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Home First Finance Company India Ltd
Earnings Call Analysis
Q2-2024 Analysis
Home First Finance Company India Ltd
The company has shown robust financial health in the recent months, as evidenced by the expansion of their Return on Equity (ROE) by almost 200 basis points in the last six months. They aim to maintain this level of performance, with an ROE in the mid-teens, specifically between 15% and 16%, in the near term. To support continued growth and stability, the company is leveraging its co-lending business, which presents potential for growth in a good interest rate environment.
Looking forward, the company has set a robust growth target of 30% for the coming 2 to 3 years. This target is based on the company's strategic plan envisioned in installments over that period. To support this growth, the company plans to expand its branch network, anticipating an addition of 20 to 30 new branches each year. Moreover, the company expects to accentuate their touchpoints from 295 to upwards of 450, and increase their employee count from approximately 1,200 to a range of 1,600 to 1,700 within the next two years.
As the company deepens its penetration into existing urbanized states and begins expanding in Northern states anticipating higher demand for affordable housing, it is keeping a close watch on asset quality and risk management. Efforts to ensure quality include maintaining discipline around the Loan To Value (LTV) at origination, which is expected to decrease going forward, particularly as the company grows into states where self-construction and resale are more prevalent, thus naturally lower LTVs.
To avoid affecting operational efficiency adversely, the company has expressed a conscious decision not to venture into remote markets that don't align with its operating metrics. They maintain a strategic framework for disbursements that aligns with their annual plan divided between the first and second halves of the financial year, ensuring consistency and planning accuracy. The company has set a target disbursement of around INR 4,000 crores for the current year and anticipates INR 4,800 crores to INR 5,000 crores for the next year. Their standard sanction to disbursement ratio is around 80% to 85%.
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Ladies and gentlemen, good day, and welcome to Q2 FY '24 Earnings Conference Call of Home First Finance Company, India Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Manish Kayal from Home First Finance. Thank you, and over to you, sir.
Thank you, Yashashri. Good evening, everyone. I extend a very warm welcome to all the participants on our Q2 FY '24 conference call. 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. On today's call, Home First is represented by our MD and CEO, Mr. Manoj Viswanathan; and CFO, Ms. Nutan Gaba Patwari. We will start this call with an opening remark by Manoj and Nutan, and then we will have a Q&A session.
With this introduction, I hand over the call to Manoj. Over to you, Manoj.
Thank you, Manish. Good evening, everyone. I'm pleased to share with you the highlights of our quarter 2 FY '24 performance. Quarter 2 performance has been strong across all operating and financial parameters. We have delivered an ROE of 15.6% in an inflationary and peak interest rate environment. This level of consistent and superior returns is a testimony to our strong risk management, use of right technology, and scalability of our model. We continue to build distribution by simultaneously entering new markets and deepening our presence in existing markets. We added 7 branches in Q2, and now we have 120 physical branches, including potential and digital branches, we now do business across 295 touch points across Tier 1 to Tier 3 markets in 13 states.
Disbursement in quarter 2 at INR 959 crores was higher than quarter 1 with a growth of 36.6% on a year-on-year basis and 7.1% on a quarter-on-quarter basis, leading to an AUM growth of 33.3% on a Y-o-Y basis to INR 8,365 crores. Spreads at 5.5% remain ahead of our guided level of 5.25%. Our asset quality continues to be strong with a focus on early delinquencies. One plus DPD is at 4.5%, 30-plus DPD is flat at 2.9% in quarter 2 and with a decline of 40 basis points on a year-on-year basis. The gross Stage 3 GNPA is at 1.7%, which is a 20 basis points decline compared to the same quarter last year.
Prior to RBI classification, this figure stands at 1.1%. Our credit cost is at 40 basis points for the quarter. We will now move on to some more details of the business and our outlook for the current year. Talking about technology. Technology has been in 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. Digital adoption continues to be strong and a key area of our focus as we grow. Some of our recent initiatives on technology include successful adoption of the account aggregator model to access bank statements of customers. This has now gone mainstream with a 30% penetration rate within 2 quarters of implementation.
An employee KRA module has been developed with full integration with our loan origination and collection system to make goal setting and tracking process more effective. Tableau visualization has been brought within Salesforce to help drive superior analytical outcomes. Property Insight version 2 has been launched and -- to digitally validate the property titles and have an independent authentication of our primary security for the loan.
On distribution, we added 7 branches and 13 touch points in Q2. We now have 120 physical branches and 295 touch points. We're 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 months. Coming to people. We are pleased to report that we have added 137 employees in quarter 2 to reach a total strength of 1,242 employees, and we plan to add another 100 to 150 by March '24. We have expanded our ESOP coverage to encompass 335 employees, which is 27% of our total employee base. Employee attrition is down from FY '23 levels as a result of initiatives implemented by us to reduce attrition, supported by hiring lull in certain sectors.
