HOMEFIRSTNSEQ4 FY22March 31, 2022

Home First Finance Company India Limited

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Management on call

Manoj Viswanathan

MD & CEO – HOME FIRST FINANCE COMPANY INDIA LIMITED

Nutan Gaba Patwari

CFO - HOME FIRST FINANCE COMPANY INDIA LIMITED

Manish Kayal

HEAD - INVESTOR RELATIONS - HOME FIRST FINANCE COMPANY INDIA LIMITED

Ashish Chovatia

ORIENT CAPITAL

Irfan Raeen

ORIENT CAPITAL

Payal Dave

ORIENT CAPITAL

Key numbers — 40 extracted

Rs 5000

ity to share the highlights with you. Firstly, we crossed 2 important milestones. 1) We crossed Rs 5000 Crs of AUM, and 2) We crossed Rs 2000+ Crs of annual disbursement for the first time. Moving on

Rs 2000

Firstly, we crossed 2 important milestones. 1) We crossed Rs 5000 Crs of AUM, and 2) We crossed Rs 2000+ Crs of annual disbursement for the first time. Moving on to other highlights: • We had our hig

Rs 641

he first time. Moving on to other highlights: • We had our highest ever quarterly disbursals of Rs 641 cr, an increase of 12.5% on q -o-q basis and 42% y-o-y basis. • There is further improvement in

12.5%

to other highlights: • We had our highest ever quarterly disbursals of Rs 641 cr, an increase of 12.5% on q -o-q basis and 42% y-o-y basis. • There is further improvement in 1+ and 30+ DPD levels.

42%

had our highest ever quarterly disbursals of Rs 641 cr, an increase of 12.5% on q -o-q basis and 42% y-o-y basis. • There is further improvement in 1+ and 30+ DPD levels. • 1+ DPD improved to 5.3%

5.3%

42% y-o-y basis. • There is further improvement in 1+ and 30+ DPD levels. • 1+ DPD improved to 5.3% from 6.5%. 30 DPD improved to 3.7% from 4.7%. • Our Gross Stage 3 stands at 2.3%, down 30bps from

6.5%

basis. • There is further improvement in 1+ and 30+ DPD levels. • 1+ DPD improved to 5.3% from 6.5%. 30 DPD improved to 3.7% from 4.7%. • Our Gross Stage 3 stands at 2.3%, down 30bps from 2.6% in D

3.7%

her improvement in 1+ and 30+ DPD levels. • 1+ DPD improved to 5.3% from 6.5%. 30 DPD improved to 3.7% from 4.7%. • Our Gross Stage 3 stands at 2.3%, down 30bps from 2.6% in Dec’21. • This is based

4.7%

ement in 1+ and 30+ DPD levels. • 1+ DPD improved to 5.3% from 6.5%. 30 DPD improved to 3.7% from 4.7%. • Our Gross Stage 3 stands at 2.3%, down 30bps from 2.6% in Dec’21. • This is based on RBI cir

2.3%

DPD improved to 5.3% from 6.5%. 30 DPD improved to 3.7% from 4.7%. • Our Gross Stage 3 stands at 2.3%, down 30bps from 2.6% in Dec’21. • This is based on RBI circular of Nov’21. Adjusted for this, th

30bps

ed to 5.3% from 6.5%. 30 DPD improved to 3.7% from 4.7%. • Our Gross Stage 3 stands at 2.3%, down 30bps from 2.6% in Dec’21. • This is based on RBI circular of Nov’21. Adjusted for this, the number sta

2.6%

from 6.5%. 30 DPD improved to 3.7% from 4.7%. • Our Gross Stage 3 stands at 2.3%, down 30bps from 2.6% in Dec’21. • This is based on RBI circular of Nov’21. Adjusted for this, the number stands at 1.3

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Guidance — 20 items

Key highlights

opening

“As guided earlier, we expect this ratio to remain in the range of 3.0%- 3.2% going ahead; as we focus on expansion.”

Nutan Gaba Patwari

“So even for a particular b an k there will be multiple reset lines based on the drawdown days.”

Manoj Viswanathan

“As Nutan mentioned there will be several steps by which the rate hike gets completel y p asse d on.”

