Poonawalla Fincorp Ltd
NSE:POONAWALLA
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Poonawalla Fincorp Ltd
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Ladies and gentlemen, good day, and welcome to the Poonawalla Fincorp Q1 FY 2023/'24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hiren Shah. Thank you, and over to you, sir.
Thank you, Lizan. Good evening, everyone. Thanks for joining this conference call. It's our pleasure to welcome you all to discuss Poonawalla Fincorp business and financial performance for the quarter ending June 2023. To discuss all this in detail, I have with me our Managing Director, Mr. Abhay Bhutada, other senior management officials and myself Hiren Shah, Head of Strategy BIU and Investor Relations.
Now I would like to request our Managing Director, Mr. Abhay Bhutada, to brief you all about company's operational and financial performance along with development for the quarter ending June 2023. Over to you, sir.
Thank you, Hiren. Good evening, everyone. I welcome you all to the Q1 FY '24 Earnings Conference Call of Poonawalla Fincorp Limited, and trust you are all doing great.
Q1 FY '24 marks the beginning of a new fiscal year and brings with sense of new hope, innovations and opportunities. We have recorded the highest ever quarterly disbursement, strong growth in asset under management with robust asset quality, resulting in the highest ever quarterly profit after tax.
This performance is reflective of our sound strategy, excellence in execution, digital capabilities and unwavering commitment towards our stakeholders. During the last year, we started the value unlocking process for our housing finance subsidiary. We have received all the requisite approvals and the transaction is expected to conclude over the next 1 week.
The key stand-alone financial number for the quarter ended June 30, 2023. Our AUM has grown by 41% year-on-year and 10% quarter-on-quarter, now stands at INR 17,776 crores. Our AUM is well diversified across MSME and consumer segment with multi-sourcing channel.
On the composition side of our total AUM, unsecured MSME loan constitutes 36%, followed by personal and consumer finance at 19%, loan against property and pre-owned car at 16% each. Secured to unsecured ratio of the total AUM stood at 45% and 55% unsecured.
We are mainly focusing prime customer segment with a bureau score of 700-plus with the formal income segment. We reported our highest ever disbursement of INR 7,063 crores, up 143% year-on-year and 11% quarter-on-quarter. Disbursement under direct digital program constituted 86% of our total disbursement in Q4 as compared with 81% in the previous quarter.
Our target was to achieve 80%, which we have achieved in the last quarter itself. The DDDP distribution model has accelerated disbursement and expanded our customer base, thereby lowering the cost of customer acquisition.
Now, as we speak, our live customer base is more than 3 million and it is approximate 32 lakhs. And in quarter 1, we added approximately 7 lakh new customer. And as we guided earlier in 2 quarters before, we'll be able to cross 1 crore customer in next 2 to 3 years.
GNPA stands at 1.42%, down 126 bps year-on-year and 2 bps quarter-on-quarter. Net NPA is at 0.76%, down 35 bps year-on-year and 2 bps quarter-on-quarter. Provision coverage ratio stood at 46.43%.
The average cost of borrowing was at 8% for Q1 FY '24. NIM was at 11.4 during the quarter, which is up by 108 bps year-on-year, 12 bps quarter-on-quarter. The OpEx to AUM ratio has come down by 105 bps from 5.43% in Q4 FY '23 to 4.38% Q1 FY '24, this is including the ESOP charge.
Operating profit for the quarter stood at INR 294 crores, up by 148% year-on-year and up by 39% quarter-on-quarter. Profit after tax for the quarter stood at INR 200 crore, up by 62% year-on-year, 11% quarter-on-quarter basis. Return on asset was at 4.8% for Q1 FY '24, which is up by 67 bps year-on-year.
Now let's -- I will take you through our business strategy and the way forward. We remain completely aligned to our strategy of building a strong consumer and MSME focused tech-led retail lending franchise. We continue to scale up on both these segments. Our LAP and unsecured business loans, along with supply chain finance business contributed to a healthy growth on the MSME side, while our personal loan, consumption loan, preowned car business, total overall led the growth on the consumer side.
While the competition intensity continues to be high, the unique proposition that we bring by being a lender of choice for the customer that offers user experience, agility of a fintech and customer understanding along with practical approach of an NBFC, the fair pricing, service and transparency of a bank, has ensured that we are ahead of our competition.
We've continued our focus on low cost of funds as we diversified our lender base as well. We enhanced our capital market presence, our focus on increasing productivity and improving efficiency has continued to give us the desired result as we reduce our OpEx for the second successive quarter, and our OpEx to AM ratio for the quarter has reduced to 4.38% as compared to 5.43% in the previous quarter.
Given our deep technology inclination and digital-first approach, we have been able to create a truly digital organization where the benefits of technology are visible with increased productivity per employee. Our focus on clearly defined segments, credit-tested customers, digital data collection, rule-based underwriting and graded approach to loan exposure is aimed at getting better risk-adjusted data.
