Poonawalla Fincorp Ltd
NSE:POONAWALLA
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Poonawalla Fincorp Ltd
Earnings Call Analysis
Q2-2024 Analysis
Poonawalla Fincorp Ltd
The company is prioritizing asset quality and adhering to its long-term profitability guidance. This includes a focus on operating profitability, maintaining a net interest margin (NIM) above 10%, and delivering on Profit After Tax (PAT) and Return on Assets (ROA) targets. They are committed to not deviating from their established policies and believe that by doing so, they can deliver on their financial performance promises.
Operational expenses relative to assets under management (OpEx to AUM) have been reduced from 4.38% to 4.18% in the latest quarter, which includes stock-based compensation costs. The company is on track to reduce this ratio below 4% by the end of Q4 of the current financial year and anticipates further reductions going forward. This improvement is attributed to consolidations and optimizations of legacy systems and manpower.
A central element of the strategy is to grow the Asset Under Management (AUM) by 9% to 10% quarter-over-quarter. The company is focusing on mid-term and long-term loans rather than short-term loans, reflecting a shift from the initial strategy. They have discontinued certain co-lending activities on the unsecured side and have moved to a fully digital end-to-end process for loan disbursements via their own app. Disbursements in the most recent quarter totaled INR 7,807 crores, with a 29% secured and 71% unsecured mix. This refocusing is part of a plan to decrease the proportion of partnership AUM, with a target to bring it below 10% by the end of March and to further reduce it in the next 3-4 years.
The company is confident in its customer acquisition strategy, having a whitelisted bureau base of 8 to 9 crore prospects and an existing customer base built over the last 2.5 years. They aim to grow the AUM by 8% to 10% in the short and long term and are using digital channels, such as SMS, WhatsApp, and telecalling, to target credit-tested customers. With a good Internal Rate of Return (IRR) of around 20% factoring in processing fees and insurance income, they're effectively managing cost of acquisition. The company is differentiating itself from middle-sized private banks, top NBFCs, and fintech sectors by targeting a unique segment and not competing directly with these entities.
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Ladies and gentlemen, good day, and welcome to the Poonawalla Fincorp 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, Rico. Good morning, everyone, and thanks for joining this conference call. It's our pleasure to welcome you all to discuss Poonawalla Fincorp's business and financial performance for the quarter ending September 30, 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 - Strategy, BIU and Investor Relations.
I would like to take this opportunity to extend our warmest welcome to Mr. Sunil Samdani, who has joined us as an Executive Director. He has expertise and extensive experience of over 20 years in the banking and finance sector. And we are excited to embark on this growth journey together.
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 September 30, 2023. Over to you, sir.
Thank you, Hiren. Good morning, everyone. I welcome you all to today's earnings call and trust you are all doing great. Before I take you through our performance and highlights of the quarter gone by, I would like to give you a quick sense of the market, the opportunity it represents, and how we are well placed to leverage this opportunity, thereby partnering in India's growth story and enabling dream of our customers.
India is one of the fastest-growing economies with GDP expected to grow at 6.5% plus over the next 5 to 7 years. Our per capita income is expected to rise by 80% by FY '31. Government initiatives such as Make in India, production-linked incentive scheme, massive infrastructure push are driving growth and increase employment, while favorable demographics continue to drive consumption. This, along with Digital India theme, faster digital adoption, provides both unique and significant opportunity to our lending solution through digital-first tech-led approach for the rapidly growing mass middle income and high income segment.
At the completion of Q2 FY '24, we are midway through this financial year. And what makes me happy is our remarkable progress on the stated path as per our guidance. I'm glad to share that we have recorded the highest-ever quarterly disbursement, strong growth in AUM, along with robust asset quality, which is resulting in highest-ever quarterly profit after tax. Our team's focus and execution have been instrumental in our progress and sets up for an exciting second half for FY '24.
Now let me take you through the key numbers for the quarter and the half year ended September 30, 2023. We reported our highest-ever quarterly disbursement of INR 7,807 crores, which is up by 151% year-on-year and 11% quarter-on-quarter. During the last quarter, we started offering instant personal loans from our recently launched cutting-edge mobile app, a step forward in shaping the financial landscape and as per our strategy of going direct, going digital, going organic. Disbursement under DDP constituted 81% of the total disbursement in quarter 2.
Speaking about AUM, we crossed a milestone of INR 20,000 crores during this quarter and stood at INR 20,215 crores, reflecting a growth of 54% year-on-year, 14% quarter-on-quarter. We have come a long way in terms of AUM growth, which was INR 10,563 crores at the time of acquisition. This is a stand-alone number.
Coming to the composition of our total AUM. MSME constitutes about 35% of the total book, followed by personal and consumer finance which stands at 22%, pre-owned car contributes 15%, following loan against property at 14%, now secured is almost picking up because target is again to focus on loan against property and pre-owned car, machine loan, medical equipment loan, apart from unsecured loan. Secured to unsecured ratio of the book stood at 46% to 54%. The secured book is growing at a steady rate as disbursement in LAP and POC continue to grow.
With longer tenure in loan book and POC average tenure of 3 years, we expect our secured book to continue to grow. On the tenure mix of our book, short-term tenure of the book is 12 months, which is approximately 27% of the book, fairly in line with our guidance of 20%, 25%. Similarly, the medium- to long-term loan of more than 12 months are at 73% against the guidance of 75% to 80%. The ideal tenure mix is helping us to improve our profitability while keeping the AUM growth intact. We continue to be a national player with presence across 19 states, having a branch network of 102 branches. The portfolio continues to grow across all our markets, and we have a well-diversified geographic spread of portfolio with no large market concentration. Our portfolio is well, well diversified across MSME and the consumer segment.
Asset quality continues to be robust and in line with our guidance. Gross NPA stands at 1.36%, down 41 bps year-on-year, 6 bps quarter-on-quarter, while net NPA is at 0.72%, down 22 bps year-on-year and 4 bps quarter-on-quarter. We continue to have one of the best asset quality as we build a portfolio with a very different kind of customer segment. Our asset quality is a reflection of our current credit policies of giving loans to bureau-tested customers. Our provision coverage ratio stood at 47.2%.
