enough guidance. And you know that we don't get too particular on guidance at the segment level, so I think -- but there's enough guidance to give you an indication, obviously. And we have indicated at a weighted average level. Or overall, it will be higher for the -- for those 3 businesses.
Fair enough. And sir, on basically the LAP segment, over there the credit costs since last 2 years have been fairly, I would say, closer to 0. And of course, we have seen a tremendous improvement in the asset quality also over there, but how long can this, say, 0 kind of credit costs continue in that segment? And consequently, if say it normalizes over there, how would our overall credit cost could -- look like given the mix change also in the picture?
We are pushing Suresh [ to cut in ].
So yes. I think, if you can see the stated numbers, it has significantly -- kind of we have resolved it. That's why, current year, you will look at such a loan losses reversal, but yes, that -- I think that reversal is kind of through or coming down. On a steady state, anything between [ INR 0.20 and about INR 0.25 ], we are very good -- I think we will be doing very good. And I think that's our target NCL. That -- we'll range between that number, between [ INR 0.20 and INR 0.25 ]...
Yes.
But -- and then the question is whether any, yes, increase in losses or normalization will be offset by a reduction in OpEx.
[ One is this ] OpEx reduction they're planning. And then they're also planning to do income increase through their micro LAP [indiscernible].
So overall, the -- still the [ road map ] will be maintained...
[indiscernible].
[ Ravi is ] sitting next to me. So definitely it will be more than [indiscernible].
Fair enough. And sir, last question. Can you give us a sense of what's the average tenure of the CSEL and the SME books? The reason I am asking that is to get a sense of how seasoned right now the portfolio is and the numbers that we are seeing. And how can it be relatively [indiscernible] further seasons?
The average tenure is around -- for CSEL book is -- on the traditional book is around 44 to 48 months.
Okay.
And weighted average has come down because the other products...
Yes, traditional...
[indiscernible].
[indiscernible] [ 48 is 44 ].
[indiscernible] average is 44...
[indiscernible].
[ No. So ] only traditional. So if you bring in, everything combined, it will come down to a bit under 3 years...
Yes.
Correct. And some of them are [ door to door ]. So average will be in the range of around 3 years for CSEL. And in SME, it's around [ 5 to 3 ]...
[indiscernible].
Equipment finance we do [indiscernible] that is close to 5 years in equipment finance. Term loan will be close to 10 years. And supply chain is only 90 days [ bill discounting ]. So there are 3 products, major products, in SME. So this is tenures.
Okay. On the weighted average tenure, do you want to give out that for SME?
It will be....
SME. It depends on the mix, as we keep moving between the products. Because as we'll keep -- we have to look at what products we are focusing on. So we will work out with that as we move and develop each of these products.
Next question is from the line of Pranuj Shah from JPMorgan.
Just questions from my side. One is your standard cover on Stage 1 and Stage 2 have reduced. I'm assuming your [ PGD ] and LGD [indiscernible] have improved, so in that context, do you have lowering your guidance of credit costs for FY '25?
So see. What happens in every year is we have to include the current year [ PGDs ] and [indiscernible] on that. So as you know, it will be -- it was a little higher during the COVID period. Now as we are performing better, that -- this year's contribution comes into play, so [indiscernible]. If we continue to this, maintain this trend, it should, but right now don't build -- or don't count your chickens...
Got it, sir, but no as such credit cost guidance that you would want to provide as of now.
So [indiscernible].
Got it. And sir, just one last question was on the SRTO profitability. Like we have seen new vehicle and also used vehicle prices rise about 25% to 50% over the last 1 year, so is -- are you seeing -- or could you just make a comment on how you're seeing SRTO profitability move about on the overall EMI repayments?
So the SRTO profitability now is quite maintained because the diesel prices are the same level. In fact, it has improved INR 2 for the last year...
[Technical Difficulty]
Ladies and gentlemen, the management line has been connected back.
Yes. So SRTO. As I mentioned, diesel prices have improved...
[Technical Difficulty]
Ladies and gentlemen, the management line has been connected back.
