Poonawalla Fincorp Ltd

NSE:POONAWALLA

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Poonawalla Fincorp Limited Q4 FY '22 Earnings Conference Call hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ajit Kumar from AMBIT Capital. Thank you, and over to you, sir.

[Ajit Kumar, analyst]

Thank you, Para. Hello, everyone. Welcome to 4Q FY '22 earnings call of Poonawalla Fincorp Limited. Today, we have with us the entire senior leadership team led by Mr. Abhay Bhutada, Managing Director, Poonawalla Fincorp Limited; Mr. Sanjay Miranka, Chief Financial Officer; Mr. Manish Jaiswal, MD and CEO of Poonawalla Housing Finance; Mr. Rajive Kumaraswami, MD and CEO, Magma HDI General Insurance; Mr. Mahender Bagrodia, Head, Collection; and Mr. Manish Chaudhari, President.

We will start with the opening remarks from the management and then move to question and answer. Over to you, sir.

[Abhay Bhutada, executive]

Yes. Thank you so much, Mr. Ajit. So good afternoon, everyone. Welcome to the Poonawalla Fincorp Quarter 4 FY '22 Earnings Conference Call. I will take this opportunity to wish and hope for a safe and happy period ahead for all of you.

During this call, we will first summarize the business environment in which we are operating, and then take you through the Poonawalla Fincorp's FY '22 journey of consolidation fees, involving the acquisition, the integration, the business transformation, the digital turnaround, along with the consolidation of people, processes and products.

As we look back at the outcome of the phase, we are very optimistic and confident about the company's prospects going ahead and the growth trajectory of the company we'd see in FY '23 and beyond. But before I talk about the business, I must outline the current business environment in which we are operating in.

On the macroeconomic front, the inherent economic strength and potential growth for India continues to remain robust. This is indicated by an all-time GS3 collection number in the month of April, the world's highest GDP growth projection for India during FY '23 by IMF and the sharp business expansion visible in April PMI numbers.

The company by virtue of its inherent strength and the in-place growth level is well placed to ride the rising cover credit growth that lies ahead for the economy. Those are monetary tightening by RBI and rate of unexpected inflation bind to the growth trend of the economy as credit demand. However, we as a company are well prepared to manage the rise in the borrowing cost.

The removal of accommodation by RBI is an expected event to control inflation, and this is factored into our business. The extent of borrowing cost reduction and deep repricing done by us last year hold us in a good stead to ensure marginal decline to flat borrowing costs in FY '23 as against Q4 FY '22.

The company will continue to diversify its funding sources and liquidity pools to optimize the borrowing cost. FY '23 would see the full benefit of 100% term loan repricing done until FY '22. The geopolitical risk had also risen driven by the Russia-Ukraine war. However, back at home, so far, we have not seen any major setback to domestic business condition. We expect that the structural factors to drive the retail credit growth, the growing acceptance of credit, rising Internet, smartphone penetration, consolidation of marketplace in favor of digital aggregators end up credit needs of retail and the MSME sector.

So FY '22 has ended on a very positive note for us with all the basic in place and momentum by our side. I will give you a quick update on key metrics and later on, our CFO, Mr. Sanjay Miranka, will cover the same in detail.

So disbursement stood at INR 9,494 crores, up 158% year-on-year. AUM stood at INR 16,579 crores, up 17% year-on-year, 9% quarter-on-quarter. Average cost of borrowing reduced by 215 bps over quarter 1 FY '22, while GS3 and NS3 stood at 2.7% and 1.1% as of March '22, down from 3.5% and 1.8% quarter-on-quarter, respectively. The NIM stood at 8.9% for FY '22, up from 8.2% FY '21, while PAT stood at INR 375 crores. Our return on assets stood at 2.5% for FY '22, and the capital adequacy, which is quite comfortable as of now, it is 49.5% on March '22.

We continue to hold management overlay of INR 140 crores, which is 0.8% of our AUM. With this, we are at the cusp of moving from consolidation into the growth phase. With all growth levers in place, we are confident of our trajectory in FY '23, and we will continue with our expectation, excellence to deliver on our management vision 2025.

We believe our digital-first tech-led strategy is a source of economic moat, which brings operational efficiency and will lead to sustained profitability. Being digital to the core, at the start of the year, we embarked on an end-to-end digital transformation across sourcing, sales, underwriting, customer on-boarding, collection and customer servicing.

Within a record time, we have implemented the state-of-the-art LOS, LMS, CRM platform, all newly launched a new optimized website with a seamless integration to our back-end system. We remain committed to it, and we will continue to invest in people and technology capability for building business transformation.

A couple of development that I want to highlight. Recently, the Board of Directors of the company on May 12, 2022, have given an in-principle approval to raise funds for PHFL subsidiary and a dividend of 20% on the face value of the share, subject to the shareholders' approval.

The housing subsidy has almost doubled its AUM in last 2 years, crossed INR 5,000 crores of AUM in March 2022. The proposed capital raise would not exceed INR 1,000 crores and would be used for business expansion, presents enhancement and fund the AUM growth. This growth capital infusion, we believe, will place it well to grow CAGR of 25% to 30%, and we'll be able to achieve INR 10,000 crores AUM in housing subsidiary by 2025.

