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Home First Finance Company India Ltd
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Ladies and gentlemen, good day, and welcome to the Home First Finance Company India Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Manish Kayal, Head, Investor Relations. Thank you, and over to you, sir.
Thank you, Darwin. Good afternoon, everyone. I hope that all of you and your families are safe and healthy. I extend a very warm welcome to all participants on our Q1 FY '24 conference call. As usual, Home First management is represented by MD and CEO, Mr. Manoj Viswanathan and CFO, Ms. Nutan Gaba Patwari. I hope everybody had an opportunity to go through our investor deck and press release uploaded on stock exchanges and on our website yesterday. We have also uploaded the excel fact sheet on our website. We will start this call with an opening remark by Manoj and then Nutan and then we'll have a Q&A session. With this introduction, I hand over the call to Manoj. Over to you, Manoj.
Thank you, Manish. Good afternoon, everyone. I'm pleased to share with you the highlights of our quarter 1 FY '24 performance. We delivered a PAT of INR 69 crores for quarter 1, recording a growth of 8% on a Q-o-Q basis and 34.9% on a Y-o-Y basis. This has helped us touch the 15% ROE mark, which is an increase of 60 basis points on Q-o-Q and 220 basis points on a Y-o-Y basis. ROA holds steady at 3.9%. Disbursement in quarter 1 at INR 895 crores, was 3% higher on a Q-o-Q and was 35.4% higher on a Y-o-Y basis, leading to an AUM of INR 7,776 crores with a Y-o-Y growth of 33.3%. We take focus on housing loans, which form 87% of our AUM. Strong liability management has enabled spreads of 5.7% in a steep interest rate environment. Asset quality is at pre-COVID levels and reflect marginal seasonality impact in quarter 1 FY '24. 1+ DPD increased from 4% to -- in quarter 4 to 4.3% in quarter 1, but showed a Y-o-Y decrease of 70 basis points.
30+ DPD increased from 2.7% in Q4 to 2.9% in Q1 but showed a Y-o-Y decrease of 60 basis points. Gross Stage 3 is stable quarter-on-quarter at 1.6%, showing a Y-o-Y decline of 50 basis points. Prior to such classification, it stands at 1%, up by 10 basis points from quarter 4. Our credit cost is at 40 basis points for the quarter.
We will now move on to some more details on the business and our outlook for the current year. Talking about technology. Technology has been at the center of our business since inception. Systemic [ satellite ] controls have been implemented across all our operations, providing a strong backbone for our risk management and internal audit processes. Technology continues to be a key driver with several projects lined up for release during this year, including our new and improved website. App registration continues to be high at 93% with usage of 55%.
We have 2 key highlights for quarter 1. Successful adoption of account aggregator model to access the bank statements of customers. This has dual benefits of maintaining customer privacy as well as providing richer and more reliable information to underwrite the loan. Usage of e-signature for loan agreements has moved up to 59%. This has the dual benefit of error proof customer authentication as well as customer convenience.
Coming to distribution. We added 2 branches and 17 touch points in quarter 1. We now have 113 physical branches and 282 touch points. We are targeting an AUM growth of 30%-plus for FY '24 to enable us to cross the INR 10,000 crore AUM mark in the next 12 to 15 months.
Coming to people. We are pleased to report that we have added 112 employees in quarter 1 to reach a total strength of 1,105 employees. We have expanded our ESOP coverage to encompass 358 employees, which is 33% of our total employee base.
Demand continues to be strong in the affordable housing sector. With our expanded distribution and employee base, we are well placed to gain market share and deliver strong numbers in the rest of this financial year.
With this, I would like to hand over the call to Nutan to take you through the financials. Nutan, over to you.
Thank you. Good afternoon all. I'd like to start by mentioning that we have touched 15% ROE in quarter 1, a number that we've been looking forward to.
Moving to financial performance. Our Q1 net interest margin is robust at 6.1% on the back of calibrated PLR increases over the last few quarters and the drawdown of NHB funds, better utilization of balance sheet and operating leverage. Net interest income has gone up by 30.3% in Q1 FY '24 on a Y-o-Y basis. Spreads at 5.7% remains well above our guided range of 5.25%.
OpEx-to-assets is at 3.1% for the quarter. We expect this ratio to remain in the range of 3% to 3.2% going ahead as we focus on expansion. Cost-to-income at 36.3% in Q1 FY '24 is an increase of 190 basis points on a Q-o-Q basis. Credit cost at 40 basis points is also within our guidance range of 30 to 50 basis points.
Our balance sheet is stronger than before. Starting with borrowings. The company continues to have diversified and cost-effective long-term financing sources. We raised funding of INR 1200 crores in Q1 itself. This remains diversified across banks as well as NHB. Our current borrowing mix is 54% from banks. NHB refinance share increased from 15% in Q4 to 22% in Q1 due to drawdown of INR 600 crores during the quarter. 17% is strong direct assignment, 4% is from IFC, which is an NCD.
We continue to have 0 borrowing through commercial paper. Our cost of borrowing is competitive at 8%, just an increase of 10 basis points from 7.9% on a Q-o-Q basis despite the continuous impact of MCLR increases on our borrowing book.
Coming to capital. Our total capital adequacy ratio is 46% with Tier 1 at 45.5%. Our debt-to-equity is now 3x. Our June's net worth stands at INR 1,868 crores post-dividend payout in June. Our book value per share is at INR 212.
Moving to provisions. We have remained conservative and continue to carry provision over and above the ECL requirements. Our total provision coverage ratio stands at 57.1%. Prior to GNPA's reclassification as per RBI circular, our PCR is at 90.8% in June '23.
With respect to specific transactions, we did direct assignment of INR 79 crores during the quarter as a liquidity strategy. We continue to have robust demand for our portfolio of assets. We also executed co-lending transactions of INR 35 crores in this quarter. Co-lending business is growing and expected to contribute around 10% of our disbursements in the near future.
With this, I open the floor for Q&A. Thank you.