We continue to optimize our cost of borrowing further. It stood at 7.98% for quarter 2. There is a drop of 6 bps quarter-on-quarter, down from 8.04% in Q1 FY '24. We have been able to manage our cost of borrowing well despite rate hikes earlier. As we move a bit further, optimization of the cost of borrowing will continue since, as guided earlier, we will borrow lot of through commercial paper, there is no ALM issue as such. Our net interest margin was 11.42% during the quarter, up 106 bps year-on-year and 2 bps quarter-on-quarter.
Our operating efficiencies continue to improve further. The OpEx to AUM ratio has come down by 20 bps from 4.38% in Q1 FY '24 to 4.18% in Q2 FY '24. The reduction in OpEx ratio signifies the productivity enhancement achieved by us. As we grow, this ratio will continue to enhance further. The interplay of all the above has resulted in superior profitability, the operating profit for the quarter of INR 336 crores, which is up by 167% year-on-year and 14% quarter-on-quarter.
Profit after tax stood at INR 230 crores, up by 77% year-on-year, 15% quarter-on-quarter basis, excluding the impact of exceptional item. Our return on asset ratio was at 5% during Q2 FY '24, which is up by 96 bps year-on-year and up by 19 bps quarter-on-quarter. In line with our strategy of strengthening of our organic distribution, we have launched mobile application on both Android as well as iOS platform. This app will give to our customer lending as it makes instant credit available in a convenient manner.
With the launch of our own app platform, we have also discontinued fresh origination through co-lending for unsecured personal loans and other products. Since we will continue to serve already onboarded customers only, we will continue with only secured co-lending in two-wheeler and machinery loan going further, that too with very selective players. That ratio will be almost negligible, but we have completely stopped fresh onboarding of customers via co-lending since we are able to onboard a lot of customers through our app and web journey.
This will mean the more customers will engage with us directly across the full loan life cycle. This will help us penetrate deeper into the digital lending ecosystem, drive engagement by bringing us closer to our customers, meet not only their borrowing needs, but also wellness, investment and other financial products requirements going forward. Direct engagement will also enable us to provide differentiated user experience throughout the customer life cycle and significant opportunities to cross-sell.
This, coupled with superior products, transparent terms and conditions shall create customer delight in true sense with increased efficiencies and further enhance our profitability. Our focus here will be on ticket size upwards of INR 50,000. Since we have done only INR 4 crores below INR 50,000 ticket size, so we are targeting ticket size above INR 50,000. As on date, our average ticket size is more than INR 80,000.
I wish to share certain key information pertaining to our digital consumer lending. A total opportunity of $720 billion opportunity by 2030. Currently, it is at USD 190 billion plus. Consumer lending market to grow 22% CAGR from '23 to 2030. Further, digital customers expect effective, transparent, prompt customer care services, attractive interest rates, no hidden charges, no false promises. Poonawalla ticks the boxes in all the above parameters, as its motto has been full transparency with no hidden charges.
This quarter, we also received approval for co-branded credit card launch. This will be a complementary product to our existing product basket as it helps us to engage with customers in their day-to-day transaction. With the increased penetration of digital payment, co-brand credit card will make us an active participant in the payment ecosystem. It also provides a sizable opportunity to market another product to our existing and ever-increasing customer base, enhancing our cross-sell opportunity. The card will have a unique customer value proposition and will come in 3 different variants based on the customer category.
The Prime card will be a lifetime free card in line with our no hidden charge philosophy and will offer attractive features from driving the customer usage. During this quarter, we have created onetime provision of INR 1,298 crores, largely on the standard advances. This will act as a contingency buffer against the legacy or discontinued loan portfolio. This includes DA existing book of INR 910 crores and contingency buffer of INR 388 crores against the new book, though the new book is performing well.
Q3 also marked the beginning of festivities and I would like to offer my warm wishes to all of you. We expect the festive season to bring in even more cheers in H2, and we are all geared up for the same as we remain focused on delivering consistent superlative performances. I will also take this opportunity to welcome Mr. Sunil Samdani, who joined us as the whole-time Director. We look forward to leveraging his deep expertise in our growth journey and wish him all the best and long rewarding career with Poonawalla Fincorp.
Now I will give you a quick walk-through of differentiation and the transformation journey so far. I think the last 2.5 years have been both exciting and fulfilling. I would start with the differentiation piece. First, as we have transitioned from old Magma, from being any other NBFC to being a well-differentiated player. You can refer to Page 10 of investor deck. In this crowded NBFC market, we have been able to create a niche for ourselves with strong differentiation. When we acquired Magma in 2021, we took some tough decisions which were quite very revolutionary.
This decision included a decision like changing the product basket, changing the customer segment, discontinuation and consolidation of branches, re-skilling the manpower, reducing the head count, with focus on productivity. The reason we were able to take this decision was because we had a well-thought strategy, and most important, we were willing to walk the tough path. We knew that this would require an extraordinary effort from us to pull it off and we did just the same thing. We remained focused and put our heads down, kept working on the same, and the results are there to be seen.
While industry has been trying to replicate what we have done, however, we have looked at real metrics, none comes anywhere near to what we have been able to do. We pioneered building a truly digital play NBFC. Today, amongst NBFC, who aspire our claims to be a digital play, we have not seen anyone who have productivity and efficiency like us, who have moved to a lean branch structure, who remain focused on being a retail lending and have transformed themselves with adoption of technology resulting in manpower reduction.
I think the reason we have been able to do it is because we have a deep rooted entrepreneurial mindset across the organization. We have made great strides with our digital-first technology-led NBFC. This is because we have a digital mindset and do things in a way with technology as an enabler. We were aware that transitioning the entire functioning across the company after such an acquisition would require an overhaul.
By remaining true to our vision and digital outlook, we have been able to do it successfully. This is something which we see as a challenge with a lot of our peers who are caught between legacy and digital. Our strategy is well carved out, and we articulated our Vision 2025 at the time of acquisition with a strategy of consolidate, grow and lead. The clarity of strategy and execution of the same is one of the biggest differentiators for us.