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 respect to quarterly results, there are a few metrics that we would like to address. One is balance transfers, which have increased during the quarter. It is a result of a series of interest rate hikes that our customers have witnessed in the past 18 months. We have sensitized our teams on customer retention and coached them on techniques to arrest balance transfers.
On the bounce rate there is an uptick in October. We still see that a substantial portion of these bounce customers pay within 3 days of bouncing the installments. Bounce rate normalization to pre-COVID levels will take time, and we are working towards improving this behavior change that has happened during COVID. The NPCI data also validates our view where the bounce volume has increased. Our overall collection efficiency remained strong, and we continue to focus on continuing early delinquencies as a collection strategy.
With this, I would now like to hand over the call to Nutan to take you through the financials. Nutan, over to you.
Thank you. Good evening all. I would like to start by mentioning that we have delivered our medium-term industry-leading ROE goal of 15% to 16%, way ahead of our expectations. Our superior performance in a tough environment gives us the confidence that we can outperform these returns in the next 2 to 3 years.
Moving to financial performance. Our Q2 NIM is robust at 6% is in line with our guidance. We mentioned in our Q1 call that our -- about the stable yields and increase in Q2 in comp, which has led to 10 basis points decline in NIMs for Q2. Net interest income has gone up by 27.2% in Q2 on a Y-o-Y basis. Spread at 5.5% remains well above our guidance range of 5% to 5.25%. OpEx to assets is at 2.9% 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 32 -- sorry, 35.2% in Q2 is a decline of 110 basis points on a Q-o-Q basis. Credit cost remains at 40 basis points and is within a guide range of 30 to 50 basis points. Our balance sheet is stronger than before. Starting with borrowings. The company continues to have a diversified and cost-effective long-term financing sources. This diversified base across banks as well as NHB. Our borrowing mix is 55% from banks, private sector is 33% and public sector is 21%.
NHB refinance share is stable at 22%. We have drawn INR 250 crores in Q2 FY '24. We have another INR 450 crores to draw, which we will calibrate as per requirements. 16% is from direct assignment and 2% from co-lending, 4% is from IFC NCD. We continue to have 0 borrowings through commercial paper. Our cost of borrowing is competitive at 8.1%, increase of 10 basis points from 8% of quarter 1. We further expect 20 basis points in the second half of the year. Coming to capital. Capital adequacy is at 45.5% and Tier 1 is at 45%. Our debt-to-equity is now 3.1x. Our September net worth stands at INR 1,947 crores. Our book value per share is 221.
Moving to provisions, we have remained conservative and continue to carry provision over and above the ECL requirement. Total provision coverage ratio stands at 52.3%. Prior to NPA reclassification as per RBI circular, provision coverage ratio stands at 84.6%. On specific transactions with a DA of INR 97 crores during the quarter as a liquidity strategy. We continue to have a robust demand for our portfolio of assets, and this number is well within our guided range of INR 100 crores plus/minus INR 20 crores.
We also executed co-lending transaction of INR 50 crores in Q2, co-lending business is growing and expect this to contribute around 10% of disbursements in the near future.
With this, I open the floor for questions and answers.
[Operator Instructions] We have our first question from the line of Abhijit Tibrewal from Motilal Oswal.
Congratulations to the management on a good quarter. Firstly, I mean, there are a couple of things on the opening remarks that Manoj made. Manoj I just wanted to understand first thing, I mean you did touch upon the day outs being higher during the quarter and the fact that you have sensitized your T1 customer retention. But I mean, incrementally, what we are seeing is the competitive intensity is very, very high? And are these balance transfers typically happening to banks, if yes, whether -- I mean they're happening to PSU banks or private banks. Is there any particular bank which is overly aggressive and leading to such high competitive intensity? That is my first question.
The players are the same that we have seen in the past. I don't think there is any change in the mix of players. Of course, some NBFCs are also doing balance transfers now at low rate, which probably is not sustainable. That might be more a tactical move in a particular quarter. We see the balance transfers more as a reaction to the rate hikes that have happened over the last year. So 3 consecutive rate hikes. A lot of customers have gone through a 125 basis point rate hike. And their tenure also when they -- when the loan was originated, the tenure was 20 years, but now suddenly their tenures looked very extended, probably 25 to 30 years. So this is provoking the balance transfers. We think it should moderate with the passage of time.
Got it. And the second thing, I think you touched upon was employee attrition, which is down from March levels. I mean another HFC, which had its earnings call just before you was kind of hinting at, I mean significantly higher employee attrition, especially at the sales force for that matter, at the relationship officer level. How is it like for us? I mean, in the past, we used to talk about that an industry level attrition remains very high. I mean, has it gotten better for us? Are we seeing more stability in our frontline staff now?
