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IndoStar Capital Finance Ltd
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Ladies and gentlemen, good day, and welcome to the IndoStar Capital Finance Q3 FY '20 Earnings Conference Call hosted by Motilal Oswal Financial Services. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to the IndoStar management. Thank you, and over to you all.
Yes. Good afternoon, I'm Sridhar from IndoStar for this Q3 earnings call. So let me first give you an overview of the recent transaction, which we have announced, the equity infusion from Brookfield. So as all of you are aware, Brookfield is a marquee global private equity investor, the second largest in the world with $510 billion assets under management, and they have an investment of $18 billion in India. And this investment happens to be the first 1 in the country from their private equity and IndoStar happens to be the first NBFC listed company with a partnership deal announced by us last week.So this equity inclusion is around INR 1,225 crores into the company. And out of that INR 1,225 crores, around INR 875 crores will be in equity and another INR 350 crores will be in compulsorily convertible preference shares. Apart from these 2, they will also buy a small quantum from the existing shareholders. And these 2 transactions will trigger an open offer. And post all this, Brookfield is likely to have a minimum of 40% equity shares, which makes them the single largest shareholder in the company.And this transaction is coming at a very opportune time for IndoStar when we have faced stiff challenges in the last 15 months post-IL&FS problem, which led to a lot of liquidity shortage for the NBFC industry and also we have faced a slowdown on the asset side. Though these 2 have put the NBFC's growth under [ slow lane ] and this equity capital is going to help IndoStar look at growth in the next financial year once this transaction is culminated in the next few months.So we have been in due diligence for a few months by Brookfield and it has completed the due diligence and signed binding agreements, and we expect the approvals to come in the next few months to close this transaction. The capital of the company will be increased to that extent of INR 1,225 crores, and the book value becomes about INR 4,200 crores, which helps us increase our business 2x to 3x without any further requirement of capital.With a global investor partnering with the existing shareholders Everstone as co-promoters, adds lot of credibility to IndoStar in the marketplace and ever since this announcement has been made, last week, we have been receiving calls from our banks with whom we had relationship in the past, taking out our existing proposals, and they are all willing to give sanctions to us once this transaction is completed, and we hope that INR 2,000 crore to INR 2,500 crore of balance sheet funds will follow this transaction.So we are very confident that the kind of partnership which is envisaged in this transaction, the problems of capital and liquidity for IndoStar will get over, and we would look at growing our retail business swiftly in the next financial year.In the last 15 months, when we were facing a lot of liquidity challenges, we have had some positive events also. The 1 is that we have bought the business of CV financing from IndiaInfoline in -- on 31st of March 2019 with the deferred credit of over 12 months, and we have completely paid the entire consideration to IndiaInfoline by January end, and we don't have any dues to be paid to them. And that portfolio is reasonably doing well. And we have also, side-by-side, reduced our corporate lending portfolio, both corporate real estate as well as non real estate, which was at around INR 6,000 crores during the time of the India -- IL&FS fiasco. Now it has come down to around INR 3,000 crores. So INR 3,000 crore of repayments and prepayments we have taken which clearly demonstrates the quality of assets of corporate lending business, and this has helped liquidity in a very tight market. And we have used that business -- that funds to pay off our liabilities and grow our retail business.The third good event which have happened to us is the partnership with ICICI Bank for developing a lending franchise for commercial vehicle finance. This started in the month of July. And till now, we have done around INR 500 crore of business. As on today, we have assets under management of INR 500 crores, which is sitting in the balance sheet of ICICI Bank. So this relationship with ICICI Bank on CV is likely to strengthen further, and we will be doing more business for ICICI Bank in the days to come.So in the last 15 months, during this liquidity crisis, we have managed our liabilities in this fashion and still grown our retail book so that our assets under management does not degrow, so that is how we have managed this. Going forward, once this transaction of Brookfield culminates, we would focus on building the retail business aggressively, led by the commercial vehicle finance.As you all know that we have bought the business, and now we have about INR 4,500 crores of assets under management which had gone up around 11x compared to June '18. So June '18, we had about INR 400 crores, now we are worth about INR 4,500 crores, about 11x the CV financing business had grown. The retail business has moved up by around 3x. So all these have helped us in the retailization strategy, which is standing at around 70% now, with corporate lending business, 30%. And we are on our way and on track to have a mix of 75% retail and 25% corporate because I do expect that in the next 1 year, the corporate lending business will still come down, and this mix will finally prevail.So with these initial remarks, I leave the forum for your questions, and all my colleagues are present here, we would be very happy to answer your queries.
