HOMEFIRSTNSEQ1 FY23June 30, 2022

Home First Finance Company India Limited

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Management on call

Manoj Viswanathan Ms. Nutan Gaba Patwari Mr. Manish Kayal

Managing Director & Chief Executive Officer

Key numbers — 40 extracted

Rs 661

ith you. During the quarter: This quarter again we disbursed our highest ever quarterly number of Rs 661 Crs, an increase of 3.1% on q-o-q basis and 117% y-o-y basis.  Our AUM at Rs 5,832 Crs is up by 8

rs,

During the quarter: This quarter again we disbursed our highest ever quarterly number of Rs 661 Crs, an increase of 3.1% on q-o-q basis and 117% y-o-y basis.  Our AUM at Rs 5,832 Crs is up by 8.4% o

3.1%

: This quarter again we disbursed our highest ever quarterly number of Rs 661 Crs, an increase of 3.1% on q-o-q basis and 117% y-o-y basis.  Our AUM at Rs 5,832 Crs is up by 8.4% on qoq basis and 35.

117%

disbursed our highest ever quarterly number of Rs 661 Crs, an increase of 3.1% on q-o-q basis and 117% y-o-y basis.  Our AUM at Rs 5,832 Crs is up by 8.4% on qoq basis and 35.8% on yoy basis.  On

Rs 5,832

rly number of Rs 661 Crs, an increase of 3.1% on q-o-q basis and 117% y-o-y basis.  Our AUM at Rs 5,832 Crs is up by 8.4% on qoq basis and 35.8% on yoy basis.  On asset quality, there is further improv

8.4%

Crs, an increase of 3.1% on q-o-q basis and 117% y-o-y basis.  Our AUM at Rs 5,832 Crs is up by 8.4% on qoq basis and 35.8% on yoy basis.  On asset quality, there is further improvement in 1+ and 3

35.8%

.1% on q-o-q basis and 117% y-o-y basis.  Our AUM at Rs 5,832 Crs is up by 8.4% on qoq basis and 35.8% on yoy basis.  On asset quality, there is further improvement in 1+ and 30+ DPD levels.  1+ D

5.0%

 On asset quality, there is further improvement in 1+ and 30+ DPD levels.  1+ DPD improved to 5.0% from 5.3%  30 DPD improved to 3.5% from 3.7%.  Our Gross Stage 3 stands at 2.1%, down 20bps f

5.3%

et quality, there is further improvement in 1+ and 30+ DPD levels.  1+ DPD improved to 5.0% from 5.3%  30 DPD improved to 3.5% from 3.7%.  Our Gross Stage 3 stands at 2.1%, down 20bps from 2.3% i

3.5%

improvement in 1+ and 30+ DPD levels.  1+ DPD improved to 5.0% from 5.3%  30 DPD improved to 3.5% from 3.7%.  Our Gross Stage 3 stands at 2.1%, down 20bps from 2.3% in Mar’22. This includes Rs 4

3.7%

nt in 1+ and 30+ DPD levels.  1+ DPD improved to 5.0% from 5.3%  30 DPD improved to 3.5% from 3.7%.  Our Gross Stage 3 stands at 2.1%, down 20bps from 2.3% in Mar’22. This includes Rs 444 Mn (i

2.1%

D improved to 5.0% from 5.3%  30 DPD improved to 3.5% from 3.7%.  Our Gross Stage 3 stands at 2.1%, down 20bps from 2.3% in Mar’22. This includes Rs 444 Mn (i.e. 0.90%) which is currently in bucke

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Guidance — 20 items

Manoj Viswanathan

opening

“This is in line with our plan to reach 400 distribution points in the next 2 years.”

Nutan Gaba Patwari

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.”

Karthik Chellappa

“Got it, so from here similarly for the next quarters we should not expect a similar reduction in Tier-1 right, this one-time reduction was probably just a shift in allocation, right?”

Nutan Gaba Patwari

“From here on it will be largely linked to growth.”

Karthik Chellappa

“The second question is slightly a medium-term question, so basically Nutan and Manoj if I look at the industry as a whole specifically HFCs and NBFCs and if I look at their annual report, the attrition rates have actually been rising whether it is for yourself at about 36%-37% and Aavas is at north of 40%.”

