IndoStar Capital Finance Ltd

NSE:INDOSTAR

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Q1 FY '24 Earnings Conference Call of IndoStar Capital Finance Limited. As a reminder, all participant lines will be in a listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Nikunj Jain from Orient Capital. Thank you, and over to you, sir.

[Nikunj Jain]

Thank you, Darin. Good morning. Good afternoon, ladies and gentlemen. I welcome you to the Q1 FY '24 Earnings Conference Call of IndoStar Capital Finance Limited. To discuss this quarter's business performance, we have from the management, Mr. Karthikeyan Srinivasan, Chief Executive Officer; Mr. VinodKumar Panicker, Chief Financial Officer; and Mr. Shreejit Menon, CEO IndoStar, Home Finance Private Limited. Before we proceed with this call, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For more details, kindly refer to the IndoStar presentation and other filings that can be found on the company's website. Without further ado, I would like to hand over the call to management for their opening comments, and then we will open the floor for Q&A. Thank you, and over to you sir.

[Karthikeyan Srinivasan, executive]

Thank you, Nikunj. Good afternoon, ladies and gentlemen. I'm Karthikeyan Srinivasan, and I'd like to extend a warm welcome to each one of you for attending our conference call on the earnings of Q1 FY '24. Joining me this today are Mr. VinodKumar Panicker, our Chief Financial Officer; and Mr. Shreejit Menon, the Chief Executive Officer of IndoStar Home Finance Private Limited. We are focused on used commercial vehicle lending and affordable housing sector, and we have kept our focus on lasers. We continue to see promising growth prospects in both these areas. As you're aware, the Indian economy has displayed strong and commendable resilience in the last fiscal and the current fiscal 2. With the sustained growth momentum happening, and RB has also said that overall economic activity has remained robust. The GDP growth for Q1 '24 is now capped at an interest of 7.9%, and this has had a very positive impact on the commercial vehicle industry. The outlook for the commercial vehicle industry for the year remains quite strong, and this has a positive ramp-up effect on the used commercial vehicles, too. As you are aware, because the new AP commercial prices have gone up, the value of the used commercial vesicles has been significantly increasing. And this presents investors a unique opportunity to leverage our expertise and capitalize on growing the demand in the used commercial vehicle segment. Our focus remains on the Tier 3 and Tier 4 market, which contributes to the bulk of our volumes. I'm delighted to share that our company has been experiencing steady growth, and it is picking up each quarter. This can be seen by the growth in our disbursement during the quarter, which stood at around INR 1,116 crores, growing 33% sequentially. Our collection efficiency has been exceptionally robust, reflecting the trend of our business model and the trust the customers get in at. This is one strength, which we want to use it further and further Furthermore, I'm pleased to announce that our management team is now complete with the recent addition of our new key risk officer. We believe that a strong leadership team is crucial to achieve our objectives, and we are confident in the capabilities of our management. Looking ahead, we are confident about the coming quarters, and we see robust growth in the near future. Our earlier guidance remains unchanged, and we are confident in our ability to achieve our target. To augment further growth, we are also actively exploring new products and strategies that can help to generate additional revenue and improve you. Diversifying our offerings will enable us to stay ahead of the market and deliver sustainable value to our stakeholders. I want to express my gratitude to all of you for your continued approach. We are dedicated to maintaining our focus on growth, portfolio quality, and operational efficiency. With a solid financial foundation, a healthy liquidity situation, and strategic initiatives in place, we are called for a bright and profitable future. Before I hand out the session to my colleague, Vinod, I'd like to mention that last week, Crisil has renewed the rating watch with negative indicators from the company's debt instrument and long-term banking stability. While reaffirming the rating at Credit AA- a negative up to the long-term rating. Some of the key factors that have triggered this rating action include the strengthening of risk and control, the strong management framework and governance mechanism, which we have established, formation of the new management team and the focus on building the retail portfolio in a scalable manner. Over to you, Vinod.

[VinodKumar Panicker, executive]