Manoj Viswanathan

“So, we expect it to be gradual over the next three to six months, and as the r at e h i ke ge t s passed on to us, we will also pass it on to customers.”

Manoj Viswanathan

“Secondly as you mentioned that and as we have always guided that there will be a creeping increase in loan against property and sort of high yielding products like that over a period of time as our distribution increases, customers get more comfort, there is more w o r d o f m o u t h and so on.”

Manoj Viswanathan

“But otherwise 90% of the loans are floating rate so we will be able to pass on the increase.”

Nutan Gaba Patwari

“On the new book, the spreads will be in line with our on-book spreads that is what we have seen for our existing transactions and that is what we will see going forward, there is no pric i n g arbitrage or practically it can differ from quarter-to-quarter but largely around the same spread.”

Kunal Shah

“So that would be a fair understanding maybe whenever we see our borrowing cost going up, we will be revising our rates.”

Manoj Viswanathan

“So , from the moment it opens in the system the AUM starts increasing, but when the physical branch gets added AUM there will be a certain AUM jump of Rs.”

Manoj Viswanathan

“So broadly the AUM growth in the initial years the one first couple of years will be in the region of 75 % to 100% from the second year or from the third year to fifth year it will be in the region of about 30% to 5 0 % an d fifth year onwards it will be more like 25% to 30%.”

Risks & concerns — 13 flagged

This is a testimony to our strong risk processes asset quality and strength of balance sheet and also highlights the comfort drawn from the economic and sectoral recovery from covid and strong growth momentum of the sector.

— Moving on to other highlights

So, the differential is generally high and so it is difficult to retain these customers.

— Manoj Viswanathan

We do not see a much of a challenge in retaining the spreads, and because the demand on the ground is very strong and customers generally recalibrate their requirements when there is some marginal rate change.

— Manoj Viswanathan

So, on both sides i t i s fixed so again there is no interest rate risk over there.

— Manoj Viswanathan

So now maybe was there a benefit in terms of the spreads at which we have booked the securiti zat i o n income in past 18-odd months due to lower rates, and in this rising interest rate e n vi r o n m e n t would we see pressure out there or maybe when banks increase the MCLR would there b e an y unwinding of the benefit in this entire securitization income.

— Kunal Shah

We have done the model to see what is the risk, and at what point does the curve starts to give us more hit in the P&L.

— Nutan Gaba Patwari

So, we are not really forseeing a risk on the P&L from an existing securitization book also.

— Nutan Gaba Patwari

So how would it influence our property profile, your risk associated with property underwriting and also our ticket size.

— Rajiv Mehta

From a risk perspective see we are not going into very, very small habitations.

— Manoj Viswanathan

So where customers have informal incomes or they are facing some other issue or some other challenge in getting a loan from a larger lender.

— Manoj Viswanathan

So difficult to make a location specific comment, but generally our approach is that in the affordable segment we should be the preferred option for the connector and they have enough reasons to prefer us because w e ar e very easy to deal with, everything can be done through the Connector App, they can keep tr ac k of their status, so lots of benefits for the connector as well as the customer.

— Manoj Viswanathan

Yes, but again like I said we are not operating in such very small rural markets where it is difficult for us to get profile of the people that go there and those markets are different, we ar e operating in fairly large towns, I mean, tier two, tier three towns where the profile of employees is similar to the larger metros.

— Manoj Viswanathan

So will this be a sticky NPA eventually because it w i l l be difficult for these people to make these payments or by when do you see this amount substantially go down will it be two quarters, three quarters that this amount will slowdown because we have seen an addition actually Q-on-Q basis in this amount so just your thoughts on that?

— Jigar Jani

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Q&A — 16 exchanges

Thank you for the opportunity. Good afternoon team and congrats on a very good quarter. I have three questions, but before that just a housekeeping clarification. There has been some reclassification of some P&L items for previous quarters within interest income and other operating income although the total has not changed. Any quick thoughts on what drove this reclassification.