[Operator Instructions] We take the first question from the line of Umang Shah from Edelweiss.
Sir, first of all, congratulations on your -- on this first of all deal that's going to happen. Sir, I had a couple of questions regarding your corporate book, first of all. If we see that in quarter 1, you have provided for 1 of the real estate company, it seems, because out of your whole corporate book, the real estate company has seen consistency. That's why 81% looks from corporate. I want to understand what is the position on this, whether we are going to increase our provision on corporate lending? And I will come to the next question then.
I'm not very clear about your question. What is that you exactly want?
Okay. So in our corporate lending, our real estate portion is 81% of INR 3,100 crore AUM.
Okay, okay. So you are talking about how the mix will change within the corporate lending?
Yes. So that has changed from 56% to 81% but the -- if I'm not wrong, then the book is consistently INR 2,500 crore. And have we provided -- so in quarter 1, we have provided a provision in corporate book of around INR 15 crore. Is this related to that particular one, I mean, I'm not sure whether it is one account or not but...
Yes. See, we have provided INR 15 crores against 1 real estate customer which has already slipped into NPL. So that is provided in Q2.
Q1.
Q1, sorry, Q1. And it continues even now also. And in Q3, whatever we have written off is non-real estate.
Okay, okay. So in our corporate lending, if I look at the book, overall book, it has come down from -- sorry, just a minute, I'll recheck my numbers...
Around INR 6,000 crores to now INR 3,000 crores it has come down.
Yes. And we have disbursed around INR 3,000 crore in this 1 particular year, YTD. I mean, in past 3 quarters, we have disbursed somewhere close to INR 1,000 crore. So is it that this INR 3,000 crore was pre -- out of that, how much would be prepayment? If you can...
We do not have the details.
So roughly of the INR 3,000 crores repayments that we have got, about INR 600 crores, INR 700 crores will be normal scheduled repayments. And balance will be split to prepayments and refinancing by other lenders.
Okay, got it. Yes. All right. And sir, now going ahead in our retail book, even this quarter, retail book, if I compare with FY '19, vehicle finance was somewhere close to INR 3,000 crore of loan book. This quarter is somewhere close to INR 3,200 crore. Are we confident that going ahead, this vehicle finance book will keep on -- I mean, what is the strategy that we are following that we'll keep on growing from here?
See, now that we will be getting the -- already, capital is not an issue for IndoStar. We're already having a 25% capital adequacy. So with Brookfield investment and debt becoming more comfortable, we are now chalking out our plans for growth in retail business, which is led by commercial vehicle finance. So as you know, commercial vehicle financing business, we are in the mid customer segment, which -- where the customers own 2 or 3 vehicles. And there we are likely to be the leader in the next few years. So we are focusing mostly on the used vehicles. At present, our current book, 70% is used and 30% is new. So we'll be moving more to used vehicles, thereby increasing our yield and penetration. So we would be focusing more on that. And with the scrappage policy getting implemented from April 1, 2020, as per the government announcement, that is going to create a huge opportunity for funding used vehicles. So we are positioning strategically at a very advantaged position where with capital and debt, we will be able to exploit and increase our business substantially. So it's a high potential segment where we feel that we are positioned appropriately to take advantage and build huge volumes in the next 3 to 5 years.
Okay. All right. And sir, just one more last question. You mentioned something about ICICI Bank. So you are in partnership with ICICI Bank. So basically, you try to find out clients and ICICI Bank finances it and you get the fee income out of it? Or how does this...
Whatever you said is correct. This is a partnership where same customer segment, same credit policy. Since there is a liquidity shortage is there in the marketplace, we got into this relationship, where we source the customers, do everything as per ICICI's documentation and give them -- once our credit approves it, we give it to ICICI Bank and their credit, once it approves, they make the payment to the customer. This funding comes to us at 10.4%. The balance between the lending yield as well as the 10.4% comes to us.
Okay, okay. Got it.
Total interest.
Total interest. Okay, okay. Great.
[Operator Instructions] Next question is from the line of Aakash Dattani from HDFC Securities.
Yes. Could you quantify in absolute terms your Stage 2 assets as on 31st December, please?