Yes. So talking about the SRTO profitability. SRTO profitability is [ mainly ] depending on the fuel consumption. And that is actually the fuel prices have a little gone down. Second is that we also decided not to go into the heavy commercial vehicle segment of new. And we decided to basically stay in the intermediate commercial vehicle or the used commercial vehicle. That's the reason we are also focusing used commercial vehicle, light commercial vehicle, but we are not focusing more on heavy commercial vehicle because the heavy commercial vehicle is more beneficial to the [ cap ] users and large fleet operators who are getting the GST benefit also. The SRTOs are not getting benefit, but the prices of the vehicles are much lower there. EMI affordability is also good. So that is the difference in the SRTO and the other segment of the customer who are operating in the commercial vehicle segment.
And so the previous SRTOs who used to go for new vehicles are more preferring used. Is that the understanding?
Yes, yes.
Correct.
Next question is from the line of Sunil M. Kothari from Unique BMS.
Sir, congratulations for such a wonderful performance during last year; and then 5-, 10-, 15-year commendable job you are doing. Sir, your view, macro view, on the competition intensity by banks, private, public. They are moving inside the country, in the -- from Tier 2 to 3, 4, 5. Then other small NBFCs and small finance banks. If you can throw some light and your understanding about intensity of competition will be really helpful.
Yes. So as we maintained and mentioned in the past also, the banks are more into the top of the pyramid and in the urban market, salaried class and with financial class category of the customers. We are in the self-employed category of the customer; and Tier 2, Tier 3, Tier 4 town. And as we see the growth coming in the country, economy is growing. The bottom of the pyramid of the category and the cities are also doing better. And small commercial vehicle, light commercial vehicle used, loan against property, smaller-ticket-size loan or affordable housing or SME smaller-ticket-size loan or equipment finance or business loans, consumer loans, those things are growing better, where -- which is basically being funded still by the NBFC and the smaller finance companies. And it's going to be continuing because we are a developing country, and this developing to developed country will take another 20 years for reaching to that level. And we will be definitely growing because of the opportunity available in the country.
See. SBPL is another product which is basically providing funding to the SME segment, small, micro SME segment. And if India has to grow, the small SME has to grow. There are so many grocery shop where small merchants are there who are now increasing their sales, but they need capital. They need funding, which we are providing. And then those are actually the with-collateral secured funding and doing well in the market. We need to identify such customers, such market; and also ensure that our processes are very clear and we don't get into any kind of wrong processes by -- in the process of lending customer. So evaluation of the property, evaluation of the customer, the valuation should be absolutely right. Then we can do even self-employed customer who are not in position to produce the income proof but they are doing better.
Correct.
Sir, your view on intensity of competitions compared to, say, last year or 2. Do you see now people are realizing that there should be something [ finite ] in terms of pricing? Because we hear a lot about mortgage business getting madness-like competitions. So what's your view?
See there are 3 situation. One is that like, if the newcomer comes, then they try to basically do higher [ LTV ] and lower pricing and give a higher payout incentive to the person who is actually sourcing. So we are not into that game. And that is happening more into the urban market, not in the rural market. The rural market challenges are collection, evaluation, process and people. So our reach is basically helping us to avoid that competition in the urban market. As far as the competition is concerned, we don't see in our segment competition is that intensive because we are more into the middle of the pyramid, into smaller town, with a smaller customer, where our people who are actually working with us for many years are consistently working. And here the main challenge is how can we retain and how can we train and how can we get the job done without deviating processes, which we are doing [ it ].
Next question is from the line of Kunal Shah from Citigroup.
Congratulations on good set of numbers. So firstly, on yield side, if you purely look at it in terms of the interest income trend [ and the AUM ]. And it seems there is some maybe [ the moderation ] out there in 2Q. Last quarter, you indicated that we should see some benefit, as the marginal book yield is higher -- marginal is higher than the [ book yield ], and we should see some repricing benefit. If you can just help maybe how should we look at the yield trends [indiscernible].
So you're taking on the vehicle finance side or from the overall company side.
