IIFLNSEQ4 FY2022May 06, 2022

IIFL Finance Limited

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157turns

10analyst exchanges

4executives

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Management on call

Nirmal Jain

MANAGING DIRECTOR - IIFL FINANCE

Rajesh Rajak

CHIEF FINANCIAL OFFICER – IIFL FINANCE

Monu Ratra

CHIEF EXECUTIVE OFFICER –

Venkatesh N

CHIEF EXECUTIVE OFFICER – IIFL SAMASTA FINANCE

Key numbers — 40 extracted

short-term valuation. Having said that inflation, particularly CPI, which has been holding around 7%, 8% may taper off a bit given that the monsoon news is good, expectation is that there will be a

t-term valuation. Having said that inflation, particularly CPI, which has been holding around 7%, 8% may taper off a bit given that the monsoon news is good, expectation is that there will be a norm

75 basis point

t rate increase in most of the countries around the world, most analysts would expect about 50 to 75 basis points interest rates high in India in this year. Domestically, the growth has not been strong, but it

10%

ollection efficiency and the repayment. Last quarter, we have seen that the loan AUM has grown by 10%, which for one quarter is very significant. As you are aware that our strategy has been critica

Rs. 260 Crore

been growing very strongly. In last quarter, they doubled over previous quarter and were close to Rs. 260 Crores in DIY disbursements. These are focusing on MSME sector. We have seen that this digitally appl

50 Crore

live in last quarter itself and our Opex over quarter-on-quarter basis increased by almost about 50 Crores, primarily for new branches, people, and also the marketing spend that we will do to create awar

Rs.330 Crore

are very happy to report that our profit after tax has been all-time high for a quarter close to Rs.330 Crores, our ROE is close to 21% and ROA is close to 3% and now with the expanded network, we can look a

21%

profit after tax has been all-time high for a quarter close to Rs.330 Crores, our ROE is close to 21% and ROA is close to 3% and now with the expanded network, we can look at accelerated growth and t

n all-time high for a quarter close to Rs.330 Crores, our ROE is close to 21% and ROA is close to 3% and now with the expanded network, we can look at accelerated growth and this year our network gr

0.3%

gone down from 2.5 to 2.3, but in the last quarter in terms of circular the impact was just about 0.3% and the reported NPA is at 2.8. But in this quarter the impact is of the full quarter and that is

0.9%

e reported NPA is at 2.8. But in this quarter the impact is of the full quarter and that is about 0.9% and therefore the reported GNPA is 3.2%. Our collection, credit terms and processes will align to

3.2%

arter the impact is of the full quarter and that is about 0.9% and therefore the reported GNPA is 3.2%. Our collection, credit terms and processes will align to the new RBI requirement over next two t

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Guidance — 20 items

Nirmal Jain

opening

“Having said that inflation, particularly CPI, which has been holding around 7%, 8% may taper off a bit given that the monsoon news is good, expectation is that there will be a normal monsoon this year.”

Nirmal Jain

opening

“Despite that, given that this interest rate increase in most of the countries around the world, most analysts would expect about 50 to 75 basis points interest rates high in India in this year.”

Nirmal Jain

opening

“We expect a stronger trend to continue here.”

Nirmal Jain

opening

“Maybe this year and next year we will pause and our focus will be on making the expanded network more productive.”

Monu Ratra

“We have seen that typically the spread in these co-lending models is ranging anything from say 1.5% to 2% in the absolute interest rate, which we see at the moment and we have had a pretty encouraging last quarter in co-lending and we hope to scale it up much more this year.”

Saptarshee Chatterjee

“Just to clarify the co-lending part that you mentioned around I think close to Rs.3000 Crores in AUM, this is I think 80% of that is mentioned separately right, the other 20% will be included in the on book?”

Nirmal Jain

“Actually, we have been doing this for many years now and with many banks we have a long-term understanding as well that every quarter we give them certain assets and over a period of time as the co-lending grows, assignment will decline, but I think at least for the near future the co- lending will be gradual increase.”