Thank you, everyone. And with this, I hand over to Manish Jaiswal, Managing Director and CEO, Poonawalla Housing, to take us through the housing subsidiary update.

[Manish Jaiswal, executive]

Thank you very much, Abhay. So coming to Poonawalla Housing Finance Limited. Over the last 4 years, the institution has emerged as a leading affordable housing finance company with a focus on low income group and contiguous markets across semi-urban locations in 128 branches across 20 states.

The company has a national presence, a granular retail portfolio with an average ticket size of 11 lakhs per customer, and the customer base expansion has been 4x over last 4 years and currently stand at around 46,000 customers. The company has recorded 29% CAGR growth over the last 4 years.

The affordable housing finance franchise has been consistently built with a relentless focus on impacting our mission, dignity of living to our customers by serving them directly through our mission of Go HL and Go Direct. The company's business model has undergone significant transformation over the last 4 years, and our on-book affordable home loans stand at 69%.

The financial year ended March '22 has been momentous for the organization. As Abhay just mentioned, the company went beyond the mark of INR 5,000 crores to close the year at INR 5,060 crores with almost 27% AUM growth. The disbursements increased by 57% over the last year and stood at INR 1,970 crores, and the disbursals for the last quarter alone stood at INR 797 crores. 77% of our business has been sourced directly.

The earning asset book, in fact, ran ahead of the AUM growth and stood at 46% increase over last year, and the ratio of earning assets to total assets have sharply risen from 73% to 84% of AUM in the current fiscal year. Poonawalla Housing delivered its highest ever profit before tax of INR 101 crores against INR 14 crores last year. And the ROA of the company stands enhanced from 0.3% last year to this year at 1.8%. The PBT for the quarter enhanced from previous quarter of INR 28 crores to the last quarter of INR 36 crores.

The company's business model of high margin, high growth and, most importantly, high quality has lifted 3 stress shocks of the pandemic and has shown resilience to bounce back with collection efficiency for the quarter at 98.9% against 97.6% for the previous quarter. The company recorded its lowest-ever gross stage 3 assets at 0.96% at the end of FY '22, and it carries a robust PCR at 37.4% for stage 3 assets. And it has overall provision at 1.7% of the loan book.

Poonawalla Housing Finance has been assigned the eminent long-term CRISIL ratings at AA+ stable. The company's cost of borrowings saw a sharp reduction of 230 basis points from 9.1% at the beginning of the year to end the year at 6.8%. The company has no short-term borrowings, and all [ LM ] buckets are positively matched, and it carries a liquidity of INR 1,100 crores in form of sanction limits.

During the year, the company has received a fresh sanction of INR 725 crores from National Housing Bank and the overall fresh sanction of INR 3,675 crores. Overall, [ information ], the last year performance of the Poonawalla platform saw many numerous institutional milestones, both financial and nonfinancial, being met. And the company is poised to build further momentum from here with a sharp focus on quality vectors of growth.

We are grateful to our investors, customers, employees, bankers, business partners and, most importantly, the regulators who are placing their faith in the institution and supporting the mission of dignity of living to the affordable housing segment.

I now hand over to Manish Chaudhari, the President of Poonawalla Fincorp, from here on. Thank you.

[Manish Chaudhari, executive]

I'll quickly take you back to our strategy that we announced when the acquisition happened of consolidate, grow and lead. Coming to the FY '22 journey of Poonawalla Fincorp consolidation phase, we have been able to successfully plant all the levers of growth during FY '22 to achieve our goals set for FY '23 and beyond. We could witness the momentum starting from Q4 itself.

We achieved the highest ever monthly disbursements in month of March for our continued products of preowned cars and home loans. Our highest -- our unsecured offerings, including digital BL, PL and LTP, which were rolled out during the Q2 of FY '22, also scaled up during the year and recorded their highest monthly disbursement in March '22.

We made an addition of digital consumption loan products to our 100% retail product portfolio in March through the partnership Board. The housing finance company subsidiary, PHFL, which is a pan-India pure-play affordable housing finance entity, crossed the INR 5,000 crore AUM milestone during March. It also delivered its best disbursals, highest ever AUM, highest PBT and the lowest ever GS3 during FY '22.

The company's focus on retail and small business segments aided by the digital- and technology-backed product offerings and backed by robust balance sheet gives us an edge over others in tapping the structural credit growth factors. The positive developments like leaderboard entry in POC and LTP on monthly disbursement basis, further expanding of the retail product offerings and sustained scaling up of the affordable housing subsidiary makes us confident of achieving our 2025 vision of becoming the top 3 NBFCs in consumer and small business finance.

The tech integration with partners via API sharing and CRM extension has led to a seamless flow of information. The straight-through processing enabled by business rule engine has led to a quick decisioning and consistency. Digital onboarding using digital KYC, the digital mandates, e-mandate, e-applications, e-contract and disbursements have enabled smooth onboarding and superior experience for all our customers.

As a result, the end-to-end turnaround time has seen substantial reduction over the quarters and is now amongst the best in the industry. We also created an in-house contact service center to ensure we offer excellent customer service with focus on first-time right resolution. The quick loan turnaround, combined with the end-to-end digital journey, digital engagement with customers and focus on overall experience makes us a truly customer-oriented organization focused on bringing customer delight.