Our strategy further clearly defines the optimal mix of secured and unsecured portfolio. We continue to work on the same, and it has helped us to focus on the right risk segment and leverage it further for cost of capital advantage and as a driver of higher profitability.
On the manpower and branch network front, we continued with our focus on tech-led and branch-light model. There has been a reduction in our manpower by 5% over previous quarter. So we have approximately 2,200 on-roll employees, around 600 off-roll employees.
We continue to further strengthen our team in the technology and digital space. We have consolidated our business across the top 100 branches to increase our business penetration across product line. This sets us to deliver on our stated guidance of AUM growth of 35% to 40% and profit growth of 30% to 35% on a year-on-year basis.
In Q1 FY '24, we further strengthened our existing businesses, started scaling of the instant consumption loan business as we get ready to launch our Phase I of Super App, which is expected to launch around 15 August. This would help us to penetrate deeper into the unsecured digital lending ecosystem, short-term loans and enable the dreams of consumers as well as all small businesses.
We continue to build a well-diversified book across different product lines, tenures and segment to manage our risk better. Short tenure book now constitutes 26% of our book, and this is in line with our guidance. This also helps us to further optimize our borrowing mix and drive customer acquisition in the future.
The new book build over the last 2 years continues to perform well. We have benchmarked our performance against the industry data through the credit bureau, and we continue to outperform portfolio of competitors. The asset quality is performing much better as per the expectation since we have completed 2 years on the new origination side.
On the new origination side, if you see, out of INR 245 crore of total gross stage III, discontinued book is INR 104 crore; legacy continued, which is SME and POC is INR 40 crore; and then you have a new origination, which is INR 101 crore, out of that partnership is INR 26 crore, acquired is INR 52 crore and our origination was INR 23 crore.
So GS3 out of INR 245 crore, whatever was self-sourcing in last 2 years, the GS3 stands at only INR 23 crore out of INR 245 crore, so this is the validation of our last 2 years of efforts that the new book is performing really well. And we are focusing on the maximum recovery on the balance discontinued legacy book and the continued legacy book. We continue to increase our digital agenda across product lines as well as the customer life cycle.
We have completed about 70% of the digitization agenda as outlined in our Phase II approach. As we move ahead, our digital journey is now fully available across all product lines and has also digitized the customer servicing process. We are leveraging WhatsApp for giving us complete do-it-yourself journey, and the results have so far been promising.
We are now leveraging WhatsApp across the entire life cycle for our customers. As an organization with an employee-centric culture, we have built a strong team for the future, which is, in turn, driving productivity across the organization.
We have crossed approximate INR 45 lakh profit before tax per employee, which was INR 35 lakh last quarter. The productivity improvement is well reflected in our numbers. This reinforces the real digital tech-led and branch-light model that we are creating.
As the scalability of the business model continues, it uniquely positions us for much stronger growth going forward. We have taken the FY '23 momentum with a fantastic start to FY '24. The business growth has been strong, complemented with best-in-class asset quality and superior profitability.
Our fintech model with a focus on increasing productivity, improving efficiency has led to further reduction in operating expenses. We continue to focus on the future as we constantly innovate, invest in future trend and build a deep ecosystem play.
We are all geared up and excited about the journey and we are confident of delivering an exceptional performance going ahead.
Thank you, everyone. And now we can start the question-and-answer session.
[Operator Instructions] The first question is from the line of Sameer Bhise from JM Financial.
Congrats on another strong quarter. Firstly, I just wanted to understand that credit cost has turned positive after a prolonged period, so what's the driving factor behind this? And at the same time, I see another INR 20 crore of gain on derecognized financial instruments in the income line. So if you could just explain this, that would be helpful? Should I take more questions or we take this first?
Yes, I will take this first. So thank you so much, Sameer. So basically, I will just explain to you the GS3 percentage first. I've given you the absolute number, which was 104, 40, 101 new origination, out of that breakup of partnership 26, acquired 52 and self origination 23.
If you see the GS3 percentage of discontinued legacy book, it is at 24.42%, the breakup of 1.42% what is the GS3 percentage. And legacy continued is 6.66% and the remaining is 0.62%. So we have started cleaning up the legacy book. Out of when we acquired the legacy book was -- on the day 1 was more than INR 10,000 crore, right? So now the legacy book, the balance is very less.
So we have -- out of 300 branches, now we have 100 branches. Out of 8,000 employees, now we have closer to 3,000 employees. So this is the balanced legacy book and post-consolidation of branches and employees, whatever we can recover, we are trying to recover, but this was expected that balanced legacy book will give us certain kind of NPA. If you remember last quarter also, we have given the breakup, which was 15.5% on a discontinued legacy and around 5% on the continued legacy book.
So this INR 20 crore is nothing but a net gain on the sale of the legacy book. And if you see the exact INR 26 crore positive -- this is a UFR format, so net credit cost is INR 6 crore, wherein INR 26 crore you will see impairment on our financial instrument and INR 20 crore gain.