Sharaj Singh

“Do we have an internal number; I mean what percentage of our book will be off book?”

Nirmal Jain

“Probably 40% will be off book over next 12 to 18 months.”

Sharaj Singh

“The second question was how do we look at the NIMs going forward and the competition?”

Risks & concerns — 15 flagged

We have seen that this digitally applied process and disbursed loan is showing superior credit behavior as well and the risk adjusted price is very favorable.

— Nirmal Jain

If we ignore the impact of circular then our GNPA would have gone down from 2.5 to 2.3, but in the last quarter in terms of circular the impact was just about 0.3% and the reported NPA is at 2.8.

— Nirmal Jain

Our gross NPA stood at 3.2% and net at 1.8% as of March 2022, this includes the impact of RBI notification dated November 12, 2021.

— Rajesh Rajak

So as we know that post demonetization there was stress in the MFI portfolio, hence in the earlier numbers that were used in the model the demon period was being included and now as we are going more into the future, the earlier periods are being excluded from the model and the newer periods where collection is increasing better in the recent months is what is being factored into the model.

— Rajesh Rajak

— Nirmal Jain

Based on that if the loan is issued, they will take it and they also check it on a real-time basis as well as risk factors.

— Nirmal Jain

So, gold loan till last quarter the NIMs were under tremendous pressure.

— Nirmal Jain

So if you look at our yield of gold loan, last quarter alone has fallen by 1% over previous quarter, but this quarter, starting from April we are seeing that competitive pressure is eased because everybody has realized that this is a game which does not help anybody.

— Nirmal Jain

On a weighted average basis, we do not see any challenge at least in foreseeable future maintaining around 7% NIM.

— Nirmal Jain

The risk is always there in any industry, but it has to be priced in.

— Nirmal Jain

1 lakh that absorbs your cost as well as credit risk both very well, in any case the borrower would have been borrowing from say four microfinance companies earlier.

— Nirmal Jain

What I meant was would we lose in our underwriting given that we can price the risk correctly now?

— Sharaj Singh

The pricing flexibility is again competitive pressure as well because it is not that in any district there is only one microfinance company.

— Nirmal Jain

It is very difficult to say, see the long-term historical trend before COVID was around 100 to 125 bases so if you take a higher share of microfinance and business loans it would be conservative to say at least they should stabilize around 150 basis points and not more.

— Nirmal Jain

Right now, many people think that most Central Banks probably might try to increase the gold reserves and that can have upward pressure on gold prices or at least they will remain stable.

— Nirmal Jain

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Q&A — 10 exchanges

Hi! Good afternoon. Our salaried home loan composition is almost about 62% and about 37% to 38% is self-employed. If we look at the AUM level, our salaried GNPAs are hovering around 1% and the non-salaried ones are at about 1.9%. Saptarshee Chatterjee: Okay, but overall, it is around 2.6% right Sir?

Monu Ratra

Yes, that is at the loan book level; I was referring to at the AUM level. I was referring the loan at the AUM level, the one which you are seeing is at the loan book level because we have almost about 32% to 34% of our book is off book. If you want to see the color of the entire book, then these are the numbers. Saptarshee Chatterjee: Understood Sir. Very helpful. Actually, I just wanted to understand that last many quarters we have been maintaining around 100% provisioning on the stage three assets of MFI. This quarter we have seen slightly lower provisioning, so is there any change on provis

Hi! Good afternoon, Sir. My question was, large part of the growth is coming from the assignment book, so what is the sustainability of the partnerships there and how are we looking to grow the loan book itself?