We are the only NBFC who targets prime bank customer as we want to build a portfolio which carries less risk and will be resilient in case of any downturn. Our focus is not on spreads, but on ROA delivery. While the spreads may come down over a period, however, adjusted for risk, the returns will continue to be as per our guidance. In today's context, the lending business is not just about giving loan, but also understanding the ever-evolving customer behavior.
This change does not just have an impact on the product offering, but also on the experience that you provide for the offering and how the organization, people, process, [ presence ] are aligned. We work closely on this and have kept it as our focal point in deciding/designing the product, processes, people and [ presence ]. From manpower alignment to technology intervention, from product offering to process design, we have aligned it all to customers' needs.
Finally, we have a strong fundamental, which enables us to deliver all this. One of the rare AAA-rated NBFC with strong capitalization and now backed with an excellent track record of consistent performance of more than 10 quarters, a strong base of performing portfolio which is well diversified, makes us a strong player for a sustained superlative performances for future.
You can move to Page 11 of the investor deck. I would want to reiterate on the model, which is a digital first and a branch-lite model and focuses on building efficiencies. Leveraging technology and innovation is at the core here, coupled with certain product differentiators which are very relevant as they bring customer centricity to the fore. As we know, there has been a lot of focus from the regulator on the fair practices to be followed during the lending processes, including the charges being levied to the customer, not just at the onboarding, but also during the loan life cycle post disbursement.
We have always upheld customers' interest and deal with full transparency. We do not charge any hidden charges to the customer, have been the first ones to offer a 0 prepayment option to the customer. This provides not just flexibility for our customers, but also help us build a strong brand with our customers. Our brand lineage and strong leadership team has helped us execute the model with full progress.
Now moving to Page 12, which focuses on the customer segment differentiation. At the onset, the dimensions are part of the strategy. Our customer segment differentiation is an extension of our strategy of focusing on low-risk segment. Coming to the product segment, we are focused on consumer and MSME. However, we do not focus on commercial user set as a conscious choice. We have seen that these portfolios could provide higher yields, but when adjusted, risk returns are not in line with what we want. Hence, I have consciously stayed away from them.
Some of our peers have been operating in the segment and clearly have shown a lot of cyclicity in this portfolio. Also, we believe that the core of the organization or the DNA of the organization required for this portfolio is very different. With ample open spaces in our chosen segment and our inherent strength, this segment is not a value-accretive segment for us at the current stage.
Moving on the markets, we are focused on urban and semi-urban market as we see a lot of market opportunity to be exploited there for next 4, 5 years. We would want to expand the wallet share there, further better our efficiencies and leverage them for superior profitability through economies of scale. While rural markets offer higher yields, the risk-adjusted return have been little muted for the last two quarters. At the current point in time, as we grow at 35% to 40% year-on-year on our AUM, we will continue to go deep into markets where we operate rather than spreading ourselves thin.
Further, looking at the credit profile of the customer we primarily operate in, we don't give loans to new-to-credit. We operate in 700-plus score segment. This helps us ensure we have a portfolio with higher resilience. The customer bureau score is a good determining factor in this. We have further coupled it with ticket size as well. Higher ticket sizes within the product line we have chosen clearly performed better. In line with this, if you see, we operate in the top quartile of ticket size across all our product lines.
To ensure we operate in this top quartile, segment of the assessment methodology are tuned to it with customers coming through the door post income verification based underwriting. We do not encourage surrogate program as we want to limit the risk and have better profile customers who will have higher resilience in case of any downturn. Further, to eliminate fraud risk, for income validation and verification purpose, we collect income-related documents in a digital way. This close loops our income assessment and its fraud mitigation in our processes. And that's why now we have become a choice of lender, and we get a lot of rejection of choice in onboarding the customers.
Finally, as we follow this approach of picking up customer meeting our criteria, we top it up with a sweetener of most competitive pricing offer to customer meeting our risk acceptance criteria, giving us the choice of selection. To sum it up, for a customer to be onboarded, the customer needs to go through this tiered approach for a given product of market, bureau, ticket size, income, and then if found meeting our risk acceptance criteria, will get an offer at most competitive pricing in the entire sector.
Moving to Page 13, this has helped us build a strong engine, which is helping us scale up continuously in a sustainable manner in terms of asset quality, operational efficiency and a better customer experience. The superior ROA numbers are a testament of the same. Unsecured loans have been a discussion point across the industry. So I'll quickly touch upon that here, which is covered under Page 16.
Like any product in short-term personal loan, there is a segment which gets primarily serviced through a particular lender type. If we look at the funnel that exists, we can broadly look at the segment bifurcated by ticket size. The segments are up to INR 25,000, next bucket is up to INR 50,000 and last is more than INR 50,000.
Typically, if you look at this from the risk funnel perspective, as we move up in terms of market size, the risk tends to reduce. The bureau data shows a clear differentiation between the ticket size of less than INR 25,000, above INR 20,000, and above INR 50,000. The glaring difference is more than 5x in 30-plus delinquency and 8x in 90-plus as reflected in the bureau data. This calls for products to be exercised in terms of onboarding these customers. Typically, small tickets are used as a customer acquisition engine by typically fintech. And then if ticket size moves up, NBFC and midsized banks come into play.
As a part of our risk strategy, we focus on the higher ticket size segment since day 1 and we price the risk accordingly. Our loan book of below INR 50,000 is less than INR 4 crores. Our philosophy of looking for risk adjusted returns rather than IRR can be seen in the play. Our average ticket size here is above INR 80,000, which means that the expected losses on this portfolio are to be in line with what you can see in the bureau. Plus this would be helpful to understand how our segment is different in the small ticket personal loan market.
I would now take your attention to Page 15 of the deck, which provides some of the metrics of our transformation journey. These metrics are reflective of the organization that we are building with focus on digital-first technology-led play. The numbers on AUM growth, cost of borrowing reduction, drastic asset quality improvement, productivity enhancement, profitability improvement, branch consolidation, manpower consolidation, digital tech-led model, technology leveraging reflect the efforts taken by the entire team to make this transformation a reality.
Thank you, everyone. And now we can start the question-and-answer session. Thank you.
[Operator Instructions] Our first question is from the line of Sameer Bhise from JM Financial.