So net credit cost is INR 6 crore, and this is mostly because of the legacy book. So as I -- in my commentary also, I mentioned the new book is performing better than our expectation.
Okay. Secondly, I can see very strong performance on margins and so, we are hitting 11%. And is it fair to say that with incremental gains coming in from the the HFC subsidiary, you could have further levers to see higher margins going ahead?
Yes. So see, we have already given a guidance of ROA on a steady-state basis above 4, NIM above 10. But if you see margin is coming because of the short-term loan and housing, we are expecting funds in -- within next 1 week, we are trying to close -- we already closed the transaction. We have mentioned in the IR presentation also, the transaction will get concluded in next 1 week. So approximate INR 3,000 crores, INR 2,975 post tax, we are getting housing money and the average cost of funds for the quarter was 8%, so you can assume approximate around INR 18 crore to INR 20 crore will be for the saving in the interest cost, if you consider 8%. So yes, you're right, that will further increase our margin and profitability.
INR 18 crore to INR 20 crore is on a monthly basis?
Yes, for the remaining 8 months. So for -- assuming if we get the first end of July or before July, so for 8 months, remaining 8 months on that post tax of INR 3,000 approximate crore, we will get the benefit.
And second is, Sameer, we started CP, we've raised more than INR 2,000 crore recently, approximate at 7.2 being a CRISIL AAA rated company. And now the focus will be we have just upgraded our limit from the credit rating agency from INR 2,500 crore to INR 6,000 crore. So now we are targeting maximum -- since we are lending short term, so now we need to borrow short term and now we'll target capital market mostly through CP, but there is no ALM issue at all.
So you will see around 10 to 20 bps benefit there also, and this quarter, we'll try to pay onetime prepayment and there is 10 to 15 bps benefit we'll get from the legacy borrowing, which is at about 10%. So overall, from housing money as well as because of the CP and because of whatever we have done short-term disbursement and targeting consumer segment, you will see results over a period of next 2 to 3 quarters. So we'll see a good amount of superior profitability as well as improvement in margins going forward.
Great. Great. Just 2 final things. One is, you said the share of short-term products is 26% right now. How much do you think will it go from current levels over the next few quarters?
So this is as per the guidance, only -- if you see AUM, of the total AUM, short term is 26% less than 12 months and long term is around 74%. So our given guidance is also between 20% to 25% will be short term, 70% to 80% will be long term. Right now already, we are in the same range, 26%, 74%.
And one final thing on -- I think in terms of product book, we are yet to hear from on the co-branded credit card and the EMI card products.
So at our end, we have finalized the bank for the co-brand credit card and now they are applying for the RBI approval. And once we get the RBI approval, we'll be able to launch. So you can assume in next 3 to 4 months, we will be able to launch both the products, credit card as well as EMI cards. You can assume before end of December, we'll be able to launch both the products.
The next question is from the line of Avinash Singh from Emkay Global.
The first question is on the asset quality and credit cost. So for the minute, if we keep aside that the legacy one, on the continued or our new growth, how is the experience in terms of the credit costs and asset quality across, I mean, different sourcing like the fintech partnership and DSA and our own offline and online direct? If you can provide some color on sort of asset quality and credit cost experience across these channels? So that is my first question. And second, I will follow-up after that.
Yes, sure. So basically, as I explained, the discontinued legacy book and the continued legacy book, which was not in our hand, and this is the balanced legacy book post cleanup since last 2 years, so INR 24.42 crores and INR 6.66 crores. Then the balance is the acquired book, partnership. We have the FLDG. So let us talk about what we source in the last 2 years and what is the GS3 percentage. That percentage is 0.25% and the amount is around INR 23 crores. So across all the preowned car business loans, personal loan, consumption loan all the product loan against property, if you see the guidance given was since first quarter post the acquisition until date, we have maintained the guidance anything range of 0.8% to 1.2% against the credit cost and GNPA guidance was 1.3% to 1.8%.
So I think the book asset quality is behaving much, much better than our expectation because we stopped new to credit 2 quarters back. The segment which we are targeting, there is a huge opportunity available. There are very few NBFCs who can actually -- not because of the low cost of funds, but because of our thought process and the segment which we are targeting because of the low OpEx.
Also, of course, I think we are targeting a customer of a bank, but because of the user experience, turnaround time, 0 prepayment penalty across all products, we are getting good amount of customer onboarding on a month-on-month basis and all customer activation and on the disbursement side, on the asset quality side, everything we are getting good response. So we don't see any major challenge.
Now we are just focusing on the profitability. We don't see -- we will stick to our guidance of 0.8% to 1.2% on the credit cost side. And there is no issue in terms of growth as well. So any specific question on this?