Nirmal Jain

Actually, we have been doing this for many years now and with many banks we have a long-term understanding as well that every quarter we give them certain assets and over a period of time as the co-lending grows, assignment will decline, but I think at least for the near future the co- lending will be gradual increase. But co-lending and DA together will continue to form higher and higher part of our off book, which is 38% currently and growing. Do we have an internal number; I mean what percentage of our book will be off book? Probably 40% will be off book over next 12 to 18 months. How are w

I just wanted to know more on this fair value changes. What does it comprise of in this quarter? So there is a significant decline in both Q-o-Q and Y-o-Y, so what is the composition of this?

Nirmal Jain

Mostly in the earlier quarter it was IPO. Basically as an NBFC we have also QIB segment to apply in an IPO so some of the IPO’s where our research is comfortable, we apply and typically we sell on listing or immediately in a very short period after that. So that was the income that used to come in fair value changes. But last quarter probably there were no IPOs or we did not apply in any of the IPOs. So other than that there can be some investment, but currently we do not have much financial investment in the balance sheet. On the MFI business it looks like we had a loss this financial year is

Hi, thanks for taking my question and congrats on a very good set of number. Sir couple of things I would like to know. One is co-lending has started quite well. Now for us, almost Rs.2000 Crores net addition is a very good number. What sort of guidance can you give on co-lending for FY2023?

Nirmal Jain

So I think this has been our focus, so this will continue to grow and very difficult to give guidance because as a concept, co-lending in India is little new. We have been working with multiple banks so we will try to maximize it, but it is difficult to give guidance at this point in time. Right, can the current fourth quarter run rate be maintained on a quarterly basis. I think that run rate can be maintained. Okay got it. Sir the other question is how long will it take to see this gross NPA reporting be normalized after entire impact of RBI norms has taken in? I think it should take about tw

Thanks for the opportunity. Just couple of questions. One is on the disbursement and the AUM growth guidance, can you share what is the guidance of disbursement and the AUM growth for different products for FY2023?

Nirmal Jain

Normally we do not have any specific guidance but last quarter we grew by 10% quarter on quarter but under normal circumstances we can grow by around 25% YoY in terms of AUM. Understand thank you and my second and last question is on the dollar bond side. You have made some purchase on dollar bond side very very recently and you mentioned in the presentation that this will reduce the cost of funds by about 225 basis points for that transaction. Can you explain the dynamics on what are the details, what is leading to this saving and related to that question is again how should we look at the ov

Thanks for taking my question, so my question is overall on the gold loan side? What we have seen is that we have gained quite a bit of market share in NBFC but at the cost of lower yields, so it is fair to say that we are sort of focusing on higher ticket loans where the risk of default is slightly lower? Also could you just give a breakup of the loan book, so how much would it be above 1 lakh at the time of disbursement and how much will be below 1 lakh at the time of disbursement please?

Nirmal Jain

So our average ticket size Rs.70,000. So it is not that we are focusing on a large ticket loan but we also look at cash flow and the purpose of the loan. So to some extent what we are saying is right, that we will probably try to have a lesser risk versus the yield. We have to balance the two, and having said that last quarter and last couple of quarters, there have been tremendous pressure because of lot of competition activity in terms of interest rate, especially in gold loans. It appears that in this quarter it has settled down and most of those kind of lower interest rate schemes have bee

Congratulations on a good set of numbers. Again apologies if this is a repetitive question and maybe I need a bit more clarification on this, but in terms of the GNPA increase due to the RBI norms given the fact that the recognition is a point in time process rather than over a period of time process what has changed between December till March that the recognition norms have affected our numbers? Broadly speaking should not all the effect be captured in the December number because it is a point in time calculation?

Rajesh Rajak

Abhiram, the circular came in on 12 November and the first set of EMIs that would have fallen due would be around 5th December, so there is only one set of EMIs which would have slipped into next bucket which had to be collected whereas for this particular quarter, you would have all the three months and including the three or lower months on the previous quarter as well. So anything that would have fallen due in December for example if you do not collect would have become an NPA of March. Whatever was not collected in November would be NPA in February. So if you think of it in terms of a funn

Thanks for taking my question. I have two question from gold loan business? Sir I just wanted to ask that you mentioned that in April gold financiers have raised the rates? Have we also raised our gold loan bit and if yes by how much? What would be the lowest rate scheme right now?