Karthik Chellappa

“So with inflation rising and with such a high attrition, from a medium-term perspective how are you thinking of improving your staff retention?”

Karthik Chellappa

“Would it be reasonable to expect that a double digit rise in pay raise is now going to be the order of the day at least for the next two to three years as everybody aggressively builds out their branch network, etc.?”

Karthik Chellappa

“My last question Manoj if I look at the incremental loan yields this quarter, it has crossed 13.2% already and with more interest rate hikes on the way possibly this also is going to go up but given that you have a disbursement target of 25% to 30% growth, how much more rate hikes do you think the industry and your customers can take without impacting growth?”

Manoj Viswanathan

“There is absorption capacity and as of now it looks like the rate increases will be very gradual and we are not seeing impact in the last two or three months we are not seeing any impact of these little rate hikes in the market in terms of impacting demand.”

Manoj Viswanathan

“So incremental numbers coming from self construction that is pure self construction that is where people with a plot who are building homes will be about 40% to 45% and this does not take into consideration individual contractors building home, selling to customers, resale transactions, those are separate.”

Risks & concerns — 12 flagged

This upgrade is a testimony to our strong risk processes, asset quality and strength of balance sheet and also highlights the economic and sectoral recovery from covid and the overall outlook for the affordable housing sector.

— Manoj Viswanathan

— Nutan Gaba Patwari

What exactly is the nature of these investments that you have done which necessitated 100% risk weight?

— Karthik Chellappa

Karthik this is ongoing execution challenge in this industry and there are cases when it is little higher, in some cases it is slightly lower but generally the front-end attrition rate even in the best of times is in the region of 20% to 25%, so 35% rate which you are talking about is also inclusive of people who joined, left immediately, did not fit in, it is not their line of work or the kind of work they want to do, etc.

— Manoj Viswanathan

There is absorption capacity and as of now it looks like the rate increases will be very gradual and we are not seeing impact in the last two or three months we are not seeing any impact of these little rate hikes in the market in terms of impacting demand.

— Manoj Viswanathan

What we adopt today is not very difficult for people to copy it within a few quarters so we have to continuously think on what technologies will be applicable to us and what will be relevant to the customer and how we can adopt it and stay ahead.

— Manoj Viswanathan

I have two questions first one there is a consistent positive surprise of NIM even as per management’s own estimate I think NIM was supposed to moderate, if you can talk about how you are seeing the trajectory of NIM and also combine it with cost of funds in the light of recent rating upgrades whether it will be a yield decline as in passing up the benefit to the customers or do you see cost of funds sort-of inching up for you, what scenarios will play out that is the first question.

— Abhijith

Effectively the entire book is floating for us and the reason you say there is a fixed portion because there are certain schemes NHB schemes where we are supposed to offer a fixed rate to the customer but those loans are also at the back supported by a fixed rate loan to us from NHB so effectively there is no interest rate risk on those loans, and effectively our entire book is floating at any point.

— Manoj Viswanathan

Actually, pre-pandemic and now is fairly similar and if you look at it during pandemic it was not significantly different because people who were coming through the door were only customers let us say not greatly impacted by the pandemic so to that extent the decline ratio, etc., was similar.

— Manoj Viswanathan

We plot vintage charts to understand how recent portfolios are performing vis-à-vis the older ones so that is a regular exercise in our risk management process.

— Manoj Viswanathan

My second question is as we expand into different states, would the risk assessment profile be different.

— Siji Philip

It could include more of independent houses rather than just apartments that we are currently doing much of so would there be a change in the risk assessment profile?

— Siji Philip

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Q&A — 15 exchanges

Hi thank you for the opportunity and congrats on great quarter team. I have three questions; the first one is what drove the sharp reduction in the Tier-1 ratio in the first quarter, it is down from almost 58% to like 51.8% this quarter on a quarter-on-quarter basis?

Nutan Gaba Patwari

The way capital adequacy is computed is that it has risk weights for different assets, so we have some investment from the treasury side in liquid funds and overnight funds which get categorized at 100% risk weight versus if you place money through FDs or T-Bills which get categorized at 0% risk weight. That is the reason why you are looking at a sharp reduction. If we made an assumption that it was like Q4 where we kept money in FDs or in bank balances then the number would be 56% and not 52%. What exactly is the nature of these investments that you have done which necessitated 100% risk weig

Thanks for the opportunity. Can you share the percentage of disbursement which is coming from self construction in the quarter and what is the number on AUM?

