Home First Finance Company India Ltd

NSE:HOMEFIRST

Earnings Call Analysis

Home First Finance Posts Strong Q2 Growth with Strategic Expansion

In Q2 FY '25, Home First Finance achieved a remarkable 34.2% annual growth in assets under management (AUM), totaling INR 11,229 crores. The company reported disbursals reaching INR 1,177 crores, marking a record high. Profit after tax surged 24% to INR 92 crores, with a return on equity of 16.5%. Employee growth and strong asset quality were emphasized, with early-stage delinquencies remaining stable. The company plans to maintain a credit cost between 20 to 30 basis points. They aim for a 30% AUM growth trajectory over the next two years, positioning themselves for sustained expansion amidst a supportive regulatory environment.

Strong Growth in AUM and Disbursals

Home First Finance Company India Limited has reported impressive growth in its financial performance for Q2 FY '25. The company's Assets Under Management (AUM) surged by 34.2% year-on-year, reaching INR 11,229 crores. During this quarter, they achieved a record disbursal of INR 1,177 crores, showcasing their strong momentum and operational capacity. This trend of quarter-on-quarter increases in disbursals reflects effectively expanded distribution and operational prowess.

Expansion of Branch Network

To further cement its market presence, Home First Finance expanded its branch network, adding 9 new branches in various states. This brought the total number of branches to 142, with an overall reach of 351 touch points across 138 districts. The growth of the workforce from 1,249 to 1,642 employees during this period further supports the company's aggressive growth strategy.

Stable Asset Quality

Maintaining robust asset quality remains a key focus for Home First. The early stage delinquency (1+ DPD) stands steady at 4.5%, while the 30+ DPD decreased to 2.8%. The Gross Stage 3 GNPA ratio remains stable at 1.7%, indicating effective credit risk management. The company also reported a credit cost of only 20 basis points, reflecting a decrease and maintenance of low risk in its lending practices.

Profits and Efficiency Metrics

Home First Finance’s profit after tax increased by 24% year-on-year, amounting to INR 92 crores, with a return on equity (ROE) of 16.5%. This growth was achieved despite an increase in operating expenses, which were consistent with the strategic hiring and branch expansions, maintaining operating expenses to assets at 2.7%. The company projects that this ratio will hover between 2.7% and 2.8%, demonstrating effective expense control amid growth.

Technology Integration and Digital Adoption

Technology continues to be central to Home First's strategy, with an increased adoption rate of digital processes. Notably, about 49% of new approvals now use digital agreements, a leap from 41% in the previous quarter. Furthermore, a significant 95% of the customer base is registered on the mobile app, with digital fulfillment reaching over 75%. This digital shift not only enhances efficiency but also improves customer service experience.

Guidance on Future Growth

Looking ahead, Home First Finance holds an optimistic viewpoint for sustained growth. The management maintains a target of achieving a 30% CAGR (compound annual growth rate) in AUM over the next few years. The plan includes achieving an AUM of INR 20,000 crores by FY '27, signifying ambitious but achievable targets based on current performances and expansions. They expect disbursal growth rates to align within the 20% to 30% range as they work towards this goal.

Risk Management and Regulatory Environment

Despite concerns regarding regulatory pressures in the housing finance sector, management believes their model remains resilient. The company experiences minimal overlaps with microfinance institutions (MFIs) and is not affected by the sector’s current stress. In fact, the regulatory environment may even favor housing financing, supported by initiatives like the PMAY scheme, promoting housing growth.

Cost Management: Interest and Employee Expenses

While facing rising interest costs—up by 50.4% compared to last year—Home First is managing these effectively through strategic pricing adjustments and maintaining a diverse borrowing profile. Despite this, the company reassures stakeholders that credit costs will remain stable, expected to be around 20 to 30 basis points annually. Employee costs are projected to remain in check as they scale their workforce proportionally with growth.

Conclusion: A Positive Outlook

Overall, Home First Finance presents a solid picture for investors, characterized by robust growth trajectories, stable financial performance, and proactive risk management in a competitive market landscape. Their strategic focus on technology adoption and expansion positions them favorably for continued success in the housing finance sector.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Home First Finance Company India Limited Q2 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Manoj Viswanathan, Managing Director and CEO of Home First Finance Company India Limited. Thank you, and over to you, sir.

[Manoj Viswanathan, executive]

Thank you. Good evening and greetings to everyone and a warm welcome to all the participants to the Home First earnings call to discuss the results for quarter 2 of FY '25. Today on the call, I'm joined by our CFO, Ms. Nutan Gaba Patwari. Together, we extend a warm welcome and hope you had a chance to review our investor presentation and press release that have been uploaded on our website and stock exchanges. Additionally, an Excel factsheet including the historical data has also been uploaded on our website.

Let me start by giving you the highlights of our quarter 2 performance. We are pleased with the company's strong performance during the quarter. We continue to expand our distribution footprint deeper into our existing markets. In quarter 2, we added 9 new branches, 2 branches in Gujarat, 1 branch in Maharashtra -- 1 branch each in Maharashtra, MP, Chhattisgarh, New Delhi, Uttarakhand, UP and Rajasthan, bringing the total to 142 branches. With digital and potential branches, we now operate across 351 touch points in 138 districts spread across 13 states and union territories.

We continue our track record of quarter-on-quarter increase in disbursals with our highest ever disbursal of INR 1,177 crores for quarter 2. The AUM has grown by 34.2% year-on-year to INR 11,229 crores. Employee strength has grown from 1,249 in March to 1,642 in September '24, which puts us on a good wicket for further expansion.

Our asset quality remains strong with early-stage delinquencies under control. 1+ DPD stands at 4.5%, which is flat on a quarter-on-quarter basis. 30+ DPD stands at 2.8%, which is down on -- down 10 basis points on a quarter-on-quarter basis.

Gross Stage 3 GNPA at 1.7%, again, flat on a quarter-on-quarter basis. Our credit cost at 20 basis points has decreased by 20 basis points on a year-on-year basis and has remained flat on a quarter-on-quarter basis.