Our fintech architecture and digital capabilities make us a perfect partner for other fintech players in the ecosystem and enables us to leverage the strategic partnership to accelerate customer acquisition and to offer digital-first products. We have also made the onboarding journey of our channel partners more seamless via digital onboarding with less than a day of turnaround. We also continue to invest in our data mining capabilities to leverage data analytics across sales, underwriting and collections.

As India continues to grow in a digital way, we at Poonawalla are committed to remain digital-first and a tech-led organization to the core. In line with this aim, we'll continue to make deep investments in technology to drive economies of scale, enhance productivity and build a profitable digital-first tech-led franchise.

We have further strengthened our distribution pillars of digital directing partnerships, DDP as we call it. Our distribution strategy focuses on DDP, and we would continue to see this ROE-accretive opportunities to tie up with the like-minded, digitally focused market players, having scale and the right risk management practices.

The disbursement contribution of the DDP channels stood at a healthy 17.5% in Q4. The API stack integration with partners allow a seamless sharing of data and gives us an edge in partnering with fintechs as well as other digital players in the marketplace. The contribution of partnerships in the preowned car book disbursement has more than doubled in Q4 of FY '22 over Q3 of FY '22.

The preowned car marketplace is undergoing consolidation in favor of digital aggregators, and we expect to see further disbursement traction as the trend intensifies. Also with the rise in customer acquisition, we expect cross-sell to act as an ROE kicker for us. Our disbursement from cross-sell has increased 28% quarter-on-quarter during Q4 FY '22. There's also been an exponential rise in leads generated from digital marketing with 10x growth in Q4 alone. We expect the funnel optimization to make it a significant contributor in the coming quarters.

Risk management is the most critical piece for our business. Post acquisition, we tightened the underwriting standards, front-ended the write-offs, followed the most stringent right of quality and placed conservative portfolio guardrails using analytics for quality optimization and also monitored early warning signals for our portfolio.

As a result, our asset quality significantly improved, and we have been able to bring the net stage 3 at 1.1% as of March '22, which is among the best in the NBFC space. Our portfolio remains well within the Fed guardrails. The portfolio we have onboarded post the acquisition has been performing much better than the portfolio onboarded prior in terms of the early indicators of bounce rate, the 0 plus delinquencies or the 30-plus delinquencies.

We also witnessed substantial rise in collection efficiency with a March figure at 108.4%. With falling cash collection accounts, our need for branch infra has also come down. Our branches stood at 242 as of 31 March '22, down from 297 in March '21. Gujarat, Karnataka, Maharashtra and Tamil Nadu are the areas where we opened branches during the year. The consolidated AUM remains well distributed geographically.

On the people and operations consolidation front, this has been another...

[Technical Difficulty]

[Operator]

I'm sorry to interrupt, sir. I'm unable to hear you right now. Management team, we are unable to hear you clearly. Ladies and gentlemen, we are going to disconnect the management line and reconnect as there's no...

[Manish Chaudhari, executive]

Sanjay, our CFO, to take us through the financial performance.

[Sanjay Miranka, executive]

Thanks, Manish. Good afternoon, everyone. I'm pleased to share the financial performance update for Poonawalla Fincorp Limited for the financial year FY '22 and quarter 4.

Consolidated AUM grew by 16.5% Y-o-Y and 8.9% quarter-on-quarter and stood at INR 16,579 crores as on 31 March '22. AUM of focused products grew at a faster rate of 64% Y-o-Y and 17.3% quarter-on-quarter, which is highly encouraging. The discontinued book now stands at 17.9% of our consolidated AUM, and we expect it to run down over the next 18 to 24 months.

During the month of March '22, our housing finance subsidiary crossed INR 5,000 crores AUM mark. PHFL AUM stood at INR 5,060 crores as on 31 March '22, growing by 27.2% Y-o-Y and 10.6% quarter-on-quarter. We saw good traction in all our active product lines and witnessed the highest ever monthly disbursements across all our products.

Total disbursement for quarter 4 stood at INR 3,336 crores, showing a growth of 80.8% quarter-on-quarter. FY '22 disbursements stood at INR 9,494 crores and grew at a robust 158% Y-o-Y. Quarter 4 NIM improved to 9.5% vis-a-vis 8.8% for Q3 FY '22, an increase of 77 basis points, whereas the FY '22 NIM stood at 8.9%, an increase of 65 basis points Y-o-Y.

The consolidated profit after tax stood at INR 375 crore for FY '22 as compared to a loss of INR 559 crore in FY '21. The ROA stood at 2.5% for the full year. The quarter 4 ROA was at 3.1% with quarter-on-quarter rise in each quarter during FY '22. The Board of Directors have also recommended a dividend of 20% in the very first year of our operation post acquisition.

The normalized cost of borrowing for FY '22 after adjusting for one-off prepayment charges in Q3 comes to 8.5%. The average cost of borrowing for quarter 4 was 7.4%, a sharp reduction of 63 basis points over the normalized average cost of borrowing for quarter 3 FY '22.

During Q1 FY '22, we framed the management vision 2025, including 250 basis point reduction in cost of borrowing. I'm happy to share that we have already achieved 215 basis point reduction in average borrowing cost between quarter 1 and quarter 4.