Stage 2, 31st December.
So Aakash?
Yes.
We'll come back to you with an answer on that.
Okay. My next question is on the present day -- on slide -- just hold on once, on the liquidity profile that you all have given in your investor presentation, on Slide #12. If I look at the loan repayment inflows line for FY '21 and compare it with the same line in your 2Q presentation, there is a considerable decrease. So I wanted to understand what would be driving this?
Sorry, I didn't get your question, Aakash. Can you please repeat it?
Yes. So on Slide #12 of your presentation, there is the liquidity profile table, where there is a line that says loan repayment inflows. So if I look at the FY '20 -- so there are 4 quarters for FY '21. And if I look at say 3Q FY '21, the figure is INR 6,300 million. Now in your previous presentation, it was INR 7,262 million. So what is the reason for -- and if I look -- and again, if I were to compare it with say, your first quarter presentation, then it is -- the amount falls further.
No, no. So Aakash, sorry, I've understood now what you meant, hence let me repeat it. So basically, at all points of time, there'll be a certain outstanding book, which gets split into a loan repayment ALM schedule. Now during the quarter, there'll be fresh loans given and also, there'll be prepayments, plus I'll be doing any direct assignments, if at all, and any prepayments which have happened in the portfolio gets factored into this ALM schedule. So all 3 points will add up to [indiscernible] so the -- while you'll always see that point spinning, it will never be a static number which will be going on quarter-on-quarter. But these are the only 3 reasons why that numbers have changed.
Correct. So if I just look at this 3Q FY '21 number, there has been a considerable decline versus what was shown in 1Q, just for example. So would you attribute this to say you are foreseeing delayed payments in certain accounts or something of that sort?
So what would have happened, if you're looking at Q3 FY '21, what I'd said in my Q1 presentation and now, you'll see in my rundown in my corporate book if there was something scheduled to come in which was a big-ticket item, and if you -- I mean, you will know the business well. All my corporate repayments are bulky repayments. So they actually have an impact in their quarter's inflows. So if any of that would have got rescheduled as a prepayment or maybe he would have coming in and done a part payment and said I'll finish the loan earlier, all that will get factored into the current ALM presentation that I have in front of you.
I see. Okay. And thirdly, the budget announcement regarding the eligibility under SARFAESI, does that impact IndoStar in any way?
So we had SARFAESI cover up to 1 crore of ticket size cases. Now that should go down to up to 50 lakhs. We have a reasonable portfolio below 1 crore, so it should help us.
And your next question is from the line of Rajeev Agrawal from DoorDarshi Advisors.
Yes. And this is Rajeev from DoorDarshi Advisors. My first question is, I see provisions made in the quarter of INR 111 crores. But if I look at your NPAs, the NPAs have -- the provisions for NPAs have only gone up by like INR 17 crores, right, from INR 67 crores to INR 81 crores or INR 14 crores. So should I assume the rest is all write-offs in Q3?
Rajeev, this is Amol here. So by -- what will happen is that in the P&L, the INR 111 crores number that you see is a combination of provisions made and write-offs, so as you rightly pointed out. And if you refer to Slide 16, which plots out the product-wise gross NPAs and net NPAs. So part of that provision cover is coming through that line, plus, you're right, we've also called out in our corporate lending P&L page that we've done 2 large write-offs in Q3. So both provisioning and write-offs have contributed to a number of INR 111 crores.
Right. No. So I just wanted to know how much is the write-off total in the quarter?
So write-off -- see, we had provided for them in Q2 as well for those 2 specific accounts. And in this quarter, we have taken a hit of INR 59 crores.
So that is the write-off, INR 59 crores?
Yes, right.
Got it, got it. And given the write-offs you have taken in the media and the fitness company, are you done? Or do you have to take more provisions still to take care of these 2 accounts?
So we do have exposures for -- to those 2 accounts. And as and when the situation warrants, we'll revisit our stance on provisioning or write-off.
So there might be more that might come? You have not like fully provided as of now, right?
You're right.
Got it. Okay. Now I want to understand a little on the CV portfolio, the commercial vehicle portfolio. It seems like IIFL portion is doing well where the GNPA, where we have already completely paid off. So firstly, on the IIFL portfolio, can you talk about -- there was, I think a ECL that was available of around INR 137 crores against the IIFL portfolio. How much of that was ultimately what was realized as cost? And how much -- and what happens to the differential that is there?