The profit after tax for the quarter stood at INR 92 crores, which is an increase of 24% on a year-on-year basis, delivering an ROE of 16.5%, which is an increase of 20 basis points compared to quarter 1. Our well-diversified borrowing profile has enabled us to manage borrowing costs effectively maintaining the spreads at 5.3% in line with our guidance.

Technology remains central to our strategy. Account aggregate adoption has become mainstream with an adoption rate of about 49% among new approvals. This was 41% in last quarter. We continue to exploit opportunities in technology and data analytics and keep optimizing and tracking our operational processes and productivity. Penetration is strong with 95% of our customers registered on our app. Digital fulfillment has reached 75% plus with the use of digital agreements and E-NACH mandates. 89% of service requests are raised on the mobile app.

With this, I would now like to hand over the call to Nutan to take you through the financials. Nutan, over to you.

[Nutan Patwari, executive]

Thank you, Manoj, and good evening, everyone. Let us start with the key financial metrics, starting with spreads. After repricing in August '24, our spreads, excluding co-lending expanded by 10 basis points, and it is at 5.3% right now. Net interest margin was 5.2% owing to the leverage effect. Operating expenses to assets were maintained at 2.7% for the quarter, in line with our expectations. The slight increase in employee cost is due to the new ESOP grants during the quarter. We expect the OpEx ratio to remain range bound within 2.7% to 2.8% as we focus on expansion.

Fees and commission income saw an increase. This is due to our product and agreements falling in place with insurance companies after we received the corporate agency license in FY '24. Credit cost is at 20 basis points. Our annual guidance for credit cost is around 20 to 30 basis points, just being conservative here.

Moving on to the balance sheet and capital position. Balance sheet remains robust, providing a solid foundation to support the company's growth ambition. The company's borrowing profile continues to be well diversified and cost effective, reflecting our prudent financial management. We continue to maintain 3 months of cash on the balance sheet and high liquidity buffers. Liquidity buffer at the end of September was INR 3,000 crores plus. We also added a U.S. dollar ECB to the borrowings mix with a drawdown of $35 million from DFC during the quarter. This is a 10-year loan fully hedged on our balance sheet.

As part of our liquidity management strategy, we also executed a direct assignment transaction of INR 154 crores during the quarter. With this, the borrowing mix now is 60% from banks, out of which private sector banks are 29% and the balance is from public sector banks. NHB refinance is 16%, direct assignment 13% and co-lending is now 3%. NCD and ECB each constitute 3% in our borrowing mix. We have no commercial papers and 0 borrowing through any short-term lines. Our cost of borrowing is competitive at 8.3%, excluding co-lending at 8.4% on the total, enabling us to maintain healthy spreads.

On capital adequacy and liquidity, again, our total capital adequacy is 36.4% and Tier 1 36%. Our debt-to-equity is 3.9%. As of September, our net worth is INR 2,289 crores. Our book value per share is INR 257 per share. Finally, moving to the provisions and asset quality. We continue to adopt a conservative approach to provisioning, maintaining a provision overlay above ECL requirements. Our Stage 3 provision coverage ratio is 48%. Before NPA reclassification as per RBI circular, the provision coverage ratio is 64%.

Overall, our business remains on a strong footing, supported by diversified borrowing profile on a solid capital base and prudent risk management practices. We remain focused on leveraging technology, expanding our distribution network and ensuring operational efficiency to deliver sustainable growth.

With that, we conclude our opening remarks and happy to take your questions.

[Operator]

[Operator Instructions] The first question is from the line of Renish from ICICI Securities.

[Renish Bhuva, analyst]

Congrats on a good set of numbers. Just 2 questions from my side. One on the bounce rate...

[Operator]

Sorry to interrupt you, sir, I would request you to please use your handset.

[Renish Bhuva, analyst]

I have two questions. One on the bounce rate. So while there has been a steady improvement since many quarters. But when we look at the October month number, there has been a sharp 40 basis point increase in bounce rate to 15.6%. And this is, in fact, the highest in the last 8 quarters. So how one should read this bounce rate rise in October month?

[Manoj Viswanathan, executive]

As of now, nothing to read into it because if we actually look at the -- I mean, we are on 25th of this month, and a majority of the collections, bounce cases collections actually happens by 25th. So we are actually trending, you can say, very well as far as the collection is concerned. So I mean, if you were to, let's say, look at some of the good months of collections that we had in the last, let's say, 7 to 8 months, I mean, October ranks kind of on par with that. So as of now, I would say nothing to be read into it. Also, if you see the collection figure 6 days post the bounce, so 15.6% was the bounce rate. Within 6 days, about 5.6% of the people have actually paid back. So if you look at the bounce number after 6 days it is 10%, which is in line with what has been happening in the last several months or several quarters.

[Renish Bhuva, analyst]

Got it. Got it. So basically, it is right to assume that in last 10 days, let's say, the collections by and large at par with the previous months?

[Manoj Viswanathan, executive]

Yes, yes. Yes.

[Renish Bhuva, analyst]

Got it. Got it. Okay. And my next question is on the employee expense, right? So even in first quarter, that line item grew by 14 points sequentially. This quarter, it is up 20% sequentially. And also, when we look at the employee counts, we've been adding almost 250, 350 people on annual basis. Last year as well, we added 250. First half, we added 350. So are we redesigning our business model wherein the incremental, let's say, disbursement of the business will be more driven by the DSTs and less from the connector? Or I mean how one should think about it?

[Manoj Viswanathan, executive]

No. We don't have a DST model as such. It's the connector model, which is basically a completely variable expense model is what we are -- we continue to operate with. Our employees basically consolidate these leads and then they contact the customer and take it to closure. So whatever model we have been following for the last 14 years, we have not changed anything in that. So number of employees, as we pointed out, we have actually increased the number of employees in the last 2 quarters. And that is kind of on track with our plan. So we are basically building the employee base for expansion over the next 2 to 3 years. So that is in line with our plans.

[Renish Bhuva, analyst]

Got it. And Manoj, just last question. On the, let's say, slightly medium-term point of view. Now since we have sort of crossed that INR 10,000 crores mark on the AUM side, from next 2 to 3 years perspective, how confident we are about sustaining this 30-plus growth rate? Or do you foresee moderation in that?