No, from overall perspective, if you look at it, because interest income, that number is broadly overall. And so that's where, yes.
Yes. So it is better to see the Page #18, which is [ the 10 ] years sheet which we have given. And total income-to-asset is actually 14.4%; and our ROA 3.4%; our peak ROA of 3.7% in 2018, FY '18, when the income was 14.7%. The cost of fund was 7.1%. Now it is 6.9%, which is similar situation, but ROA was 3.7%, so our target is to take 3.4% to 3.5% and 3.7% by increasing the income from 14.4% to 14.7% and improving the OpEx line.
So we are more or less very close to the peak number. It's just the OpEx is 10 bps high and our -- the income is 30 basis points lower. This 30 point, basis point -- income which is lower is going to come back because in -- because we have 2 type of -- this one is fixed. And the others are floating. The SME and LAP and HL are the floating where the reset has been done, but vehicle finance is actually the fixed rate. That mean it take 2 years to basically come back to the peak level of the income line, which is actually now this year we are going to get back. So that is what is the plan, like how to reach out to 14.7% and deliver 3.7% in next 2 years time.
Absolutely. Sir, I agree on overall income side, but there is an element of fee income led by more of insurance also which we reclassified last time. So maybe other income seems to be slightly elevated because of this fee income [ stream ], but if we adjust for that, then the only thing was maybe overall on the pure interest income that seems to be moderating. So that was the question, yes. I agree completely on the overall income side because of the fee income [ pooled, yes ].
Fee income gets amortized. It is not like you get bulk and do more disbursement et cetera, no. And then it has to be amortized, similarly because [indiscernible] get amortized. Long time back, when we were in iGAAP, we used to [ absorb ] both. That is the fee income [ was trended and the cost also was fully charged off ]. So it won't make a big difference. There has been no visible shifts in those numbers and so they will run as per the [indiscernible].
Sure. And between fee income and the OpEx, so -- would there be any overlap or reclassification which is leading to, I mean, both the line items slightly higher this quarter?
Yes. That is OpEx relating to the insurance income generation comes to us also because, earlier, the...
Yes. So last quarter, there was 160-odd crores there -- maybe I don't know maybe the exact amount, but what would be that quantum this quarter, if we have to look at and put it...
[indiscernible] [ individual numbers ] because I know sometimes some -- it can depend on various factors. Like some businesses, some locations, people will do multitaskings. And that will be [ several people ], so accordingly, the cost gets allocated, but we can't go to nitty-gritty into that right now.
Next question is from the line of Raghav Garg from Ambit Capital.
I just had a few questions. First one is just to harp a little bit more on the OpEx line item. Your employee cost growth is about 100%, whereas your employee base has increased only by 20%, which implies a steep escalation in salaries. Now I understand that you would have given incentives as well, but I've been looking at this trend for last 3 quarters at least where cost per employee has been increasing like some 9,200 -- sorry, 50% to 70%. So how should one read that? That's my first question.
See we have also -- during the year, I think somewhere in the middle of second quarter or far end of second quarter, we shifted a large part of our outsourced employees, which was in a separate company [ catching only through us ], on to our payroll. So from an outsourcing cost, it moved to salaries. So that is one large reason. Of course, expansion of the various businesses in newer geographies and the growth in those, like, divisions have also increased the costs there. This is why the salary cost looks greatly inflated. The other part, which we have said earlier, is the insurance part of the cost also comes into the salary costs because these employees are also working under Chola for generating [indiscernible].
Okay. My second question is on the write-offs. So as per my estimates, I think that comes to about 370 crores or 380 crores for the quarter, which if I look at as percentage of the opening GNPA, that's about 9%. It's trending higher in last 2 quarters versus what we've seen in several quarters previously, a run rate of around 5%, 6%. So why is that? Which segment are these write-offs coming from? Would this primarily be the new business segments?
No. It is, I mean, as the business grows, these things will also -- in absolute terms will look like inflated, but as percentages, they are within the numbers which we are targeting. See. We have always indicated or given a sort of a guidance that NCL as a percentage would be in the range of around -- anywhere between the [ 0.8 to 1.2 ]. We are at [ 1.1 ] right now at a company level, so we are comfortable with these levels.