Yes. See first quarter was also -- first quarter was also low. See last year, we had kind of elevated attrition levels, and we were talking about it that it has reached about 40% levels. And -- but in the first quarter of this year, it was lower than 30%. This quarter also, it has been around the 30-ish level, 32-odd so. So it definitely provided us the attrition has come up, we can -- it is visible to us. We have taken some steps, as we had mentioned that we have expanded our ESOP program. We have started a different onboarding program for our front-end employees. So we have done a number of -- we've taken a number of initiatives. However, we have also -- I think this year we are also getting support from hiring lull in certain segments and certain sectors of the industry. So I think a combination of these factors has led to a lower attrition for us in this year.
Got it. And just 1 last question, Manoj. I mean, again, if I kind of look at your AUM today, looking at the run rate, right? I mean, probably early next financial year is where we'll probably look to hit the milestone of INR 10,000 crores in AUM. I think from a business model perspective, we've been unique in terms of the connector model that we have as well as the fact that our sales and collections both of them are done by our relationship officer. So I think, I mean, over a course of time over the last few years, you've grown this business model, but I just wanted to understand, I mean, even at that size and scale, our conviction remains put, right, that this business model is something which will help us scale further beyond INR 10,000 crores towards INR 15,000 crores and INR 20,000 crores?
Yes, of course. We are feeling very confident now. We are seeing strong demand wherever we go and we are confident of expanding and deepening our distribution in some of our focus states. In some of the other states where we had a thin presence, we are looking at expanding distribution more in the Central and Northern states. So distribution expansion itself should be -- should allow us to get to the -- get from the INR 10,000 crore to INR 20,000 crore level. And yes, so we are feeling very confident. And the model as far as the connector model is concerned, there is still a lot to be done. We currently have probably about 2,500, 2,600 active connectors in a quarter. And that number can go up multifold as we expand our distribution. So we are confident of the model and are confident of the model helping us to achieve those numbers.
We have our next question from the line of Renish Bhuva from ICICI Securities.
So again, circling back to BT out rate. So despite the higher BT out rate, our growth has been quite steady at around 8% sequentially. So once we sort of restricting the BT out as you highlighted that we have initiated in several steps. So what kind of AUM growth we target in near term?
Renish, we are looking at a 30% growth rate. I think that's the growth that we have been talking about last couple of years, which we have been delivering. And it's a number that is more -- I have that through a ground up calculation of how much we will be able to, how many distribution points we will be able to add, how many people we need to hire, et cetera. So it's a ground up calculation. So our growth projection remains the same at 30% plus.
Got it. Got it. And again, on the -- just to understand a bit more on the BT outs. So most of this BT out is due to the rate, there is no other thing which can sort of restrict or result in a higher BT. So when you say that we have taken an initiative, could you highlight what kind of initiatives we have taken to restrict this BT outs? I mean, apart from rates, and if we sort of get into the rate or then -- would you assume any margin compression going ahead?
Yes. So across the board, reduction of rate is not really -- would not be really useful to address this BT out because then our yields also will get reduced. So that is really not what we are aiming to do. What we have done is we have kind of sensitized our teams on the ground on how to address the BT out because there is a certain point at which the customer approaches us, at an initial. So the BT, the person who's doing a balance transfer needs to be approached or counseled at an early stage when the person is coming with the BT check or with the transfer from the other banks. At that point, it will be difficult to stop the person. So we have done some coaching camps for our teams to help them understand how to address the BT outs. We have also circulated or tagged the cases which are -- have a high likelihood of BT outs so that they can give special attention to those cases.
Overall, what we feel after having talked to our teams, et cetera, and traveling across the country, it's more of a, you can say, awareness and sensitization issue. If we are able to pay more attention to customers who are at an initial stage of exploring a balance transfer, we will be able to reduce the numbers.
Got it. Got it. So maybe -- so fine to assume that October monthly BT out will be lower than last quarter average?
Yes. I can't say for sure, yes, hopefully yes.
Okay. Okay. Got it. And lastly, on the marginal increase in the states we have had, I mean, is there any specific trend which is emerging or this is just transitory in nature.
Delinquency?
Yes, 90 DPD.
Yes. No, this is first half of the year, generally, there is a little bit, see because the March figures are extraordinarily good generally. So after that, any figure looks worse than March. So which is really what we saw this year also. So the level of collection efficiency that we managed to achieve in March was not repeated over the last 6 months. So that kind of performance again comes in, in the second half of the year. So it's more a seasonal movement, nothing else to it because if you see the 30 DPD figures, they are flat compared to last quarter. So nothing really to be read into the figures.
Got it. Got it. And just last question from my side on the ROE. So we have been able to achieve this, maintain ROE may be higher than our year plans. And now we are exploring 10% of co-lending on the business side. So what's the next level of ROE we are targeting? And the co-lending piece, would it add anything to our earlier assumption on the ROE front?
So Renish, if you see in the last 6 months, we've been able to expand the ROE by almost 200 basis points. So it will be a little bit of a stability here for some time. And the co-lending business will require a little bit more time to grow plus in the right interest rate environment. In a good interest rate environment, we presume co-lending can be good. So give us some time, and hopefully, we should outperform these numbers as well.