[Manoj Viswanathan, executive]

No, we don't see a moderation in that. The design was that we will grow by -- we want to grow by 30% and all other activities in terms of employee hiring, branch expansion, new location expansion, et cetera. We have planned on that basis only. And so that is going as per plan. So if you look at this year also, we have disbursed more than INR 2,300 crores in the first 2 quarters. And -- so the plan is that in the next 2 quarters, we could get to about INR 2,500 crore, INR 2,600 crores, that was the plan. And so we are on track for that plan. And that would deliver the 30% plus growth rate. Similarly, the plan for the next 2 years is that we get to a INR 500 crores run rate next year and a INR 600 crores run rate the year after. And so the expansion and employee base increase is on par with that.

[Renish Bhuva, analyst]

Okay. Okay. And maybe, let's say, given the current stress in the MFI though our customer segment is very different. And given the regulator is also sort of not happy the way HFCs or NBFCs are growing. So do you foresee that risk, let's say, playing out for our growth plans in near term as well?

[Manoj Viswanathan, executive]

No. At the MFI sector is, I would say, fairly disconnected with our sector. I mean we have had cycles -- MFI cycles in the past as well, but it has not really impacted our sector too much. The housing loan customer is generally fairly conservative in their outlook and in terms of their borrowing profile. So -- and we have very little overlap with the MFI sector actually. So these would be customers who generally would have started their borrowing profile with maybe a consumer durable loan or a 2-wheel loan, not really MFI loan. So it's a different profile of customers.

[Renish Bhuva, analyst]

And regulatory risk?

[Manoj Viswanathan, executive]

Regulators -- see, as far as housing is concerned, frankly, the regulator -- what we are seeing is they are pro housing. I think most of their actions have been to curtail unsecured lending and to curtail lending where they don't know the end use, et cetera. But as far as housing is concerned, actually, the -- there has been a lot of support coming through and the PMAY has also been relaunched. And in all our discussions with the regulators, et cetera they -- for the core housing sector, frankly speaking, there is -- we are not seeing any headwinds from there at all.

[Operator]

The next question is from the line of Kunal Shah from Citi Group.

[Kunal Shah, analyst]

So first question with respect to the geography, particularly Karnataka, it seems to be doing quite well, both with respect to sequential as well as the year-on-year growth. Any specific to read into this? Is it like maybe the overall segment led by the network expansion? Or there is something else because that growth seems to be quite high? Both Karnataka and -- I think UP is anyway it is because of the presence, but Karnataka in particular.

[Manoj Viswanathan, executive]

No, nothing specific as such. It's -- if you remember, maybe a year ago, there was some struggle with Karnataka. But we have kind of turned the corner there and it's growing as per our expectation now. So there is -- other than that, there is nothing else to read into it.

[Kunal Shah, analyst]

Okay. And second, with respect to fee income, not sure if you indicated but slightly higher fee income during the quarter. So is there any element of one-off out there?

[Nutan Patwari, executive]

So Kunal, it's not a one-off. So we have rehashed the entire insurance partnerships after the corporate agency that we got in last year. So about INR 4 crores of income per month is what will accrue to us on the back of that moving ahead. So it's a new start, which is more or less settled now.

[Kunal Shah, analyst]

So this is just for a month? So when we look at fee income of now INR 9-odd crores, so this is like a month's income and...

[Nutan Patwari, executive]

So there are 2 components to this fee and commission income. One is the commission income, which is approximately INR 7.5 crores, INR 8 crores for 2 months, because the entire partnership actually started from 1st of August. And the balance, INR 1 crore, INR 1.5 crores is the usual number that we used to have even before, which would be your bounce fees, some of the other fees and charges that get charged to the customer on an on-going basis. So that's -- which was there already. And about INR 7.5 crores, INR 8 crores is the new commission income that got added to the line, which will continue on a monthly basis.

[Kunal Shah, analyst]

Sure. And one last thing on the regulatory part, again, just to touch upon. So specifically, they're highlighting that maybe because of the investors' push, there is a chase for growth, ROE. And maybe the growth is significantly higher than what the actual demand seems to be at the ground level and they have indicated HFCs out there. So maybe any read-through for us, maybe any indications from the RBI with respect to maybe how we are conducting or the pace at which we are growing here?

[Manoj Viswanathan, executive]

No, no, Kunal. Actually, I would say that -- see, on the pricing side, the rate that we are operating at, the 12%, 13% range, which we are operating at and many -- several other housing finance companies also operate at, that is a very well socialized figure with the regulator. It has been -- they have gone into very extensive discussions on what that figure should be. And they have also agreed that, yes, a 12% to 13% rate is what is required in this business to sustain the cost and the credit costs and so on and so forth. So it's a very well socialized number.

And frankly, we don't find any disconnect at all over there as far as the pricing is concerned when we are operating in the 12% to 14% range. As far as the growth is concerned, again, we have never heard anything in the last 2 years from the regulator about being aggressive on growth, et cetera. In fact, we have had some -- we have been part of some discussions where the regulators are actually pushing us for more housing growth. So I would say that this is something that we have not heard at all.

[Operator]

The next question is from the line of Shreepal Doshi from Equirus Securities.

[Shreepal Doshi, analyst]

My question was pertain to the rate hike that we had taken in August '24. So do you believe all of it would have been reflected in our pricing or in our yields now? Or would it still take some time for the repricing or for the impact on tenures to get reflected?

[Nutan Patwari, executive]

It's fully reflected...

[Manoj Viswanathan, executive]

Fully reflected but it was -- you can say 2/3 of it has got reflected last quarter because it got effective only from 1st August. So kind of maybe a full impact will come this quarter. So if we had a 10 basis points impact last quarter, may be this month -- this quarter will be maybe 12, 13 basis points.

[Shreepal Doshi, analyst]

Got it. Got it. And the second question was on the leverage front. So the leverage has been inching up for us in the last 12, 15 months' time period. So what is the peak leverage that we have in mind up to which we would be comfortable with? And you would look at options like capital raise?