[ The thing is that, well, we think that it's ] consistent from the last quarter itself, the number...
Sorry. I can't hear you. Apologies.
The write-off number is actually same as Q3 actually. It is the same level. And we mentioned that, the -- from Q3 -- or Q2 level, the write-off in the case of partnership is now in the -- coming in the -- our book. Earlier, it used to be actually netted out against the income line. So that is the reason to that extent the write-off is slightly higher, but it is same level as Q2, [ through ] Q3 and Q4.
Sure, sir. Just one last question from my side, on the home loan portfolio. So when I look at last several quarters, your disbursement growth has been pretty high in the quarters where you expanded the HL branch network pretty significantly, but if I look at last 2 quarters, the HL network has expanded only by 3% to 4% quarter-on-quarter. Does that also mean that your disbursement growth will slow down from, say, current run rate of 24% in the coming quarters, over the next 2 years? Some color on that would be very useful. That's all from my side.
So for the HL, we'll see that we'll be better than the expected market growth. The -- generally a trend is [ to have 13% to 17% ] the industry average. We'll be at least at 25% growth for the Q1. We are expanding the network. The current plan is to sustain and increase the efficiency because this is a year I want that -- the OpEx has to come down because as a company we are focused on increasing the efficiencies, so we'll be focused on productivity and ensure all the collection team members are in place in the branches. In the second part of the year, you will see the growth towards -- we are experimenting the [indiscernible] level explorations. That's Tier 3, Tier 4 rural market. So we are piloting that project. And we'll see the expansion on that during the second half of the year.
Next question is from the line of Anurag Mantry from Oxbow.
Two questions. One is on the SBPL. Sir, if I heard correctly, I think you mentioned that the cost in this can probably inch up a bit and that [indiscernible] offset by OpEx. I just wanted to understand. If you compare, [ let's say, your ] credit costs of, I think [indiscernible] which [ is in the other big, large districts ] there in the space. I think there [indiscernible] credit costs [ is like 70 bps ], so like I just wanted to understand the comment of you think that -- why do you think that those credit costs in the segment can [ inched ] up a bit? And if you can indicate any range. Or do you think -- to where it can inch up.
And the second question is on the used vehicle side. So over the last year, we have seen there's -- a lot of players have basically been focusing on the used segment post COVID, including some of the larger banks, so do you see that putting any pressure on maybe deals overall? Or do you think that the overall pie has expanded? Because as you said, the SRTOs [indiscernible].
Okay. So the first question is the SBPL, where as of now the net credit cost is 0.6%. So we are going to try -- we are going to keep it at this level. Or slightly it will go up. And at industry level, one company is basically similar. So you know that. And you have mentioned that their credit costs -- and we will do better than that. That is for sure. Second is that, in the case of used business, as we mentioned, that -- our fleet is much bigger than the new companies who have started doing it. And all those new companies are actually experimenting in the -- mainly in the urban market, where the rates are slightly lower, but the majority of the business is happening in the smaller towns. And there the fees are better. And that is the reason, at an overall level, we have not seen our used business [ wins are ] coming down as of now.
Next question is from the line of Rajiv Mehta from Yes Securities.
Congratulation on strong performance. I just have one question left. What will be the recent trend in bounce rate and forward flows in CSEL? And is the Stage 2 level there coming down or stabilizing? Just wanted more visibility on future NCL.
[ Ravi ]?
Bounce rate is at around 9%, CSEL traditionally.
Okay. And is the Stage 2 coming off there?
So Stage 2 is actually -- both bounce rate and Stage 2 are maintained at the same level. There is no increase in last 3 quarters.
Okay. And just one data, just the micro LAP. [ We are now taking better Indian ] LAP product within the overall [indiscernible] overall disbursement. What has been the trend there?
So micro LAP is part of the LAP product. And so what is the trend you are asking for? Sorry.
Share in disbursement [ in any way ].