Nutan Gaba Patwari

Yes, there are different ways to classify some of the income items, some of the auditors p r e fe r it in a certain way and as you know we have had a change of auditors in this year and that has primarily led to this classification. We also understand this is how the market is also doing it. So , it is largely alignment and nothing else. Okay got it. My first question is basically on the BT Out that we saw in the fourth quarter of 6.5% although it could be a quarter-end phenomenon. Could you give some color o n t o w h o m was this specifically the BT Out and typically what were the kinds of r

Hello Sir. Thank you for giving me your opportunity and congratulations on a great set of numbers. My question was with respect to today’s development on rates so how do you see that impacting our spreads and NIMs over the next one year. We have been guiding fo r 4 . 7 5 % to 5% of spread in a steady state environment. So do we see any challenge there.

Manoj Viswanathan

As Nutan mentioned there will be several steps by which the rate hike gets completel y p asse d on. So, we expect it to be gradual over the next three to six months, and as the r at e h i ke ge t s passed on to us, we will also pass it on to customers. We do not see a much of a challenge in retaining the spreads, and because the demand on the ground is very strong and customers generally recalibrate their requirements when there is some marginal rate change. So, we do not really see a muting of demand or subduing of demand because of the rate hikes. And secondly like just in connection to this

Congratulations for a good set of numbers. First question is on securitization spread. So now maybe was there a benefit in terms of the spreads at which we have booked the securiti zat i o n income in past 18-odd months due to lower rates, and in this rising interest rate e n vi r o n m e n t would we see pressure out there or maybe when banks increase the MCLR would there b e an y unwinding of the benefit in this entire securitization income.

Nutan Gaba Patwari

The question is in two parts. First on the new book and then on the existing book so let me take it one-by-one. On the new book, the spreads will be in line with our on-book spreads that is what we have seen for our existing transactions and that is what we will see going forward, there is no pric i n g arbitrage or practically it can differ from quarter-to-quarter but largely around the same spread. Coming to the second part of the question on existing loans, we have been doing assignment now for over five years. We have done the model to see what is the risk, and at what point does the curve

Thanks for taking my question. Congratulations on good set of numbers. My question is o n t h e branch addition. When you are adding branches with what lag do they contribute to AUM growth, and second is if you just have to split between newly added branches and t h e vi n t age ones, what is the growth differential, is there a significant growth rate differential between t h e new ones and the old ones and hence can the growth rate further accelerate is my question.

Manoj Viswanathan

We basically follow a strategy where we start business in the location and there is a virtual setup which is created, and they start generating business and then once the virtual setup reaches an AUM of about Rs. 10 to Rs. 20 Crores we set up a branch. So that is our strategy. So , from the moment it opens in the system the AUM starts increasing, but when the physical branch gets added AUM there will be a certain AUM jump of Rs. 10 Crores to Rs. 20 Crores because at that point only we add a physical branch and as far as the difference bet w e e n n e w and old branches are concerned yes that i

Thank you so much for giving me opportunity. I had only one question, that the interest rates are going to go up. So, do you think that will it decrease the demand for housing finance i n t h e coming quarter?

Manoj Viswanathan

Not really, we are dealing with customers who are genuine end users and the planning for purchasing or building a house happens over a long period of time. So, something like rate increase generally does not mute the demand or subdue the demand. We have n o t se e n t h at even in the past and the demand on the ground continues, so we are not seeing any imp ac t o n that. So, what will you be guidance for this next financial year in terms of new loans to be creat e d i n this financial year? Yes, we have a disbursement run rate of about Rs. 200 Crores a month now. So, we are basically looking

Thank you Sir and congratulations for a great set of numbers. Just one question on your asset quality if we look at our 1+ DPD number or a 30+ DPD numbers, they have shown si gn i fi c an t a improvement on a quarter-on-quarter basis, but we have not seen the similar level of improvement in our gross ratio which is just 30 bps. So, what is leading to this kind of st i c ky o r 90 plus or Gross Stage 3 assets and are there are some of these bad loans like concent r at e d i n few geographies or something like that, can you explain this?