[Nutan Patwari, executive]

So if you see the key financial ratio, we leverage right now actually on debt-to-equity is about 3.7. So we think that we can set it for a fair bit, perhaps closer to 5. And so we have about 18, 24 months before we need to look at a capital raise, maybe 12 to 18 months, you can put it up.

[Shreepal Doshi, analyst]

Okay. Okay. Got it. Got it. And then just last question was on ticket size front. So if you look at the above 1.5 million ticket size, there the increase has been pretty sharp. So in FY '22, it was closer to 32% of our overall loan book. Today it stands at closer to 47%. So I mean -- and of course, that is inching our ATS as well. So where do you see this sort of stabilizing? Or would it trend towards 1.3 sort of number as well?

[Manoj Viswanathan, executive]

You're talking about the more than 1.5 million or just the...

[Shreepal Doshi, analyst]

Yes, 1.5. So we give the ticket size base AUM as well, right? So in that, if you look at above 1.5 million ticket size...

[Manoj Viswanathan, executive]

Above 1.5 million, correct. So there above 1.5 million, you're talking about?

[Shreepal Doshi, analyst]

Yes. So it has increased from almost 30%, 31% in FY '22 to almost 47% as we speak today. So where do you see this sort of stabilizing now?

[Manoj Viswanathan, executive]

So see, some gradual increase will be there because ticket sizes of properties are increasing. The same property in terms of size, 5 years ago and today, the price is very different. I mean there is an inflation effect on one hand. On the other hand, there is also -- because incomes are rising faster than inflation. So there is also an aspiration effect that is taking place. So the same kind of customers, same profile of customers are actually now looking at larger properties.

There was one scenario in Bombay where there was a concept of one room kitchen. Now no builder is building a one-room kitchen at all because there is no demand for room kitchen. So even the basic first-time buyer is now moving from a 300, 400 square feet to a 600 square feet or 700 square feet requirement. So that inflation effect will be there. And the trend that you're seeing will probably continue. There will be maybe at least a 1% or 2% increase in ticket size every year. That is a trend that we are seeing.

[Shreepal Doshi, analyst]

Got it. Sir, just one follow-up here. So are we not seeing decent traction or decent number of opportunities in the say fully INR 7 lakh, INR 8 lakh ticket size as well because there will be a customer segment who will be moving from say probably INR 4 lakh, INR 5 lakh in the Tier 3, 4 geography to INR 8 lakh, INR 9 lakh loan as well as we go ahead, as we look at this inflation scenario playing out for that customer segment as well. So are we not targeting that customer segment? So just some color here.

[Manoj Viswanathan, executive]

Yes, so we are not excluding any segment. The key issue is that earlier, maybe 5 years ago also, there used to be properties available, readily built properties. I mean build -- properties built by the developers, which were available in the INR 5 lakh to INR 10 lakh range. Today, those kind of properties are not available in the INR 5 lakh to INR 10 lakh range. So INR 5 lakh to INR 10 lakh range property is only possible if the customer is constructing on their own and if they already have a plot of land.

So basically, the supply in that segment is also reducing for the same reasons that I indicated, which is partly inflation and partly aspiration. The demand for housing in the less than INR 10 lakh category is also slowly diminishing. So I mean, today, the 15 -- INR 10 lakh to INR 15 lakh is the new INR 5 lakh to INR 10 lakh you can say.

[Operator]

The next question is from the line of Rajiv Mehta from Yes Securities.

[Rajiv Mehta, analyst]

Congrats on the very good numbers. My first question is on disbursements. So when I look at disbursements on a Q-on-Q basis, there is a growth, but the growth has been lesser than what we have generally seen in Q2 over Q1. And generally, what we have been delivering in the past few quarters. In terms of momentum, there seems to be a slight slowness.

Any markets or locations where we are calibrating growth approach on our own for reasons like pricing, competition or initial quality indicators? Or otherwise, if you can tell us whether can we revert to again the growth momentum that we've been delivering so far in the next quarter or so?

[Manoj Viswanathan, executive]

So Rajiv, I would not read too much into it because if you see the trend of Q1, Q2, Q3, Q4. So generally, Q1 is fairly slow. If you see the last 2 years before this, the Q1 growth has been generally maybe less than 3% over Q4. This year, we kind of reversed that, I mean, or changed that trend, and we had almost a 6% growth in Q1 over Q4. So to that extent, Q2 was a little more moderate. If you actually see H1 over H4, it has the same trend as the last 2 years. I mean it's about 11%, 12% kind of a growth of H1 over H2 -- over H4.

So if you take the last 3 years, the growth of H1 over H4 has been about 11%, 12% compared to H4. So this year also, it's the same trend. So it is, I think, just a rebalancing between 2 quarters. I mean it's a question of maybe INR 20 crores, INR 30 crores moving from 1 quarter to the other quarter. I mean, if, let's say, instead of booking it in quarter 1, we have booked it in quarter 2, maybe we would not even be having this discussion.

[Rajiv Mehta, analyst]

Understood. So on an annual basis, that 28%, 30% disbursement growth run rate should continue, right?

[Manoj Viswanathan, executive]

Yes. So we have actually -- see we have actually -- our design has been to get to a 30% AUM growth, okay? So the design is not for a 30% disbursal growth. It's for a 30% AUM growth. So somewhere between a 20% to 30% disbursal growth we'll be able -- with a 20% to 30% disbursal growth, we should be able to achieve a 30% plus AUM growth. So that has been the design. So the design is that this year, we will clock a run rate of about INR 400 crores per month.

Next year, we'll clock a run rate of about INR 500 crores. Next year, we'll clock about INR 500 crores and the year after about INR 600 crores. So that has been the design principle. So -- and that will help us to reach that 30% AUM growth.

[Rajiv Mehta, analyst]

Okay. Okay. And Manoj, do we play on pricing when we get into a new market or if you want to grow faster in a certain market, do we play on pricing? Or is the pricing standardized because the underwriting is centralized? Just want to check on that.