Got it. Got it. So the near-term target would be to sustain this mid-teens level?
Yes. 15% to 16% range is what we will sustain in the near term.
We have our next question from the line of Nidhesh Jain from Investec.
Firstly, on the growth, so this year you've guided for 30% growth. How should we think about growth for subsequent year FY '25? And how are you preparing for that, any guidance on branch addition, et cetera?
So Nidhesh the growth of 30%, we are looking for the next 2 to 3 years because our planning generally is in what you call it, installments of 2 to 3 years. So 2.5 years ago, we said we will be able to grow at 30% for the next 3 years. So as per our current plans and what we are seeing on the ground, next 2 to 3 years, we should be able to grow at a 30% kind of a level.
And what would be the branch addition plans for that?
Branch addition, broadly, we are thinking about 20 to -- 20 to 30 branches in a year is the number that we are looking at. But the addition or the distribution will be more on the number of locations we are adding, the number of relationship managers, number of connectors, et cetera. So those will get added and that will contribute to the business. So 295 touch points is where we are today. We should be adding another 100, 150 touch points in the next 2 years and a corresponding number of RNs. So we are at about 1,200 employees as of now. And so that number should probably go up to about 1,600, 1,700 employees in the next 2 years. So that's what we are looking at.
Sure. Secondly, sir, last -- in last 2 years, we have expanded in Tier 3 locations as well. In the past, we were operating largely in Tier 1, Tier 2 locations. So how is the experience in terms of asset quality, bounce rate in Tier 3 geographies.
Tier -- so -- see asset quality, bounce rate et cetera largely very similar to our existing portfolios. So location-wise, we don't see any major differences. I mean -- and we don't -- when we go to Tier 2, Tier 3 locations, I mean, these are generally not very remote locations. I mean they would be within kind of driving distance from a branch. So in that sense, they would be periphery of urban areas not really remote Tier 3 locations.
Sure, sir. And lastly, on the BT out, are there any trends that -- so are you monitoring connector wise BT out? And are we seeing any trends there, any connector, which is inducing this BT out?
There will -- there would be sporadic instances of connectors referring our customers, et cetera. But that -- those get addressed very quickly by kind of blocking those connectors or penalizing those connectors. But this is more -- the trend is more towards larger cities, larger branches where there are more BT outs because of more intense competitive activity.
We have our next question from the line of Shreepal Doshi from Equirus Securities.
My question was pertaining to the NHB sanctioned pipeline that we have which we can draw during the second half of the year...
Mr. Doshi, your voice is cracking, sir.
I am audible now?
No, it is not clear. Yes, you can go ahead.
My question pertains to the NHB sanctioned pipeline that we have, what can be draw down in the second half of the year during -- I mean during FY '24?
We have an sanction line of INR 450 crores, which we can utilize between now and June '24. So we will plan based on the business need and how we need to utilize it.
Got it. Got it. And then in respect to the share of customers who have seen debt sharing...
Shreepal your voice is not clear.
Am I audible now?
Yes.
So just wanted some comments or color on where do we see the share of salaried customers stabilizing in the overall loan book?
Share of salaried customers I mean there is -- see we are not structurally changing or changing any direction on that. But I think as we penetrate deeper into markets, et cetera, there will be probably more self-employed customers could come on board. I would say right now, we are at about 70-30 -- I would put it maybe in the medium term, maybe at 60-40 if at all. There is no such strong trend, but if you're asking for a number, it could be 60 salaried, 40 self-employed.
And since you highlighted that we are focusing on little deeper geographies as well. But...
Mr. Doshi. Your voice is not clear. No, we cannot hear you. We have our next question from the line of Shubhranshu Mishra from PhillipCapital.
Especially first one is on the regulations and the collateral and the documents that need to be given back to the customer in a time that's been stipulated. How does that change our OpEx that's first? Second is why are we not looking at or why are we not making any kind of representations to the rating agencies for a rating upgrade despite having a strong asset quality number? Third is if we can talk on the cost of acquisition for our Home Loan customers across markets and the cost connectors? These are my 3 questions.
Sure. On the documentation, see, we already have a practice of returning the documents within 30 days to customers. So it does not really change anything for us. So we have a fairly strong monitoring on that. As far as the rating is concerned, yes, at the suitable time the rating will get updated, and we are in continuous discussions with rating agencies. So at a point when they find it -- find it appropriate it should -- the rating should get upgraded. On the cost of acquisition, there is not much differential across markets. It is -- it anyway follows -- flows in a tight range. So the acquisition cost is generally 30 to 50 basis points for the connectors. So it's agnostic to market. It's broadly based on size and nature of the connector, et cetera. So it's a very narrow range of 30 to 50 basis points across the board.