Manoj Viswanathan

If you look at the 90-day past due number that has also come down by about 30 basis p o i n t s, I mean, I think you are looking at the post RBI classification number which is 2.6% com i n g d o w n to 2.3% but if you look at the trends as per the previous classification the NPA has c o m e d o w n from 1.7% to 1.3% percent. So, 40 basis points decreased and this is more of a lagged effect . So as the 1+ and 30+ reduces the NPA also will keep reducing, which is what if you rememb e r l ast two quarters also we were saying that there has been a decrease in one day past due and 30 day past due a

Hi! Good afternoon. Can you talk about the co-lending partnership that we had with Union Bank and how that is progressing whether we are seeing the expected volumes that we had planned? That is my first question.

Manoj Viswanathan

Yes, we are making decent progress, but we are still grappling with certain teething i ssu e s so I think this quarter we should be able to make substantial progress. I guess next quarte r c al l w e should be able to share some more positive news on that. We have made some progress, we have on-boarded certain transactions, but yet to kind of pick-up pace. Just to follow-up on this, when you say teething issues, is it more probably the tech and integration side or is it the kind of customers that Union Banks wants us to source . W h e r e ar e we facing these issues in this partnership? You ca

I have few questions. One is where are we in terms of the upper limits of yields which we can charge the cu st o m e r s. The context being that if the rates start moving higher, how easy would it be for u s t o p ass o n while trying to maintain quality or does this get mitigated by a mix and distribution. Second was I noticed that the share of 1.5 million to 2.5 million loans has gradually been picking up slightly and the higher ticket size loans has gone up by 3% points over the last one year, what is driving that?. Third is just as you go deeper just in terms of distribution, does the whol

Manoj Viswanathan

Yes, the first question was on yield and what would be highest point which we can reach etc., as the prices go up. I think there are two things here. What will happen 1) We operate i n a r an ge between 11% to 13.5% and the blended rate comes to probably 12.7% to 13%. Wh at w i l l al so happen when as the rates go up is that the floor will keep going up so where we are now able to offer that 11% or 11.5% to certain customers that number will go up and the band will be c o m e narrow. So that will bridge the rate increase and spread compre ssion to some extent. Seco n d l y like you said, the

Congrats on a strong performance and thank you for taking my question. Firstly, on growth in two key markets for us Maharashtra and Karnataka, so combined it is about 24% to 25% o f t h e book, but I see them growing significantly below the overall portfolio growth. In certain quarters there has been no growth as well. When do we see things reversing in these two l ar ge markets for us?

Manoj Viswanathan

See as far as the Karnataka is concerned we are largely present only in the larger towns, w h i c h at the moment is basically Bangalore. We are in the process of expansion. In Maharashtra you will start seeing progress because now we are expanding into smaller towns of Maharashtra. You should start seeing the numbers move up and we are making progress in Maharashtra also , but I think the progress in South and certain other markets is much sharper so it is kind of taking away from the progress we are making in Maharashtra. And one question is on the strategy of going deeper. So how would it i

Thanks for taking my question. The first one is on the co-lending partnerships that you talked about. So more of an academic question, given that, I mean, co-lending partnerships will en t ai l both fee income as well as some spreads. Typically the way we compute our NIMs is as a percentage of the total assets and given that large part of it will be of balance sheet u n d e r t h e co-lending arrangement can that mean that disbursements under the co-lending model can actually be accretive to the margins given that you will continue to book the spr e ad s t h at yo u are making in interest inco

Nutan Gaba Patwari

Yes, it will definitely be accretive to the overall margin profile whether we will be able to book it in interest income or other income line that need needs to be seen. My understanding is that i t should be in other income line because those assets are not on the balance sheet and i n t e r e st income reflects the income from the assets that are on the balance sheet. The next question that I had is, if I look at the absolute number of stage 3 which al so i n c l u d e s your RBI NPA that number has not moved much from maybe Rs. 102 Crores come down to about Rs. 101.5 Crores on an absolute b

Good evening. Thank you Manoj and Nutan. Just one question can you give some highlight on the connector which is acting as a sourcing agent for Home First Finance, what is the run rate currently and how we are diversifying our sourcing channel further for Home First just t o gr o w in line of 30% AUM growth and the branch expansion which you told at the opening remark.