[Manoj Viswanathan, executive]

Pricing is actually fairly customized. It's a risk-based pricing model, which we run at the back end. And so what we have done is for each loan, we expect the relationship managers to discuss with the customer and onboard the customer data on the system. And based on the customer data, we then run the probability of default and then throw up the risk-based pricing for that customer. So it's a customized pricing for literally every customer. So it depends on the customer profile. It depends on the location. It depends on the risk profile of that particular area, et cetera. So based on all that, we kind of throw up an individualized or customized risk pricing for each customer.

[Rajiv Mehta, analyst]

Because I think, I was coming from trying to understand, for example, a market like Rajasthan, which is fairly mature and established. There's a lot of competition already in that market. And we've been growing very fast. And the share of Rajasthan in overall AUM has been increasing. So I just wanted to understand whether one aspect of growth could also be a play on price. I understand distribution is a larger aspect, but we don't do that, right? That's what you are saying. It's purely customer profiles specific.

[Manoj Viswanathan, executive]

Yes. It is customer profile specific. And of course, for example, larger cities, maybe Bombay or Ahmedabad or larger cities where it's -- so it depends on multiple factors. It depends on the product, depends on the city. So we customize the pricing according to that. So in some places, yes, we may be more competitive on pricing. Some places where we can extract the higher pricing, we would be able to, we will be doing that.

[Rajiv Mehta, analyst]

And just one last thing on funding. We've got INR 500 crore NHB sanction. So is it between the 2 schemes of AHF and refinancing? That's the first question. And then what could be the blended cost of it when we avail it?

[Nutan Patwari, executive]

So Rajiv, yes, it will be a combination of both. The exact breakup will be known when we come closer to the drawdown depending on how they are raising the funds from ministry or otherwise. Cost again depends on the proportion. So for example, the regular refinance is just above 8%, whereas the AHF portion is much more attractive. Of course, we have to also pass on the benefit to the customer. So I think only once we have availed this actually, can we give you an exact number.

[Manoj Viswanathan, executive]

Because the ratio gets determined actually very close to the disbursal date, and we're still discussing with them on the disbursal. So closer to the date, actually, they determine the ratio. So we don't -- as of now, we don't yet know that ratio. How much is the AHF and how much is normal?

[Rajiv Mehta, analyst]

And Nutan, just last one thing. The bank loans, the mix across benchmarks, MCLR, repo and any other benchmark?

[Nutan Patwari, executive]

So the repo T-bill, et cetera, which is your short-term benchmark will be close to 20% of the entire borrowing book of the bank portion I'm talking about. The rest will be MCLR 3, 6 and 12 months, broadly equally split. So let's say, once the rate cycle reverses, the first 3 months, we should be able to get about 30%, 40% of the book repriced.

[Operator]

The next question is from the line of Raghav Garg from AMBIT Capital.

[Raghav Garg, analyst]

Congrats on the results. I have three questions. One is, can you give some sense on whether the balance transfer request this quarter were relatively on the higher side versus maybe what you would have seen in the previous few quarters of last year? And also, if you can give some sense on what percentage of the BT requests were retained by you as compared to last time? Any broad sense would do? Just trying to understand the competitive intensity here for you. That's my first question.

[Manoj Viswanathan, executive]

So balance transfer because the numbers are very close to each other. I think the peak that we have seen is about 8% and last quarter was about 6.7%. So, I mean, one way to look at it is, yes, there has been some moderation on the BT out because last 2, 3 quarters, the number has been more closer to 6% rather than 8. So there has been some moderation in the BT out. Now it's difficult to say whether there is -- it's actually because of reduction in intensity, BT intensity in the market or whether it's because of our own efforts because see, about 2, 3 quarters back, we launched a very concerted effort to retain the balance transfers. So we put in place a protocol and training for the branches to retain that. So we would like to believe that, that has made some impact. So I wouldn't say there is any reduction in the BT intensity in the market. It would be more or less similar to what it was over the last several quarters. But yes, I mean...

[Raghav Garg, analyst]

So the reason that I was trying to -- what I was trying to understand was that you've taken a PLR hike in this quarter, right, 2/3 of which has been passed on. And despite that, what I see is that the origination yields are flat. So I will just correlating as to whether the yields -- incremental yields being flat here. Does it mean that you may have passed on some kind of benefit to the customer? And as a result of that, you may have been able to control the BT for you?

[Nutan Patwari, executive]

Raghav, why are you comparing the origination yield with PLR increase?

[Manoj Viswanathan, executive]

Book yield.

[Nutan Patwari, executive]

Book yield, right? The book yield is not flat.

[Manoj Viswanathan, executive]

It's gone up by 10 bps.

[Raghav Garg, analyst]

The book yield has increased by about 10 bps. Okay. So there's no correlation as such?

[Nutan Patwari, executive]

Yes. And the increase happened effective 1st August, right? So it is not a full...

[Manoj Viswanathan, executive]

I think last year, if you see, Raghav, the -- not last year, up to April '23, that is actually in FY '23, the rate increase that was passed on was almost 125 basis points at one shot, was not shot across 2, 3 installments. But -- so that was a pretty large increase that was passed on at that point. Compared to that, what we have passed on now is very small, 35 basis points. And it is coming after almost a gap of 15 months.

So this has not created any ripple as far as the customers are concerned. Also, a large part of this rate increase was passed on through a tenure change. Almost 93% of the customers actually underwent only a tenure change. I mean they did not undergo any EMI change. So to that extent, they did not get disturbed. So I would say there has been not much impact of this rate increase on the customers.

[Raghav Garg, analyst]

Understood. That's fairly clear. Another question is -- it's pretty clear that you've been very aggressive in terms of hiring compared to the usual trend that's there for your company. And as a result of that, what I'm seeing is that the number of employees per branch has increased, I think at an all-time high of some 11, 11.5 employees per branch.

Is there some change in sourcing strategy or organizational structure? Can you throw some light -- whether -- later on, maybe you'll expand branches at a higher rate and not the employee base, so the employees for a branch could come down. That's my limited question.

[Manoj Viswanathan, executive]

So hiring -- see, there has been no change in the hiring strategy. Hiring -- normally, we do a lot of hiring in the first 2 quarters because that's the placement season. And we do most of our hiring from campuses. So they all -- the campus recruits join during these 2 quarters. So that trend has continued. I think what you would be seeing is a more sharper increase in the employee base, right, from 1,250 in end of last year to about 1,650. So about 400 employee increase in the first 2 quarters, which generally is a little more modest. That is because of the attrition also shrinking parallelly. So generally, there is also attrition, which is 30%, 35% plus.