Congrats on a strong set of numbers. I have a few questions. So firstly, on the provisions. Last quarter, we discontinued -- that is, the legacy book and the DA book was roughly INR 1,750 crores. And as per this quarter's disclosure, the entire book, which is clubbed under legacy and DA, is roughly INR 2,200 crores. So what explains this INR 500 crore gap? Is it from some of the continued legacy products? Is that a fair assessment?
Yes. Thank you, Sameer. So you are right. See, what we did this time is we have differentiated continued legacy also in the discontinued because underwriting parameters were different. So what you can see on Page 24 of investor deck, our assets under management, discontinued legacy and DA book, this includes the discontinued legacy, continued legacy, and the old acquired DA book and the newly acquired initial DA book. So this comes to INR 2,215 crore. So since last 6 quarters, we have not acquired any of the direct assignment or any of the portfolio from any of the bank or NBFC. So this is completely discontinued. And out of this INR 2,215 crore, we have created a provision around INR 910 crores. And remaining INR 388 crore, you can see, this is a contingency buffer against the new book. Though the new book is performing well, but we have created a contingency buffer against the onetime housing profit.
And which is also reflected in slower growth in LAP and the pre-owned car products on a sequential basis.
Actually, the growth is higher. If you see AUM of last quarter and this quarter, we have mentioned in the note also, so DA book, we have earlier classified in the respective continued product of loan against property, business loan, SME loan, and pre-owned car loan. Now we have completely declassified from the business loan, SME book, the pre-owned car and the LAP into the discontinued legacy plus DA book, so that is -- otherwise, there is a more than 20% growth or 25% minimum growth across all the product categories. So we have completely done the reclassification between continued book and discontinued book.
Would you be able to share the stage 1, stage 2 numbers on a sequential basis on the entire AUM?
Sure. So basically, if you see, last quarter, including stage 1 and 2, the number was INR 122 crores, which was 0.71% across entire loan book. Now it is INR 1,395 crores, which is almost 7% on the book. So that's why, as I mentioned, we have created enough buffer against the discontinued book as well as on the new book. So from 0.71% to INR 1,395 crores. Though there are hardly any roll forward in stage 2, stage 3 bucket in last quarter, during the current quarter, since the new book is performing better than the expectation, but we have increased the buffer on stage 1 and 2 against the discontinued and continued book as well.
But this entire portfolio against which the provision is created is classified as stage 2?
Stage 1 and 2. So basically, if you see, the breakup of INR 1,395 crore against stage 1 is INR 1,252 crore; stage 2 is INR 143 crore; stage 1 and 2. This comes to INR 1,395 crore. Stage 1 is 6.71%. Stage 2 is 23%. Stage 3 is around 47%. So stage 3 is INR 125 crore. So this is a total ECL of INR 1,520 crores. So basically, there was no need of -- majority of the provision was stage 3. This is more like a contingency only against stage 1 and 2, and majority towards the standard asset advances towards stage 1.
And would you expect any -- how would you look at the recoveries from these provisions created?
So we are trying to recover whatever is the maximum possible. So we have done a consolidation of manpower and the branches. However, we can expect, as per our collection team's analysis, though we have created conservative buffer, out of this INR 910 crore, we can expect 50% write-back.
Okay. Just quickly on -- I mean the revenue momentum, one would have ideally expected a stronger NII this quarter given the AUM growth. So just wanted to -- while NIMs continue to hold up well, but given that AUM growth is so strong, one would have expected NII to also kind of catch up with that. [indiscernible].
Correct. So if you -- in last 2 to 3 quarters, we have given a guidance that NIM on a steady-state basis will be above 10. So despite of increase of the interest cost in the last 2, 3 quarters and full impact of interest rate, there is no decrease in the NIM. That is one. Second, last 2, 3 quarters, continuously, we are either writing off or it is getting reduced -- getting run off the old legacy book. That was at a very higher rate. So that is the second impact.
And we are the lowest in the sector in terms of rate of interest. If you talk to top 3 NBFC, I think right now most of our interest rate we are able to top 3 private banks, and this we are continuously reiterating and mentioning in every investor call that customer segment is different. We have reduced rates further, and we are getting -- because of our thought process of choice of rejection, so whatever we are doing, bureau scrub of the rejected data is clearly visible. Even our -- 70% of our rejected data is being funded by the top 3 NBFC or top 3 private banks, that itself is the validation of the business model as per the bureau data.
And the target is to focus on asset quality and stick to our long-term guidance of whatever we have given of profitability, ROA. And the focus is on operating profitability. So NIM, on the future, on a long-term basis, we'll able to maintain above 10, because the target is not just to target a higher risky segment, target is to not to take any deviation in the policy, and we'll continue with our choice of rejection thought process. So that's why you will see there will be a reduction. But if you focus on operating profit, if you focus on PAT, ROA level, and all other guidance, I think we'll be able to deliver what we have guided.
Is there room for OpEx to go down further from an efficiency perspective?
So Sameer, last quarter, OpEx to AUM was 4.38%. As per our guidance, this quarter, it has got reduced to 4.18%. This includes ESOP charge of INR 20 crore. And by end of Q4 of the current financial year, it will be below 4%. And next year, you can increase further reduction. So on a quarter-on-quarter basis, you can expect further reduction on the OpEx side because a lot of consolidation has been done on the legacy system, legacy manpower branches. Now we are done with that, and you will see results in the reduction of the OpEx in terms of percentage going further.
Our next question is from the line of Kaitav Shah from Anand Rathi. Sorry to interrupt, Mr. Kaitav. May we request you to use your handset sir, the audio is a little muffled, sir.
Is this any better?
Yes, sir, please go ahead.
Okay. Sir, my first question is if you can guide us more on the sourcing mix, what it looked like during this quarter? And going forward, of course, you mentioned that you're going to stop the partnership model. So if you can guide us what will be like from DSA, own sourcing, and discuss a bit about how you're going to generate more traffic through your app -- I mean through more organic channels here.
So basically, the focus will be on growth of the AUM, which is 9% to 10% quarter-on-quarter, because disbursement will get adjusted as per the requirement of the AUM in terms of guidance of short term and long term. Now we are focused on a midterm loan and the long-term loan, not on the short-term loan. That was the initial strategy. And to control the growth, we have stopped this co-lending piece also on the unsecured side.