Sure. And if I can just squeeze in 2 more questions. The first one is, if you can decompose the 30% growth guidance that you're giving, how much was it -- how much would come from the ticket size increase, how much would come from productivity increase and how much would come from volume increase? That is first. Second is, you're talking about BT out, however, given the ticket sizes that we deal with and across lenders, the affordable housing comes at a higher yield. And we see is barely anything in it for someone to really churn a customer -- for a connector to churn the customer. So why should we have BT out in the first place?
Yes. So addressing the first question, which is the growth. See, most of the growth will come from distribution expansion. We have not really factored in growth on account of ticket size or productivity. Those should come as an addition. So broadly, we are targeting distribution expansion for the -- for the growth.
Coming to BT outs, see BT out is largely customer initiated because -- which is why the BT out is kind of back now because this has come on the back of 3 consecutive pricing increases for the customer. So as customers are getting more irritated with the extension of their tenures and increase in rates, they initiate the balance transfers more from their side. So which is why I said, connector initiated balance transfers are not many. I mean there would be sporadic here and there, but not really a major cause. The major cause is the customer initiated only. And when the customer sees the differential of maybe 4% on the loan, where they feel that they can get at least a 3% to 4% reduction, then they try very hard and pursue a balance transfer. So largely, they end up being customer initiated.
We have our next question from the line of Omkar Kamtekar from Bonanza Portfolio.
First question is with respect to -- are we seeing -- can we have a bifurcation to understand is there a specific bucket size of a specific ticket size, seeing more growth. So say, for example, is the 2 million to 2.5 million having a higher disbursed sales than a 1 million to 1.5 million, is there -- can we see some change in there? Are we seeing some trends there?
Growth is largely coming from -- we would -- I would say, 10 lakh plus. So -- and maybe less than 5 lakh is not really an area of growth. So there is moderate growth in 5 lakh to 10 lakh and largely, the growth is from 10 lakh plus.
Okay. Okay. And with respect to the cost of borrowing, so our current cost of borrowings as for H1, it's standing at 8.1%. The incremental cost of borrowings, what would be that if we can have some color on that on going forward?
Incremental cost of borrowing for the last 2 quarters is in the range of 860 to 870. We also actually published that on our Slide 27. This 860, 870 range does not include the NHB borrowing. If you were to include that, the cost of borrowing is around 8.1%.
Okay. Okay. So that would be what would also go ahead for maybe 2, 3 quarters or more, 8.7% is what...
Assuming no change in the policy rates, yes.
Okay. Okay. And with respect to branch addition, I think you had mentioned but I did not catch it. What is the number of branch additions that we are looking at and geographical expansion also, if you could add?
Branch additions, we are looking at 20 to 30 branches a year and geographies, our focus markets are West and South. So we have Maharashtra, Gujarat, Tamil Nadu, Andhra, Telangana, Karnataka, branch additions currently are happening in these markets. But we're also beginning to expand in the Northern market. So MP, Rajasthan, UP are also at -- we are kind of gaining traction there. So in the future, you will also see some branch additions coming from those markets. So yes, that's -- you can say maybe like a, say, 70-30 split, 70% will come from our focus markets west and south and the 30% would come from the northern markets.
Okay. Is there -- is the southern market seeing more growth than any of the other markets because generally, we have a dichotomy because south being slightly more prosperous and high earning states. So is there something of a trend going on that we might see more concentrated growth in the southern states, it would be -- would that be fair?
See, in Southern states, growth is more stronger in higher ticket sizes because of the reason that you mentioned, which is incomes were going up, et cetera and states becoming more urbanized and industrialized. But Northern markets are also -- I mean they are growing in the core affordable segment, which is the 5 to 15 lakh segment. So growth in different forms is coming from both areas.
Okay. And finally, just a macro update on the specific low ticket size, affordable housing segment. What is your view with respect to the -- from a 2- or 3-year horizon? Are we seeing any systemic problems in the space? Or do you...
Not at all, not at all. So I -- see there are large -- different states are at different income levels. If you look at the per capita incomes. So if you see, for example, an MP or Rajasthan, UP, they are at a certain level, which is probably -- if you look at the average for the entire country, it's let's say, on a PPP basis, is about $7,000. So these states are at about $5,000 -- $4,000 to $5,000 PPP level of per capita income. Whereas southern states are closer to $10,000. So the growth is coming in different forms. So in these northern states, we get growth in the core affordable segment. So ticket sizes between INR 5 lakh to INR 15 lakh is growing fast. In the southern states, higher ticket prices INR 10 lakh to INR 20 lakh is growing fast. So in different forms, you're getting growth from both the sectors. So we don't see a problem at all. We are actually seeing a very, very strong growth at the ground level.
I think it's only our own capacity to grow, our own capacity to hire, train, et cetera, which is a limiting factor. Supply of housing or demand is really not a limiting factor at all.
We have a next question from the line of Bharat Sheth from Quest Investment Advisors.
My question is now Manoj we are looking around 30% CAGR growth for the next 2 years.
Mr. Sheth, I'm sorry, you're not clearly audible. There's a lot of disturbance on your line.