So it's about -- currently, on a monthly disbursement level, that's about 10% to 12% of our LAP disbursement is our micro LAP disbursement.
Next question is from the line of Bunty Chawla from IDBI.
Most of the questions has been answered. Just one point: On the slide, you have given the margins improvement on a quarter-on-quarter basis, which is approximately 40 bps. So if we see that has been driven by the yield increment, have we taken any price hikes during the quarter? Or is it just due to the business mix change? If you can just throw some light on that.
So in the case of vehicle finance, we have increased the prices in the month of December, across all product segments. And that has helped us to increase the yield further, but that is on the marginal book [ yield ]. In the case of...
We have done both margin yield [indiscernible]...
[indiscernible].
So on the LAP side, we have done both increase in the margin yield as well as we have done a price reset of INR 0.40, but that's only in the month of March, so we don't have much effect from that. But the primary reason is on the marginal yield increase.
So can we say as -- previously, we have shared that cost of funds seems to have [ re-peaked ] out. And if there is a -- no rate hike or stability in repo rate, there should be further improvement in the margin because incremental yield should go ahead because of the rate hike taken.
No. It is possible, but I would right now hold. As I said, that's all that putting -- put together is what is the improvement in the ROTA we are talking about. Let's see, as we progress into the year, where the cost of funds settles down. Because there are other things we have to look at it. As we widen the base for borrowing, that can be incremental costs like [ ACD ] or public debt et cetera, but we will watch it. And we will -- right now we don't want to overpromise on those numbers.
So as you've given the 15-year data. What we have observed in last 3 years, there has been a decline in the margin, so I just need to say that at least we can, say, sustain at this 7.5% level for a full year basis, at least...
[ See. We can -- we'll go back to ] pre-COVID levels. We will be back to pre-COVID levels.
[Operator Instructions] The next question is from the line of Bhavya Sanghvi from Fortress Group.
First of all, many congratulations. My question is actually on the geographical expansion. So we feel that the new businesses have been co-located with the vehicle finance branches, so what are we doing to enhance the capacity in the branches going ahead? So geographical expansion itself. And second question would be on the fee income. So we've seen continuous improvement in the fee-to-assets as a percentage, so what is the management's outlook? And things that you are doing to improve the fee mix.
Okay. So good one, that all the branches are co-located. And whenever the branches are [ having a concern in terms of the place ], we are actually relocating. So every year, we are doing 2 things: one, the new branch opening; and as well as the relocation of the branches. And so almost 20% of the branches are getting relocated because they need more space. We have done that. In this last financial year also, almost 300 branches basically expanded. And that means we have opened up new premises which is larger than the existing one. And at the same time, we have opened up new branches, close to 300. We have 545 RLHs operational for vehicle finance, where we are going to convert them into branches in time to come once they start hitting the threshold, but now as and when they start hitting the threshold, we are creating provision for other business line also because, within a year or 2 years time, the other business also will start coming. So from the beginning itself, we are trying to basically get bigger premises for the new branches as well.
Got it, sir. And on the fee front, what are the management taking efforts to enhance this?
We have been continuously working on the fee side, whether it is a disbursement fee or it's the insurance cross-sell. Or it is a collection fees. All, we are working. These are part and parcel of the business because the business is growing. And obviously the fee part is along with that growing, but in terms of percentage, it is maintained. And as we mentioned, that it is not [ that ad hoc basis ] we are taking the interest. It is not the upfront income we are booking. It is an amortized fee income which is coming in our book.
Next question is from the line of [ Vikram Subramanian from Marshall Wace ].
I just wanted to get some clarification on the overall ECL cover. So this is something that we've been noticing has been steadily dropping. So now the overall ECL cover is at about 170 bps on the total portfolio. I understand the portfolio quality has been improving steadily and has set a very good stage right now, but is there any plans to create some macroprudential provisioning given we are at a very good credit cycle? And this is a good time to create some buffers for sometime later when cycle could turn bad. And also given the fact that 170 bps seems a bit low, I just want to know at what point you might consider creating such a provision. Is it based on a time frame? Or is it based on any early warning signals?