[Operator Instructions] The first question is from the line of Abhijit Tibrewal from Motilal Oswal Financial Services.
Am I audible?
Yes.
Yes.
First of all, congratulations on a very good quarter. So Manoj, Nutan, before I kind of ask the questions that I had, just wanted to understand the kind of delivery that we've had for many quarters together now. What is it that you think from these levels can go wrong? Or in other words, if I were to replace this, what is it that kind of makes you anxious looking at the overall credit landscape today [indiscernible] in particular?
So Abhijit, I think we have actually come through -- over the last 3 years, we have actually come through a fairly stressful period during COVID. And from a credit perspective, if something were to go wrong, I think that is the time when we saw things going wrong and several customers being impacted by COVID, et cetera.
Post that, the market has actually picked up, the demand has picked up. And also the credit performance of the repayment behavior has actually improved quite dramatically across the industry, not only for us. So today, we are actually seeing a far more disciplined and mature behavior from customers. And so as such, I think the answer to your question is that there is nothing as such which we feel anxious about at this point from a credit perspective.
Got it. Sir, the other question that I had is, I mean, this increase in bounce rate that we've seen in this quarter and subsequently in July, is it just more to do with seasonality or there is anything else? Because you like -- I'd like to rightly put, I mean, repayment behavior across the industry has increased more dramatically. I mean none of the data really points to the fact that, I mean, delinquencies could increase even in the foreseeable future. So how to read this increase in loan sets?
Yes, it is -- I mean we would just put it down to seasonality because if you look at it historically, I mean, prior to COVID also, if you go back in history, generally, the first quarter is -- first 2 quarters, delinquencies generally tend to inch up a little bit. They were settling down again in the next 2 quarters.
I guess we are seeing a similar kind of -- because, see, last 3 years, we were actually used to seeing continuously declining numbers because it was all basically a recovery from COVID. So we were expecting every quarter that we would do better than the previous quarter because customers were recovering from COVID and they were coming back and repaying.
But now that things have stabilized and kind of reached a pre-COVID level, I guess these kind of fluctuations quarter-to-quarter, depending on seasonality, is something probably we have to start looking at.
Got it. One more thing on, I'd say, employees, Manoj, I mean, how to read this, I mean, fourth quarter when we added about 9 branches, the kind of employee addition that we had versus this quarter when we have added 2 branches and about 112 employees that have been added. So is it more like a timing issue kind of a thing, some branches are in progress of being opened and then they eventually open in the next quarter, and this is what is leading to this? Or are there certain functions today in addition to employees that we need at branches that we are kind of building on strengthening so as to say?
So, you are right. So the employee addition is more a function of timing because we predominantly hire from campuses. So generally, there is a large number of people joining in the first quarter because that's when the campuses finish their exams and they release the people for joining. So that is the reason people have joined, although the branch addition is only 2. Brand addition is also sometimes bunched up. So for example, we have a number of places there. There is interior work going on. I mean, leases have been signed. But we normally declare the branches open once everything is done and the branch is open for business. I mean not when the deal -- not when the lease is signed. So some amount of bunching up happens. So for example, we are expecting about 5 to 6 branches to be opened in this quarter -- in the quarter that we are in. So -- and those branches will also need people. So those people have already joined. So it's more or less a timing issue.
Perfect. And my last question was for Nutan. Well, Nutan, if you look at, I mean, the cost of borrowing trajectory, obviously, you've reported the incremental cost of borrowings, ex of NHB and including NHB. But now given that where we are, I mean, what quantum of MCLR increases are yet to reflect in our cost of borrowings? And from here on, for the next few quarters, how should, I mean, these -- I'm not sure if you've done any more increase in these or PLRs this quarter, but how should yields and cost of borrowing trend leading to what kind of spreads?
And maybe if I can squeeze one last question. I mean, from a process perspective, we would have noticed that recently there was one HFC there in India identified some frauds. These are more in the nature of internal growth, not on the lending side. But I mean, from a process perspective, I mean, what is it that we are doing to further strengthen those processes just to ensure that something that has happened in the peer does not really happen in your organization?
Sure. So Abhijit, to address your first question on cost of borrowing and yield. Cost of borrowings, most impact of MCLR has already come through. There is some lag effect still to come. So based on our projection, like we've been seeing, [ INR 820 crores, INR 830 crores ] is where we are seeing the peaking to happen. This also assumes that there is no further policy rate change in India.
So with that assumption, I think, another 20 to 25 basis points at best is what we should look at. Now when we are saying that we are not looking at repricing our customers on a totality basis anymore. And if we still go through the whole journey on [ INR 830 crores ], we should be able to achieve the [ INR 525 crores ] spread that we've been guiding. So that's what's playing to our mind.
At the later part of the year, if we see some softening of interest rates, et cetera, then the conversation can be different in terms of when do we start passing on to the customer, but that's for another quarter conversation.
On the process side, let me just get started and, of course, Manoj will add. See, on the process side, at every step of the process, starting from the underwriting to the -- when you look at our processes of function, the 9-step process that we have in a loan journey, the disbursal, the checks, the penny drops, the reconciliations and less that we do across the operations and finance teams, kind of put us in good stead.
Now when we do most reconciliations, they have done seamlessly across functions through use of multiple scripts written on whether it could be Python or some other aspects. So these systems and processes are well set in our situation. We are not worried like, for example, central disbursement is something we have done right from the very start of the company, just as an example. The topical issue that you raised is around disbursements, and that is something we've been doing right from the very start.
Manoj, you want to add to that?
Yes, I just wanted to say that we have been focusing on systemic controls right from the start, which is why we have always kind of advocated a centralized underwriting as well as operations and disbursal process. So the thought process at every stage is that the control should be established in the system itself so that it's not led to any manual process of check and balance for any of the critical processes.
So even in the case of, for example, bank accounts, we do a penny drop on the customer's bank account. So a person who owns the property is the one who gets the payment or the disbursal from us. So the person who holds a title to the property, we check. We ask them to give us a canceled check to verify the bank statement, and that is the bank into which the disbursal goes in. So we have established those kind of systemic checks in each process, which ensure that all the loopholes are covered. I just wanted to add that.