Is that clear now?
Better, please go ahead.
So Manoj, when we are talking of a 30% CAGR growth, so we expect to more than double the size of the portfolio, the AUM from March '23 level. And when we are seeing that we are also expanding distribution where the ticket size is a little low and where we have to also develop a new connector -- so -- and our own capacities, which you just highlighted. So how do one really see that will happen?
Mr. Sheth I request you to mute when you're not speaking.
Okay.
Sorry, sir, please go ahead with your answer.
So see, this -- I mean, our distribution strategy is -- I mean what we have planned for the next 2 to 3 years is as follows. So one part of it is deepening our distribution in our existing states. So where the states which were already urbanized, industrialized, where we had a decent presence. So there we are deepening our penetration. So in Gujarat, Maharashtra, Tamil Nadu, et cetera, we were already present to some extent. We are deepening our present -- penetration there. And we have started -- I think 3 years back, we said that we are going to focus on these states. And we said that we will keep the expansion in the Northern states for a little later.
So we are starting that expansion now. We feel that this is the right time to start expansion in the Northern states. So MP, Rajasthan, UP et cetera, which are at a kind of a threshold level today and where we see that in the next 5 years, the demand for affordable housing will be really good. So we are setting our footprint there, establishing certain locations so that we are well prepared to serve the customers over the next 5 years. So that is really how we are looking at our distribution plan.
And second, also, you said that our own capacity to increase because then we are doubling -- more than doubling our asset AUM. But in that kind of -- this kind of a number of addition of the branch or will that or addition of the people will be that sufficient?
Yes, sir. So no, which is why I said we are looking at a 30% growth. I mean if we are able to move faster and we also have a limitation on number of people whom -- people, branches, et cetera, that we can add. So if we are at -- currently at about 1,200 employees. So we may be able to add maybe another 400, 500 employees in the next 2 years, not more than that. So that is what I mentioned is a limiting factor. If somebody can move faster than that, then -- the market is not the limiting factor, is what I basically meant. I mean, there is enough demand in the market.
Okay. And last question, you said that demand for affordability will continue to grow over the next 4, 5 years. So what is the underlying assumption that are we taking? I mean that this market will grow because in past, we have seen there is a lot of ups and downs. So with that background so if you can give a little more color.
So affordable housing is a direct -- you can say a function of income, the income of the -- I mean, income in that particular state. So we are seeing that correlation quite strongly. So states which -- where the incomes have risen, for example, Gujarat, Tamil Nadu, et cetera, the affordable housing demand is really high. So today, for example, a state like Gujarat accounts for about INR 25,000 crores of affordable housing every year, which is actually probably higher than the affordable housing demand in a state like UP, which is 4x the population of Gujarat.
So it's -- we have seen that the affordable housing demand is a function of income -- per capita incomes, which is why in states like UP, Rajasthan, MP, et cetera, we feel that as the incomes start rising in the next few years, the demand should reach the same level as the other states, Gujarat Tamil Nadu, et cetera. So which is a -- we are projecting that this demand will continue to be available, continue to grow over the next 5 years.
But do you think that in that case, competitive scenario may further increase because everyone are looking at this kind of a market, but they were not actually going on and now the kind of business transfer that also we are seeing?
The competitive intensity has been there, and I think it will continue to be there. But it's also a business that has a lot of complexity. So somebody who has been in the business for a while, who understands that complexity and who was able to execute well on the ground are the ones who will succeed, so I think competition will continue to exist. We have to find ways of addressing that.
[Operator Instructions] We'll take our next question from the line of Chandrasekhar Sridhar from Fidelity International.
Nutan, I had a couple of questions for you. One is after the start of the rate cycle, our borrowing costs are up 90 to 100 basis points. And just curious to understand that it -- and i.e., the marginal cost of borrowing basically for the last couple of quarters except NHB basically has not really changed, just curious to understand whether we've had the entire cost of fund, the rate cycle sort of showing up in our books right now because the marginal number has not changed. It seems the rate cycle is still -- I mean the rate cycle has been much -- the increase in rates has been much higher, but it's not showing up in the book.
So Sridhar, you're right. The transmission is largely done, but there is some residual transmission that's still to come in. And that is why we've been saying that this 810 could look more like 830 by March. So let's say, another 10 basis point increase in the next 2 quarters. And let's say, if there is no further rate changes, then that should be where we should be for a while.
Understood. Understood. Okay. And so does that mean -- I mean, the 525, which you have always said just in terms of spread bets will pretty much what you're working with because spreads are still holding up reasonably well.
Yes, absolutely, yes.
Okay. Okay. And then on the yield side, you've taken cumulatively 125 bps hike starting from July last year. But the on book yields are up since then only up 60 bps. So is it fair to assume -- so one, I would presume onboarding yields must be lower for customers? And also, is it fair to assume that some of this -- because of this slightly higher balance transfer that you've sort of given some discounting yields to some customers. Is that the way to think of it? Or are you basically given that cost system hasn't risen as much that we've been far more okay, just on passing on yields entirely, I mean, for some customers.