But this year, the attrition has been sub-30. So to that extent, we have been able to retain more employees. So as a result, you are seeing the employee base going up more sharply. But we don't intend to let up on the hiring because we feel that this is a good opportunity. While the attrition is shrinking, this is a good opportunity to hire more employees and kind of build the employee base for the future. So that is really, I think, what is behind the strategy. So in the normal course, if attrition was lower, probably we could have ended up hiring fewer people. But we have continued with our hiring plan so that we are able to kind of get -- add the employee base for the future.

[Raghav Garg, analyst]

So is it fair to assume that in H2, the employee hiring would be a lot more moderate compared to the trends that have been there in the first half?

[Manoj Viswanathan, executive]

No, hiring -- we actually do the hiring in H2. So we do the campus visits, and we make the offers, et cetera, in H2, which we intend to do now. We are already in the process of doing. But these candidates generally tend to join us in -- join us in the first 2 quarters.

[Raghav Garg, analyst]

Understood. And you are still sticking to that branch opening for this year, right? I think 20 or 30, is that correct for the full year?

[Manoj Viswanathan, executive]

Yes. We continue to operate on that format. So about 25 to 30 branches per year is what we're looking at.

[Operator]

The next question is from the line of Aravind R from Sundaram Alternates.

[Aravind R, analyst]

Congratulations on a good set of numbers. Sir, like one question I had on disbursement, I think you answered that in terms of like Q-o-Q, the growth was flattish in disbursement. I understand that, but I also wanted to understand like in terms of asset quality, I understand like our GNPA has been stable. But -- do you track any data in terms of our customers in either defaulting or anything like that in their unsecured or in their other loans? And do we have any set of data or anything of that to track?

[Manoj Viswanathan, executive]

See, the data scrap we do once a year, but then that would be a bit dated. So I mean, we would not have something which is -- I mean this phenomenon which we're seeing in the market is more recent, maybe in last 2, 3 months kind of a phenomenon. So we would not have a recent data to say anything about whether that is there, that is happening. The data scrap normally happens once a year. So that will take some time.

[Aravind R, analyst]

Okay. Because the stress was not just seen in MFI but also in unsecured portion of even some large banks. That's why I was trying to understand that. And also, sir, like in terms of fee income, I understand like this insurance broking business is just panning out and it can also grow. But do we see any other forms of fee income drivers that can come in the future? Like do you foresee anything like that?

[Manoj Viswanathan, executive]

So we want to focus on insurance because insurance is still is a large business. We want to kind of focus, stabilize that before we think of something else. For the next 2 years, we will be basically focusing on this to kind of stabilize it. And maybe after that, we can think of other opportunities.

[Aravind R, analyst]

May I know, is this life insurance or like general insurance, health insurance?

[Manoj Viswanathan, executive]

Life and general, both. So life insurance, basically to protect the -- protect the loan in case of any unfortunate event to the customer. And the general insurance basically to protect the property from a natural disaster, et cetera.

[Aravind R, analyst]

These 2 insurances we gently do?

[Manoj Viswanathan, executive]

Yes. Yes.

[Operator]

The next question is from the line of Chandra from Fidelity.

[Chandrasekhar Sridhar, analyst]

Three questions. One is, what percentage of the people was the last increase in PLR rolled out to? Was it rolled out for everybody or just a certain set?

[Manoj Viswanathan, executive]

So the PLR increase basically happens on the entire base. So it's a benchmark change, internal benchmark change. So that happens on the entire base. But what we also did was the customers who had a good track record for maybe more than 1 year or 2 years, we also gave them a discount on the rate. So to the extent of -- to basically help them to get a -- to adjust for the PLR, increase in PLR. So you can say the PLR increase affected about maybe 50% of the customers.

[Chandrasekhar Sridhar, analyst]

Okay. Okay. Got it. Secondly, is it fair to say that spread is sort of now plateaued from where they are? I mean how do you think just around cost of funds and spreads? And then in the sort of previous cycle when cost of borrow went down, you managed to show an increase in spreads. As we sort of look over the next 12 to 24 months, keep sort of the rate cycle going the other way at some point in time, how do you think of spreads? And then just lastly, the ESOP pool, can you just remind me, does it cover -- what percentage of people in the branch does it cover as well?

[Manoj Viswanathan, executive]

Yes. So see, spreads, we have been maintaining that 5% to 5.3% is the kind of spread that we will be able to achieve in this business. And -- so it's kind of hovering over there. But if the rate -- if there is reduction in rate, cost of borrowing reduces, there will be periods where we probably enjoy a larger spread because there will be some lag and passing that on to the customers. But on a steady state basis, 5.2%, 5.3% is something that we should be able to maintain.

As far as the ESOPs is concerned, so we basically providing ESOPs to -- from any -- from a supervisory level. So basically, at the branches, it is all the branch managers who are covered through the ESOPs. In other functions, it's basically people who are supervising teams.

[Chandrasekhar Sridhar, analyst]

So any branch manager basically off these 140 branches is covered in the ESOP pool?

[Manoj Viswanathan, executive]

Yes, yes, they will be covered by the ESOP pool. I mean, unless they have kind of just become a branch manager and they missed the previous cycle. But otherwise, they will all be covered.

[Operator]

The next question is from the line of Harshit from Premji Investments.

[Harshit Toshniwal, analyst]

Sir, just one thing. So on the model which we follow of the connector, I think when we recently look at the other players, maybe they were late in catching up and maybe it could have been -- they were not aggressive in this, but the peers have started becoming aggressive on this channel itself. And in a very similar concept to ours, building up an app and then giving it -- making it more technologically easier for them. So do you per se see this that -- is there a greater competition aggressiveness on this part of the segment?