We have the next question from the line of Shreepal Doshi from Equirus.
Congrats for good set of numbers. My question was pertaining to the rate hike. So have you taken any rate hike since April? We had already taken 125 basis point of rate hike. So post that, is there any rate hike and is all of the rate hike already factored in the interest income now?
So the last rate hike that we took was 50 basis points effective 1st April. So that fully got absorbed in the quarter. It will be reflected in income.
Okay. Okay. And on the cost of funds, if there was no benefit of NHB borrowing, what would be our cost of fund against the 8% that we have reported?
So the overall marginal cost of borrowing for this quarter is 7.6%; excluding NHB, it's 8.8%. So if we did not have NHB, the cost of borrowing would have been higher by almost 20 basis points -- 15 to 20 basis points.
All right. So basically, broadly in our range of 8.2% to 8.3% that we've been guiding for?
Yes. Yes.
All right. And then what's the reason behind the increase in 1+ DPD and 30+ DPD?
Increase in 1+ DPD and 30+ DPD?
1+ and 30+ is, I would say, put it as more seasonal because the last 10 quarters, we have kind of continuously driven down the delinquency, and a lot of it is recovery from COVID. Now that things have reached a kind of steady state, if you look at the 1+, 30+, they have reached kind of pre-COVID numbers. So there could be minor movements between quarters. So that is basically what it is.
Got it, sir. Sir, one last question was pertaining to the increase in EMIs for our customers post complete implementation of this rate hike that we have taken. So what has been that for our customers, the increase in EMIs?
The increase in EMIs, about 65%. 50%, 55% of the customers have no increase in EMI. We are about -- 30% of the customers who have an increase of between INR 1 to INR 1,000. And we have about 5% of the customers who have more than INR 1,000 increase.
Got it, sir. Sir, just last question on the growth front. We've been delivering more than 30% Y-o-Y growth for the last 5, 6 quarters, while you've been guiding for close to 20% to 30% growth. So would we look at revisiting this growth number given that our first quarter has also been such a strong quarter? So any revision of growth for the year?
No, we have been guiding to a 30% AUM growth. So -- and that's where we are at the moment. I mean we are a little higher than 30%. So we have always been guiding to a 30% AUM growth.
The next question is from the line of Raghav Garg from AMBIT Capital.
Congrats on a good set of numbers. I have a couple of questions. First one being on [indiscernible]. They've expanded by about 30 basis points quarter-on-quarter despite the rate hike being about 50 basis points, and that has been fully absorbed.
I also note that the share of high-yield non-HL has gone up. So the point that I'm trying to make here is that the 50 basis point hike that we change in portfolio mix doesn't fully reflect in the quarter-on-quarter change in the reported yields. So should we understand that there is some sort of pricing pressure because of competition that you are facing? That's my first question.
So Raghav, there is a portion of NHB, which we don't reprice because that is fixed to the customer and fixed to us. So because of that, this shows a slightly lower increment than the PLR increase.
Okay. Fair enough. My second question is that the BT out has also been going up. Any specific thoughts on that? That's been up since last 2 quarters. Or not really a concern as of now?
It's not increased very substantially. So it's not a major concern at this point. I think could be little bit of a reaction to rate hike, etc. But largely, it's in the same range of 4% to 6% that we have been talking about since last 10 quarters. So the -- we'll have to watch it for some time. But as of now, it's not something, which is a matter of biggest anxiety.
But would you have observed any kind of competitive tactics by some of the large financiers in this quarter?
No, nothing which is very, you can say, obvious kind of activity, which is -- so generally, in the last quarter of the year, there is a lot of interest in balance transfers. But last few quarters, it has not been a focus area for many companies because the rates have also gone up. So balance transfers are also a little difficult to achieve. But this would be probably just a reaction from customers to the headline rate increases because they are hearing about rate increases all the time. So some customers probably are taking the initiative to get it transfer to a lower cost lender. It could be just that.
Sure. Just my last question. Can you elaborate on -- so I noticed that the treasury income has been going up. And if I look at that as a percentage of average investment and cash balance at an annualized 12% figure for this quarter, it was I think 10% in last quarter. What sort of instruments are these? Because that seems to be contributing a lot to the overall ROA/ROE. Could you explain a little bit more as to where are we investing this money and whether this yield is sustainable on the investment balance or not?
So Raghav, there are only 3 instruments which we can invest our extra funds. The first one is fixed deposits with banks, T-bill with RBI and liquid and overnight funds with mutual funds identified where there is no A+ category exposures where the underlying has no A+ category exposures. So those are the only 3 categories of funds we are allowed. At present, the [ ED specific ] earning on this is in the range of 6.5% to 6.6%.
Coming into the part of sustainability, this will really depend on the lower end of the interest rate curve. It's a reflection of that because T-bills, fixed deposits and liquid funds are directly mapped to the overall policy rate as well as the open market rate. So if we are saying that policy rates are stagnant for some time, so this should be.
Sure. The calculated yields seem to be way higher, but I think I'll take that off-line in the interest of time.
So calculated yields, the challenge is that sometimes towards the quarter end, the investments show a slightly lower number. You will have to add the cash and bank balances on the balance sheet and the investments together and then calculate the yields. It should come around 7% from there.
The next question is from the line of Kunal Shah from Citigroup.
So with respect to this bounce rates, again, going up in 1Q and currently being at almost like 15-odd percent level, should we expect then maybe in terms of the 1+ delinquency and 30+ delinquency, it should broadly be something which we have seen all past 2 quarters and might not get down towards the pre-COVID level, okay? So maybe pre-COVID of 1+ was almost like 3.2% and in fact, 30+ was somewhere around, say, 1.7 to 2-odd percent. So does it seem that now it should be more kind of a range bound in the current levels?