During the Q3 call, we had guided for 50 basis point incremental reduction in Q4 and above what was achieved until Q3 FY '22, and we have surpassed that number with the actual reduction coming at 63 basis points. Besides a 2-notch rating upgrade by CARE in Q2 FY '22 to double it as stable, in Q4, CRISIL also signed long-term rating of AA+ stable to both PFL and PHFL.

We understand that the recent interest rate rise is a key issue for the entire credit industry. After factoring in the current rate hike as well as anticipated rate hikes by RBI in FY '23, we expect our liability book repricing to be well spread over the year instead of a sharp rise in a single quarter. This is factored into our funding plan. Factoring in all the scenarios on a conservative basis, we are confident of keeping our average cost of borrowing for FY '23 below Q4 average cost of borrowing and well below the average cost of borrowing for FY '22.

On the asset side, floating rate assets would be repriced higher in conjunction with liabilities, while maturing assets would benefit from redeployment at better rates. Talking about our liquidity surplus and ALM, we had a comfortable liquidity of INR 3,890 crores through on and off balance sheet liquid assets. Both PFL stand-alone and PHFL carry a well-managed surplus ALM across all buckets as on 31 March '22. Our funding pipeline remains robust with competitive rates as demonstrated.

On OpEx front, cost-to-income ratio came down by 110 basis points during Q4. Being a young and digital-first tech-led entity, the company will continue to invest in technology, people and customer service initiatives.

Gross stage 3 book declined sharply by 103 basis points Y-o-Y and 84 basis points quarter-on-quarter to 2.7%. The net stage 3 book as on 31 March '22 stood at 1.1%, well on path to realize the 2025 vision of less than 1% of net stage 3.

Our housing subsidiary recorded the lowest ever gross stage 3 at 0.96% as on 31 March '22, declining by 63 basis points Y-o-Y. Our restructured portfolio reduced further to 4.7% of AUM as on March '22 compared to 5.7% in December '21 and 5.9% as on September '21, aided by strong recoveries. Collection efficiency continued to surpass pre-COVID levels and was at 108.4% for March '22.

As on March '22, our provision coverage on stage 3 book stood at 58.9%, one of the highest in the industry. As on March '22, we are carrying about INR 140 crores of specific COVID provisions. The ECL model provisions this year include the impact of COVID into PD LGD. Hence, the ECL model provision across stages has increased over December '21. PFL's capital adequacy was 49.5% as on 31 March '22, providing significant enabler for future business growth.

Thank you. Over to you, Ajit, to moderate the Q&A session.

[Operator]

[Operator Instructions] We'll take the first question from the line of Nikhil Rungta from Nippon India Mutual Fund.

[Nikhil Rungta, analyst]

Congratulations on a great set of numbers. Sir, first is starting on the...

[Operator]

Sorry, Mr. Rungta, if you are on a hands-free mode, please switch it to handset and speak. We can't hear you clearly.

[Nikhil Rungta, analyst]

Is my voice audible be now?

[Operator]

Yes, better, sir.

[Nikhil Rungta, analyst]

The first question on this housing stake sale. So basically, you are planning for INR 1,000 crores of capital raising for a dilution of 15-odd percent. So internally, you would have done some calculation and type of valuation actually you are looking for. Or should we assume the same INR 6,500 crores to INR 7,000-odd crores of valuation comes through bad calculation?

[Manish Jaiswal, executive]

So let me not get into valuation for -- we will focus on business and performance. We let markets do their little bit of assessment, but there are great benchmark available. So all of you would probably have your own conjecture. We'll wait for the formal process of valuation discovery to happen, and that should kind of really be telling us about the quantum of dilution to be done.

But very clearly, we need growth capital of thousand-odd crores. So that's our ask, and that's our need. And being CRISIL AA+ rated and the kind of quality of performance and numbers, I think it's one of the upper quartile performances, which will kind of really show in terms of our expectations.

[Nikhil Rungta, analyst]

Okay. Okay. And second, coming on the OpEx side. We have indicated around 30 basis points of impact because of this ESOPs. So should we take this 30 basis point itself for next few quarters as well? Or do you think this could change materially?

[Sanjay Miranka, executive]

Yes. So basically, I think as an organization, we have adopted a very progressive approach of giving ESOPs and making people as partner in the growth journey. We have set aside already 2% of the capital budget for resource, and more can be added to this. So as far as your specific question is concerned, yes, the charge we increase for FY '23. But as you know, this is basically a notional charge to [ P&L ] and will get reflected multifold into the performance of the company.

[Nikhil Rungta, analyst]

Okay. And OpEx other than ESOP is 5.2% because we are investing a lot into technology and people. So what type of sustainable OpEx should be [ for ] the company, say, over the next 2 to 3 years?

[Sanjay Miranka, executive]

Yes. So we have been investing in technology, people and customer service initiatives. And we continue to do that through FY '23. However, as we keep getting the full leverage of the capability, which we have built, you'll see the cost/income ratio coming down. So for a few quarters in FY '23 or broadly on FY '23, the OpEx may remain around these levels or may move up. However, this is the investment into the long-term growth for the organization. And post FY '23, you'll see a sustainable reduction in cost/income ratio.

[Nikhil Rungta, analyst]

Okay. And sir, last question from my side on the provision. So we had made a big chunk of provision earlier. So how much of that is used? And when will we see standard asset provisioning coming in our numbers?