On the secured side, since we have sold the housing business, we are doing co-lending as of now only with 1 or 2 players in the two-wheeler, that too is a small amount, INR 30 or INR 40 crores per month. On the unsecured side, we have stopped complete sourcing of the new customers, because since we have launched our own app and the web journey, which is a straight-through process, 100% digital end-to-end process, no manual intervention, and you can get up to INR 5 lakh loan in less than 10 minutes.
On the disbursement breakup side, secured 29%, unsecured was 71% in the quarter 2. Disbursement breakup side, I think on the MSME side, it was INR 3,393 crores; then personal loan, INR 3,000 crores; pre-owned car INR 582 crore; LAP 693 crores; and machine loan, two-wheeler loan, medical equipment loan was INR 141 crores. So total comes to INR 7,807 crores.
On the partnership side, it was around approximate 40%. Non-partnership side, it was 60%. But as I told you, the total AUM of the partnership is less than 14% the co-lending business of the AUM. And other than co-lending is 86% out of INR 20,215 crore AUM. INR 17,350 crore is other than partnership, partnership is around INR 2,865 crore. And as per our guidance, by end of March, it will be less than 10%, and going further -- going next 3, 4 years, it will reduce further. So more than 90% by end of March our book will be our organic own AUM book.
Got it. Got it. Sir, second question would be around the current disbursement mix, if you can give that breakup.
Yes. So current disbursement, as I told you, in the quarter 2, MSME was -- including LTP, SCF and BL, was INR 3,400 crore; personal loan, INR 3,000 crore; pre-owned car, INR 582 crore; LAP, INR 693 crore; machine loan, medical equipment loan, two-wheeler loan put together, INR 141 crore. This comes to disbursement of INR 7,807 crores.
Okay. Got it. Got it. And in terms of the strategy forward, so as you mentioned that the smaller ticket size loans in the PL space might be coming off. But through the app, do you have to spend more on digital marketing? How is it? I mean if you can just briefly explain what the strategy is going to be? Or do we expect that the run rate for customer increase that we've seen over the last 1.5 years is probably going to come off a bit? I mean how do we look at that number?
See -- if you see, right now, there is an organic download. We did just launch 1 month before. And we have more than 3 million customer base and [ Everserve ] is more than 6 million base. So considering the entire book, and we don't give to new-to-credit, the total bureau base available with the scrub data at our end, the whitelisted is 8 crore to 9 crore.
And considering that, I think we don't see any challenge in onboarding the customer. We have enough tested with multiple partnerships, co-lending at our own end. Everything across all geographies, across all ticket sizes, across all these segments. And we have not taken any hit because that was covered under the FLDG model. So now we are confident of -- since we have launched the SMS, WhatsApp, telecalling team, in-house, outsourcing, and the entire digital is there, so we don't see any challenge for onboarding the customer.
As per our AUM requirement of 8% to 10% in short term and long term, we'll be able to acquire the customer and we get a good IRR in the processing fee, insurance income, and interest rate also. So risk premium will get adjusted according to the credit cost, and whatever is the cost of acquisition, around 3% to 4% will get amortized automatically according to the processing fee and the insurance upfront income.
So we don't see any challenge there, because already next 1 year, maximum we will do to our existing customer base, which we have built over a period of last 2.5 years, and the existing Poonawalla Finance database. So from that perspective, we don't see any challenge. And going further, we have launched multiple campaigns. You must have seen in the media, we have started aggressively targeting the credit tested customer, our segment, that if you have a good credit score, then Poonawalla Fincorp is the first choice. And "Log Sawaal toh Karenge Hi" (sic) [ "Log toh Sawaal Karenge Hi" ], this campaign we have launched recently, and we are getting good traction over there.
So we have already done a successful pilot disbursement of more than INR 200 crores, which is a big number. And there is no hiccup, there are no challenges in the web journey or on the app side also. We took time, last 2 years, and on the right time, we launched this, and we got a good success.
Okay. Got it, sir. One final question, if I'm allowed.
And just, Kaitav, to add on this, the IRR on that book is around 20%, including processing fees and the insurance income. So we have enough buffer for cost of acquisition as well as on the credit card side. And this segment is again different as compared with middle-sized private bank or the top 3 NBFC or the fintech sector, so there is no comparison because we are not targeting that segment. Because my average ticket size, as I told you, will be -- as on date is above INR 80,000. Only INR 4 crores total absolute term number out of [ INR 2,215 crore ] book is below INR 50,000.
Got it. Got it. Sir, one final question would be on the collections bit. So right now, of course, the market going is pretty good. We are in a good scenario. But how would you visualize building your collections piece going forward from here because you've achieved a certain scale today? So is it going to be more physical or you're going to be more digital in nature in terms of collection? How is it -- what is your thought process around this?
I think we believe in creating infrastructure first and then launch anything else. Poonawalla Finance, we -- in the existing NBFC of Poonawalla Group, we were already doing personal loans, professional loans, business loans. So there was a setup of collection infra at certain locations. The main reason, if everyone is asking and asked in the past, why we acquired Magma was the collection infra.
If you see the industry trend or the parameter, if you can check in the industry, Magma was one of the -- I think if you talk about the USP of the erstwhile Magma, was one of the collection infra, because they were doing a lot of cash collection, more than 60%, 70%, because of their productive nature of CVC, agri, and tractor. So out of whatever is the requirement of the collection infra, that much we have consolidated.
And right now, we have a physical and the digital model, but at the same time, we do not involve any kind of cash collection, and we have enough existing collection infrastructure available. That's why, the collection infrastructure is ready at a pan-India level. Maximum we are doing in-house, a few things we are outsourcing. The segment which we are targeting, we always focus on a first-time collection.
And for us, the trigger is not 90-plus. We operate in a different segment. The methodology is here 30-plus. We never talk about 90-plus, because most of the unsecured loan, we write-off at 90-plus. We take pressure at the time of onboarding. This I have personally done 3 years in TAB Capital, which 3 years I ran my own NBFC. Later on 2 years, I was at Poonawalla Finance. There also we used to write off at 90-plus. And here, more than 2 years at 90-plus.