Not really. I think, like we said, there is a little bit of a seasonal uptick, but our attempt is to continue to keep working on these numbers and keep improving these numbers. We also track, I mean, other than the bounce rate itself and as you mentioned, there could be some flow from the bounced cases. But we also track the actual flow from the current bucket to the next bucket. And that number has been fairly stable or rather shown some improvement over the last couple of quarters, so which is what gives us the confidence that the numbers can only improve. I mean it can only be stable or improve further.
So I'm saying these are 2 independent numbers. I mean, so -- what 15% of the customers are bouncing and then some of it is flowing forward. Independent of that, we are also looking at customers who are current at the beginning of the month and then what percentage is flowing forward. So the flow from the current bucket has been stable or slightly improving over the last couple of quarters.
Sure. Okay. And secondly, in terms of the sequential momentum as well in terms of the disbursement, that's been quite good. So in fact, when we look at it, does it give much more confidence with respect to maybe the overall AUM traction? And would we maybe -- stick to like maybe 20-, 30-odd percent branch addition during the fiscal given that it was hardly like 2 odd branches and maybe 1Q could be seasonally slow even in terms of the branch addition?
Yes. We are looking at about 130 by the end of the year, which is what...
So around 20 branches in this fiscal?
That's right.
Okay. And in terms of the growth, does it give you more confidence in terms of building the traction even from this level?
Yes. So growth is a function of the disbursal numbers. So disbursal numbers, we are already at a run rate. I mean -- so let's say, if we take INR 900 crores as the current run rate, so that is INR 3,600 crores for the year. So INR 3,600 crores for the year should give us the desired AUM growth.
The next question is from the line of Nidhesh from Investec Capital.
So firstly, on the bounce rate -- on the BT out rate that we have seen slight increase. Is there any peculiarity that we have seen the customers for which EMI has increased, those customers have moved out? And have we also tried to look at the reasons of BT out? Is it interest rate or higher funding that these customers are seeking?
No. BT out is -- generally what we are seeing as BT out is triggered by customers who are just getting -- who are interested in getting a lower interest rate. And I guess the continuous hammering of information -- of this news over the last 1 year that rates are going up and we have also done 3 rate increases. So that will be playing on people's minds. And some people would kind of, you can say, move out of their inertia and start looking actively for another lender. I think that is really what is playing out over here.
The number of customers who have, you can say, significant EMI increase is very, very small for us to draw any conclusions. So like I said, hardly 5% of our customers have even a INR 1,000 increase in EMI. So that is really not a significant base for us to draw any conclusions. But yes, broadly, the interest is to reduce the interest rate.
Okay. Sure. Secondly, if you look at the attrition rates on annual basis, that still remains quite high at around 40%. That I know is an industry phenomenon, but what we are doing to the attrition rate of employees because I think that hampers the growth opportunity or possibility of the business model over a medium to longer term?
Attrition rates have actually moderated for us. So if you see last year, our overall average was about 39%, 40%, close to. But the last quarter, quarter 4, was a little lower. And quarter 1 has been actually substantially lower. So it's been about 26% actually. So in fact, quarter 1 is actually even better than pre-COVID levels, when the attrition used to be around 30-ish. So yes, too early to draw any conclusions. But yes, quarter 1 attrition has been much lower.
Okay. Sure, sure, sure. And on the ROE, we have reported 15% ROE in this quarter. And now going into the year, I think there will be a pressure on margins, say, 20, 30 basis points. So how should we think ROE for the full year?
So Nidhesh, we have to look at the balance sheet management overall from a NIM perspective first. Then we also have some other non-income -- noninterest income lines, which we could look at. But we have visibility of 15% ROE for the rest of the year.
Sure. And next on the co-lending. So in co-lending, when we do co-lending, the income comes into interest income or this element which also comes into fee and other income on the co-lending?
No, there is no upfronting in co-lending. So there are 2 portions of the income: the processing fee growth in the interest income line like it goes for everyone else and for the spread portion it comes over the tenure of the loan in the interest income line itself.
Okay. So there is nothing which comes in fee and other income on the co-lending?
No, no, no.
Sure. And just last question on the active connector base for the quarter -- Q1, what was the count of active connectors we had in Q1?
2,500.
We have the next question from the line of Nischint Chawathe from Kotak.
Congrats for the quarter. If I look at the AUM mix on average ticket size, and we are able to see a consistent rise in the average ticket. Fourth quarters, how would you see a shift further appearing towards the average tickets? Or are we kind of stabilizing at these levels? And if so, what is the implication on the business in terms of margin, in terms of employee incentivization and asset quality?
So on the ticket size, if you see any distribution in the AUM, there is a certain distribution. And you see our current disbursals, the disbursal is also very similar to what is there in the AUM. I think you were probably referring to the ticket size of about 2.5 million, which is showing a slight increase. I think that is basically because of co-lending. So if you -- I mean, if you take off 1% or 2% because this is a contribution of co-lending, the numbers are fairly static across cross quarters.
If you see the AUM mix actions...
Sorry, go ahead.
So if you see the AUM mix on average ticket size, both above 1.5 million to 2.5 million, above 2.5 million, I think, on a year-on-year basis has seen a kind of a fair amount of increase. So I'm just trying to say that whether it kind of stabilizes at least 28% and 11%, whatever now so...
So, yes, I think this is because of probably not very high ticket sizes, but within the 0 to 25 or 5 to 25 banks, slight redistribution is there. I think the 5 -- 10 to 15 lakh ticket size segments is moving up slightly if you look at our current disbursals. So that is probably increasing the overall ticket size. But that is more of a inflation linked movement and the movement in the ticket price. Nothing that we have done structurally to change our focus.
So the question essentially is that if I look at how would these ratios looking like 4 quarters down. Is it that kind of keep on seeing the higher ticket increasing because [indiscernible] goes up or is it something that now we probably made a shift to one...