[Sanjay Miranka, executive]

Yes. So see, we have been carrying COVID provisions of INR 130 crores as on 31 March '22. The basis, the performance of the portfolio and the environment, one could have written back a part of this provision. But on a prudent basis, we thought that, okay, let's carry it into future year. And every quarter, we are going to have an assessment. And accordingly, we'll go for the amount which can be released out of this. The overall provision is very healthy at 58.9% as far as the stage 3 PCR is concerned.

[Operator]

We'll take our next question from the line of Vivek Ramakrishnan from DSP Mutual Fund.

[Vivek Ramakrishnan, analyst]

Okay. This refers to Slide 21, where you have given the product suite that you have, which is very well spread out product suite. Could you tell us which product will dominate the mix and whether there's a commonality of the customer segment that will allow you to keep your OpEx low and yet grow? That's my only question.

[Manish Chaudhari, executive]

Sure. So the way we are looking at the product suite is we have a mix of products, which are both medium term as well as short term. I think what we are trying to achieve here is both the profitability as well as the AUM growth. The long-term, medium-term products will actually help us grow the AUM and help get the OpEx under control, while the short-term products, as you see here, which are supply chain finance, which are merchant cash advance, the EMI cards and the credit card, these will help us actually add to our bottom line, may not really add to the AUM part.

So I think it's a conscious -- it helps us manage 2 things. One is the profitability. Second, it also helps us leverage the liability side of it that we have. So that's the way we are looking at it from a product strategy perspective.

[Vivek Ramakrishnan, analyst]

Okay, sir. Then could you just break it up into secured versus unsecured in terms of how you would look at it?

[Manish Chaudhari, executive]

Sure. So when we look at any of these -- if you look at on the existing products only, if you look at it on the existing products only that we have today, the preowned cars, the affordable home loans, the LAP, medical equipment, auto lease, these all remain as secured products.

Also, if you look at it from a digital SME LAP perspective, that is again another secured loan product. The way we are building up on the unsecured loan products, which are the business loan, personal loan and the consumption loans and professional loans that we are seeing, these are actually acting as feeder for our other secured loan products. The medical equipment ties in with our loan to professional segment that we do.

Similarly, we want to be a substantial player when we look at the MSME side of it, and that is where the merchant cash advance and supply chain finance come into play. While typically, you look at supply chain finance as an unsecured product, technically, we look at it as a secured product because we will have the corporates and the anchor involved there.

Again, the machinery loan is something which will continue to be a secured product. The rest of the products, which are unsecured in nature, typically do not bring in too much of risk to the book because these are all short-term products that we are entering to. And on a steady state, what we want is a good balance of secured and unsecured.

Today, if you look at it, the book that we'll have will have about 19% of the product, which is on the AUM mix, if you look at it, which is unsecured. At a steady state, as the book draw downs, which is the old book, we will actually be hitting a number of around about 30% to 35% by the end of this FY '22.

[Vivek Ramakrishnan, analyst]

Okay. Excellent, sir. So secured products -- unsecured products would be used as a lead for the secured products and they would be short term in nature is what you're saying, right, sir?

[Manish Chaudhari, executive]

Yes. It will be a mix of short term as well as long term, but short term just to manage the profitability.

[Operator]

We will take our next question from the line of Ravi Naredi from Naredi Investments.

[Ravi Naredi, analyst]

It was indeed a very fantastic result. You have mentioned supply chain advance and merchant cash advance. What will be modest [ operating ] and how much business we are thinking for this [ bulk ]?

[Manish Chaudhari, executive]

Sure. Thank you very much for the question. Let me take it in 2 pieces. When we look at supply chain finance and the merchant cash advance, the first thing is we don't want to do this business through any intermediaries. These are all going to be the direct products for us, right?

First is the way the origination is being looked at. So I think the way we look at it is what is the kind of customer segment that we want to target here. On the supply chain finance side of it, we would want to target big corporates and their downstream or upstream cycle that we want to manage, right?

On the merchant cash advance side of it, as we see, the digital economy is actually booming, we want to look at merchants who accept card payments, who accept UPI payments and other modes of digital payments. So this merchant cash advance is going to be typically looking at segments which have the digital acceptance of all the payments in the ecosystem.

These upcoming products that we said, both of supply chain and merchant cash advance, as we said, are short-term products. And hence, they will actually help us also widen our customer base, which is very critical as we grow because we want to be a big cross-sell franchise as well.

[Ravi Naredi, analyst]

Okay, okay. So what will be the rate of interest in range? Can you tell?

[Manish Chaudhari, executive]

So we'll be quite competitive in this. We look at supply chain finance at any range between 12% to 13%. And when you look at merchant cash advances, the ATRs could be higher as these are short-term products.

[Ravi Naredi, analyst]

Right, right, right. And sir, second question. Are direct digital partnership model you have mentioned, whom you will do partnership? Can you tell something?

[Manish Chaudhari, executive]

Sure. So as we speak, we've been kind of focusing on this as one lever for our origination capabilities. On the direct side of it, we have 2 splits that we have. One is our direct sales force, which goes and actually acquire this customer. However, the entire origination is now moving to a digital mode. So we have actually in-house developed contact center, which helps us originate the leads through calling up the customers or through the inbound that we get, right? So that is going to be one mode of direct.