Thank you, Kati, and good afternoon to all of you. I sincerely appreciate your presence on this conference call today. This is the third conference that we have started. The first time when we started, it was the December quarter is the third time we are coming before you after a gap of 1 year that we had first come to you after the December quarter. Allow me to cover you with an overview on the financial performance of the company for the first quarter of FY '22. Let's start with the net interest income, where we reached about INR 145 crores, showing a 7% increase on a quarter-on-quarter basis. Our net interest margin for the same period expanded by about 50 basis points to reach [indiscernible]. We are pleased to report that our field has significantly improved, and we are now fully focused on Tier 3 Tier 4 markets, like Kartik mentioned in his comments. Notably, during the quarter, we need to mention that the focus has been on used commercial vehicles, and 93% of the disbursement went towards used commercial vehicles, where the yields are significantly better than any period. Turning to the operating expenses. We recorded a total cost of about INR 115 crores for the current quarter. But presenting on the paper about a 24% increase over the immediately preceding quarter. But the last quarter had a one-time reversal of about INR 50.6 crores. If that is adjusted, actually, there is a decline of over 1.2% in the expenses. We would, over the next 3 quarters, see a continuous reduction in expenses because that's one of the focus areas that we are looking at. Besides the growing of book besides the liking portfolio, the reduction of cost is one of the areas that we are definitely looking at. Our profit after tax for the quarter was at about INR 39 crores, an increase of 50% compared to the adjusted part of the previous quarter, which was at about INR 26 crores. We achieved in total collection. Kartini mentioned that collection has been very robust of our INR 1,040 crores during the current quarter, which is 13% higher than the immediately concluded quarter. Normally, March quarters are the best for the business, including for collection. But this quarter, the collection exceeded even the March quarter. Our gross collection efficiency was at about 129% in the current quarter. We definitely showcase our commitment to maintaining high operational efficiency, which is because of the high credit standards that we have maintained. Our focus on the portfolio quality our portfolio quality has led to a decrease in the gross Stage 3 assets coming down to about 6.6% at the end of Q1 of the current financial year, indicating a healthy loan portfolio going forward. We are committed to maintaining the reduction as we go forward into the subsequent quarter. Further on consolidated Stage 3 assets, the next 33 asset was at about 3.1%, which is again a demonstration of whatever I said earlier, of the commitment of the team to ensure that we have operational efficiency, we focus on high credit Capex. In terms of funding, we successfully raised about INR 1,215 crores in the first quarter, contributing to a healthy liquidity position. As on 30th of June, we had a cash and cash equivalent of about INR 1,151 crores an 8% increase over the immediately preceding quarter. Our capital -- so that effectively means that no, we have a sufficient fund to ensure that the growth is happening and to ensure that the growth is happening, we have a very good capital adequacy of about 34.4%, and debt-equity is only at over 1.9x, which gives enough headroom for future growth, and we are confident that this will help us drive profitable growth in the coming quarters and years. The more we leverage, we will be able to get better ROE going forward. Our assets under management, the AU, at about INR 862 crores, has grown by 3% compared to the immediately preceding quarter. Since the March quarter, we have now started -- March quarter in the first quarter after 3 quarters, we have now started seeing an increase in the AUM. The increased disbursement of INR 1,116 crores in the current quarter, which was higher than the immediately preceding quarter where it was INR 890 crores, can be attributed to the strong focus on the retail segment. Retailization continues to yield favorable results, and we are confident of sustaining profitable growth in the coming quarters. In the vehicle finance business, our AUM for Q1 FY '24 stood at about INR 3,928 crores, marking a 7% increase over the immediately preceding quarter. As previously mentioned, our emphasis continues to be on the CV segment and the affordable housing segment. We are confident that we will see significant growth as we go forward. As Kati mentioned, with continued improvement in the economy, we are confident that we'll grow on a quarter-on-quarter basis, leading to better business numbers in the coming quarters. Now I would like to invite my colleague, Shreejit Menon to provide insights on the housing finance segment, which is another key focus area for us. Over to you, Shreejit.

[Shreejit Menon, executive]