So almost last since 7 years, we have developed that habit of writing it off almost everything in unsecured at 90-plus. So again, taking that pressure since more than 7 years and saw multiple cycles, at the time of onboarding itself, we take the pressure. And again, as I told you, we have a huge collection infrastructure that will be our one of the most important factor while acquiring Magma.
So there is no issue in the collection side. Though we don't expect, that is already pricing in the risk premium, but late stage we will be on the field, and that is available with us. So even before aggressively going on that market, already we have collection infrastructure in place. But it is good you asked this question. It is very important to highlight this to everyone.
Our next question is from the line of Prakhar Sharma from Jefferies.
Thank you, Abhay, for the presentation and very strong numbers, congratulations. Just 2 things I want to ask you. In terms of disbursements, if you look at the trajectory, between 3Q FY '23 and 4Q, you had a nice jump in terms of disbursement, and thereafter, the incremental buildup on disbursement has been far more range bound. I just wanted to get some perspective. Is there some discontinued business which is kind of diluting it down? Or should this be the more sustainable traction on disbursements? That's my first question.
Yes, prima facie, you are right. Now we have done enough write-off, and there is a runoff from the legacy book. That is one of the main reasons. Secondly, we have built a secured book of POC and LAP also, and we have stopped co-lending on the unsecured side also. So maximum focus now we are doing is on the LAP and the POC, because other products are settling properly as of now. So that is the main reason.
So that's why, rather than looking at the disbursement number, since we are focusing more on the mid lending and the long-term lending, should focus on the AUM growth number growing further. And it will -- that disbursement number also will get settled 4 quarters down the line. This is because of the heavy rundown of the de-acquired book and the legacy rundown.
Okay. Okay. I'll take some data points later separately on this. Second, I just wanted to ask you, in terms of asset quality, a couple of questions around it. So today, your stage 1, stage 2 ratios are based on a very high-growth denominator and NPLs actually come with some bit of a leeway. So if you're growing 70% and NPLs come with a 1-year lag, then probably your gross stage 1 and -- sorry, gross stage 3 and net stage 3 ratios might be much higher than what the reported numbers look like. So is there a way to share some cohort-based NPL ratio or through the cycle credit cost that we should expect in terms of the new book? That is one.
And secondly, on the short-term personal loan side, you have given some insights on ticket size-wise performance in the 30 DPD segment. What I wanted to ask you, you are in the INR 80,000 ticket size segment. If it's possible to share the industry numbers in that category, because the plus INR 25,000 number covers a very large category. And I understand, beyond INR 3 lakhs, the number really falls off and INR 80,000 is not as strong as the INR 3 lakh plus. So can you just give some information around how is the 30 DPD in the ticket size of INR 80,000 ticket sizes?
Right. So if you talk about the existing performance, I think 2, 3 parameters we need to look at. Though somebody can say, we have just completed 2.5 years and we have not seen the cycle, the part here is the customer is the formal income segment. It is bureau tested. They have a business vintage, they have a bureau vintage. Most of the people are paying GST on time, TDS on time, their other payments on time. We accept only PDF banking. There are very few players those who stick to all these things. We don't take any deviation in all those things.
If you see our unsecured loans, we always tested in the existing NBFCs, their book was more than INR 2,000 crores pan-India. We tested everything in the Poonawalla Finance so that very few people are aware that this is the second set of Poonawalla Group. Though their size was small, but we tested unsecured at a pan-India level. Later on, we wanted to go for secured, collection infra, branch network. That's why we acquired the Magma. So unsecured loan, the overall GNPA on March '22 on the new book was less than 0.4%. And if you talk about the unsecured loan, so 90 -- if you say 90-plus, overall itself is less than 70% plus. So here, first time collection and 30-plus, these are the main important figures.
So right now, if you talk about our MSME lending, which is our GNPA is only 0.49%. If you talk about personal, consumer, it is around 0.9%. If you talk about LAP and POC, it is around 1 point -- LAP is around 0.3% and pre-owned car is around 1%. So these are the new book, and there is a vintage towards that book also. And considering the segment which we targeted, we don't see, after seasoning of 2 years or 3 years or 5 years, there will be drastic increase in terms of this kind of numbers also. That is one.
Secondly, on the ticket size of between INR 50,000 to INR 3 lakhs, again, there is a market for short-term and a mid-tenure loan starting from 6 months to 36 months. There is a segment where we have explained this on the business side. If you see our initial one of the customer illustrations, which we have given on Slide #8, that we have given on the business loan side. Same if you talk about on the personal loan side, if somebody with a credit bureau history, with a good income wants a good user experience, correct? With app or web journey. So what are the choices available with 0 prepayment and less rate?
So there is no -- hardly any choice available. You yourself can explore in the market. You can do the study. Either you will get immediate disbursement from a lot of fintechs, but IRR will go above 40%. That segment is different. If your CIBIL score is 750 plus or even 730 plus or 700, what are the options available? If you want all the 3 things, user experience also, complete digital documentation, end-to-end digital process, what are the options available with 0 prepayment? Hardly any option is available.
And that's why we are constantly telling this to market, the model itself is unique. You cannot compare this model with top 3 NBFCs, with top 3 private banks, or top 3 fintechs. It's a combination of fintech, bank and NBFC. User experience, we are giving like a fintech; practical approach, cash flow based lending, approach is like NBFC thought process; but at the same time, customer base is like a private bank. And while we mentioned to Sameer just now, after the bureau scrub also when we check, 60% to 70% of the -- even despite of 700-plus score, why it is getting rejected.
So in the market, most of the cases are getting rejected at Poonawalla. So what is the reason? Because the base is so low, there is no pressure on disbursement or AUM growth. Against our guidance, 35% to 40%, we have grown at 55%. So PL, if you see, 95% and above cases, this is above 710 score; 62% and above, 750 and above score; business loan, 97% and above is above 700. Loan to professional also, POC also, LAP also. So practically, if you see, the segment, if you compare with the bureau is far, far different than top 3 NBFC.