As far as digital is concerned, as you know, we have our website where we have an end-to-end digital journey for all the unsecured products that we have. So we use that and leverage that for our digital direct originations.

Apart from that, on the partnership side of it, as we have outlined various products, it will be horses for horses kind of a strategy. You look at POC, for example, where we have the digital aggregators who come in as partners. We're also exploring co-lending opportunities across various products. That will also be a form of partnership. And as we know, on the LTP side of it, we have a Pan-India tie-up, which is for professionals, across chartered accountants, company secretaries and medical professionals. We continue to build on such partnerships, which actually help us reduce our cost of acquisition as well.

[Operator]

We'll take our next question from the line of [ Harshvardhan Agarwal ] from IDFC Asset Management.

[Unknown Analyst]

Sir, I have 2 queries. One is the disbursement number that we have reported around INR 3,300 crores. Just wanted to understand, does that has an element of any inorganic portfolio that we have acquired? That is one. And maybe post that, I'll ask another question.

[Sanjay Miranka, executive]

Yes. For the -- so yes, that number has got both organic and inorganic book. However, if you look at our core focus has been building the organic book, and that's -- quarter-on-quarter, there has been a significant increase in the disbursement of organic book.

So the organic book, which was about INR 1,500 crores in Q3, has been INR 1,850 crore approximate in Q4. And this is -- since we have been having surplus liquidity and there have been opportunities, value-accretive opportunities available, and we have gone ahead and acquired the portfolio in Q4.

However, as I said, the greater focus is going to be on the organic pool. And I think now that we have launched majority of our new products in the market, across the product, as we articulated it earlier, there has been a significant uptick in the business, and we expect that to keep pace as we get into place.

[Manish Jaiswal, executive]

Just to add on this. Preowned cars, we have the highest ever disbursement in the month of March. So organic disbursement for POC was INR 165 crores. Loan to professional, highest ever disbursement, we have crossed INR 100 crore disbursement in the month of March. And SME LAP also, we have crossed INR 100 crore of disbursement. In affordable housing company also, we have crossed INR 225 crore of highest ever disbursement. In most of the products, we have done highest ever disbursement in the month of March, and these are all organic figures. And in a few of the products, as we mentioned in the presentation also, we already taken a leadership position in monthly disbursement with us.

[Unknown Analyst]

Sure, sure. Sir, one last thing that I wanted to understand was on the asset quality part. What I remember is when the RBS sector had come in for reporting the GNP norms, we had reported around INR 550 crores of NPA, which is probably sitting in stage 2. So just wanted to know like how that number has trended in the fourth quarter.

[Manish Jaiswal, executive]

Yes. So this number has come down. So again, INR 552 crores, it has been INR 506 crores in -- yes.

[Unknown Analyst]

Okay. And that -- this reduction of around INR 45 crores, which has happened, is it largely through recoveries or like there is an element of write-offs there?

[Manish Jaiswal, executive]

So it has been primarily coming from recoveries.

[Operator]

We'll take a next question from the line of Pankaj Agarwal from AMBIT Capital. [Operator Instructions] We'll take the next question from the line of [ Sonal ] from Nirmal Bank.

[Unknown Analyst]

Sir, just wanted to understand, on these digital tie-ups that we have, so I mean, there has been a bit of negative news flows around FLDG and all. So what kind of partnerships are we entering? Is it like a co-lending arrangement? Or are those aggregators working more like DAC to us? If you could give some color on that part.

[Manish Chaudhari, executive]

Yes. Thanks, Miss, for the question. Just to tell you a flavor of it. As we said, all the partnerships that we are doing, the partnerships will go -- the ones that we enter into would need to have 2 things. One is the scalability and second is the risk management practices that they have. And hence, FLDG is something that we are not really banking on, on saying we would want the FLDGs only, right? While RBI has been looking at it in a very different way, we are cognizant of that, and that is how we continue to look at it.

We have enough of our data analytics in place when we are getting into these partnerships. So the entire policy, the underwriting rules and the risk management practices are the ones which are adopted as per our understanding of the product risk. We use the -- we leverage on the distribution capabilities of the partners that we work with, right?

So basically, what we are trying to do here is leverage their distribution capabilities. However, from a risk management perspective, we want to keep ourselves insulated, and that is what we keep it to us. We really follow the underwriting practices that we want to do in any partnership in the 2 sense of it rather than just looking at it as one more of just increasing through the funnel approach.

[Unknown Analyst]

Okay. Just to get some more clarity, sir, so whether this would be more like DSCs or for 4 lending partners.

[Manish Chaudhari, executive]

So we do a mix of both. So wherever we have the NBFC available for the partner, we would prefer a co-lending arrangement. In absence of that, we look at it as their origination with the risk management being done by us.

[Sanjay Miranka, executive]

Yes. I would just like to just update the organic and inorganic disbursement numbers. So organic disbursement was INR 2,200 crores approximate in Q4 as compared to INR 1,543 crores in Q3. This is a growth of 40% quarter-on-quarter. And yes, inorganic was about INR 1,150 crores. Thank you.

[Operator]

We'll take our next question from the line of Pankaj Agarwal from AMBIT Capital.

[Pankaj Agarwal, analyst]

Can you throw some light on competitive intensity in the housing finance segment? The reason I'm asking this question is that a lot of large banks are entering into affordable segment and we are seeing some midsized banks also expanding into the segment apart from all the HFCs. So what kind of competitive intensity you have seen in the recent time?