Thank you, Vinod. Good afternoon, everyone. I hope you are all doing well. I want to start by presenting an overview of IndoStar Home Finance, continued progress in the avoidable housing finance segment with a primary focus on Tier 2 and Tier 3 markets in southern and western parts of India. Our strategy of focusing on small towns and semi-urban geographies has helped us to maintain the average ticket size under INR 1 million with a very high origination yield. Along with home loans, these geographies presented us with a unique opportunity to build a high-quality lab portfolio of small ticket-size loans in the range of INR 5 to INR 7 lakhs with LTVs of 50% and yields upwards of 18%. I'm also happy to inform that we maintain our best-in-class asset quality, evident from our net Stage 3 rate, which is close to 0.9%, and healthy spreads across our portfolio. As IndoStar Home Finance, with the power of the strong foundation bolstered by a robust branch infrastructure, dedicated team of employees, we are confidently moving towards our goal of expanding our assets under management by over 2.5x over the next 2 years. In Q1 FY '24, we disbursed loans worth INR 190 crores at an average origination yield of 15.8% as compared to INR 183 crores this both in Q4 FY '23 at an average yield of 15.2%. Our commitment to ensuring liquidity is unwavering, and we have a robust funding pipeline to support our growth aspirations. We availed term lending from a couple of private banks and the largest public sector bank in Q1 FY '24. This quarter also marks our maiden NCD issuance by way of a private placement, which is a significant step toward the diversification of our funding profile. To further strengthen our initiatives, we have bolstered our workforce, bringing the total number of employees to 948 in Q1 FY '24, with a particular focus on our Seeton Street to better serve our customers in diverse markets. We've also launched a series of technology initiatives in Q1 FY '24 to improve the productivity and enhance customer experience, where we have gone live with our sales app or the connection app and the customer app. We are in the process of launching further tech initiatives to improve the productivity as we speak today, which I will share with you in our next interaction. Now let's delve into our financial performance. As of 30th June '23, our income has grown by an impressive 7% to reach INR 174 crores compared to INR 1,623 crores as on March '23. This growth reflects the efforts of our dedicated team and our focus on expanding our customer base in Tier 2 and Tier 3 markets. In terms of financial results, we recorded a net total income of INR 37 crores for Q1 FY '24, representing an increasing 11% increase quarter-on-quarter. Our profit after tax stood at INR 8 crores for Q1 FY '24, indicating positive momentum in our operations. Managing asset quality is one of our major achievements over the last few years, and we've successfully brought down our gross trade fee rates to 1.2% as on June '23. This accomplishment becomes even more important considering that we have adopted the new norms from 1st of October 2022. Maintaining a healthy capital adequacy ratio is a key priority for us, and I'm pleased to share that our ratio currently stands at 73.41%, underlying our ability to support business growth while ensuring ample capital results. In conclusion, our progress in building a small ticket needs home loan and micro lap in Tier 2 and Tier 3 markets in our targeted geographies has been instrumental in shaping our success story. We are fully committed to furthering this growth trajectory, remaining focused on providing affordable home finance solutions to a diverse and expanding customer base. Thank you all for your attention. I now hand it over to the moderator for Q&A.

[Operator]

I[Operator Instructions]. The first question is from the line of Nakul Doshi, an individual investor.

[Nakul Doshi]

So my first question to is based on the vehicle finance sector. And incrementally, in sort of verbal finances margin comparison. So I would like to know what are our guidance about FY '24 as we go ahead. And what would be the sustainable margin which we can consider for post FY '24?

[Karthikeyan Srinivasan, executive]

Nakul, we are like Michel and Kate, both of us said that we are predominantly in the used vehicle segment. And there, we have not seen any, I would say, reduction in the margin. It has been in the -- depending on the end that in the UCD also, we are in the Tier 3 type market. There we have not seen any, I would say, squeezing of the margins or the reduction of the yield. That continues to be robust. And I would say that the demand is pretty good. And there is -- today, we don't see any reason to believe that the margins would see any kind of squeeze in the immediate future.

[Nakul Doshi]

Follow-up question on used commercial retail. And then about the slippage policy, which the government is planning on. So what could be the possible impact of the slippage policy on our commercial vehicle business,

[Karthikeyan Srinivasan, executive]

Nakul, we are operating only up to the 12-year-old vehicle. So even if the scrappage policy comes, it will be positive momentum to the industry because the used vehicle sale will go further faster. We are very much protected against whatever is going to happen. But in our assessment, we are hearing about the scrappage. Nothing has come about as a norm or anything that has come still today. So till 12 years, I don't see any major impact that is coming into the business. Today, we are in the 5 to 8 years of the 7- to 10-year cycle. That will get quickened up if the CapEx is positive to come and which will be positive for us in the overall scenario.

[Nakul Doshi]

Okay. And since the number for the July months were out for the commercial vehicle there was such a slowdown observed in that. So what are your views on that? How could it impact the new commercial vehicle business as well?

[Karthikeyan Srinivasan, executive]

Typically, in monsoon months, there is a bit of a slowdown in the new commercial vehicle industry. But we didn't see any slowdown in the used commercial vehicle industry. A new commercial veinlet takes some time because there is a body-building aspect that is involved. And you saw half of North India and West India getting impacted badly by the flood. That has impacted the new commercial vehicle industry, and this is an annual phenomenon. So June, July, August, the construction activity slows down because concession activity slows down, the movement of cement, steel slows down. So naturally, the trucks also slow down. Our truck can get stuck in a deep flood. Those kinds of issues happen. So we don't see any major things coming in the immediate thing. Close to the elections, we can see something coming and hitting the new commercial revenue.

[Nakul Doshi]

So basically, first quarter, we can see a comeback in this sector?

[Karthikeyan Srinivasan, executive]

Correct, they naturally post typically. What happens after the [ Denmarks ] is the monsoon starts withdrawing, you will automatically see an increase in the commercial basis.