See the provision coverage is a derived number based on the PD, LGDs of the respective products. Now on top of it, we are also building macro-based provision requirement. Actually, this time, the macro projections as per -- the macro projections are also done by an external consultant. And the macro projections, because GDP growth and all other factors, are positive. So the macro provisions also, we could not make any large incremental provisions on that because we have to be -- or constrained. We are constrained with making provisions within the model. We can't, on our own, increase it with 2% or 2.5%. And if the portfolio is behaving well, then that is reflected in the PD, LGDs; and accordingly, provision needs to be made. Only in the period of COVID we made a management overlay because of the uncertainty in the environment. Unfortunately, Ind AS does not allow us to create incremental provision.
Having said that, I want to mention that, as compared to RBI, we are -- our provisioning norm, we are almost 700 crores above that norm. So the portfolio quality is good. The NPA numbers are lower, so accordingly, these numbers will come. If you are looking at it on an overall basis, because Stage 1 and Stage 2 numbers will be -- we'll drive down. Because there the denominators will drive down this ratio if [ my schedule ] is good. So it shouldn't be that we should penalize when [ my schedule ] is larger -- and make it like, "No, no, no. My provision coverage is not adequate." So provision coverage is to be looked at on the NPA numbers, which we have maintained at the 45% numbers; which we have increased to 46% or so, which is around the 45%, 46% numbers; which is why the risk rise. And we are having adequate coverage.
Sure. That's clear. So no, I also asked because on Stage 1 as well there seems to be some reduction in coverage, but that's clear. If I may, just can you give some color on what the current PD and LGDs are for...
No, no. We cannot give those numbers. These are -- I mean these are not one-season numbers, let's say. Even for every product, there is so much, subsegment-wise, [indiscernible], but breakup of the segments, we have covered it in the presentation. I think it's there in the ECL policy note in the -- which is on the website, [ I mean ].
Next question is from the line of Piran Engineer from CLSA.
Congrats on the quarter. Just one question on the funding side...
Yes.
Am I audible?
Go ahead. Yes -- we cannot hear you.
Is it better now?
Yes. Go ahead.
Yes. No, just wanted to understand. How has the incremental cost of funds, not just from banks but across all types of creditors, moved over the past quarter with the risk weight guidelines? And secondly, is there any cost difference -- or rather how much is the cost difference between securitization and your bank borrowings?
See it all depends on the nature of [ asset ] that gets securitized vis-à-vis bank borrowings and where we [ give underlying assets ]. In both cases, we'll leverage priority sectors. So if there is a priority sector segment, there is a benefit of around 25 to 40 bps, depending on what sort of priority sector assets we'll provide. Like that is a larger benefit on agri [ as well as centers ], a smaller benefit on [ M1 ] category or [ M2 ] category of MSME. All this needs to be supported by documents like land documents for agri as well as [ ODM ] certificate for [ others ]. So there will be differences between each of these lending -- or borrowing profiles. Independently, I cannot discuss on the pricing of each vertical because that [indiscernible] sensitive information as well as not publicly available information.
Okay, okay, fair enough. And just on how incremental cost of funds have trended, say, since November...
No. That's already given. We have held -- we have brought it down marginally. And if you look at the full year, we are at the 6.9% levels which we have talked about on an AUM basis. At a borrowing level basis, it should be in the range of around 8%...
Okay. So that has not moved up. Like that's not changed really.
Piran, it will keep moving, depending on mix. It's not like, if I keep doing more of short-term, long-term securitization, it will move. I mean you have to look at it. I think there are a lot of disclosures we are giving by itself. It's quite exhaustive, so I think -- well, we can't extend this beyond this.
Ladies and gentlemen, that was the last question of the day. I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities for closing comments. Over to you, sir.
[indiscernible] for giving us an opportunity to host the call. Thank you very much, and have a nice day.
Thanks....
Thank you.
Thank you. Thanks...
Thank you. On behalf of Kotak Securities: That concludes this conference. Thank you for joining us, and you may now disconnect your lines.