[Manish Jaiswal, executive]

So my views here would be as follows, that on the contrary, the entire space has actually gone through a very deep rationalization. I would say that the housing industry landscape is of around INR 12.3 lakh crores, out of which the largest player will merge with the bank. So to that extent, the size of the industry itself has gotten halved.

And of the top 5 players, we are quite aware about who are -- where are they in their journey so far. So there are large [indiscernible] places. And if you really look at the affordable housing sector, which I would say is of around 18-odd companies, above INR 15,000 crores around is only one company; INR 10,000 to INR 15,000 crores, there are about a couple of companies; around INR 5,000 crores, there are 3 companies. And the [ view ] intensity of most of the players are that they have 40% to 60% market share in 3, 4 states.

At a national scale presence level, there are far and few companies. So I feel that while around the metros and [ per ] urbans, there could be a little bit of deepening of intensity. But as we move towards the interland, we move towards variable markets, I think there's tremendous opportunity given the GDP-to-debt ratio in our country, which is barely 9%. So to that extent, at least for next 5 to 10 years standpoint, we do believe there is a significant play.

As more players emerge, they would be largely geo-focused in far and few states. At a national scale level presence, I think there are very deep sciences, which need to be understood before it really goes and scale up. We've been doing for 5 years, so I think we can speak from my experience.

[Pankaj Agarwal, analyst]

And given the competitive intensity and the growth potential, what kind of ROA and ROE can expect on a sustainable basis? I know right now, you're expanding, so that's the number I would not look for. But let's say, 3 years, 4 years down the line?

[Manish Jaiswal, executive]

See, we anyway are at 1.8% for the year. We exited last quarter at -- for the housing finance at 2.4%. We believe that this is a year where we will kind of hold on to our OpEx to AUM for last year. We won't increase. But at steady state level, we look at a 3% ROA and 3% OpEx number in about 3 years' time. We are at 3.4% OpEx payment housing. So my sense is that this year, given our expansion plan of going to [ 428 ] branches, we'll be at 3.8%. But after this year, I think we will be seeing a reduction of 30 to 40 basis points year after year.

[Pankaj Agarwal, analyst]

Okay. And finally, if I look at RBI data, the housing loans are hardly growing at 7%, 8%. If I look at over the last year, the Y-o-Y growth has fallen from roughly 13%, 14% to roughly 7%, 8%. On other hand, when I talk to lenders, including you, there is a lot of positivity around the growth side, right? So what is the missing point, right? Because RBI data is showing a different number versus what our lenders and developers are saying.

[Manish Jaiswal, executive]

I would like to focus on talking about our space, about if the overall affordable housing, overall industry of INR 12 lakh crore, the affordable housing segment is around INR 70,000-odd crores. This segment is growing at around 12% to 14%. This segment is poised for growth as per [indiscernible] reports to 18% to 20%. We have been growing at 29% CAGR for last 4 years. And we believe that on the Poonawalla platform, we should be able to maintain our numbers from next 4 to 5 years' standpoint. Therefore, our vision to double our AUM in less than 3 years is something which we believe is achievable and it has been demonstrated over the last 16 quarters of performance.

[Operator]

We will take our next question from the line of Vivek Ramakrishnan from DSP Mutual Fund.

[Vivek Ramakrishnan, analyst]

Sir, this is a follow-up to the previous question on affordable housing. What are the customer segments that you're concentrating in terms of salaried versus nonsalaried? What is the typical yield to maturity that you see? Are they first banking kind of customers with a lot of cash kind of transaction because you're on the NBFC side focusing a lot on digital? Or would there be more initiates in bankable customers? So if you could give us a little more flavor on the HFC, that would be nice.

[Manish Jaiswal, executive]

So 60% of our customers are self-employed. We will be moving towards 50% self-employed and 50% salaried. Our customers are typically low income group customers, where the average household income of these customers could be from INR 30,000 per month to INR 60,000 per month. These customers typically are comfortable paying installment of INR 10,000 to INR 15,000 per month.

All our customers are NASH, 100% customers we onboard now are on NASH, and they are digital remittances. Coming to your question on digital, we have gone live on 2 important platforms, LSQ and [indiscernible] in the month of April. Our endeavor is to now host rule engines, BREs and configure mass acquisition channels. And therefore, we play a digital partnership and collaboration when housing is something which is underway, which will further add to our OpEx and efficiencies.

[Operator]

We'll take the next question from the line of Sagar Jethwani from PhillipCapital.

[Sagar Jethwani, analyst]

Sir, how you are leveraging technology towards making underwriting process more stringent? And any comments on that? And also, at the same time, you aim to grow fast. So what would be the underwriting policy specifically towards unsecured loans? How would you maintain 700-plus [ mix ] within the unsecured loans? So any comments on that? How would you maintain it changing, at the same time going fast?

[Manish Chaudhari, executive]

Sure. Thanks for the question. The way we look at it, technology has been leveraged across the functions. Underwriting happens to be the most important function as the entire risk management starts from there for us. The way we've been looking at leveraging technology for underwriting is number one, we have the best-in-class origination system, which has a BRE into it. We've also onboarded the best-in-class BRE from outside. We use the experience for our BRE purpose.