[Operator]

We have the next question from the line of Harsh Shah from Dimensional Securities.

[Harsh Shah, analyst]

So my first question is on the leverage that the management touched upon. So since last 4 to 5 quarters, we are at INR 5,500, INR 6,000 crore range in terms of borrowings, and we are at only 1.9% leverage. So with some traction on the disbursement side for the next couple of years, what is the age management's view on where it would like to take the leverage, and also what incremental rate are we able to borrow from the bank?

[VinodKumar Panicker, executive]

Harsh, VinodKumar. I will take the call. We would be comfortable as management is the leveraging is up to 4x in terms of the debt versus equity. So we are currently -- which is why I said in my opening remarks that there is a lot of scope for growth and which can be well funded by the additional borrowings that we do. As far as the incremental cost of funding growth, the current quarter, it was in the range of about 11.3%. We have now only recently started approaching the banks, which we had stayed away from for almost a year. It's only after the Q4 results that we started going to the bank. We are expecting that took the rate -- the cost to start coming down from the third quarter onwards.

[Harsh Shah, analyst]

Okay. Typically, how much basis point do you expect the cost could come down for us?

[VinodKumar Panicker, executive]

We would wait and see because, obviously, we are going to the banks after a long time, and there will be funding us -- I mean why some of them have been funding us [indiscernible] we start speaking, we would wait to see how they will do it. But then we are expecting a substantial benefit in terms of cost.

[Harsh Shah, analyst]

Okay. And currently, how comfortable are the banks in lending us? I mean, are there liberal -- can we get -- say tomorrow, over the next 6 to 9 months, if you want to get to, say, 3 or leverage, will the bank be comfortable in lending that much?

[VinodKumar Panicker, executive]

First and foremost, we would ourselves not be comfortable going to the 3 to 4x in the next 6 to 9 months. We will also want to do it slowly. So we would -- when we are approaching the bank, we are very clearly pointing out on what our expected growth trajectory is. Basically, we have seen most of the banks or most of the lenders that we like have been pretty positive. In that even the empty insurances that we came out with have been subscribed to by very, very large entities.Most of them are very careful about who they give money. So we are fairly confident that will also be blended.

[Harsh Shah, analyst]

Okay. And you've mentioned that the company had issued certain address funds via ancillaries. At what rate were these NCDs floated?

[VinodKumar Panicker, executive]

9.95%.

[Harsh Shah, analyst]

So going ahead, what would be the funding mix between banks and NCDs? Will we be capping NCDs market more than the banks?

[VinodKumar Panicker, executive]

No, we believe that we will be looking at banks more than NCDs. Then from the bank, it could be in any form. It may be in terms of short term loans. It could be in the form of a securitization. It could be in any form.

[Harsh Shah, analyst]

Okay. And the last question is on the ROA side. So our ROA has been quite muted despite the increase in our business and we are still lagging in terms of ROA both at the control level as well as the housing finance. So what are the key levers that we as a company have to take this ROA to double digits and then take it forward from there?

[VinodKumar Panicker, executive]

ROEs, I think one of the key leverage would be the leveraging that we do. So that is one thing. Second is, definitely, we are looking at improving the yield. And obviously, I mentioned about reduction in the interest cost. These 2 will definitely help in improving the ROAs, therefore, the ROE. And last but not least, a lot of expenses which are there currently. We are in a stage where the book is actually going up, has started to go up. It is not reached where we would want it to be. As we go forward, we expect the operating expenses to go but go up in a very muted manner while the revenues will grow up significantly. And then if that happened, the ROA will go up, and also basically the leveraging that we do, the ROE would go up.

[Harsh Shah, analyst]

Okay. And during the current quarter, Q1, we saw that the Randon was quite higher compared to previous 3 or 4 quarters. So any reason behind that?

[Karthikeyan Srinivasan, executive]

We did mention about collections being very good. So that also leads to some amount of rundown because actual disbursement were significantly higher at the first time actually, in the CV business, we had a disbursement of INR 750-odd crores in the quarter after nearly 5 to 4 quarters. So actually, the rundown of impact numbers are in front of me between the second quarter and the third quarter of last year, from INR 6,400 we came to INR 6,100. And in the last couple of quarters, which has actually gone up from INR 143 to 190 and INR 263. This is why I'm talking about the stand-alone business. And like Vinod pointed out, that has only gone up. That has only gone up from about 16.26 to 17.50 or something.

[Harsh Shah, analyst]

My question is more on the -- so if I look at Q4 AUM, we were at around INR 7,800 crores. And then we did a disbursement of INR 1,100 crores. And we closed the book at INR 8, 000. There was a rundown of around INR 900 crores. That is what I meant by...