Manoj Viswanathan

Yes, so connectors currently the number of active connectors per quarter is in the region of about 1500 connectors. So the increase run rate to that number will be about 1 0 0 t o 2 0 0 p e r quarter, and we parallelly also work on the productivity of the connector. So currently they ar e able to generate probably say two loans a month, we try to push that number also up to mayb e 3 etc. So on both these things there is a lot of work going on, we have made the connecto r ap p more easy to use, we have built custom notifications in the app etc. So it is an ongoing w o r k t o engage and keep th

Thank you for the opportunity and congratulations on a great set of numbers this quarter. So firstly I wanted to understand how much is the quantum of restructured book as of March?

Nutan Gaba Patwari

Rs. 28 Crores. Rs. 28 Crores and 65 basis points of the overall book. Have we seen any slippages from this book during this quarter. Yes, the slippages have been there. So overall the slippages are the real NPA slippage is ar o u n d 20% and there is another 10% which is in the reclassification side. And are we holding any excess liquidity in our book as of March or have we completely run down. We are holding around Rs. 650 Crores of cash and investments, we will not run down totally. This is our optimal level that we will want to operate at. So we will want to hold about two months of liquidi

Thank you for the opportunity again. I just have two questions, the first one is of the disbursements that we did this year which is roughly let us say about Rs. 2000 odd Crores would you be able to share what is the one DPD ratio of that book.

Nutan Gaba Patwari

One DPD for the newly originated book is at 0.7%, this is one DPD for loans originated in FY22. The second question is, if I look at the difference between the cheque bounce rate and the o n e DPD which is roughly around 9% that would essentially signify the customers whose cheques have bounced but they have regularized it to not have any due by the end of the reporting period correct. That is right. That difference of 9% if I were to compare it with pre-COVID levels which is let us say the fourt h quarter of FY2020 or so there it was about 6% which means despite most of the asset quality para

Hello Sir, just to follow-up on our strategy when we are looking entering more into the region al side and rural geography. So then what will be the operational changes that we will b e m aki n g because we have been hiring the MBA graduates, so then I mean you have to attract such talent so in the rural geographies, I mean, what would be the strategy for that for going ahead into this segment.

Manoj Viswanathan

In terms of hiring etc. It is not very different, so as I mentioned the way last year, I mean, the previous year we added about 100 such small locations and we are still hiring similar people that we were hiring in the past and training them and getting them to operate in these marke t s and now because of all of this digital penetration and all of these towns developing there is n o t that much reluctance, the reluctance that we are seeing of people wanting to work in these places. There are a lot of people coming from these smaller towns who want to w o r k t h e r e i n their home towns or

Thanks for taking the question and congratulations on a great set of numbers. Just couple of questions would it be possible to give a split of either the quarter or for the full year, how mu c h of the disbursements would be coming from the top five states and how much from the n e w e r states that you have entered into?

Manoj Viswanathan

We can give you that, so top five states for us are basically Gujarat, Maharashtra, Tamil Nadu, Andhra or Andhra plus Telangana you can take, if you take it together and these are the top fiv e states and I can give you a quick number which it is going to be about 70% to 75% would be coming from the top five states and this mix is likely to remain. Will this change and will you see newer geographies contributing more because these are fresher branches and will grow faster? I think the mix is likely to remain with the slight variation of 5% or so. It is because we are progressing in all of thes

Thank you everyone for joining us on the call. I hope we have been able to answer all your queries. In case you require any further details, you may get in contact with Manish Kayal , w h o heads the Investor Relation function or get in touch with Orient Capital, our extern al I n ve st o r Relations advisors.

Management

Speaking time

Manoj Viswanathan

Nutan Gaba Patwari

Moderator

Karthik Chellappa

Shreepal Doshi

Abhijit Tibrewal

Kunal Shah

Abhijith V

Rahul Maheshwary

Rajiv Mehta

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Opening remarks

Manish Kayal

Good afternoon, everyone. I hope that all of you and your families are safe and healthy. On behalf of HomeFirst Finance, I extend a very warm welcome to all participants on H o m e Fi r st ’ s Q4 FY22 & Full year FY22 Financial Results Discussion Call. I am Manish Kayal and I look after Investor Relations. Today on the call, I am joined by MD & CEO, Mr. Manoj Viswanathan and CFO Ms. Nutan Gaba Patwari. I hope everybody had an opportunity to go through our i n ve st o r deck and press release. We have also uploaded the excel version of our factsheet on our website and request you to have a look. With this introduction, I handover the call to Manoj. Over to you Manoj.