Yes. Yes. And just if I can dwell a bit more on the credit cost guidance, I was about to ask and thankfully, you mentioned. If, I mean, you are going to launch the Super App. Of course, the plan for more and more direct acquisition. Currently, I mean, with the partners, of course, you have FLDG and with your own sourcing, of course, you will have to bear the credit cost. So I mean, are you comfortable with this 0.8% to 1.2% credit cost guidance in a situation where your own sourcing is going to increase? Your unsecured post side will continue to increase. Under this circumstance, you have comforted on this point to 0.8% to 1.2% credit cost guidance?
See, basically, we already included under this guidance. This guidance is not for a specific product. This guidance is towards -- across all the product range, right? And this includes FLDG, partnership, direct, indirect all the business this thing. But if you are specific, the products which we are launching short-term personal loans via our app, the credit cost guidance will be around 2% towards that product. But still, it will be in the range of less than 1.2%, that range will remain the same 0.8% to 1.2%. So weighted return will be that only, yes.
Okay. Very clear. One more, if you can allow me. Can you just sort of give some qualitative idea around your sort of -- what sort of offering or like value proposition of a co-branded credit card? Because I mean many NBFC co-branded credit cards somehow sort of a struggle because of the value proposition. So if you can just provide without the cost meaning your partner, what sort of value proposition and what kind of customer segment you will be targeting?
We have just finalized the bank as of now, we'll not be able to disclose at this point of time because now we'll apply to RBI. Once we get the RBI approval, we will give you all the clarity on the product proportion side. But however, whatever product we have launched, if you compare with the market or any top NBFCs, I think as a group, considering the culture of the Poonawalla Group, we do ethical lending, we don't charge any hidden charges. We give 0 prepayment across all the product lines.
So overall product proportion will be much stronger because we will launch the card considering the -- what are the options available to the customer in the market. And -- though we are the last entrant, a few of the players they are already launched. But whatever customers we have acquired till date, we have done some internal survey.
On the basis of that, I think we are confident that customers have started asking on the EMI card side, on the co-brand credit card side. So that much I can assure you. Product proposition will be in the interest of the customer, and it will be one of the best in the industry. Because if you see the credit tested, how you say, the segment will remain the same. So we'll target the better credit customer here and will offer a very strong product proposition to these customers because we have a customer-centric approach across all the product range. So this will be engagement-driven product.
The next question is from the line of Nidhesh from Investec.
You mentioned the 81% of the customers we have acquired directly in this quarter. Can you just share some details of the channel mix within that? How much is branch-led? How much is DFC led and how is our own website? Because our app is still not functional, right? So customers are either coming to our website or our channel partners or employees are reaching out to the customers. So if you can give some more details about -- tell us about the channel mix through which we are acquiring customers on the direct side?
Right. So if you see the overall breakup percentage I will give you, just 1 second. Yes. So on the LAP side, if you see, we have disbursed closer to INR 418 crore. On the POC, just 1 second -- so the breakup of this is total DDP is 86%. Out of that partnership business, including digital sourcing partner that is 60% and remaining is the balance 25%.
I couldn't understand. 86% is DDP, correct?
So 86% is the DDP. Within that -- remaining is 14%, non-DDP. Within that 86% total partnership digital ecosystem is 61% short term and remaining is 25%, which is our direct digital, non-partnership digital.
Okay. That is 25%?
Yes.
And that customers are coming to our website and directly...
So we have an SMS, WhatsApp, dedicated call center and via website also. Yes, you are right.
Sure. Okay. And the 61% which is through partnership is the other fintech lenders who are our partners and who are sourcing loans for us?
Right. Right.
Okay. Okay...
But as we guided, just for your information, if you remember the last quarter, of our total AUM, it will be approximately 15% in the current financial year and next financial year, it will be around 10% and then later on, it will be below 10% of the total AUM, so that is not getting added to AUM as such.
These are all short term to test the customer, to onboard the customer. And now we are launching the app side. Already we have on the customer servicing app, but now we are targeting direct. And slowly, slowly, we will see that ratio will get increased over the next 1 to 2 quarters.
Sure. So on disbursement, they are 60%, but on AUM, they are 15% to 20%?
Because that is not getting added to even because of the short term in nature.
Short-term nature. Okay. Okay. And the remaining 14% outside of DDP, what is there?
That is loan against property, preowned car that is our branch and the DSA business.
The next question is from the line of Kaitav Shah from Anandrathi.
Congratulations on most outstanding quarter. My first question to you is regarding the OpEx. I know you have been guiding that OpEx will be lower because of a couple of expenses that were there last year. But this question is more related to investments for the future where we are seeing that banks -- larger banks and some NBFCs are investing in mainly the people, processes, technology or branches. So how -- is there some way that you can kind of inform us of how whether you are underinvested not -- or not today? If some metric is there by which you think that we are quite good to go, there is not going to be any investments, large one next 1 and 1.5 years?
See, we are going -- continue going to invest on the technology side and on the manpower side, those will be eligible under the new business model. But the most important here is the OpEx is overall down to 4.38%, which is almost 100 bps quarter-on-quarter.