[Karthikeyan Srinivasan, executive]

No, that is because of the collection. I think I did mention that. It is mainly because of the collection as we mentioned about 129% of election efficiencies, which is one of the main reasons for the rent down, which has happened. Secondly, CVs will be short-seller book. If you look at it, you say 30, 39-month average. So automatically, one turn of the book keeps running off.

[Harsh Shah, analyst]

Okay. So when we are reporting 100% plus collection efficiencies, what is the pool of the assets which would be under restructuring or which are NPA? And for how long can we expect this more than 100% sort of collection efficiency?

[Karthikeyan Srinivasan, executive]

See, in the mix of both overdue collection -- overview plus there is a restructure pool plus there is a phase we pull. My Phase II to has significantly come down from last year to this year, and Phase 3 has dropped significantly. So that momentum will remain. We also have the customers not paying on time that is covered in the next month. So that's why the collection efficiency always looks fire for all of the TV financials because in the cyclical industry, people don't get paid on time because they are the last level we are dealing with. Our assessment is this kind of beyond 100% continues for everybody, and we'll also continue well.

[Harsh Shah, analyst]

Okay. Just last question, is there any element of interest write-back that is leading to increase in the yield since you are recovering more than 100%, is the element of this interest writeback, which might not be there going forward or the increase in yield is organic in nature?

[Karthikeyan Srinivasan, executive]

It's organic in nature. We are not doing deals below a particular rate, and that is giving us the overall book -- see, the old book is at a lower rate is running off, and the new book is getting added at a much higher rate. That's why a significant increase in lead is coming up.

[Operator]

The next question is from the line of Deepak Poddar from Sapphire Capital.

[Deepak Poddar, analyst]

First off, I just wanted to understand -- and you mentioned in your opening remarks about next 2 years, 2.5x of AUM rate. So that at the company level we are looking at, right?

[Shreejit Menon, executive]

Deepa, this is Shreejit here. I was driving to the housing finance company.

[Deepak Poddar, analyst]

Housing Finance. Okay. And overall, at the company level, what sort of growth we are looking at over the next 2, 3 years, CAGR?

[Shreejit Menon, executive]

On an overall basis, in fact, the next couple of years, we would possibly look at more than being at about INR 10,000 crores plus. We may not want to give any guidance right now, but then it would be the kind of growth that we are seeing in this quarter, and that is the previous quarter, that will continue that will be faster than what we have seen in the last 2 quarters.

[Deepak Poddar, analyst]

Okay. But 2 years, INR 10,000 crores, I think already we are at INR 8,000 crores plus, right, in terms of AUM?

[Shreejit Menon, executive]

Yes, 2 years means I was referring to FY '24 and FY '25. My reference of INR 10,000 crores plus as a stand-alone on an overall basis, I think we should be in the range of our INR 13,000-odd crores.

[Deepak Poddar, analyst]

INR 13,000 crores in 2 years, that is by FY '25, right?

[Shreejit Menon, executive]

That's our, I would say, wishful thinking, or I would say that our efforts will be towards that.

[Deepak Poddar, analyst]

Understood. Fair enough. And you also mentioned earlier in the call that leverage, which is currently at 2x, we are comfortable with leverage at around 3 to 4x and that we are likely to achieve over the next maybe 2 to 3 quarters, right?

[Shreejit Menon, executive]

No, I think I said 3 quarters. In fact, I think I told us to ask the question earlier that will not be comfortable going from 2 to 4 in the next 2 to 3 quarters. It could be in a sustained fashion as we go forward. 5, 6 quarters.

[Deepak Poddar, analyst]

No problem. 5, 6 quarters. But I mean, as you increase your leverage, your ROE will see a boost, but your ROA will go down, right? So just -- I mean on a sustainable basis, what sort of ROE, ROA, we should be comfortable with at the business level?

[Shreejit Menon, executive]

We will be comfortable if our ROAs are in the 2 and 3% range. So there could be some time away. And maybe ROEs, I would say, in the, I would say, in that team, I would say.

[Deepak Poddar, analyst]

14%, 15%, right?

[Shreejit Menon, executive]

Yes.

[Deepak Poddar, analyst]

Okay. But ideally, ROA currently, which is at about 2.1% in the first quarter. We'll see a downward pressure, right, when you increase your leverage?

[Shreejit Menon, executive]

No. When we increase the leverage, ROA, it will be used for disbursement and we get the kind of yields that we currently are looking at, the ROE should start going up. And when the ROA goes up, the leverage goes up, the ROE should also go up.