So basically, the original number was INR 202 crores when we bought the portfolio. And the number of INR 137 crores that you referred to, which is on Slide 16 again, is the current provision available of that pool that we took on. Now if you remember, we had said that, that INR 202 crores covers around 8.9% of the IIFL portfolio. Currently, INR 137 crores represents a cover of 8% of the total portfolio.
And when would you know if this is enough? Or like how does it work? So as you realize the losses, if the provision or the cost is lower than INR 137 crores, is the money going to stay with IndoStar or it goes to IIFL? Can you just explain how that works?
Yes. So Rajeev, we've bought over that portfolio, so there's no connect with IIFL any longer. It's a portfolio which I manage. And over the course of the portfolio, if my overall write-off is lower than this INR 137 crores, I will eventually see a write back.
Got it. Got it. Okay. And then on the portfolio, the CV portfolio that we have originated in IndoStar, it seems like there has been a deterioration in the NPA or in the asset quality. So can you talk through what exactly is going on there? Because the GNPA, excluding IIFL, and NNPA, both jumped in this quarter.
Yes, our portfolio organic have been doing well, but you know that there is a slowdown in the CV segment and in some geographies like Rajasthan, Gujarat, Delhi and Telangana, there are some heavy commercial vehicles which we have funded is facing some issues. That's why there is a slight deterioration. But these are all cycles where short term, there could be some pressure. NPL is not going to be a credit loss. These are all postponement of payments. It's fully collateral-lite. There's a earn-and-pay system in commercial vehicle. As the freight market is sluggish, there are some delays in repayments, but all these will come back once the market revives. So we are not very much worried. I've seen many cycles like this. So it would be collected. Our collections are good. Some slippages here and there, but compared to the total portfolio, it's not very significant. We are addressing those issues, and we are confident that these will be eventually collected.
Got it, got it. And what would you say is a normalized cost for a CV business that we are originating? Credit cost?
I think we are doing business at around 16% to 16.5%. So in a good market condition, we should be having a 75 to 80 basis point credit loss. And in a very challenging period like this, it could go to 150 to 160 basis points. So risk adjusted, we should be between 14% to 15% finally earning on this portfolio, which is really good.
Yes. No, that's great. And can you explain what segment, what segment of the used CV are we focusing on? What is the vintage of the vehicles that we finance?
We are focusing on 5 to 12-year-old vehicles. That 8-year model, which has about 7 million to 8 million population, and we are addressing the customer segment of 2 or 3 vehicle owners.
I see. So it's very similar to Shriram Transport, your past experience? Or like how is it different?
It's not similar, though the customer segment is different. We are financing 2 or 3 vehicle owners, and Shriram Transport is specializing in financing first-time users. And there is a yield difference of about 6%.
Okay, okay. But I thought Shriram Transport has a similar yield and a similar vintage. But I think they are just 1 owner, right, single owner whereas you are saying they have 2 to 3 vehicles. Is that right?
It's not a single owner. We call him a single lorry operator. The first time someone buys a truck. So he will have only one[Audio Gap]but we don't fund that segment. [Audio Gap]vehicles. So we are not competing in any manner.
Got it. And then one last question is on Brookfield. While they have come in and they are a big strategic investor, I just wanted to understand your thought process around the price at which they came. So they obviously came below book and how did -- how does the management think about the price? And if you can just talk through that?
See, normally, any investment equity transactions and all that is not related to the book value, it is always related to the SEBI price and the market price and all that. So this is a negotiated price. But as far as the company is concerned, what we look at it is not the price at which the investor comes, but the partnership with a marquee -- a big investor, global investor like Brookfield, which is also increasing our credibility in the market, helps us in liability and we look at together what we can build in the last -- next 3 to 5 years instead of looking at the current price at which the investment is made. That's how I look at it. And it's very advantageous for IndoStar at this point of time to get an investor like Brookfield coming and reaffirming faith in our current business model, the platform which we have built and also backing the management team. So that gives us a lot of satisfaction and at this current market situation, where there are challenges on liability as well as assets, this partnership and the confidence which Brookfield has shown on the platform and the management team will go a long way in building a fantastic franchise in the next 3 to 5 years.
Right. Just one related question on the funding side. If the funding challenges continue in terms of funding from the Indian market, would Brookfield be amenable to also funding you using debt? Or is that something that is a possibility given how big they are?