While I'm always reiterating in last 3, 4 calls, but always there is a question on the cycle, on the seasoning, where when we see the bureau data, it talks something different, because expected credit loss, if you can ask to bureau of the Poonawalla customer base, it is much, much lower than the top 3 -- I'm saying top 3 private banks, including top 3 -- top NBFC also. So we don't have any kind of pressure to grow. Base is very low. We have a diversification of products. We don't see any challenge of growing 35% to 40% unless we cross INR 60,000 crore, INR 70,000 crores AUM next 4, 5 years.
So that is the reason. The segment is different. And on the personal loan ticket size, there is a huge market. That's why we launched that campaign of Log Sawaal toh Poochenge Hi (sic) [ Log toh Sawaal Karenge Hi], because when we saw in the bureau, a lot of people with 700, with 730 plus, because there was no option available. When we did our internal survey to a lot of customers, we got to know there was no option available to them as an NBFC, as a fintech, as a bank who can qualify for all these 3. All the lot of good communities, those who are available on the call, I'm sure more than 95% people will be having more than 700 or 750 plus CIBIL score, whatever, then you should explore and you will get -- it's all self-explanatory.
If you go to market, call to customer care, go to website, go to app, top 2 NBFCs and top 2 private banks, you will realize the TAT, you will realize the processing fees, you will realize the product proposition, you will realize the user experience, and then combination of all, then you will realize how many players are available. So I think total addressable market, the segment which we are targeting, that's why we are confident that segment in which we operate, the opportunity is huge, and we don't see any challenge in that segment.
Our next question is from the line of Sanjeev Patkar from Enam AMC.
Congratulations for fantastic set of numbers. You have been executing your strategy quite well, which is very clearly reflecting in numbers. This onetime buffer creation also takes a lot of issues out in terms of queries, I'm sure, all of us would have had at various points in time.
My question is on the sustainable growth that this business model can deliver. With the differentiated approach of an unconventional existing in-credit customer being targeted, how big is this market size? And somewhere in your discussions I think you did cover, but maybe if you can be more explicit. And in that sense, are we actually underpromising the kind of growth that we can deliver?
Yes. So if you see the total addressable market across all these segments, one is the total market addressable opportunity. In any of the research report, you get only what is the total market available for personal loan, consumer loan or MSME. We are not talking about new-to-credit. We are not talking about the total [indiscernible]. We are talking about the addressable market of the bureau tested customers. Why we are talking about? It requires a lot of courage and guts to target this segment. And despite of that, we don't charge any hidden charges, no non-commitment charges, no penal charges, and very, very transparent product and strong product proposition with 0 prepayment charges and rate also.
Why we are able to achieve this? That also we have explained, because of the low OpEx. We are a CRISIL AAA rated NBFC, and because of the low credit cost. And our leverage is also at around 1.5 level. So practically, if you see, because of all of this, the segment which we are operate in, either it is a pre-owned car, either it is a loan against property or any of these, when we see the bureau data, we get to know the sector also. What is the total currently, sector-wise, cooperative bank, regional rural bank, private bank, small finance bank, NBFC, bigger NBFC, top 5, mid 5, middle layer, smaller layer, all these fintechs, top fintechs, smaller fintechs, what is the total outstanding loan book available.
Tentatively, we can -- just because we have a market insight from bureau, you can get to know a lot of -- on the basis of imputation and other things, what are the charges and rate of interest. When we have started targeting this customer, when we did more than 9,000 chartered accountant onboarding, and we did more than 60%, 70% of balance transfer -- CAs are one of the best those who understand rate of interest, transparency, flat rate, reducing rate. Then that was a validation that yes, there is a huge market, because nobody is targeting this market.
A lot of MNC banks used to target, on the commercial side, on the retail side, the top-notch customer. So I can say, the same segment, when we did the analysis, we thought, yes, there is a big opportunity and our thought process to target this opportunity. So we will not try to do any kind of new-to-credit or any risky customer. And customers, there will be enough bureau history, enough digital data points are available, PDF banking is available, a lot of other data points are available, then only we will target that customer, but we'll stick to our segment.
So here we can clearly see, I think, AUM growth of 35% to 40%. We don't see any challenge. We have not given any extraordinary guidance because the base is low. Again, a lot of people get confused with this growth rate. See, we are not at INR 1 lakh crores or INR 2 lakh crores. Then it's very risky to grow at that level. Then you need to start developer funding, wholesale loan. You need to do a lot of LRD at large ticket size, bigger funding.
At this scale, at a base of INR 20,000 crore, with retail itself, we will be able to achieve INR 60,000 crore, INR 70,000 crores kind of AUM. And across all the products, the balance transfer opportunity, the options to the customer, the unique business model, and the expected credit growth going further for next 6, 7 years, I think we'll stick to our guidance of 35% to 40%. And with regards to what you talked about the overgrowth or overdelivery, that is not in our hand, reason being now we have launched the app, we have launched the web, a full-fledged 100 branches, targeting major market share at the top 100 markets.
So we are not losing share there. And there is enough amount of mouth publicity in the market, because a lot of customers across all product range, if you check in the market, they are trying first at Poonawalla, because we are the sector first. And since last 4 quarters, we are continuously telling this on the investor calls that our rates are lowest in the entire NBFC segment and that is why we get a choice of rejection. So we don't see, Mr. Patkar, any challenge in terms of AUM growth for next 4, 5 years.
Our next question is from the line of Mayuresh Joshi from William O'Neil India.
Thank you so much, Abhay, for your detailed responses and a fabulous set of numbers that Poonawalla has recorded. I have a few questions. The first one, I think you just elucidated right now in terms of what transformation Poonawalla has achieved in the last 2.5 years. But I just wanted to understand what you briefly mentioned as well in the previous question, what is the exact plan to achieve what we want to acquire or what we desire in the next 3 years? Do we have some definite steps to achieve some targets that we've kept over the next 3 years?
Right. So basically, in the next 3 years, we want to grow across all the product segments. As per our guidance, we have told 40% will be secured, 60% will be unsecured. Though it looks 60% unsecured, but a lot of professionals, chartered accountants and doctors, we have covered under unsecured. A lot of those who are paying absolutely GST on time, they fall under unsecured, but they have their own factory, they have their own residence, the bureau vintage, the business vintage. So technically, if you do in-depth analysis, so it is not that much unsecured, because blindly we are not giving loan to new-to-credit or a riskier segment.