[Deepak Poddar, analyst]

Okay. And you also mentioned your operating expense will not go up proportionately as compared to your AUM and your NIM growth and NII growth, right?

[Shreejit Menon, executive]

Because it's rental cost, it's the employee cost, costing don't go up proportionately.

[Operator]

The next question is from the line of Abhijit Tibrewal from Motilal Oswal Financial Services.

[Abhijit Tibrewal, analyst]

Sir, I had a question for you. I mean I recall during your opening remarks, I made a note of, you said guidance remains unchanged and we mean we remain confident of achieving the target. So somewhere I'm seeing that we are shying away from articulating the guidance. And what is it that you're trying to achieve? I understand, I mean, based on what we have been through in the recent past, right? I mean, difficult to guide. But rather than guiding over the medium term, right, even if we take it step by step. So I think it will make life easier for everyone can start articulating what is it that you're looking for in the next 3 quarters in terms of disbursements, in terms of AUM growth. Likewise, sir, I mean you have already articulated what is your cost of borrowing today. So essentially, what is the incremental needs you are looking for? What is the OpEx at which you're looking to operate for a franchise like IndoStar that you're building now? What are the kind of credit costs that this business model can operate at?

[Karthikeyan Srinivasan, executive]

Sure, Abhijit. See, I think the last annual call, which we did we explained, we are expecting a INR 4,400 crores disbursement this year. We are on target to achieve the same. That's why I said we are not changing our growth number. We will be in the used commercial vehicle segment. We are operating at a sweet spot where in the Tier 3, Tier 4 markets, where we have a NIM of around 8% on the incremental book. On the 8% around 2% or 5% will be the -- 4% will be my OpEx. 1.5% to 2% is the credit cost, which I will carry, which will lead to ROE of around 2%, and that's the guidance that doesn't change. Because it has not changed, we have not made any -- I have not made any statement saying that it is going to be there is going to be any shop. So if there is anything there that then I should have made a statement. We are not looking at growing it aggressively this year. We are building -- we are creating the building lots so that we can jump to the next year of disbursement next year. So we want to see the technology initiatives. We want to see the kind of policies which we have launched are robust, are giving the kind of result. But we have been able to demonstrate that's why our -- if you read our rating rational also, and Crisil has mentioned that is the kind of the new book which we are creating. We want to observe that and then take the next business. That's the guidance which I have -- that's why I continue to make the statement that we will -- we don't have any change in our guidance.

[Abhijit Tibrewal, analyst]

I'm glad. I mean you have restated the guidance that we've given earlier. Again, I'm not getting along with the whole idea so that you start appreciating what you are doing a whole lot better. Sir, my next question was around, I mean, collections and what you said, these building blocks that you're building now trying to see how robust they are so that you can move to the next level of disbursements from next year onwards. Sir, I mean, I essentially want to understand that -- I mean, after what transpired last year at IndoStar, what are those process improvements, whatever changes that you've done in your team, which now makes you more confident of asset quality going forward. So essentially, if you look back, right, IndoStar, at least in terms of collection efficiency that has always reported very good collection efficiencies. They are always of course of 100%, even in the past. Today, I mean, I'm sure you, and your team have done changes, which makes you more confident of asset quality going forward. So if you could just help us, I mean, understand that so that we can appreciate the changes that have happened much better.

[Karthikeyan Srinivasan, executive]

Yes. Two things which we have done it. One is what do we source that has got corrected. Today, I have a robust loan origination system where APIs are available, where the customer data completely gets from the site, which is available [indiscernible]. It's validated from the PAN side. The vehicle gets validated from the Larabar side. We have created a bare minimum civil score below which we are not funding. We also have tightened the policies around the repayment track record of customers to ensure that only a good set of customers come in. That's the part we updated. That's on what will come in. On the collection portion of it, even before [indiscernible] got implemented, what we have now implemented is a robust falloff mechanism. The customer doesn't slip into delinquency and then gets them follow-up call. Today, he gets a follow-up call 3 days before his due date. The field team is there touching the customer on the edit or if a customer has turned delinquent immediately after the nets. So our focus has been on arresting the bucket flow, which will ensure that we will reduce our DLP going forward. That's visible in the current book, the recent year sourcing look that we have done. Portion of the data, which is available in the rating reports of mine also reflects that. Typically, my billing to building collection was in the range of 80%. EMI collection per 1 was around 80%, 85%. We have moved it beyond 90% in recent years. That's the reason last 3 quarters, we are averaging beyond 90%. That's the major strength which we have brought in. These 3 and the Q1 quarter also, we have ended up at 90%, so which will ensure that the cases don't clip. The cases that come into us are robust. It sees to there, automatically, the finance company will start making money, and that's where we are reaching.