Manoj Viswanathan

Thank you, Manish. Good afternoon, everyone. I am pleased to address all of you after completing one full year as a listed company. FY22 was a successful year for HomeFirst and I will take this opportunity to share the highlights with you. Firstly, we crossed 2 important milestones. 1) We crossed Rs 5000 Crs of AUM, and 2) We crossed Rs 2000+ Crs of annual disbursement for the first time.

Moving on to other highlights

• We had our highest ever quarterly disbursals of Rs 641 cr, an increase of 12.5% on q -o-q basis and 42% y-o-y basis. • There is further improvement in 1+ and 30+ DPD levels. • 1+ DPD improved to 5.3% from 6.5%. 30 DPD improved to 3.7% from 4.7%. • Our Gross Stage 3 stands at 2.3%, down 30bps from 2.6% in Dec’21. • This is based on RBI circular of Nov’21. Adjusted for this, the number stands at 1.3% in Mar’22 from 1.7% in Dec’21, an improvement of 40bps. Mar’22 Stage 3 includes NPA of Rs 44 Cr which is less than 90DPD but included due to asset classification norms as per RBI no t i fi c at i o n dated 12-Nov-2021. However, the said change does not have a material impact on the financ i al results. We have been rated AA- by “India Ratings” with a stable outlook. This is a testimony to our strong risk processes asset quality and strength of balance sheet and also highlights the comfort drawn from the economic and sectoral recovery from covid and strong growth momentum of the sector. Phy

Nutan Gaba Patwari

Thank you. Good afternoon, all. Good Afternoon All. I will take you through our performance in Q4 FY22.

Key highlights

Financials: We continued to stay focussed on our key operating metrics with an intention to deliver mid-teen ROEs in couple of years. • Our NIM has expanded from 5.8% in Q3FY22 to a very strong 6.4% in Q4FY22; coming mainly from sustained spreads and further optimization of cash on the balance sheet. Net Interest Income has gone up by 51.6% on YOY basis and 15.6% on QOQ basis. • We did lower direct assignment as a liquidity strategy and we continue to have a robust demand from our portfolio of assets. • Opex to Assets stands at 3.0% for the quarter, increase of 20bps on qoq basis. This is in l i n e with our expectations. As guided earlier, we expect this ratio to remain in the range of 3.0%- 3.2% going ahead; as we focus on expansion. Accordingly, Cost to income was 35.7% in Q4 FY2 2 compared to Q3FY22 level of 33.0%. • Q4FY22 PPOP stands at Rs 66 Crs. • Credit cost was lower at 0.2%. Our ECL provision stands at 1.1% of the total POS. We continue to be conservative with the provisions

Liquidity and Borrowings

• As Manoj mentioned, IndiaRatings assigned AA- with Stable Outlook to our long term rati n g in this quarter. • The Company continues to have diversified & cost-effective long-term financing sources. • We have a healthy borrowing mix with o o o 45% of our borrowings from Banks (Public sector 22 %, Private sector 23%) 27% from NHB Refinance and 23% from Direct Assignment • We continue to have zero borrowings through Commercial paper. • Our cost of borrowing is flat at 7.2%. Howeve r, our marginal COB for Q4 FY22 was at 5.8% due to drawdown from NHB. Ex-NHB, our cost of borrowing is 7.5%. Moving to capital; • Our total CRAR is at 58.6% and Tier 1 CRAR is at 58.0% • Our Mar’22 Networth stands at 1574 Crs vis-à-vis Rs 1381 Crs as on Mar’21 • Our quarter ROA stood at 4.0%, flat on q-o-q. • Our annualized ROE stands at 12.5% on Q4 numbers. • Our Book Value per share (BVPS) stands at Rs. 179.6 as on Mar’22. With this I open the floor for Q&A. Thankyou.

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