Manoj Viswanathan

So incremental numbers coming from self construction that is pure self construction that is where people with a plot who are building homes will be about 40% to 45% and this does not take into consideration individual contractors building home, selling to customers, resale transactions, those are separate. This is purely people who are building their houses on their own. What would be this number on AUM? I am trying to understand incrementally are we seeing increase in this share of self-construction? On the AUM it will be slightly lower. It is about 30% odd because this business started a lit

Thanks for taking my questions. Congratulations on a very good set of numbers. I have two questions first one there is a consistent positive surprise of NIM even as per management’s own estimate I think NIM was supposed to moderate, if you can talk about how you are seeing the trajectory of NIM and also combine it with cost of funds in the light of recent rating upgrades whether it will be a yield decline as in passing up the benefit to the customers or do you see cost of funds sort-of inching up for you, what scenarios will play out that is the first question. Second question is on DA income

Manoj Viswanathan

On the NIMs and ROI, the transmission of rising interest rate has not really taken place fully. It has started so to some extent cost of borrowing is moving up but the full transmission of the repo rate increase, etc., has not happened yet and we are also passing it on only to the extent that it is impacting us, which is why we would not have probably seen any change in the NIMs. While we had mentioned the NIMs will moderate a bit it has not yet happened. What we are seeing is that once the full transmission happens then we should be looking at 5.25% kind of spread and correspondingly minor mo

Hi Sir good evening and thanks for taking up my question and congratulations on a very good set of numbers. Firstly, on the Opex front your cost to assets were around 2.7% in FY22 and given the expansion plans in this fiscal how do you expect this ratio to evolve for FY2023?

Nutan Gaba Patwari

We had 3% Opex to assets in Q4FY22 and we have been indicating a number of around 3% to 3.2% given that we do branch expansion, we add people, also we have given increments effective April. It is a combination of increase in variable spends and also leverage from the fixed spends. We are looking at 3 to 3.2% range for the rest of the year. On the margin front or spread front again, so Manoj just mentioned that post full transmission we could see a spread of around 5.25%. Is it fair to assume that we will not be able to pass on the entire rate hike to our borrowers, the cost of fund hike to our

Question from my end you mentioned the marginal cost of funds was around 7.7% what was the marginal yield?

Nutan Gaba Patwari

13.2% for Q1. Against the book yield of? 12.7% Okay understood. I am done thanks.

Hello Sir and Hello Madam. Congratulations on a great set of numbers. Thank you for giving me the opportunity. My question was firstly like in the last two quarters we have added branches especially in the state of Tamil Nadu, so there we have taken the highest number of additions so any particular thought process. Is it because some of the companies operating there have relatively higher spreads and is that the thought process or if you could throw some light what is the idea behind this?

Manoj Viswanathan

The increase in distribution both physical as well as virtual distribution we are basically looking at it from certain set of states that we have identified where business is strong and demand is strong so if we look at the overall affordable housing demand in the country up on top Gujarat and Maharashtra then followed by Andhra Pradesh and Telangana put together comes third in terms of size and then Tamil Nadu so we are just going purely by size of market. These are very large markets for affordable housing and hence we are strengthening our distribution in these markets and nothing else othe

Hi Sir thanks for the opportunity and congrats for the quarter. So just wanted to ask firstly if I look at the absolute NPA number for the last three quarters it has been somewhere INR 100 Crs. If you could just give a breakup of how much of this would be in the 90+ DPD bucket and less than 90 DPD bucket?

Manoj Viswanathan

So that number is INR 44 Crs and INR 58 Crs. So, INR 44 Crs is below the NPA bucket and but these are cases which have crossed into NPA at some point so they have to be reported as NPA so that is INR 44 Crs and what is actually in NPA is about INR 58 Crs. Both the numbers if I looked it compared to the previous quarter it is quite sticky so what would you attribute this to? It is basically inflows are equal to outflows. We have resolved about INR 20 Crs and INR 20 Crs have come back to NPA and this number will trend down basically as the earlier bucket will also trend down so which is trending

Thank you so much for taking my question and congratulations on a great quarter. Couple of questions. Your incremental yields over the last two quarters have been inching up so last quarter it was 13% this quarter it is 13.2% so how long will it take to reflect in the overall yields because actually the yields have come down this quarter on the book and the related question to this is when you say that floating rate book our entire book is floating how much of that is linked to an external benchmark?