For example, on the chartered accountant, a lot of players give loan only on the basis of certificate of practice. Despite we have a low leverage, despite we have a low OpEx, despite somebody is a chartered accountant, we cannot give only on the basis of certificate of practice. Still we take banking, still we take a lot of data points. So as I told you, that's why we always talk about we are a combination of bank, NBFC and fintech. So we have a very stringent underwriting norm, traditional underwriting as well as the digital underwriting. So it's a mix of both. We don't take decision on that front.
So on the unsecured side 60%, secured 40%. Pre-owned car, loan against property, personal loan, and business loan, and machine loan, equipment loan, two-wheeler loan, all loans, you will see product-wise growth over a period of next 3 to 5 years. And we'll continue to add more product like loan against mutual funds, which are digital in nature. And again, these are secured in nature going further that we have not highlighted as of now since we are discussing 3 to 5 years.
And LAP and POC, we wanted to be a #1 player. If you do apple-to-apple comparison, LAP we are operating at 25 to 30 locations. We are at already #1. POC we are already #1. We are operating at 50 to 55 locations. And we are doing, in both LAP and POC, more than INR 200 crores plus. LAP we do INR 250 crore per month. POC we do INR 200 crore per month. And we don't add [ CVC ] or other products in the POC.
So it's a pure POC. So from that perspective, as per our 2025 vision, we are on track to be -- if you do the apple-to-apple comparison, we'll be in top 3, but most of the products at selective branches, and in, again, that segment of only bureau tested and certain bureau score segment, I think we have achieved, but we have never talked about that figure in the public domain.
So in unsecured, you will see EMI card also coming. And consumer finance side also, we are under a process of tying up with a lot of e-commerce players. There also, again, we mentioned in the last 2 con calls also that we are getting choice of rejection. We wanted to grow step-by-step, but a lot of OEMs, a lot of e-commerce players, because of our transparency thought process, because of the customer-centric approach, I think they are preferring Poonawalla Fincorp over others in NBFC or the fintech sector.
One is the long-term play; second, transparency approach; third, our rate of interest, strong product proposition. And again, we have a very strong digital team, and we can do any kind of integration quickly. That's why a lot of partners liked us in the past in co-lending. Now a lot of OEM e-commerce you will see tie up over a period of next 1 to 2 years, that will also keep adding the customer base. And focus on cross-sell will be there. Focus on credit card -- co-brand credit card sale will be there to the existing as well as new customer base, which are again bureau tested. So we'll also keep an eye on the consumer trends and we will bring offering that will really get customer adoption.
That was very helpful, very detailed answer, Abhay. I have 1 question on the provisions that you've created -- the onetime provision on the legacy portfolio and the discontinued loan book. Can we have a definite quantum and a time line of the write-back which is expected on the same?
So basically, the balance legacy book, which will run down, including the acquired DA, overall, you will see in next 1 to 2 years, you can expect write-back of, as I told you, whatever maximum we'll try to recover and remaining will be write-back around 50% on that INR 900 crores, which will be around INR 450 crore.
Got that. Got that. Now the other question that I probably had is, since we are a digital offering, technology lender of sorts, which is our core USP, what is the core USP that you would define for Poonawalla for its products? And how do you probably rate that with your peers?
See, the main USP, if you talk about, is the ethical lending. But if you talk about on the product side, so on the product side, as I told you that from a transparency point of view, the complete digital experience for the customer. If you talk about what is the digital solution which could improve the overall customer lending journey on the customer acquisition side, so we have adopted this hybrid model of physical top 100. We have the branches. We have a complete digital model, centralized model also, embedded finance to expand the customer range.
Then if you talk about on the LOS, LMS side, we have the full digital LOS and the LMS is in place for faster processing. When you talk about the credit underwriting, we have a strong credit risk model. Then we have a business rule engine is in place. And a lot of enhancement in the data availability, quality, and the integrity that is required. So overall, strengthening of this credit risk model to incorporate wide variety of alternate data sources. That is, this thing, e-agreement side, we have completely done the entire digital. Even on the POC, LAP side also, we have gone complete digital. So more than 81% is complete digital.
And again, early warning system, collection, monitoring. So from overall, considering all these solutions, I think the main USP, as I told you, is the end-to-end digital. On the product proposition side, the lesser rate, 0 prepayment charges, flexibility in terms of the EMI, short term, medium term, long term, and the customer-centric approach. So that is the main, you can say, differentiators. And we have clearly mentioned also, these are the main reasons.
If you go to Slide #9, why we are a lender of choice for anyone in terms of loan amount flexibility or TAT, quick turnaround time, 100% digital process, on the interest rate, hidden, flexible tenure and minimum document, and on the 0 prepayment. So we have given a complete chart on that front as well as, Mayuresh.
That was very helpful. Just 1 last question from my side, which is very generic. Now the regulator has been very strict in the financial sector, particularly for fintechs and NBFCs. We all know that with the recent circular and guidelines. What is an impact of such circulars, guidelines for Poonawalla in particular?
I think we have analyzed the regulator very properly. They are coming up with a lot of circulars on the penal charges, penal interest, nondisclosure of fair practice code, interest rate and other things to the customer, noncommitment charges from the customer. So I think on the basis of -- I personally feel the thought process of Poonawalla being legacy and the culture from where we are coming from, it is a very, very positive impact for us. Because if you can listen to last all 4, 6, 8 investor con calls, we always talked on this thing and now this is in the public domain from the regulator side also that we have a customer-centric approach.
So I personally feel -- I'm not talking about any other player, but for us, it is a big, big positive impact for us going further, because that was our USP and now it is matching that we are not going to charge any kind -- we have never charged prepayment or hidden charges, noncommitment charges. And we are following TRAI guidelines in terms of customer calling, in terms of collection, in terms of underwriting, in terms of outsourcing. So I think this will be very helpful for all the players, those who will do ethical lending and those who will follow all the regulatory guidelines. And also, I think organic business growth will take a leap now from here on.
Ladies and gentlemen, due to time constraint, that was the last question of our question-and-answer session. I would now like to hand the conference over to Mr. Hiren Shah for 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. On behalf of Poonawalla Fincorp, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.