And if you see our guidance also, guidance for the current year, we have already given, which was around 4% to 4.25%. So we'll see it will approximately on a yearly basis, around 4% OpEx to AUM in the current year, and this includes ESOP charge. So approximately ESOP charge was around INR 20 crore for the current quarter. And for the year, it will be around INR 88 crore. So there also, I think we don't see any major bonuses or any major ESOP going further. We have given ESOP till the junior level also.
So the count is above 400. From that perspective, I think next year, the ESOP charge will be less. So when I'm saying 4% the range, our approximate OpEx to AUM for the current year that includes ESOP charge of INR 88 crore and that includes a onetime IT cost for app and some other things also.
So see, if you look at the trends carefully, the trend is clearly towards the nonbranch, given that we do not accept deposit. So it's a branch-light model we don't foresee any major OpEx going further. That is one. A lot of OpEx is because of the legacy issues. Still apart from the collection, a few of the branches, legacy manpower, legacy system so almost since last 2 years of majority of the time, we were focusing on the legacy issue.
Now only legacy issues are pending around 10%, 15% or different, different functions or department or areas. But now we don't see any -- will be very, very OpEx efficient. That is our main business model. And more than the branches, I think will more invest into the technology side.
Got it. Got it. Okay. Perfect. Sir, second question was related to the customer base use that you have already acquired. Are we seeing an improvement in conversion, let's say, from partnerships to now sourcing more directly to some of these customers. Let's say are they evolving from the short-term kind of products to a more sustainable longer-term number?
Yes. So our strategy played out really well. If you see last 2 years, we are able to do a lot of cross-selling on the existing database. And initially, we onboard through a short term. And later on, we try to give medium-term or long-term loan. So there is a drastic improvement over the cross-sell numbers, and we are able to cross-sell even the other products also. And now we have started some value-added services also third-party product. Recently, we just started, and we are getting good amount of fee-based income from this products as well.
Got it. If you can start sharing numbers around the product cross-sell, perhaps from next quarter, that would be very helpful for us.
Definitely.
And last question from my end was more around the credit cost. Is there any change in guidance or anything that you see at this point in time?
So I think the new book is performing well. Again and again, we are explaining on the legacy issues only. Because if you see the discontinued -- again, the breakup one more time, I will explain. The breakup of INR 245 crore, which is GS3, the new origination, what we source is only INR 23 crore. Balances was that DA acquired book and legacy continued book and legacy discontinued. So we don't see any reason to change the guidance, and we'll stick to a range of 0.8% to 1.2% that guide us. And all other parameter guidance, long-term financial metrics guidance what we have given, I think we will stick to that only.
The next question is from the line of Dhaval Gala from Aditya Birla Sun Life AMC.
Congratulations top management in the Poonawalla. Just a couple of questions. One, on your borrowing mix, if you could talk about the current outstanding mix as well as how has been the incremental cost of funds and book basis, cost of funds? And are we having any -- now any other high-cost liabilities of the legacy Magma Fincorp based on the balance sheet? That's point -- question number one.
Question number 2 is around the mix of disbursements, we would like if you can give some mix of the disbursement both in terms of value and also the channels you source that disbursement from on a quarterly basis?
Yes. So if you see our total borrowing as of now, so legacy borrowing, the average rate is around 9.69% and the outstanding book is approximately INR 800 crore -- INR 833 crore to be precise. So remaining, if you see the -- out of our total average borrowing closing on quarter 1 is around INR 12,600 crore, out of which term loan is around INR 6,234 crore, CC WCDL around INR 3,500 crore, NCD INR 864 crore, old sub-debt NCD is around INR 122 crore, around sub-debt term loan is around INR 100 crore, perpetual debt is INR 53 crore, CP outstanding was INR 1,661 crore and PTC is around INR 60 crore and average borrowing is 8%.
So we are trying to pre-close all the legacy borrowings because we will get a onetime profit in the current quarter. So we'll try to get out of this legacy borrowing, and that will give us additional advantage of around 10 to 15 bps.
And because as I told you, now we have increased CP limit our credit rating to INR 5,000 crore-plus. So from INR 1,600 crore CP, you will see maximum we will borrow now next 2 to 3 quarters via CP only because against current rate of 7.15 for AAA-rated NBFC, we are paying 8% to the bank loan.
So there, clearly, we see 85 bps reduction on that amount, and you will see a further -- because of this INR 3,000 crore we'll be able to borrow maximum short-term even from the banking side. So next quarter onwards, you will see a reduction on the borrowing side as well. And once RBI reduces the repo rate that will give us the additional advantage because already we are at almost peak level. So anything -- any other question, Dhaval, on the borrowing side?
No, no. I'm fine. So generally, whatever your overall average cost is as on 1Q '24, you would only see reduction in that over a period of next 3 quarters. Is that what you meant?
So basically, for next 3 quarters, overall CP will give additional advantage of 10 bps, and legacy will give us additional advantage of 10 bps. So without any changes in the RBI rate, you can expect in the next 2 quarters, we will get 20 bps reduction because of these 2 parameter only.