Nirmal Jain

We have not raised the rate, but we have withdrawn the schemes which were like absolutely low prices like 49 basis points per month which is 6% per annum. All the gold loan companies cost of fund is more than that so those schemes now have been withdrawn so effectively the yield which has gone down by say 1% should at least bounce back to the earlier level and over a period of time they will further improve. Got it so for that our rates will remain safe but for other players? The way the industry was operating is that you offer something at a very low rate and if there is one default or slight

Thank you very much Sir for the opportunity? Sir you mentioned our new normalized credit cost is at 1.5% is that right because earlier you used to say 1% is our normalized credit cost?

Nirmal Jain

Yes, that is right. So new expected credit cost we should try and conservatively be at 150 basis points annualized by the end of the year because now the MSME and microfinance has grown a little bit. But you are right historically prior to COVID we used to have around 100 basis points or maybe little less than that also. So what you are implying is that FY2023 we are looking at 1.5% credit cost is that what you are implying? Yes. If everything remains normal. Understood and something on the cost to income ratio now 40% how do you see cost to income ratio in FY2023? It was 35% prior to this exp

Thank you so much and if you have any more questions you can always get in touch with our investor relations or CFO department. Thanks for being patient and have a good day ahead.

Management

Speaking time

Nirmal Jain

Savi Jain

Moderator

Sharaj Singh

Tejas Mehta

Rajesh Rajak

Deepak Poddar

Vishal Singh

Vikash A

Abhiram Iyer

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Opening remarks

Rajesh Rajak

Good day everyone, I am Rajesh Rajak – Chief Financial Officer. On behalf of team IIFL Finance, I thank all of you for joining us on this call. I am accompanied by Mr. Nirmal Jain - our Managing Director, Mr. Monu Ratra - CEO - IIFL - Home Finance, and Mr. N Venkatesh - CEO - IIFL - Samasta Finance. I will now hand over to our Managing Director to comment on the overall economy, revenue, strategy and plan.

Nirmal Jain

Good afternoon, everybody, I am Nirmal and a warm welcome to our earnings call. In terms of macro environment, currently the global news is not very encouraging because we keep hearing about inflation rising in most of the large economies, war which is happening in Russia and Ukraine, also the resurgence of pandemic and the fear of that, but amidst this the good news is that India is going to be the fastest growing economy in the world this year and I do not think there is too much of any contradictory views on that, and given that investors cannot ignore this regardless of their views on the short-term valuation. Having said that inflation, particularly CPI, which has been holding around 7%, 8% may taper off a bit given that the monsoon news is good, expectation is that there will be a normal monsoon this year. Despite that, given that this interest rate increase in most of the countries around the world, most analysts would expect about 50 to 75 basis points interest rates high in In

Rajesh Rajak

Thank you. Our pre-provision operating profit which was Rs.670 Crores for the quarter, which is 14% up on a year-on-year basis and 10% on a quarter-on-quarter basis. Full year's PPOP was Rs. 2,346 Crores, which was up 17% on a year-on-year basis. This was also impacted by our large investment in new branches otherwise our total income was up 23% on a year-on-year basis. Our loan AUM now stands at Rs. 51,210 Crores, which is up 15% on a year-on-year basis and 9% on Q-on-Q basis. In fact, the loan AUM for core products have grown faster at 20% year-on-year and 10% in just one quarter to Rs. 47,669 Crores, driven mainly by small ticket home loan, gold loan and microfinance loans. We disbursed close to 2 million new loans during the quarter across our core products, 40% higher than the previous quarter. 94% of our loans are retail in nature and 69% of retail loans are PSL compliant. You should note that gold loans are not classified as PSL loans under RBI regulations. The large share of re

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