So I think probably 2 trends that we can expect, is one is that the 20 -- the 2 million plus, so the 2 million to 3 million range or the 2 to 2.5 and 2.5 plus, we can expect some increase because of co-lending. If we will take away the co-lending, it should be largely the same as what we have been doing in the past.
Within the 5 to 25 lakh range, I think customers who are earlier purchasing houses below 10 lakhs are probably going beyond the 10 lakh range. It's purely an inflation like [indiscernible]. So the 10 to 15 lakh segment has moved up slightly. So you will see that peculiar increase playing out in the overall average ticket size also. So earlier average ticket size used to be in the INR 9 lakh to INR 10 lakh range, but now you're seeing it more like INR 11 lakh to -- sorry, INR 10 lakh to 12 lakh range.
So that's really -- so these are the 2 trends that I'd like you to play out. So more loans than the 10 to 15 lakh range which will probably come through. And this is also because of a strong presence in the southern part of the country, where affluence is higher and ticket sizes are slightly higher. And that is creating a small peculiar movement on the overall average ticket size. But structurally, I just want to assure you that we have not done anything to, you can say, incentivize or migrate people to source higher ticket cases.
And how do you incentivize employees? I mean, is it on a number of cases or ticket sizes and then there will be an actual information to kind of -- to do these larger tickets?
Right. So we do both. So there is a value target for employees, and it's also moderated by a number of loans that we need to activate. So indirectly, it boils down to maintaining the check on the ticket size.
Perfect. And just one small question is, any other NHB lines of funding that are there in the pipeline?
We are in advanced stages of discussion. There should be something in this quarter, but only when it comes, we can be sure.
And these lines of funding on an incremental basis are still sort of a little lower than the rest of the base or a kind of...
Yes, yes, yes.
The next question is from the line of Mayank Agarwal from Incred Capital.
So my first question is on basically above 80% LTV loans. So we have increased -- seen an increase of 19% Q-o-Q growth in this segment. Any specific reason for that? And what kind of customers are these? And can we see the growth in higher-LTV loans going forward?
No, this is again -- there would be some uptick because of a minor movement because of co-lending because co-lending largely comes from apartment-led loans where the [ LTB ] is tend to be higher, and that's industry practice also. So that co-lending loans generally come in 80% to 90% -- about 75% to 85% [indiscernible]. So there would be a slight movement because of that. Other than that, we don't see any reason why that particular band will go up.
Because this was basically INR 200 crores growth in...
Sorry to interrupt, but your audio was not clear in between. I request you to please repeat your question.
Is it better now?
Yes, a little better. Sir, please go ahead.
Yes. Because actually, I'm seeing INR 200 crores of increase in this quarter for this segment?
Yes. But if you look at it from a percentage basis, the ratio is the same or slightly lower actually in terms of ratio.
Okay. So basically, it's due to co-lending only? Okay, okay. Got it, got it.
Yes, yes. It's due to co-lending only, and there is no change in trend. I mean whatever trends we have been posing earlier, the same trend that is continuing. In fact, if you look at it as the ratio of the overall portfolio, it's slightly lower than a year.
Okay. And my second question is basically, we have indicated a spend of 5.25% earlier. But now, currently, we are in a spread of 5.7%. So as you mean, in this quarter also, we have increased liquidity of INR 250 crores because of the NHB funding. So are we -- when is it possible -- because you indicate 20 to 25 bps of increase in cost of fund only from here on. So how we could reach to 5.25?
We are looking at appropriate origination yields also. And we're also trying to keep some buffers on our side.
Are you saying that the rate is already 5.7, right? Would it go down to 5.35, is that the question?
Yes.
Yes, yes, yes.
Yes. So we are in -- I mean if the rates moderate or taper out some years, then it is fine. But we will still have to pass on if there's any reduction in rates going forward. And we'll have to pass that on to customers because when the rates went up, we have passed it on to the customer. So we'll have to pass that decrease also to the customers. So that is one reason why the rates would trend down. And still, we are not very sure whether the rates will go up or not. There could still be a possibility that the rates could go up from here by maybe 10, 20 basis points.
Sure, sure, sure. Okay, got it. Okay, sir, my last question is, now we are at an ROE of 15%, while we are still sitting at a capital adequacy of 45%. So what levels of leverage would be comfortable at? So in 1 or 2 years, let's say, if you reach by 18% ROE, would that be sustainable or that could see a further increase?
You mean increase in capital adequacy or increase in ROE?
ROE. ROE. What could be the -- what it can expand?
So our goal for this year, the 15%, now for the rest of the year, we would like to sustain this. Next year, we would like to cross 16%.
Because we are going at a 30% kind of ROE growth. We are making a 3.9% kind of ROE to which -- that basically indicated 2% kind of increase in ROE this year also.
We are -- given the interest rate environment and the cost of borrowing increase, it will be a bit early to comment to that.
The next question is from the line of Aravind R from Sundaram Alternates.
[indiscernible]...
Sir, you are not audible. If you could please use the handset while you're speaking?
Is it better now?
Not really. Sir, the volume is low. Maybe you could hold the mic closer?
Yes, is it better now?
Yes, this is much better, sir. Please go ahead.
Yes. Congratulations on the great set of numbers. So I understand like we have increased like 125, 150 bps like on the yields of the -- yields to the customers from -- if you consider from the fourth quarter of 2022. Am I right?
Yes, 125 basis points.
Yes. So my question is this, like -- so I could see you like average yields also gone up to that -- in a similar extent, 120 bps, but at the same time, like our mix shift towards more and more towards self-employed and yes. So -- but like -- still like the yields, I thought like you could have gone even more higher. So that is one of my -- first question.
And I just wanted to understand like rate sensitivity kind of a thing. Like, let's say, like 100 bps or 50 bps cut, what could be like impact on yields or the cost of fund?
So on the yield, the -- there's a very, very marginal increase in self-employed, I think probably 1 or 2 percentage points. That will not really change -- move the needle too much. Because the self-employed rate is about 50 to 75 basis points higher than a salary to customer. So -- and with a 1% or 2% movement in self-employed, it will not change the overall yield too much.