So Chandra, actually, customers have been repriced 125 basis points. However, what also happens is as and when we get the NHB AHF fund, we reprice the customers downwards. And that reflects in the yield line. So you will see that while the spread is protected, the yield shows a optical reduction. That is largely because of this NHB AHF fund. And last 2 or 3 quarters, we've been doing quite a bit of it also. On the origination yield, it has stayed around 1350, 1360 almost since the increase of the policy rate. So that has not changed. And that is the second part. The third part is our co-lending portfolio is at a slightly lower rate. So that is any which way gets excluded from the origination yield, but not from this particular line but that is sitting at a lower yield. So that also pulls down the rates here.
Understood. Okay. Okay. Fair point. And then just maybe just lastly, it seems that over a period of time, the LTV on origination is changing little marginally. I mean I don't want to read too much into it, but the LTV on origination actually at less than 50% actually goes up and more than 80% is actually going down. Is there a change in just the apartment types or anything else you just want to highlight?
Very marginal change, right?
Yes. I mean it's -- I was just wondering whether it's part of some trends which you've as a policy, which...
No, I think what we see in coming years is more self-construction and resale taking a larger share so the higher LTV at origination should keep decreasing going forward. Because the higher LTV -- higher LTV origination is largely only in apartment segment because that's a builder-driven market and where the industry practice is to give higher LTVs. But going forward, as we expand into more -- I mean expand into the other states where the self-construction is the larger business, self-construction resales, they both come at lower LTVs, so the LTV at origination will keep -- should keep declining going forward.
Sure. Manoj, just a last question for you. The thought process behind the share of -- you did make a comment on the share of self-employed potentially going up over a period of time, if it's just a function of distribution as we do gain more on the [indiscernible] is that just natural? Or is it a conscious strategy to do a little more better than that.
No, no, not -- I mean we never had a conscious strategy to exclude self-employed, actually even from the beginning. I mean, it is just a natural flow of loans to us, that is -- I mean it's -- the ratio has got formed over a period of time. Partly because we started out with large cities. So where there are more employment opportunities, so more salaried customers were there. Plus we are also more -- I mean our processes are quicker, so salaried customers find it easy to deal with us. So some of those factors have contributed to a slightly higher share of salaried customers. But otherwise, in the market, we don't have an articulated strategy of going only after salaried customers or excluding a self-employed. So that has never been there. Now as we are going deeper in the market, we are going into markets where there are more self-employed customers.
I mean lesser of organized salaried customers. So just kind of giving up long-term projections that this could move to a 60-40 kind of a figure.
We have a next question from the line of Aravind R from Sundaram Alternates.
This might have been answered, but I join a little late. So sir the higher ticket size book is growing faster than the like -- if I take INR 15 lakhs to INR 20 lakhs or above INR 20 lakhs kind of loans, are these loans are growing faster? Like is it a conscious strategy? Like are the profile of customers slightly different when it comes to the higher ticket size loans?
No. As I mentioned, it's more a function of where we are expanding distribution, et cetera. I think last 3 years, our articulated strategy was that we will expand in West and South and as we expanded more in South, the ticket sizes are slightly higher. So the -- like I said, we are getting more loans in the INR 10 lakh to INR 20 lakh ticket size range there. But as we now build our distribution in the northern part of the country that should again get moderated. So we are not really going after higher ticket size as such. It's just the same segment where the ticket sizes in South are slightly higher because of higher income et cetera.
And some part of it is also contributed by co-lending because now we have a fairly large -- I mean INR 200 crores, INR 250 crores co-lending book, where the ticket size is naturally high, so as a result of which also the ticket sizes are showing up higher.
And am I correct in understanding that the yields should not move up that much going forward like considering if there is no other rate hikes or...
Yes, if there are no further rate hikes, we will not increase the rates for our customers. Broadly, we should be in the same ballpark origination.
What is the cost of funds, sir?
Cost of funds, we are anticipating maybe a 10 to 20 basis point increase, but that's something that we will absorb. We are not looking at passing on such a small increase to customers at this stage.
Okay. Okay. Even though marginal cost of borrowing is coming down like still going up, is it because of the repricing?
Yes, repricing by the banks to us, you mean, right?
Yes, yes, yes.
Yes, there are some lines which are still left to be repriced. So as they get repriced, it will go up, please.
Okay. And just 1 more question. Like so in the new markets, like we are entering into this new market. So does it affect the operating efficiency, like OpEx to AUM or OpEx to assets?
No, not really because we are -- that is something that we are conscious of. So we don't go into really remote markets where we -- which don't fit into our operating metrics. So we are very much cognizant of our employee, our RM productivity, the disbursal or the sales that an RM has to deliver every month. So we only go into markets where that can be delivered comfortably. Otherwise, we will not enter those markets.