I think you have not heard me when I made the preliminary remark, that the moment this transaction is announced last week...
Yes. No, I heard that.
INR 2,000 crores to INR 3,000 crores of funding has been already on offer, which is in the pipeline. Once the transition is complete, it'll come. So I don't think there is any need for Brookfield to personally lend to us. The banking channels and the institutions will fund us because of the kind of equity which is coming in. So we would become -- once the transaction is completed, we would become 1 of the company or the only NBFC in the country with a very high capital and very low leverage. So that would attract a lot of debt from the Indian lenders.
Your next question is from the line of Siddharth Purohit from SMC Global.
Sir, two questions. One on the deal side that really appreciated that the fact that marquee players like Brookfield is coming on board. But as you rightly mentioned, certainly priced at a different point. But my question is that there is a sizable amount of fund that is coming up right now. So how comfortable we are right now in deploying that organically? Or are we also looking for some inorganic opportunity by raising this money? That's the first question. Second is that in the last couple of years, we have seen your ROE remaining depressed vis-a-vis other NBFC. So any like thoughts on how that will pan out over the next 2 years? Because given that equity base is going up naturally to look lower going ahead also. So if you can throw light on that?
So let me answer your first question that we are -- with the capital, we will be growing our organic book. As we reduce our corporate book, we are side-by-side increasing our retail book substantially. So in the last 3 years, we have changed the mix from 80% corporate and 20% retail to 70% retail and 30%. Substantial mix change have happened in the last 2 years. And this retailization will continue, and this will be very aggressive and high growth we will see in the next 3 to 5 years in potential sectors like vehicle finance, SME and affordable home finance.So we have built 250 branches and good management team, processes, technology. We've created the platform. With the team as well as the capital coming in, we would be building these businesses in the next few years.Nevertheless, that we would also be keen to look at inorganic opportunities. Like what we did about a year back, that we bought CV financing business from IndiaInfoline. If there are opportunities which are aligning to our retail strategy, if something comes up, we would not hesitate to look at it. So inorganic is also 1 of our strategies we will look at and doing it.The second question on you is ROE. As a management, we are today looking at our [ ROEA ] and ROE will come later as and when we start consuming our capital. And in today's current market scenario, it is necessary to strengthen our balance sheet by bringing more capital, which would attract debt and that is what is going to happen when the Brookfield investment comes into the company. We are already able to see the response from the lenders that, that is going to help us in building our liability profile in a big way.With capital and debt, we would explore opportunities to build the assets. And once the capital gets consumed, we will see in the next 3 years starting from FY '21, there will be progress in the [ ROEA ]. So [ ROEA ] is what we would focus currently, which we feel that we should be at around 2.5% to 3%. That is what we would ensure. And ROE will come automatically in the next few years.
Okay. Sir, just 1 more question. You have already elaborated on the credit cost part. But I would just like to know what is the potential for reducing our operating cost, like operating expenses also. Being an NBFC, probably we still have some leeway of reducing that when I look at your cost-to-income ratio. So what would be the like targeted cost-to-income ratio, eventually, maybe 2, 3 years down the line?
Yes. See, we would be -- we have said during our IPO last year that we would move eventually to 25%. But unfortunately, you know that even though our expenses are reducing, simultaneously our income also has reduced. So cost-to-income is -- once when income starts growing, automatically, this will come down. Eventually, we would like to be at around 25% in the next few years.
Next question is from the line of [ Pritesh Vora ] from [ Enam Holding. ]
Sir, how do we see the leverage over 2 to 3 years or 4, 5 years? How do we -- what are the triggers which will lever our book over the next couple of years?
Today, post this infusion, we would be less than 2x the leverage. That gives us a lot of scope to build our business liability, we will raise and we'll build. So normally, even the lenders are looking at around 20% capital as against the 15% prescribed by the regulator. For us, even the [ 3 credit rating ] agency is looking at 20%. So you can safely assume that for a company profile like IndoStar, we should lever around 5x. And then you have some scope to do another one-time through the off-balance sheet. And the kind of partnership with which we have with ICICI Bank, where instead of 15%, we are only providing 8%, these are all ROA-accretive. So you can safely assume minimum 5x and around 6x over a period of time when our capital gets consumed.
So when do you think, sir? As per you, what is the trigger which will lever up to 5x?