Sure. And on the disbursement side, Abhay, if you could talk about is basically the likes of -- so if you could articulate a little more on the 61% of the DDP partners, I think that would help in understanding about the quality of our fintech sourcing as well as partners and the strength of their business model also on which we've been able to source the loans as well as manage asset quality so well?
So there, we don't see any credit cost as such because if you see 90-plus is only INR 26 crore out of INR 245 crore the partnership book GS3. So out of that partnership of INR 26 crore, it is covered by the FLDG.
So we have FLDG, a few of the digital players for the new guideline, 5%, nondigital player around 20%. And we have stopped the new partnership because our focus is on direct sourcing, and we are launching app in the next 2 weeks and this is as per our guidance, whatever we have given in last 1 to 2 quarter.
So we are not focusing much on that front and whatever advantage we got initially in terms of customer onboarding and we wanted to go slow. Now since we have completed 2 years and our unsecured book is performing better than the partnership book, but at the same time, because of the FLDG we got fully covered, so we have learned from different, different markets, different, different player. But their IRR is around 30%, 40%, even more than that few of the fintech players, we used to get only 13%, so our unsecured business loan is around 18% as per the -- in the market, if you see any NBFC rate on the unsecured business loan.
So here, instead of 13%, which we were getting from the partnership, here, we will be able to get average IRR of around 18% on the interest side and additional processing fees and cross-sell of insurance. So I think credit costs, we have already guided 2%. It will increase our margin. So as of now, out of that disbursement, this is all short term. It is not -- though it is not getting added hardly to revenue because the average yield is only 13%. So this is the breakup of the existing partnership. But now it is 1 to 2 quarters, I think you will see, that ratio will go down going further.
Sure sir. Last question from my side is on your MSME SME loans or business loans basically. If you could talk about the way these loans are sourced, the turnaround times and also the current competition and maybe the ticket sizes of these loans?
Yes. So business loan ticket size is -- average ticket size is below INR 20 lakhs. Professional loan average ticket size is below INR 15 lakhs. Personal loan ticket size is below 5 lakh. So these are the average numbers.
And the average rate for business loan is around 18%, mostly they are backed by GST. So those who are paying GST on time, settle these on time. So -- and 700-plus. So the breakup is, for example, 700-plus is 97%, 750-plus is 53%, 730-plus is 81%.
So this is the breakup in terms of the Bureau score. And majority of the people, they are paying GST on time. It is a cash flow-based lending. And we use all kinds of like we discussed in the past, all kind of integrations are there. So we are able to disburse the loan in less than 48 hours. And if somebody provides the document fully digitally, we're able to disburse even in few hours.
So if you talk about the turnaround time, I think I will say we'll be in top 3 in the NBFC sector as we speak. And in terms of product proposition, I think though we have not done major branding or any kind of advertisement, but because of the mouth publicity and since very few NBFCs are able to give 0 prepayment towards the business loan, I think we are able to source enough traction on the business loan side. So the maximum TAT is 2 today the minimum TAT is even 3 to 4 hours. And current 90-plus on the business loan side is around 0.15.
The next question is from the line of Nischint Chawathe from Kotak Institutional Equities.
On the unsecured MSME piece, what would be the average yield that you will be earning across the 3 pieces?
So on the business loan side, as of now, the average yield is around 18.7% and we get processing fees, and we have started cross-selling of insurance also. So we get around -- insurance income of around 1%, and processing fees, my average, is -- as you speak, is around 1.8%.
The ticket size over here?
Here, ticket size is INR 17 lakh, 1-7.
Just curious, given the fact that the ticket size is pretty decent and the yields are kind of pretty good, do we really see competition getting into this segment and especially given the fact that we have profile of customers also appears to have a very impressive CIBIL score?
So if you see the top private banks, midsized private banks, small finance bank or the top 5 NBFCs, they're already in the market. I think Poonawalla Fincorp, we are the last entrants. So if you talk about the competition, the same product which was already developed in the market started this business loan and Magma was doing SME loans. So we continued only 2 products at our Poonawalla Fincorp level, which is SME, which is a business loan, unsecured business loan and pre-owned car.
So Magma was also already doing that product. And in fact, all the sector if you talk about, this is the broadly 80% to 90% of the lender they are operating in the same yield, same segment. The only difference is the segment which we are targeting, the kind of data analytics we are doing and the kind of process we have or the technology we have, there, I think we have certain age and that's why we are able to maintain our current 90-plus.
So I think overall e-sanction, e-NACH, e-agreement, since day 1, it was 100% digital, there is no single signature is required and it's complete cash flow-based lending. And we don't do any new to credit here. We don't do here if somebody is paying -- they are delaying the GST or any other strategies. You see the market is huge, total addressable market. So here with the segment which we are targeting, I think, because of the 0 prepayment and still, the rate is lesser than a few of the small bag or a few of the majority of the NBFC, I will say.