And as far as sensitivity is concerned, we are anyway consciously trying to keep the yields in the 13% to 14% range because that's really the core affordable segment. Beyond 14%, the segment will be a -- segment that we are accessing will be slightly different in terms of profile. So our attempt is to maintain the yields between 13% to 14%.
I also ask this because like even LAP loans have gone up in terms of share of AUM. So that would also likely give us more deals, right, like above this...
Yes, LAP loans, see, once we reach that 15% of our disbursal, we have kind of maintained it. So what you are seeing on the AUM is just the catch-up on that. But as far as disbursal is concerned, we are maintaining it below 15% of our disbursals.
No, sir, I mean that even like LAP as a proportion has grown. But like -- so these 2 things, like high-yielding books like in terms of self-employed and the LAP also grown, but that does not -- it looks like the product shift doesn't contributed that much into the yields. That's what I was trying to understand, yes.
But the shift is very marginal is what we're seeing. So self-employed again has moved up by 1% or 2%, LAP has moved up by 1% or 2%. That shift is not significant enough in order to contribute a lot to the yields.
Okay. But, sir, can we expect the shift of record to continue like this in the product mix?
Yes. Aravind, let me try to explain you differently. If you look at the overall LAP mix, that has increased year-on-year by almost 2%. These self-employed has increased by almost 3% on a year-on-year basis. So therefore, ideally what you're saying, where is this yields not coming through. There is almost 10% of the book, which is fixed in nature from NHB, which is also fixed for the customers, which we don't reprice.
So while the LAP mix and self-employed mix should increase the [indiscernible] ahead of [ 125 ] as per the discussion we're having, there is something that's pulling down the [indiscernible] as well, which is the NHB fixed book. And hence, what we see is a blended increase in the book from 12.7% to 13.7%. I hope that addresses your specific question.
Yes, yes. Sure. Yes, yes. Just one more question. So OpEx growth has been faster than revenue growth for the past 5 or 6 quarters. Like when can we expect to be in line with the revenue growth or like even lesser than that?
So what we are aiming to do on OpEx growth is to be in line with AUM growth first because when you look at income, income has variations of item of other income as well. AUM is the right way to look at absolute OpEx growth.
Now in OpEx growth, if you look at it, our operating cost at per loan level or any other metrics, OpEx to assets, cost-to-income, we are actually quite frugal in our approach and very, very productively running the processes. So we will have to move to a stage where we are at a moderate growth level for operating costs to come down.
Given the fact that we are at a high growth rate today, opening a lot of branches at the year, almost 20 plus branches in the year adding people, for us to see a substantial reduction in operating costs is some time away. And hence, we continue to guide 3% to 3.2% operating cost to AUM for the next 2 years.
Okay. Okay. Just one last question. So this BT out which is happening, like who are they going to? Like are they going to like some other NBFC or something else? I'm just trying to understand that, yes.
No, they generally go to banks. So if you see the top 4 companies or banks, they go to -- typically HDFC Limited, it's ICICI Bank, it is Bank of Baroda, State Bank of India. So it's largely the big commercial banks that they migrate to because they are -- that is where they get big rates which are satisfactory. So customers don't generally [indiscernible] 1% or 2% change. They generally ship -- they're able to get a substantial improvement in their rates. So these are generally the entities where they move.
And like in terms of AUM growth prospects, like which states do you see like offer a much scope for growth, like maybe after -- other than Maharashtra and Gujarat?
Prospects are -- so the growth -- states are all growing, I mean, across the board. So each state has got -- I mean the potential is different in different states. There are all different sizes in terms of the affordable housing book. But we are seeing growth come through practically in agri market where we are present. So that's at least what we are seeing.
So this kind of growth can be sustained...
Sorry to interrupt. We request you to please rejoin the queue for follow-up questions.
Yes. Okay, sure.
The next question is from the line of Renish from ICICI.
Congrats on a great set of numbers. So just 2 questions. So one, slightly on the strategic side. So of course, the LAP proportion is increasing maybe a percentage point by every quarter. But if we, let's say, track back a couple of years, the share has actually now gone up to 30% versus 5%, 6% 2 years ago, I mean, let's say, pre-COVID type.
So the existing model, which is more or less based on the connector and the centralized underwriting, and once we see this proportion going up by even, let's say, a percentage point every quarter, maybe within a year or so, this will be above 15%. So what kind of business strategies we have to grow the LAP product? I mean, it certainly will be similar to what we've been doing in the similar segment? Or there will be some differentiated strategy we are having to...
So LAP is -- we are currently originating 15% -- or disclosing 15% as the LAP product. And we had taken a call that we will keep it at 15%. So what you will see on the AUM is the catch-up up to 15%. So once it reaches 15%, then it's likely to stay there because the disbursal rate is only 15%.
As said, there's no differentiated strategy because it's only a 15% -- 15% of the share at the moment. So our existing channels, existing branches originate that little bit of LAP that comes through. So we don't have -- we have not set up separate channels or separate vertical flap. It's a part of the regular business.
Okay. Okay. Got it. That is helpful. Secondly, again, on the ROA side, okay? So when we look at the cost side, as Nutan was highlighting that we'll continue to invest towards the [indiscernible] buildup. And hence, cost might remain slightly elevated at more than 3% versus, let's say, 2.8% during '21-'22. And considering there will be some pressure on NIM. So how confident we are that we'll be able to sustain this nearly 4% ROE in coming quarters?
So Renish, there could be some softening of the ROA, but the leverage will also pick up gradually as you have seen that the leverage has continued to increase with the increase in the book. So that will continue to support the overall ROE. So at an ROE level through lines, we feel confident at 15% plus for the rest of the year.
Got it. So ROA, there could be some deviation is what you are saying, maybe because of margin or something, but ROE will -- we are confident to sustain at 15%?
Yes.
We have the next question from the line of Chandrasekhar Sridhar from Fidelity International.