No, it depends. We can't put a time line on this. And today, the capital available is INR 4,200 crores. The INR 4,200 crores on a 6x is INR 25,000 crores -- INR 25,000 crores to INR 30,000 crores we can grow. So the current book of INR 10,000 crores can multiply itself by 3x. So if we have to multiply by 3x, we have to provide enough time for us to build a very good quality and profitable book. So that is the path which we will follow.
And do you think, sir, you will expand -- right now, you are focusing on 2 to 3 truck owner. Would you expand your businesses to accommodate -- in order to grow the book to accommodate remaining section of the same used vehicle financing?
No, I think I have not understood your question properly.
You said you're targeting 2 to 3 vehicle owner, right?
Yes, yes.
So in order to consume this book, would you target the other segment, 1 truck owner or any other segment, multiple truck owner?
Nothing prevents us from doing it, but there will be yield difference. Suppose I go up, the yield comes down. When I come down, the yield goes up, but the risk also increases. So we have strategically positioned ourselves as lenders to 2 or 3 vehicle owner, where there is not much of competition there. So in the next 3 to 5 years, we will become market leaders. So you have to be a market leader in some segments for you to scale up business substantially, so that's our strategy. So we would like to be in the mid segment. But as you rightly said, there could be some percentage of loans which would be in the fleet owner segment as well as in the first time user segment, but that would be insignificant.
And how do you see, sir, your other business, SME and affordable housing growing? Because this quarter we have seen moderate growth in that.
So today, we should not see because these are all -- during tough times, we are consciously reducing our disbursements. This is not the time to be brave enough to go and underwrite because the market conditions are so bad. Particularly in the residential real estate market, it's very sluggish. So we are consciously tweaking our credit policies. And depending upon the liquidity available, we are finalizing our disbursement. So in both SME and affordable home finance, we have very experienced management team. And both these businesses are already making profit.The advantage for IndoStar is the network, which is 250 branches, are available to these SME and affordable home. So they need to have only the team which can be used in our existing network to build it. So SME and affordable home, we can just scale up at any point of time, provided we are very confident that the management team is capable of managing that size. So we want to do scale upping -- scaling up our businesses only with profitability and quality of assets. We are not going to distribute money. We would be growing very responsibility. So the advantage for us is, since the retail business is led by commercial vehicle which needs neighborhood branches to attract the CV operators, that will be setting up offices. Now we are present in 15 states with 250 locations. That will keep increasing. It will go to 300, it will go to 400, maybe in 500, 600 in the next 3 to 5 years. So all these network and location is available for SME and affordable home to expand their business. So that is a big advantage for us in scaling up the retail business.
We take the next question from the line of Raj Kumar from RK Investment.
Actually, sir, I've joined the...
Sorry to interrupt. Requesting you to please speak a bit louder, sir, as your audio is not very audible.
Yes. Actually, sorry -- actually just for -- maybe I'm repeating the questions because I joined the call a little late. So firstly, why there's a write-off in the Talwalkar and the Essel Group despite being the secured exposures? And my second question is, what is the residual exposure in both these exposures? And what further provisions will be required and any further write-offs are required in both cases?
See, in these 2 cases, which are in the public domain for some time, we have taken an affirmative decision to write off both these cases, from Q2 itself, we have done and Q3 also, we have done. So as far as we are concerned, this write-off and earlier provisions which we have made is enough for a particular point of time at present. Whatever is the stress there, we have provided, we have written off. And we would see in the next few quarters, we would take a view if there are any stress in the corporate as well as retail book, we would take a decision appropriately to provide or to write off. But as of now, I think we are fully provided.
Sir, but why are you doing -- why there's a need for these write-offs required in both these exposures? Despite they are the [ secured ] exposures.
See, for example, it is a loan against share transaction. And you know that in the media company that shares have been sold. So whatever consideration we have received, if there is a difference, we have to write-off, no?
Okay. And how much is required?
No, in the 2 quarters, Q2 and Q3, we have written off around INR 63 crores -- INR 57 crores, INR 57 crores. And in the other company, we have written off in the 2 quarters, about INR 63 crores.
Next question is from the line of Boris D'Souza from ICICI Lombard.
I just wanted to understand that there is considerable decrease in the number of branches, especially in the CV segment. Can you just throw some light on that?