We have a next question from the line of Omkar Kamtekar from Bonanza Portfolio.
Thank you for the follow-up. Sir my follow up question is as we keep continuing to hold a 30% growth target, and we are also expanding our technological capabilities to a certain extent and capacity capabilities. Are we targeting some specific disbursement divestment targets for the quarter or particular month? And do we have something in our mind that we would target this much per quarter per month, anything like that?
Yes, broadly, the plan is made for the year, and that is kind of bifurcated into first half, second half, and we follow that plan. So if you see, we have -- our disbursal this quarter is about 7% higher than the previous quarter. So broadly, we follow that kind of a framework through the quarters in the year.
Okay. Okay. So could you -- would it be possible for you to share what would be the range for FY '25, if it is possible, the FY '24 half, if you could extrapolate it.
So FY '20 (sic) FY '24 -- so the current year disposal, the target would be around INR 4000 crores. That is what we are targeting for this year. Next year, the target will be maybe INR 4,800 crores to INR 5,000 crores.
Okay. And what is the sanction to disbursement ratio, if you can share, is that data point available? sanction to disbursement?
Normally, around 80% is the sanction to disbursement ratio, 80%, 85%.
Okay. And lastly, a question with respect to quality measures. So as we go deeper into the more Tier 3, Tier 4 city, expand into these areas. So the probability of us encountering people who are new to credit and as you said, the self-employed people. So there is also a higher probability of they having subpar asset quality, so how will -- what will be the measures that we tighten our credit policy so that we don't increase the NPAs. Will there be specific additional measures involved or the current system would suffice?
So again, the -- while we expand into this market, our basic principles are that the asset needs to be a formal asset, which has got a title, which is a registered title. So we will never deviate from that. That is our basic principle. So from an asset perspective, property perspective, we will not deviate, we will maintain that. From a customer profile perspective, yes, in smaller markets, there would be more self-employed customers compared to salaried customers because there would be lesser organized employment opportunities. So that is the only variation that we will kind of entertain or accept. So as such -- and so far, we have not seen any asset quality difference in smaller markets. And we don't anticipate -- other than the difference between salaried and self-employed we don't anticipate any asset -- I mean, asset quality difference in smaller markets.
Okay. So we will also -- as a consequence, we are also not required to tighten our measures to disburse loans to them. I think that understanding...
Our screens are more or less the same. There is no difference in screens between a smaller market and a larger market.
We have our next question from the line of Punit Daga from VT Capital.
Yes. Firstly, congratulations on the great set of numbers. Actually, I joined the call a little late. So I just wanted to ask 1 particular thing like could you just state the reason like why we saw a decline in our yields by 10 basis points? Is it because of some pricing pressures which we are facing like in this segment?
So 10 basis points, see there will be some amount of variation month-to-month, quarter-to-quarter. Broadly, we are committed to maintaining a 13.5 kind of a yield on an overall basis.
So like we are envisaging that the yield would go down going forward. Like could you state like why is it so?
No, no. We have -- we mentioned that we have guided to spreads of about 525. So that is more from an anticipation of increase in cost of borrowing, like borrowing could go up by another 10, 20 basis points. So which we have been saying for the last several quarters that we are planning to absorb that increase. So which is why we have guided to spreads of 525. Otherwise, the yields are broadly going to be in the same level that we are talking about.
We have our next question from the line of Sameer Bhise from JM Financial.
Congrats Manoj and team for the good set of numbers. Just wanted to get a sense on the co-lending piece. Can you comment a bit on the ticket size of the original origination and probably, how does it vary in terms of what customers are selected across banks, some sense there would be helpful.
Yes, ticket size is generally -- co-lending is allowed up to INR 3,500,000 lakhs the ticket size. So generally, the ticket size varies -- falls between INR 20 lakhs to INR 35 lakhs. So broadly, if you see the average, it's around 22, 23, something -- between 20 and 25, the average ticket size for co-lending. From a profile, it is a little more formal customer segment. So customers who have salary credited in the bank and working for large organizations, et cetera. So broadly that's the profile of the customer. And -- so they would be purchasing properties which are priced between say INR 30 lakhs, INR 40 lakhs or INR 30 lakhs to INR 50 lakhs. That's the profile. So this was a profile that generally earlier, we would avoid because the pricing would not fit into our pricing norms. But now we can actually address the segment through the co-lending program.
And is the portfolio quality meaningfully different from our core segment or it is in the similar ballpark?
See, as of now, this is a low vintage portfolio. I mean it would have just -- I think the oldest scale would be probably just 1 year old. So at least from our own evidence or our own experience, we will not be able to comment. But logically, yes, it should be a slightly better portfolio quality.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Manoj Viswanathan for closing comments. Over to you, sir.
Thank you, everyone, for joining us on the call. I hope we have been able to answer all your queries. In case you require any further details, you may get in touch with Manish Kayal. Wish you a very Happy Diwali. Thank you.
On behalf of Home First Finance Company India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.