Just wanted given that the CLSS subsidy is getting over by this year-end, do we take this into account at all at the time of sanction? And sort of given this is a long-duration product, do we take that account of that fashion?
No, it's over now because of this product. We started offering this product last March, that's March '22 because that's when the scheme got closed. So we stopped offering the product. Throughout last year, there was a residual payout of the earlier cases, which were closed. So the subsidy came through from the government. And the finance subsidy came before March this year. So now we don't even expect any more subsidy to come through. I mean nothing is due as such. So that scheme is closed for good basically.
Right. Okay. Great. And Manoj, I don't know where I heard it, right, but you said that you wanted to maintain this level of disbursements, which is sort of INR 300 crores a month for this year?
No, I think the question was what -- how do you expect the AUM growth to play out? So I said even at the current trend of disbursals, if you, let's say, look at the disbursals run rate, which is about INR 3,600 crores now, that's INR 900 crores per quarter. Even at the current run rate, we should be able to meet our annual AUM growth plan, which is 30% is what I mentioned. But there will be obviously an increase in disbursals in subsequent quarters.
The next question is from the line of Lalitabh from Annual Wealth Management.
Congratulations on a very good set of quarter. Most of the questions have been answered. One small question. This bounce rate has slightly moved up in the June month as well as on the Q1. So I would like your sense, does it have to do anything with the current environmental issues that we are seeing, floods and all? Or is it something operational? If you can help us understand.
Actually, the bounce rate movement is very slight. So difficult to establish any trend out of it. So anecdotally, they're not really hearing anything other than the normal reasons for bounces. So very difficult to establish any trend out of it. It's very, very slight movement. And we have seen these kind of movements in the past also. In some quarters, it goes up by 1% or so. So I would say can't read much into it.
Next question is from the line of Manuj Oberoi from Yes Securities.
This is Rajiv. Congrats on a very good set of numbers. So just one question on growth in terms of, say, Gujarat state. I see really solid growth continuing in Gujarat, and that's the largest market. It's going in line with our overall EM growth even on a larger base. And we haven't seen much branch addition also in the state. What drives this very strong growth from the same branches in Gujarat?
Yes. So Gujarat is actually a very organized market. So you can actually tap a large part of Gujarat with presence in a fewer number of places. It's more concentrated. So the 4 large cities in Gujarat actually contribute almost 70% of the business in the state. So if you're present in around those cities, you can actually tap 70% of the addressable market. So that is one reason why the number of branch addition is not required.
But -- however, we are trying to see if there are any pockets which are left to penetrate. We are penetrating it through touch points. So you may not see too many branch additions, but there would be a touch point additions in Gujarat also. So the idea is once we have established like a branch which is in the nearby area, you don't need to add more branches. You can just add touch points and build distribution. That's what's happening in Gujarat.
The next question is from the line of Omkar Kamtekar from Bonanza Portfolio Limited.
So my first question is, there are some clarifications that I wanted. There was some disturbance in line. So we are aiming for the AUM to cross about INR 10,000 crores for -- by the end of this year? Just a clarification, is this correct?
No, we said 12 to 15 months. So yes, it could...
Okay. 12 to 15 months. Okay, 12 to 15 months for the INR 10,000 crores barrier. And also on the branch addition, so how many branches were we going to add in the current year?
We're targeting 130 branches by the end of this financial year. Currently, we are at 113, yes.
Okay. So 113 branches, okay.
113, we are at and 130 is what we are looking to end the year with.
Okay, okay, okay. Got it. Got it. And lastly, the co-lending part of the business. So this is something that I wanted to understand. The co-lending part like that the business is -- so what type of a difference will it make on the ROA side? So because generally in the co-lending business, you can slightly improve your ROE. So do you see if the share from the co-lending business increasing over the -- for the next 2, 3, 4 or even 7 to 8 quarters, the ROA to improve further?
So there is a potential for co-lending to improve ROA at a certain scale. We are slightly away from that scale, and it has to be done at the right yield structure also and in the right interest rate environment. If all things work, then co-lending can add up to 30 basis points on the ROA. But if one of these things is not at the right stage, then of course, the addition ends up being much lower.
So let's say, we are not projecting any ROA benefit from within the next 6 months. We are using the next 6 months to scale the product and then look forward for the ROA benefit.
Okay. Okay. So we are currently looking to get the critical mark and critical mass, and then we [indiscernible]?
That would be correct word to understand.
Okay. And one last clarification with respect to the portfolio mix. So currently, the portfolio mix, 87% of the portfolio is from home loans and [ 13% ] is from shop loans, and 31% is from salary loans, and 69% is from...
Sorry, can you just repeat it?
No, no.
The 69% is from salaried employees, the portfolio mix, and 31% is from self-employed, correct? So do we see the mix to be same? Or what is -- what will be the maximum limit that you would want to see on the self-employed? Is there any upper barrier that you have set for self? And similar in the shop loans and LAP, is there an upper limit that we might not go beyond this threshold for funding...
Historically, as far as LAP is concerned, we already set the threshold at 15%, and we are not going beyond that. So we have capped it at 15%. Shop loan is really very, very small. I mean we would like to scale it up more. So currently, it is 1% of the business. So we have not even set any cap. I mean we would be comfortable for it to go up because it's a good product. We're not facing any problem with whatever we have originated.
Again, on the self-employed side, we have never had any upper cap as such. It's just the way the market is distributed or the business is distributed for us because we have -- the way we do business, it attracts most salaried customers. We tend to get more salaried customers. So we don't have any upper cap as such as far as self-employed is concerned. So you may see -- as we go deeper into the smaller market, you may see a slight uptick in the self-employed numbers.
The next question is from the line of Ravi Naredi from Naredi Investments.
All the best to all of you. You are doing nicely. As our company loan took by maximum [Foreign Language], do you confirm they are technically friendly to any app or they take the loan from app only?