[Shreejit Menon, executive]

Also, one thing maybe just to add to what Katie said now on the quality, the disbursement, which has happened in the last 12 months, the 90-plus is about 1.2%. I think it's there in the Crisil reports.

[Operator]

We have the next question from the line of Harsh Shah from Reliance General Insurance.

[Harsh Shah, analyst]

Sir, I would like to understand that for a housing finance subsidiary even in talks with the player. So any progress on that front?

[Karthikeyan Srinivasan, executive]

Well, we did mention last time that JM Financials to the subsidiary was interested in looking at our possible collaboration. The due diligence for that action on, it's still not concluded. And we will come back to you if there is anything further to report on that.

[Operator]

The next question is from the line of [indiscernible], an individual investor.

[Unknown Analyst]

Conraidations are a good set of numbers. I have a follow-up question on the stand balance that you have given. I was wondering that we have in -- as we are in a person, and we are looking at OpEx of 4% credit cost of about 4.5 2%, to return on asset of about 2%. So going forward, as we leverage [indiscernible] come down from 8% to 6%. And in that case, we have -- the interest costs that have to go around in the spread, or I think OpEx will have to move from 4% over the medium term. So if you could guide how an additional take rate is at.

[VinodKumar Panicker, executive]

I think, Pranav, if you don't mind, you need to repeat it because I think your voice was continually breaking Sorry.

[Unknown Analyst]

Sorry Yes, sure. This could be bad connection. I was looking at the projections that you gave of NIM of about 8%, OpEx of about 4%, and credit cost of 1.52% for commercial vehicles, giving us RF of about 2%. So as it evolves, we leverage more from 2x to 4x. NIM would, I mean, would come down. It's petecontant. Our NIMs have come down to about 6%, and then ROA will decline substantially. So I'm wondering, the 2 improvements that I see, one could be OpEx would have to go down from 4% level over the medium term. or the spread has to increase. areas costs are higher, and they would probably come down. So I was wondering if you have some guidance on that front, which will give us more clarity.

[Karthikeyan Srinivasan, executive]

The runoff I think is -- I would say, leverage the growth of the cost will go up and the ROA will go down both the comment made by one of the fellow participants, and I corrected him saying that we are expecting the deals to go up, the cost of funds in a different context effect that would be going down because we would be approaching banks and therefore, my cost of funds would go down. And if that is -- if that happens and when that happens, the NIMs would increase substantially. And on a larger base, you would be spending your OpEx which I think Kartik did mention about 4%. I expect it to be slightly lower than 4%. Credit cost, while we have said 1.5 to 2, I think over the last 12 months, which was reasonably turbulent, it has been in the range of 1.5 to 1. 1.2%, 1.5%. So I'm saying that after that also, we came with the figure of -- we are coming out with a figure of about 2.5% on the percent of ROA. If leveraging goes up, definitely, the ROE will also go up. We don't see any reason for the profitability or the ROA or ROE to go down.

[Unknown Analyst]

So just one follow-up question. Over the longer term, do we expect our OpEx to be lower than 4% significantly, let's say, around 3%? Is that possible?

[Karthikeyan Srinivasan, executive]

It would be basically the base with increases because, finally, a lot of the OpEx would be in relation to the fixed cost. It must not be closer to 3%. I would say it would be closer to 4, but definitely, we'll lower that to 4.

[Operator]

Ladies and gentlemen, we will now take the question for today from the line of [indiscernible], an Individual Investor.

[Unknown Analyst]

So I just wanted to -- because I'm quite new to the business, I just wanted a couple of pointers. First of all, I wanted to understand your credit suite when it comes to your SME financing. So I know it is a non-focus area of yours, but I just wanted to have some clarity regarding the same.

[Karthikeyan Srinivasan, executive]

See today, we are focusing on reducing the NPA levels in the book. It's a pure LAP portfolio with the average LTV is around 50%, 55%. Unfortunately, it has got caught in the liability pricing because the liability rates have gone up, the tenants have got extended, basically, we have kept a calorie provision. Our focus today is to reduce the Stage II percentage, then come back to the market with a clear strategy on our SME portfolio. Our focus on -- the future focus on the SME portfolio will be on the lower ticket lap at around INR 20 crores, INR 25 lakh. That's the focus we come back on the SMA. As of today, we are running down the book. We are trying to reduce the NPA without much of losses. That's the call on it.

[Unknown Analyst]

Okay. So the rundown that you are planning to do right now. So what -- I think what percentage of AUM would be comfortable depending on how many prepayments have gotten back. And so, what level is it is there any level that you ring the business percentage of AUM that would be sufficient for me to now get back into market payment with lower ticket disbursements?