Yes, we had about 162 -- 161 branches in March 2019. And when we bought IndiaInfoline, they also had exact number, 161. So we put 322. But after that, when we were integrating in the last 10 months, there were branches of IndoStar also and IndiaInfoline in the same location. So we have moved over IndiaInfoline to our office. In some locations where volumes were less, where we don't require IndiaInfoline branch, we have shut down because IndiaInfoline had gold loan branches everywhere. There they were doing commercial vehicle finance business. So we are integrating. And finally, I think we would have about 250 branches.
Next question is from the line of [ Laxman Shah ] from CapGrow Capital.
Sir, I have a question regarding the Stage 2. So in the previous quarter, we had said that there was no account other than the fitness and media account. So does that still stand today as well?
No, no. We are saying the same thing, both again that the same fitness and media company only the write-offs have happened.
No, no. I'm asking if there is any other account in Stage 2, other than these 2 accounts?
No, no, no. Not at all.
Nothing [ else ]?
Yes.
And apologies for scratching this Talwalkars thing. So in the previous quarter, you had said that INR 60 crore of exposure was remaining. And this quarter, you've taken another [ you know ] around INR 59 crores write-off you said. So do we still have some exposure remaining to Talwalkars or it's all written off?
So you're right. So what we've said in Q2 that we'll take action on the remaining portion is -- has led to this write-off. For Talwalkars, there is still some exposure in our books.
Okay, okay. And last question, regarding the real estate accounts which slipped in first quarter about INR 150 crores. So if I remember correctly, we had said that you guys were confident about recovering that entire amount in this financial year. So what is the status on that? Do you still expect recovery? Or what is it now?
Yes. So the collateral value is enough to cover the loan. We had offers from developers for both joint development and for outright purchase. But you know how the market conditions are, so the developers who wanted to buy these assets are taking time to tie up the financials for this. So it may not happen in this financial year. But I think eventually, within the next 3, 4 months, I'm sure we will be recovering this amount from sale of the assets.
Next question is from the line of Umang Shah from Edelweiss.
I had 1 question regarding our CV finance because for the near-term or medium term, we are looking at growing this book particularly very fast versus the other books in our company. I still see that this -- in the past 3 quarters, we have degrown this particular book from INR 3,000 crores -- approximately INR 3,600 crores to INR 3,200 crores. And another worrisome part would be that our GNPA, they have been very lumpy in this particular book. Any specific reason that why this -- so in quarter 1, there was a very huge spike, and then there was a lower GNPA, but again, now it's on a rise. So if you could explain this GNPA cycle for our CV finance in particular?
See, this is -- we have 3 kinds of portfolios in our book now. One is what we have originally developed. Then the IIFL book we bought. Then in the last one year, we have also been -- last 6 months, we have also been generating assets for ICICI Bank. So there are 3. So in all these 3, for the 2 books which -- organic as well as ICICI book, the performance of the portfolio is fantastic. And in the case of IIFL, there was a spike in Q1, and then we brought it down in Q2. And subsequently, the increase is marginal, but that is because of the market conditions. But overall, the book is performing well, subject to the pressures in the marketplace, the freight rates, the sluggish trucking operation, leads to some kind of cyclical pressures which is short term. But all these are deferment of repayments, and it's not bad debt. We can always collect it little later. So whenever there is a pressure on the freight earnings, the buckets will keep jumping. So there could be some increase in the NPLs. But eventually, it gets collected. So we have to understand that this business is particularly the earn and pay model. So they are going to earn and pay. Whenever there is a earning pressure, it happens. And in our case, as I outlined earlier, in some states where some exposure of IIFL is there in heavy commercial vehicle, there is some pressure. That's why it has gone up. Otherwise, overall, the portfolio behavior is fantastic. And we would like to increase it from April once the transaction culminates.
All right. But sir, if I look at our organic GNPA numbers also, that is somewhere close to 3.4% for this particular quarter, only for the organic part, excluding IIFL, that is a substantial growth from 1.3% last quarter. So is this, again, because of the economic condition? Or...
Only that, nothing else.
Okay. So post April, we are looking at things getting better off in our disbursements and our recoveries would be higher, right?
No, no. Disbursement would be -- our recovery is always good, but some jump here and there will be there because of the market pressures. But eventually, all these get collected. Finally, we have to see what is the eventual loss. In between, NPL is an accounting entry. But finally, credit loss is one which we need to look at. So that, as I outlined, will be between 80 basis points to 160 basis points.