[Manoj Viswanathan, executive]

Yes, there is always some new players coming or some players starting this concept. Also, this concept always -- I mean concept always existed in some form or the other. Probably more companies are getting more -- getting more formal or giving it a more formal structure to it. But otherwise, many companies were sourcing through connectors earlier also. So ultimately, it boils down to what new insights you can gain and how you can kind of make your own app, more user-friendly for the connectors and develop certain insights, which will kind of make it easier for them to deal with us. .

So we continue to kind of keep innovating on that front. And so there will be others who are trying to catch up, but we will try to stay ahead of them because we kind of have a first mover advantage. So we have certain insights. We have certain database and track record of these connectors. So we will hopefully stay ahead of that curve.

[Harshit Toshniwal, analyst]

Got it. Got it. Sure, sir. And one more thing, sir, I think for us, if I'm not wrong, the underwriting part is something that happens -- the legal validation of the documents, et cetera, the technical part, that happens in-house in the central location in Mumbai, if I'm not wrong?

[Manoj Viswanathan, executive]

No. So there are 2 parts to the process. So there is a legal check that happens through legal vendors in the respective locations. And then that legal report also gets verified or vetted by an internal person, internal property underwriting person. So it's a 2-phase approval process that we have.

[Harshit Toshniwal, analyst]

Okay. And that underwriting team is something which is there in-house in our Mumbai, unlike other peers, it's not diversified across the region?

[Manoj Viswanathan, executive]

Correct. That is correct.

[Harshit Toshniwal, analyst]

If you can, sir, just help with the total team size of that underwriting team. And in general, how has the attrition been in that -- in that particular region? Probably the third question more practically since the nuances of individual areas defer a lot, how do we ensure that any recent updates, et cetera, whatever has been happening in a particular region or in a particular district gets adequately captured in the underwriting process?

[Manoj Viswanathan, executive]

Yes. So the underwriting team has the size of about 30, 35 people, and we keep continuously adding to that team. So we do a capacity planning in terms of how many applications likely to be received and what is the processing time, et cetera, and we keep adding people to that team. And so there are 2, 3 things that we do to address the local nature of some of this information. So one is that we have these legal and technical valuers who are located in each of these locations, and we have a relationship with them. So they process the application first or they process the title papers and the technical report first.

So they bring in the local nuance. And then that report is then checked by our internal person who's sitting here in head office. What we also do is we have -- the underwriting team that you see 30, 35 people over here, they are actually, you can say, cultivated from various parts of the country. So there would be people who have been branch managers or relationship managers in other various parts of the country. So we actually move them to Bombay to be part of the underwriting team. So they bring with them their local experience of those locations as well.

And thirdly, what we also do is we have a continuous process of field visits by the central team. So every month, there are 1 or 2 or 3 people who are visiting various parts of the country to kind of correlate whatever they do in the central office with what is happening on the field. So -- and to keep kind of update -- keep themselves updated on what is happening in the field. So through this 3-pronged approach, we combine the local nuance with the kind of centralized control.

[Operator]

The next question is from the line of Pavan Kumar from RatnaTraya Capital.

[Pavan Kumar, analyst]

Can you just highlight why we should keep growing our disbursements lower than the AUM rate? Is it because of the adjustment you are looking for assigned loans that are -- for which you are receiving money? Or how does that work exactly?

[Manoj Viswanathan, executive]

No. So disbursement, see, the planning that we have done for the next 3 years is based on a certain AUM growth, right? So we wanted to achieve an AUM growth of close to 30%. And we have done our planning on that basis. So the disbursal growth will be more of a derived number. So there is a certain disbursal growth that will lead us to a 30% AUM growth. So that number will be the derived number.

So like I said, the number that we are targeting is INR 20,000 crores in the next 3 years. So FY '27, we want to hit a INR 20,000 crores number. So broadly, that translates to 30% AUM growth year-on-year. The disbursal growth, maybe 20%, 25%, 27% it could vary quarter-to-quarter. But the ultimate aim or goal being that we have to grow the AUM by 30%.

[Pavan Kumar, analyst]

Okay. Perfect. And any signs of stress you are seeing, especially on our lower ticket size book?

[Manoj Viswanathan, executive]

No, we are not seeing anything ticket size specific as such in terms of stress. .

[Pavan Kumar, analyst]

Okay. And so going forward also, we are expecting the credit cost at least as of now to stay between 20 to 30 bps, that is what our expectation is, right?

[Manoj Viswanathan, executive]

The expectation, yes.

[Operator]

The next question is from the line of Ravi Naredi from Naredi Investments.

[Ravi Naredi, analyst]

Mr. Manoj ji and your entire team doing very nicely working. It is a good thing you reduce the impairment on financial instrument. Sir, only thing to ask our net interest rise is 50.4% in this quarter against our AUM rise of 34%. So what is the reason?

[Manoj Viswanathan, executive]

Sorry, sir. Can you repeat the last part, net interest?

[Ravi Naredi, analyst]

Our AUM rises by 34%, while our interest -- net interest cost is rises by 50.4%.

[Manoj Viswanathan, executive]

64% you're talking about?

[Ravi Naredi, analyst]

INR 176 crores against INR 117 crores.

[Manoj Viswanathan, executive]

Yes, because interest cost is also increasing. So the interest cost -- whenever there's an interest cost increase and that number increases by a disproportionate percentage. So AUM is growing by 30%, 34%, but interest -- first of all, there is high -- I mean the company is getting more leverage. I mean there is more debt getting added to the balance sheet. So that is one factor. And secondly, the interest cost is also increasing because of borrowing cost increase. So that is why you're seeing a disproportionate increase in the interest cost line.

[Ravi Naredi, analyst]

So in the longer term rise of AUM percentage and interest costs will be similar?

[Manoj Viswanathan, executive]

Sir, in a steady state, it will be similar. But as the company is growing and adding more debt, the leverage is increasing. So at some point, let us say, we say that, yes, we are going to maintain a leverage of, say, 5.5% or 6%. So at that point, then quarter-on-quarter, you will find that both will increase at the same pace. But as the interest -- as the leverage keeps increasing, the interest cost will rise at a higher rate.

[Ravi Naredi, analyst]

Mr. Manoj ji, my one concern is there, we are maintaining more liquidity. That is the reason we are paying more interest?