[VinodKumar Panicker, executive]

We are planning to come back to the market once my net NPA starts falling below the double digits, which we are carrying. That's the benchmark we have. We have not kept any AUM beta net NPA in this part. Once it falls below the double digits, then we will start seriously looking into it and start. And then just one of the, I guess, last question is a miscellaneous kind of question I have. But post your ESO reversal, the numbers that you have for your employee expenses. So is that a substantial assumption to elongating the future that we'll be holding out at that level, or bid?

[Karthikeyan Srinivasan, executive]

It should be at least in the current year. It would be at that level for the next 3 quarters kind of.

[Operator]

We will take the question from the line of Sumit Bhalotia from MK Ventures.

[Sumit Bhalotia, analyst]

And my question is a bit set of numbers, sir. Most of the questions have been answered. Sir, last question on -- today, there has been too much discussion on the guidance, so I won't repeat those questions. On the overall AUM, if you can throw some light on the posted book, how it is behaving, and what is the mindset there in the next 2, 3 quarters, what kind of further random do you see? And is there any change in the end quality where a fusion can share that? And secondly, the overall guidance that you give for the full year, INR 10,000 crores for the sandal book and INR 30 crore versus of the overall control level, what is the kind of run-down that you're expecting on HL and corporate growth by year-end?

[Karthikeyan Srinivasan, executive]

Corporate, we are -- cost rates, we are very serious to reduce it. We are looking at other means as to how we can produce it without any impact to the P&L. We need to give us some more time before we come back with a clear action plan as to how much it will reduce this year. But our assurance is that by the end of the year, the corporate book will be reduced significantly. Same is the case vessel.

[Sumit Bhalotia, analyst]

Okay. And sir, what is the average yield that we have on the corporate book and SMB?

[Karthikeyan Srinivasan, executive]

Our SME book is around 13%. Corporate book is at around 15%.

[Sumit Bhalotia, analyst]

Yes. So on the guidance, you are not including any rental assumption, right, and to the guidance that we have given to the overall year, the guidance...

[Karthikeyan Srinivasan, executive]

Net of the rundown.

[Operator]

We have one more question from the line of Pankit Patel from HSBC Mutual Fund.

[Pankit Patel, analyst]

My question was around Stage 2. On Page 2, if you could give us an idea on the CV book that you have as of now because I think the numbers mentioned plus, but is this also seeing a reduction over the last few periods is an idea that we wanted to have. That's the first question.

[Karthikeyan Srinivasan, executive]

Yes. Phase 2 numbers have also significantly reduced. If you look at it, we were at a very high number. It has come down to around 9% overall. I'll just give you the numbers. Just give me a moment. Percentage tons are quarter. In fact, December quarter, the absolute number was INR 223 crores. It has now come down to INR 180 cr.

[Pankit Patel, analyst]

This is at the overall level?

[Karthikeyan Srinivasan, executive]

[indiscernible]. It is around 1.45% this quarter. [indiscernible].

[Pankit Patel, analyst]

Is there any restructuring also included in this INR 485, or that is separate?

[Karthikeyan Srinivasan, executive]

Space is there, but still is a very small number, probably INR 50 crores.

[Pankit Patel, analyst]

Right, less than 1%. Okay. Also, on the remaining corporate book of INR 1,100 crores, I just wanted to understand the nature of this. Is it lumpy, very large accounts that are remaining, which you are planning to resolve, or is it something that you're holding back? Are you still disbursing in that? How are you handling that book now?

[Karthikeyan Srinivasan, executive]

See, it's a lumpy exposure only. We have a high customer [indiscernible]. There are certain commitments which we are following on their disbursement. But we are working on methodologies so that these can get cold. 3 accounts as Stage 1. The balance is in Stage 2, which is both the lumpy account, which is INR 800 crores and roughly INR 870 crores are in Stage 2. We are working out with the promoters so that these can get resolved. These are those last of those accounts, which are remaining in our corporate book. Our assessment is we will be able to find a very good solution, probably very fast.

[Operator]

Thank you. I would now like to hand the conference over to Mr. Nikunj Jain from Orient Capital for the closing comments. Over to you, sir.

[Nikunj Jain]

Thanks. I would like to thank the management for taking time out for this conference call today. And also thanks to all the participants. If you have any queries, please feel free to contact us. We are Orient Capital, Investor Relations Adviser to IndoStar Capital Finance Limited. Thank you, everyone.

[Shreejit Menon, executive]

Thank you.

[Operator]

On behalf of IndoStar Capital Finance Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.