We take the last question from the line of [ Dinesh Kulkarni, ] individual investor.
My question is, this value of INR 290 you -- the deal is done with Brookfield. But when we see the IPO came at the price of INR 560, when the price-to-book value was close to 1.9x, and now the deal is at less than 1x. How do you justify that, that creates value for minority shareholders?
[ Dinesh, ] thank you for the question. This is Amol here. What we need to look at is, 1 is in the circumstances under which the investment has been done. In such a tough market environment, a marquee investment firm looking at IndoStar, I think is a big boost for our business model and for the management team as well. Second is, when we do the deal, I think the focus is on ring-fencing the business and trying to get ready for the future in terms of our retailization strategy and having enough sort of power within us to ensure that we propel forward. What this deal will get -- do to us is with that INR 1,225 crores that will come into the organization, it's also backed by around INR 2,000 crores plus of banking lines, which will help us start our own [ blanket ] lending. Now -- so there is the positives of the part. While your question was specifically against an IPO price of INR 570, why are we...
My question specifically is with respect to the price-to-book value. IPO was at 1.9x price to adjusted book value, and the deal is at around 0.9x, right?
Correct. Correct. Yes. What -- and as Sridhar explained in the opening remarks, I think what we need to look at is basically instead of while -- yes, it is 1 point less than book, it also should factor in that what was the realistic price at which the share price was trading, and it's a segment premium to that price.
[ Dinesh ], in addition to the point which Amol made around the market price, the second thing is that the entire NBFC sector, barring a few has actually got re-rated in the last 15 to 18 months. So one, you price the transaction at a point in time, #1. And #2, now that this transaction has happened, while it is still below book, however, if you look at overall book value, right, there is very, very insignificant dilution in the overall book value post this transaction gets completed. And as we get debt, get leverage and are able to grow, in fact, we do expect and hope that the multiples actually should grow from here on.
Okay. So sir, my question related to the same is, so when do you think the cycle would turn, like what's your estimate based on industry experience on that?
Just -- it's all cyclical and liquidity. I would say that compared to the first 6 months, it has substantially improved, so now the capital also has come. So we are looking at economic growth because we are funding on the commercial vehicle as well as in the residential real estate. So I do feel in the next 1 or 2 quarters, this would revive, and then we will have an upward cycle, where we would use our capital to grow the businesses substantially. So we have better time from FY '21. So we are all excited and bullish to build 1 of the best franchises in the country.
That's nice to hear. Just 1 more last question for me. This is -- I just wanted to know like the BS-VI norms, which will start kicking from April '20, I want to know if that specific norms or anything like that, have they impacted the CV financing, either the used or the new ones?
So this is the norms which are going to be introduced where the price of the new vehicle is going to increase substantially. When the price of the new vehicles increase, there will be an increase in the old vehicle price also. So it is not going to displace vehicles which are already there in the system. What is the government norm is that the new vehicles which are manufactured and sold after April 1 should have that kind of a norm, that's it. So it is not going to affect the existing fleet in the country for at least next 3 to 5 years.
So, sir, you expect that would impact more on the new vehicle financing rather than the old one?
Yes, yes. The prices won't but anyone who wants to buy, will get to only that BS-VI because no other vehicle will be available.
Okay. And see, with this new financing which you're getting, almost close to INR 2,000 crores to INR 2,500 crores, how do we see the segment profile would look like? Like kind of the focus would be more on the CV or the retail affordable housing? Or are there any change mix in terms of the profile there?
We'll be focusing on all the 3 segments, including the corporate lending. But the businesses will decide how much they would like to lend, depending upon the market opportunity, potential profitability, quality concerns and all that. So we would allocate capital to each business. But I do foresee that this would be led by the CV financing. The other businesses would follow and take their share accordingly.
Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing remarks. Over to you all.
So we had exciting 15 months where we had liquidity crisis, asset side issues, but also, as I outlined, we bought business, we had a partnership with ICICI, which is culminating into a partnership with Brookfield, as I outlined. So we are going to have next 3 to 5 years exciting period for IndoStar and its management. We would be doing our best to build a high profitable, high-growth and high-quality business with the kind of partnership which has relied on our platform as well as on the management team. So we thank all of you for your support and look forward to interacting with you in the next few years. Thank you very much.
Thank you. On behalf of Motilal Oswal Financial Services, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.