Manoj Viswanathan

The rate at which we are originating will should reflect over a period of six months to a year but the issue is that every year there are some portions that goes into NHB refinance scheme where the rates also get reset, so the way we draw down this NHB scheme is that we reset the ratio of existing customers wherever there are rate caps which are required by NHB and we draw down those accounts. As a result of which the overall portfolio yield gets subdued to that extent so from April to December you will see the slowly book yield is trying to catch up with the origination yield but then again,

Just two questions from my side. One is if you can give some colour on customer waterfall in terms of origination or logins to disbursals and how that has changed let us say compared to the last quarter during pandemic and pre-pandemic and second is a data keeping question if you can mention BT-Out number for the quarter?

Manoj Viswanathan

Let me just take you through or walk you through the origination funnel. This is origination funnel for channels that are directly handled by the branch i.e., the builders, connectors etc. The origination funnel for digital channels is little different I will take you through that separately. So generally if 100 yield comes through from a connector or builders about 30% gets rejected or declined upfront, 60% to 70% goes through, 30% gets declined upfront primarily bureau related reasons or because the customer cannot afford in its budget, the loan does not fit into the budget so out of 70 loan

Thank you Sir for giving me the opportunity. My first question is regarding CRAR and ROA. In the opening remarks it was mentioned that we are targeting mid-teens ROE so in this journey how do you see CRAR and ROA shaping up going forward? Thank you.

Manoj Viswanathan

CRAR we currently did about 50% levels. It will be some time or quite a long time before it even comes close to the regulatory cutoff, so we are comfortable as far as capital is concerned. As far as ROE is concerned, we are making gradual improvements and we are also trying to balance it out with you can say our requirement for investment at this stage for future growth so basically, we are looking at hitting our 14%-15% ROE in about two-year timeframe so that is what we are looking at. Got it Sir. Secondly majority of our loans have been originated in the last four years, wanted to understand

Thanks for the opportunity and congrats on a good set of numbers. So, two questions from my end firstly on the incremental yields of 13.2% we had this quarter how much would be coming from the LAP book because the proportion has increased this quarter?

Manoj Viswanathan

Out of 13.2%, about 30 to 40 basis points would be coming from LAP book. You said about NIM moderations but since we are anyways planning for higher proportion of our lap going forward do you expect that moderation would be limited? We are not looking at very sharp scale up and increase in LAP. It is a very gradual increase that we are contemplating and we do not want to rapidly scale up LAP to compensate for any moderation that might happen in the medium term. My second question is as we expand into different states, would the risk assessment profile be different. It could include more of ind

The coverage on stage 3 it is continuously coming down it used to be 25% to 30% now it is 22.5% in Q1FY23 so is it something to do with your LGD assumptions? Can you please elaborate and what is the comfortable coverage ratio as per you?

Nutan Gaba Patwari

So, it is a combination of the LGD also like I was mentioning in the call earlier we have taken a technical write off of around INR 3 Crs against which we had some provision so when we reverse that optically it looks low. Right now we are at a comfortable provision coverage ratio on a stage 3 basis and as we continue to improve our credit numbers we will look at if we need to rationalize it further but right now, we are very comfortable with the overall situation. It is a function of the composition of the portfolio and the respective losses that those cohorts are giving us so it is a derived

Thanks for the opportunity. Sir my question was around BT. Our rates are 4 to 5% if I am correct so what percent of our customers actually approach us for BT, in the past you had said you counsel your customers?

Manoj Viswanathan

There is nothing like a balance transfer request that they have to make to us. We will not be able to give you a figure because most customers they have access to their statement of account on their app and the balances on the app so it depends on who is interested, they would apply for a loan somewhere else and they come back to us saying that they want to transfer and they are ready with the payment. At a very early stage we would not know whether the person is looking to do a balance transfer or not. However, what we can do and what we do is that we have analytics around the profile of cust

Sir just wanted to understand how would the NIM trend for the year for FY23 and the ROA which is currently 3.9% for the quarter and how do you see that trending for the year?