So mostly, customers don't take the loan on the app. We actually provide the services on the app. So the way it happens is customers first take the loan. So when they come for the -- completing the documentation, we educate them on how to use the app. So we download the app for them on their mobile. After that, any small queries they have, service queries, statements, et cetera, they can get on the app itself. So that, they are comfortable with. So it saves them a trip to the branch, saves them a trip to -- saves them a phone call. They can get things at their fingertips. If they want to make payments, they can pay from the app. So that is really the advantage.
And then this -- I joined late. In financial year '24 and '25, what is our growth plan in our mind?
Growth plan, sir, is to grow at 30% -- AUM growth of 30% is what we have in our plan at this point.
The next question is from the line of Raghav Garg from AMBIT Capital.
Just one question, so you mentioned initially that the stock pool has been expanded substantially. And I understand that covers about 32% of the employee base. What I wanted to understand more in this is that, have you changed any criteria so as to accommodate more employees, maybe to arrest the attrition, especially in light of the attrition rates that we witnessed in the last couple of years. That's the only question that I have.
No, we haven't changed any criteria. So our criteria has always been to cover people who are branch managers and above. So we have not changed that criteria. I think overall, the numbers -- number of people have gone up. And it could just be a timing issue. So -- because last year, probably those people were not branch managers. This year, they've become branch managers. So that number has expanded a bit. Otherwise, we have not changed any criteria.
So the minimum vintage has to be what for, say, an employee to be eligible...
It will be typically -- yes, so it depends on the level. If somebody is joining at a senior level, then we would not look at the vintage. It could be as an almost immediate or in from the next financial year. But if they're joining as freshers, then we would look at -- look for them to become like a supervisor, either a branch manager or getting to a supervisory role in head office.
And what kind of time line would that take for their pressure to become a supervisor?
So that will generally take about 2 to 3 years.
We have the next question from the line of Aravind R from Sundaram Alternates.
I just had one question. What is this INR 4.5 crores and INR 4.8 crores in fourth quarter 2023 and first quarter 2024? What is that income? And like is that something which will be sustainable and growing?
Yes. So this is -- if you're referring to the other income line, right?
Yes, yes, ma'am. Yes, ma'am.
So this pertains to some of the marketing we're doing on our website. So if you go to our website, you will see some of the insurance partners. So for that, we get some free because we've tied up on a long-term contract, which is sustainable in nature.
The next question is from the line of Shreepal Doshi from Equirus.
The question was on OpEx front. So currently, we are at 3.1% OpEx upon AUM. With the branch addition in pipeline, do we expect this to move upwards to 3.1% -- 3.2%?
Shreepal, the range remains 3% to 3.2%. Now from quarter-to-quarter, this could vary slightly because sometimes the exact number of branches through the quarter may not come through and -- because location, people, everything needs to be in place. So 3% to 3.2% is a more appropriate range to look forward. Specific numbers on a particular quarter will be much more difficult at this stage.
Okay. Got it, ma'am. And then, during the quarter, we have seen the liquidity on balance sheet. There is no investment in cash as part of the percentage of the balance sheet has gone up on a sequential basis. What explains this?
First and foremost, it explains our ability to raise funding right at the beginning of the year. So we've raised close to INR 1200-plus crore funding in the first quarter itself. The same set of banks giving us additional lines with higher value. So first, it reflects that.
Second, because we are growing much more in absolute size, the last period -- last year, same period, we would be doing approximately INR 220 crores, INR 230 crores of disbursal. And now we are doing INR 300 crores plus. So the need from the balance sheet per se has expanded. So we need to keep that much liquidity on the balance sheet.
Okay. So going ahead also, there won't be any benefit occurring from trimming of excess liquidity? This is the level we will be maintaining on balance sheet. Is it fair to assume?
Yes, Shreepal. But what also happens is through the quarter, we sometimes see much lower liquidity levels because the nature of funding is that it kind of bunches up towards the quarter end with disbursals from the bank. So what you see at the quarter end may not be there through the quarter. It could be...
Got it. Got it. And last question was on NIM guidance. So what is that we are guiding with respect to FY '24 NIM from here on?
Closer to 6%.
The next question is from the line of Sameer Bhise from JM Financial Limited.
Congrats on a good set of numbers. Pardon me if I may be nitpicking a bit. But if I see the credit cost run rate is up to 40 basis points last 2 quarters, and the ECL outstanding on the portfolio stayed down by 10 bps on a Y-o-Y basis or even sequentially. So could you just explain with respect to what do you expect on credit cost and probably the number on write-offs, et cetera?
Right. So the number on ECL that you talked about, 90 basis points, first and foremost, the decline actually is just 2 basis points because we present our data in one decimal numbers. So it looks like a 10 basis point reduction from [ 1.0 to 0.9 ]. But if you look at a double decimal number, the drop is 2 basis points.
Now this is coming from broadly 2 reasons: first, of course, the growth in the book itself, which needs to be provided for, which is essentially [indiscernible] Stage 1. Then as we've been discussing through the call, there is a slight increase in the 30 DPD and 1 DPD, which needs for a higher provision.
So then when you look at that, the overall provision kind of looks slightly lower. But if you look at on a stage-to-stage basis and also on a total provision coverage ratio basis, it's actually quite healthy and way above the ECL requirements. So this is the easy part of your question.
Coming to credit cost, the 40 basis points, out of this, about 3 -- so this is about INR 7.5 crores in absolute number, out of which around INR 4 crores is the increase in ECL. And the balance will be shorter -- a large part of it is the shorter recoveries that we write off as we repossess and close the loans through the quarter. I hope that explains the details on credit cost and ECL.
Yes, this is helpful.
The next question is from the line of Omkar Kamtekar from Bonanza Portfolio Limited.
My question was asked by someone and it was answered.
As there are no further questions, I would now like to hand the conference over to Mr. Manoj Viswanathan for closing comments. Over to you, sir.
Thank you. Thank you, very much, for joining the call. I hope we've been able to answer all your queries. In case you require any further details, you may get in touch with Manish Kayal, who looks after Investor Relations. Thank you very much.
Thank you. On behalf of Home First Finance Company India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.