And TAT is playing a key role here if you compare the turnaround time. And market is growing in this product. There is a good opportunity overall unsecured on the MSME side, business loan and on the consumer and personal loan side also.
And customers look at this as more of a sort of a bridge facility? Or I mean how long is like the duration on the loan side?
See, the tenure is 36 months for this product.
How long? I mean, I'm just trying to understand as to how the customer thinks of it.
Can you please loudly -- can you please ask same question? Can you please repeat it?
Yes. Yes. Surely. So how long does the customer stay? I mean you are contracted, tenure maybe 3 years, but typically, customers won't stay for 3 years, 2 years, 1 year...
No, no. So if you see the average tenure will be around 30 months. Average tenure will be 30 months. And we are offering -- though we are offering 0 prepayment, but hardly if you see the segment which we are targeting, the required cash of our working capital limit. So as of now, considering the overall good growth in the market and the credit growth is also good and because of the strong product proportion, I think customer stickiness and customer loyalty, generally, that is happening with the bank.
But here, I think despite of being a NBFC, your question is very valid. Repeat customers are more and customer stickiness is there. But average tenure, you can consider considering prepayment and a lot of our customers the cash flow is good. So we give 12 months also, 18 months, we have a 24 month and 36 months. But average comes to 30 months in the business loan side.
The next question is from the line of Shweta Daptardar from Elara Capital.
Congratulations on a good set. Sir, I just have 1 question. So what is giving force in your confidence...
Sorry to interrupt, Ms. Shweta, we are unable to hear you clearly. We will request you to pick up the handset.
I am with handset. Is it better anyway now?
No ma'am, the audio is sounding very muffled.
Okay. So just -- I'll try to be louder. Sir, just 1 question. Sir, can you elaborate Poonawalla's collection model and infrastructure which is entailing confidence that credit cost will be continued below 1.2% of levels across cycles ahead despite expansion in unsecured portfolio?
See, if you see it's a hybrid model. We have a dedicated call center, the centralized regional call center. We have a huge manpower strength. And if you just listen to our last 6 or 7 on the investor con call, you always mentioned that what was the main reason behind Magma aquation that was the collection infrastructure because they were into CVC, tractor, agri and cash collection products. So that was the main reason we wanted our collection infrastructure before we get into unsecured loan at a pan-India level.
So though we are talking about 100 branches, these are full-fledged branches, but we have collection people across pan-India. And we are doing in-house collection and 90-plus, we are outsourcing. The segment which we are targeting, we are trying to restrict the credit cost at the time of onboarding itself. And we have more than 500 people as we speak on the collection side.
So we don't see any challenge till we reach INR 40,000 crore loan book that there is no need to increase any manpower. So we have a digital collection, we have a physical collection, we have state-wise collection agencies also.
So bucket-wise vertical is there. A lot of FOS, we have around 500 people outsource also. A lot of telecallers are there, which are again dialer-based. So almost of my total manpower around 25% still is into collection. So we have a very strong collection infrastructure, as we speak.
The next question is from the line of Shubhranshu Mishra from PhillipCapital.
Some of my questions have been answered. Just 1 question. We have been speaking about our Super App. But then there are other NBFCs and banks also speaking about and have launched their super app. So what is our super app going to do any differently? Or what is that edge that our super app could have which probably some other large bank or large NBFC super app won't have?
Right. Very good question. I think when we did the detailed assessment of the market, right now, nothing is stopping us to acquire the customer because we are able to acquire via WhatsApp, call center, via our website, via DSA, via our digital ecosystem, via our branches, there multiple things are there.
But what is the most important here is the strong product proportion and it is just like a value-added service. So a lot of short-term loan, we wanted a straight-through process. See, we took 2 years' time because everything was ready at the back end.
If we are able to disburse via web version, via call center, why can't via app? So we have learned from the market. We have last-mover advantage. But at the same time, if you see the overall rate of interest are on a higher, higher side, either fintech or any of the NBFC. Considering our cost of fund that gives us a straight way because if you see any of the fintech, the average cost of fund is around 12.5% to 13%. That is one.
Second, because of our brand, because of our customer -- existing customer base, everybody wanted up to INR 3 lakh state through process. And this is like a preapproved offer on the existing as well as the credit-tested bureau. When we analyze the total addressable market, when we have done the gap assessment of top 5 NBFC, top 10 fintechs and top 10 small -- 5 small finance bank and private banks, then there is a big opportunity on the short-term loan side. There is a big opportunity on the consumer loan side, small personal loan. But at the same time, while people will prefer Poonawalla that we have explained also on the Slide 22 of investor presentation?
What exactly -- so we'll be able to give the loan flexibility. We'll be able to give the complete digital process. There will not be a manual intervention up to INR 3 lakh. We'll be able to give the collateral pre. It will be -- disbursement will be less than 10 minutes, 100% digital. The most important is no hidden charges, 0 prepayment and the low interest rate. So I think this will give us the advantage and the kind of data we have, which we have not leveraged till date.