Nutan Gaba Patwari

From a NIM perspective we are looking at close to 6% and similar levels of ROA around 3.7% to 3.9% range depending on how the interest rate volatility takes up from here so depending upon that we will land in that particular range. Got it and any change in guidance on the loan growth because our first quarter has been significantly better so anything that you would want to change on the loan growth side? Not right now. We can relook at it after Q2. Thank you so much.

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, who heads the Investor Relation function or get in touch with Orient Capital, our external Investor Relations advisors.

Management

Speaking time

Manoj Viswanathan

Moderator

Nutan Gaba Patwari

Shreepal Doshi

Sharaj

Karthik Chellappa

Mona Khetan

Abhijith

Jigar Jani

Siji Philip

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Opening remarks

Manish Kayal

Thank you, Mike. Good afternoon, everyone. I hope that all of you and your families are safe and healthy. I am Manish Kayal and I look after Investor Relations of HomeFirst Finance. I extend a very warm welcome to all participants on our Q1 FY23 financial results concall. Today on the call, I am joined by our MD & CEO, Mr. Manoj Viswanathan and CFO Ms. Nutan Gaba Patwari. I hope everybody had an opportunity to go through our investor deck and press release uploaded on exchanges and our website yesterday. We have also uploaded the excel version of our factsheet on our website and request you to please 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 showcase the strong business momentum that we are seeing in our business. FY22 closed on a strong note and Q1 of FY23 is also displaying the same trend. I will take this opportunity to share highlights of the quarter with you. During the quarter: This quarter again we disbursed our highest ever quarterly number of Rs 661 Crs, an increase of 3.1% on q-o-q basis and 117% y-o-y basis.  Our AUM at Rs 5,832 Crs is up by 8.4% on qoq basis and 35.8% on yoy basis.  On asset quality, there is further improvement in 1+ and 30+ DPD levels.  1+ DPD improved to 5.0% from 5.3%  30 DPD improved to 3.5% from 3.7%.  Our Gross Stage 3 stands at 2.1%, down 20bps from 2.3% in Mar’22. This includes Rs 444 Mn (i.e. 0.90%) which is currently in buckets less than 90DPD but included in NPA due to asset classification norms as per RBI notification dated 12-Nov-2021. Adjusted for this, the number stands at 1.2% in Jun’22 down from 1.3% in Mar’22,

Nutan Gaba Patwari

Good Afternoon All. I will take you through our performance in Q1 FY23. Key highlights: Financials We continued to stay focused on our key operating metrics with an intention to deliver mid- teen ROEs in couple of years.  Our Net Interest Margin is stable at 6.4% even in the increasing interest rate environment.  Spreads have increased by 20bps on qoq basis but it was offset by increasing growth and cash position.  Net Interest Income has gone up by 49.8% on YOY basis and 9.2% on QOQ basis.  We did direct assignment of Rs 80 Crs during the quarter as a liquidity strategy.  We continue to have a robust demand for our portfolio of assets.  Opex to Assets stands at 2.9% for the quarter. As guided earlier, we expect this ratio to remain in the range of 3.0%-3.2% going ahead; as we focus on expansion.  Cost to income at 35.8% in Q1FY23 was flat on qoq basis.  Q1FY23 PPOP stands at Rs 70 Crs, growth of 6.1% on qoq and 15.2% on yoy basis.  Credit cost at 0.3% is within our expected r

Liquidity and Borrowings

 As Manoj mentioned, both ICRA and Care Ratings upgraded our long-term credit facilities to AA- with Stable Outlook to our long-term rating in this quarter.  The Company continues to have diversified & cost-effective long-term financing sources.  During the quarter we included Qatar National Bank and South Indian Bank as our new banking partners and we continue to work towards further diversification.  We have a healthy borrowing mix with 47% of our borrowings from o Banks (Public sector 22%, Private sector 25%) o 25% from NHB Refinance and o 22% from Direct Assignment.  We continue to have zero borrowings through Commercial paper.  Our cost of borrowing is lower at 6.9% from 7.2% on qoq basis. This is due to drawdown of NHB funding during the quarter we availed in Mar’22.  Our marginal COB for Q1 FY23 was at 7.7%. During the quarter we have not availed any new NHB borrowing. Capital  Our total CRAR is at 52.3% and Tier 1 CRAR is at 51.8%  Our Jun’22 Net-worth stands at 1628 C

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