Apart from that, when we look at managing the risk, I think what is more important is to manage the entire ecosystem and leverage the information available in the ecosystem. So we are well connected through API infrastructure across various sources of information, which can actually kind of make the underwriting much richer. We also work very closely on the bureau data to figure out what are the kind of customers that we are onboarding month-on-month.

And just to give you a flavor of unsecured underwriting, 90% of the customers that we onboard are more than 700-plus credit scores, which ensures that we are not actually going into the first-time credit. We are actually going to credit-tested customers. There's a huge opportunity which lies there itself from an NBFC segment perspective.

Also looking at it from a risk management perspective from other sources, we are looking at making the fraud risk minimized when we are doing any such underwriting. We go to the source of the information directly to be taken out so that we really don't have any fraud or manipulation, which is possible in any of the documents.

While we look at service -- serving the MSMEs, we actually focus on the formal segment of it, which is already working on GST. And then the GST implementation ensures that we are actually taking care of all the risk. It's more prudent underwriting rather than just a paper-based underwriting that we follow.

With those things in mind, I think we are well positioned to ensure that the risk is not actually going up in our portfolio. Apart from that, we also look at it from an early warning signal perspective. And as I outlined in my opening speech as well, on the early warning indicators, we are at least 2x better than what we were originating earlier. I think that gives us a flavor of what we are doing right now.

[Manish Jaiswal, executive]

Just to add on this. We are doing write-off at 90-plus for all the unsecured products. There are very few NBFCs who follow such stringent write-off policy.

[Sagar Jethwani, analyst]

Yes. Sir, one more sub-question to this. How are this early warning signs work? Can you shed some light on that?

[Manish Chaudhari, executive]

Sure. So early warning signs work on 2, 3 different things. One is what you're looking at your on-book performance of saying how the customer is on your loan that you have given. The second, you typically look at it from an off-book perspective. In case you have taken a loan from any other financials, then you actually do a validation check against seeing how the performance is on other's book. And if there are any triggers there, then it's a cause of worry for us, and we kind of put it separately and look at it and monitor it on an ongoing basis.

The third which we are looking at is typically on the basis of the macroeconomic conditions, which exist in the market. And we continuously evaluate it against that. So we do a mix of all these 3 to ensure that the early warning indicators keep the system healthy, and we have the hygiene in place when we are underwriting for the new basis.

[Operator]

We'll take our next question from the line of Sandeep Agarwal from Naredi Investments.

[Sandeep Agarwal, analyst]

Sir, my question is what percentage of [indiscernible] visible in Q4? And what is our target for the financial year '23?

[Manish Chaudhari, executive]

Sure. So I'll break it up into 2 parts. One is when you're looking at products which are end-to-end digital, our entire personal loan business, our entire loan to professional business is a digital business end to end. When we look at our business loan business, we have entire end-to-end process available. And hence, it is depending on the way customer approaches us. We will actually give them a service economy.

Today, almost 70% of the business that we do on the unsecured side is an end-to-end digital business. We have now moved on the preowned cars also on the digital journey. The entire partnership business that we are talking of will happen digitally and continues to happen right now as well.

In terms of our LAP product, since there is a collateral involved, you really cannot have an end-to-end digital. But yes, from an origination and an onboarding perspective, we have it completely end to end. The endeavor is to move to the new product segments that you would have seen, which we are looking at [ NCA ] supply chain. These are products which are [ at ] for a digital ecosystem play, and that is where we want to focus our energies on.

[Sandeep Agarwal, analyst]

Okay. Sir, my next question is what is our average yield on gross [indiscernible] for housing finance?

[Manish Jaiswal, executive]

So if your question is what is the disbursal yield on housing finance, it's 13%.

[Sandeep Agarwal, analyst]

13%, for housing finance.

[Manish Jaiswal, executive]

Yes. I mean on the book, we have 70% home loan, 30% affordable LAP. The average of the 2 is 13%.

[Operator]

Ladies and gentlemen, that was the last question. I now hand the conference back to the management for closing comments. Over to you, sir.

[Abhay Bhutada, executive]

Yes. Thank you so much, everyone, and I'm very happy to share these numbers with you. Poonawalla Fincorp records consolidated that of INR 375 crores in the first year of -- post our accretion, and our AUM is up 17%, and NPA down in increases to 8.9%.

Now we are focusing on the technology. Now we are focusing on the building risk culture. Now we are focusing on our housing subsidiary, wherein there is a huge opportunity there in affordable housing. Most of the products we are focusing on digital onboarding, digital collection, digital disbursement, entire processes, end-to-end digital for all the unsecured.

So overall, I'm happy to share that, that now we have moved to the real growth journey. And here on, you will see we are excited to enter this new financial year with momentum on our side and the consolidation was there for us for FY '22. Now we made a considerable progress in line with our consolidate, grow and the lead strategy.

We are well poised to grow as the execution excellence of consolidation phase propelling us now into the growth of orbit. As we grow, the focus will continue to be on building a sustainable business on pillars of technology, digital-first approach, customer centricity, risk management and the alternate distribution channel of digital direct and partnerships.

Thank you so much, everyone, for attending this conference call of Poonawalla Fincorp Limited.

[Operator]

Thank you, members of the management. Ladies and gentlemen, on behalf of AMBIT Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.