We just waited for this moment or opportunity. Now the time has come to leverage whatever data understanding and the strong experience we have on this segment, we have done a lot of partnerships in the last 2 years. Recently, we have not added any of the partner. So we have very, very strong learning on the collection side, on the customer onboarding side, on the risk management side.
And now with all this learning, now we are launching this. So we are super confident that I think customers will be able to onboard, yes, a lot of branding advertisement is required, that will happen over the course of time, but we are confident of achieving good customer acquisition starting next quarter from our super app.
Because if your CIBIL score is 700-plus or 730 or any segment, if still you are borrowing at a higher rate from top 3 NBFC or top 5 fintech definitely, you will get a chance to get at a low rate because you're not giving deposit. So that market is huge and I think we can discuss in the next call when we'll launch about the -- how much is the market and which segment we are targeting, how much will be the customer acquisition on a quarterly or the monthly basis. And once we start mid of August, I think we'll be able to give a lot of with numbers in the next quarter.
Understood. Just 1 question. What is the total amount of fees from fintechs that we are upfronting? Because there would be a differential between 5% and the 12 FLDG norms that we had? So is there some amount that we are upfronting as fees in the...
So the average yield is 13% there.
Right. Which will come down to 5%, right?
No, no. You are getting confused on the yield on the FLDG. FLDG is 5% for the digital and nondigital 20%, but the yield is 13%, that includes the processing fees.
How much of the processing fee?
So that gets added, depend on the partner to partner. Whatever is the AUM, we get a 13% per annum average yield on that book.
So there would be a ballpark...
We are not sourcing. On the fintech side, they are only sourcing. So it's on a weighted IRR model. With everyone, we have -- they need to maintain that IRR on the interest and processing fee. Somebody is at 11%, somebody is at 12%, somebody is at 14%. The weighted average comes to 13%.
Sure. I'll take this off-line. Best of luck.
Thank you.
Ladies and gentlemen, we will be taking the last question. That is from the line of Prashanth Sridhar from SBI Mutual Fund.
Sir, what is the Stage 2 and the total provision number for the quarter?
So total PCR, if you see, is around 46% and Stage 2 is around 0.71%.
Okay. And the total provision on like stage 1, 2 and 3?
Total provision is 1.36%. Majority is 90-plus, which is 46.43%, overall 1.36%.
Sure, sure. And just on the short-term personal loan product. So there is some credit cost which the FLDG partner bears and then there's something you bear, right? But on the product or from the customer's perspective, what is the credit cost on this product, including whether you or the FLDG partner takes it?
So right now, we have not -- if you compare all the products, the average is less than 2% as we speak, but maximum was 4%. So everything covers under 5% FLDG, if it is digital and nondigital it is allowed 20%. So till date, no one has crossed 4% on the 90-plus side.
Okay. Even on the short-term personal loan...
Yes, 90-plus -- because see, this is whatever they are doing, at their end it can be 10%, 15%. We have a joint grade parameter, we have a joint credit policy and unless we agree on certain parameter and the policy, we will not be able to lend from our side.
Okay. Okay. And when you say nondigital FLDG, this is what like the business loan secure...
I'm talking about the new RBI guideline. If somebody is doing the entire process digital. So our -- the new guideline talks about the, you can take 5% FLDG. If it is nondigital, which is not 100% digital process, then you can take up to 20% FLDG. I'm talking about the new digital lending guideline.
Okay. Okay. Got it. Sorry, I think it was getting confused. And on your -- you said out of the DDP 86%, 25% is your own sourcing, right?
Yes.
So that is predominantly in what product, the long-term personal loan is it?
So all these products, if you see preowned car also, we are -- very few players are able to do 100% digital. We started and we got the advantage on a personal loan side, on the consumer loan side, on the small business loan side and on the MSME unsecured loan side, these are the multiple products wherein we focus completely digital.
Okay. And the non-DDP part is where you're using DSAs? Is that right?
Yes. DSA as well as the branches also.
What do you source through your branches comes to the non-DDP part? Okay.
That is not digital because you have a physical infrastructure. So it's a hybrid model also. We are capturing major market share there also.
How much would that be. How much would we be sourcing from branches?
So branches sourcing will be approximate 5% of the total sourcing. So we have a branch-light model. Unless you want loan against property, preowned car, then only somebody will go and inquire at the branches. Otherwise, there is no need of branch. Credit is also centralized, operation is also centralized. That is for cross-selling, customer service, we have captured market in top 100 locations in pre-owned car, loan against property, business loan, and we are able to do a lot of other walk-in customer also we are able to serve there. But that is not -- our target is to target digitally only.
Ladies and gentlemen, that is the last question for today. I now hand the conference over to Mr. Hiren Shah for his closing comments.
Thank you, everyone, for joining this earnings call with us. For any further queries or communications, please write to us at investor.relations@poonawallafincorp.com. Thank you.
Thank you, members of the management team. Ladies and gentlemen, on behalf of Poonawalla Fincorp, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.