[Manoj Viswanathan, executive]

No, sir. There are 2 reasons. One is, as I said, the debt component in the balance sheet is increasing, right? So last quarter, you would have seen 4.6% was our asset-to-equity ratio. This time it is 4.8%. Our debt equity ratio has moved from 3.5 to 3.7. So there is more debt proportionately in the balance sheet. So that is one reason for the increase. In a steady state, once that number stabilizes, I mean, once we hit -- once we reach 5x debt to equity and we are maintaining the 5x debt to equity quarter-on-quarter, then you will not see this disproportionate increase.

[Ravi Naredi, analyst]

Okay. And one more thing, net profit rise by 24% against AUM rise of 34%. This is main cost. One is the interest and other is staff cost?

[Manoj Viswanathan, executive]

Yes, sir. Again, same reason because interest cost is rising. So we are -- the PBT, PAT is rising at a slightly slower rate than the AUM increase.

[Ravi Naredi, analyst]

Okay. But we are keeping the growth rate 30% onwards for the full year, right?

[Manoj Viswanathan, executive]

Yes, sir. Yes, sir, for the full year.

[Operator]

The next question is from the line of Jatin from Burman Capital.

[Jatin Sangwan, analyst]

First one is on the clarification related to fee income. You mentioned that fee income from insurance commission will be around INR 12 crores. Earlier, we used to book advertisement income from insurance that used to be around INR 4.5 crores. So is my understanding right that the net delta would be INR 7.5 crores or similar?

[Nutan Patwari, executive]

So the net delta would be slightly higher. We will reduce the marketing income that we used to get, but not fully eliminated. The delta could be in the range of INR 9 crores to INR 10 crores.

[Jatin Sangwan, analyst]

Second question is around the PMAY CLSS scheme. Now please correct me if my understanding is wrong. So my understanding is that if a customer gets the CLSS scheme, then he will have to stick with the same lender for the 5-years till he is getting the subsidy. If he switches, then he won't get the full benefit of subsidy. So does it mean that BT out rate will reduce because customer will anyway stick to the same lender and that will also get reflected in our BT out rate?

[Manoj Viswanathan, executive]

Yes. Theoretically, as of now, the way the scheme is structured, that looks like a possibility.

[Operator]

The next question is from the line of Omkar Shinde, who is an Individual Investor.

[Unknown Attendee]

So first question is on Madhya Pradesh growth. So Madhya Pradesh has seen very good growth. It is...

[Manoj Viswanathan, executive]

We cannot hear clearly.

[Nutan Patwari, executive]

We cannot hear you.

[Unknown Attendee]

So for Madhya Pradesh, the growth has been very good. Quarter-on-quarter, we have seen 15% growth. It is now at INR 800 crores book. And almost every quarter, we have added INR 800 crores to INR 850 crores in the book. So my question is what is it that we are doing in Madhya Pradesh that it is growing so fast because share in the AUM has also increased very much in the past 4 quarters? So that is the first question.

[Manoj Viswanathan, executive]

Which location?

[Nutan Patwari, executive]

Madhya Pradesh.

[Manoj Viswanathan, executive]

Yes, yes. So as we had articulated, sir, there are 2, 3 states where we are focusing now. So earlier, our focus used to be in the western and southern part of the country. And last -- about maybe 1 year ago, we said that we will now start increasing our distribution in MP, UP and Rajasthan. These 3 are the new emerging states, which have large populations and where affordable housing is coming up in a big way.

So we are just going ahead with that plan. So we have actually opened up locations in MP. We have opened up -- added more people in MP. So we are -- the distribution expansion is picking up pace in MP. Also true to some extent in Rajasthan and UP also, you will see that our pace of growth is higher than other parts of the country. So Rajasthan has grown by about 41% and UP has also grown by about 50-odd percent. So -- so in all these 3 states, we are now focusing our expansion, and you're seeing the results from that.

[Unknown Attendee]

I was going to also come on UP. So in the UP, Uttar Pradesh, you showed that it is a combined INR 746 crores. What is -- can you give us the split between Uttar Pradesh and Uttarakhand, if it is possible, what is Uttar Pradesh and Uttarakhand?

[Manoj Viswanathan, executive]

Uttarakhand would be about 2% of the AUM, if I'm not mistaken and the balance comes from UP. So Uttarakhand would be -- I mean, totally, it's about 6% of the AUM. Out of which Uttarakhand will be about 2% and the balance will be from UP.

[Unknown Attendee]

Understood. And now one question on the ECL provision. So ECL provision Stage 2 has increased to 10.1% in the current quarter. Quarter-on-quarter, it has seen a big jump from 7.8%. So what is that? Because our credit cost, the provisioning that is there in the P&L, that has remained more or less stable. So have we seen any recovery or anything? Can you please explain?

[Nutan Patwari, executive]

So when we do the ECL model, we look at the model as to what changes or any overlays that we may have to take. So if you see year-on-year, our number had reduced from 8.6% to 7.8% last quarter. And we just thought it is prudent to kind of take the number slightly higher. So we made some very basic changes to accommodate that. If you look at our 30 DPD, that has improved. If you look at the composition of the credit cost also, about 90% of that is just on account of provision. The losses are actually negligible in the credit cost line. So this is just being more conservative that we have added a little bit more provision to the Stage 2. We've also maintained our Stage 3 provision at 27%. This is just being a little bit conservative on maintaining healthy provisions.

[Unknown Attendee]

Okay. So you have changed the model or we have taken management overlay?

[Nutan Patwari, executive]

Management overlay.

[Unknown Attendee]

Because the overall provision also has decreased. So that was just to understand. So you have taken a management overlay, that is correct to understand?

[Nutan Patwari, executive]

Yes. The overall provision has increased by almost INR 5 crores.

[Operator]

Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. Manoj Viswanathan for closing comments. Over to you, sir.

[Manoj Viswanathan, executive]

Thank you, everyone, for participating and engaging in the call. We hope we have been able to answer all the questions to your satisfaction. In case you want to reach out for further questions, you can always reach out to Nutan or right to us at [e-mail]. Thank you so much. Have a good weekend and Happy Diwali in advance.

[Operator]

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.