INDOSTARNSEMay 29, 2023

IndoStar Capital Finance Limited

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Management on call

Karthikeyan Srinivasan

CHIEF EXECUTIVE

Vinodkumar Panicker

CHIEF FINANCIAL

Shreejit Menon

CHIEF EXECUTIVE OFFICER –

Nikunj Jain

ORIENT CAPITAL

Key numbers — 40 extracted

INR 225.2 crore

ief Executive Officer of IndoStar Housing Finance. We are pleased to report a profit after tax of INR 225.2 crores for the full year FY '23 as compared to a loss of INR736 crores for the full year FY '22. Disbur

INR736 crore

o report a profit after tax of INR 225.2 crores for the full year FY '23 as compared to a loss of INR736 crores for the full year FY '22. Disbursements were at INR 2,099 crores for the year and INR898 crores

INR 2,099 crore

ear FY '23 as compared to a loss of INR736 crores for the full year FY '22. Disbursements were at INR 2,099 crores for the year and INR898 crores for the quarter, up by 72% from INR 522 crores in quarter 3 of FY

INR898 crore

f INR736 crores for the full year FY '22. Disbursements were at INR 2,099 crores for the year and INR898 crores for the quarter, up by 72% from INR 522 crores in quarter 3 of FY '23. The total AUM stood at IN

72%

'22. Disbursements were at INR 2,099 crores for the year and INR898 crores for the quarter, up by 72% from INR 522 crores in quarter 3 of FY '23. The total AUM stood at INR7,813 crores. As an organ

INR 522 crore

ursements were at INR 2,099 crores for the year and INR898 crores for the quarter, up by 72% from INR 522 crores in quarter 3 of FY '23. The total AUM stood at INR7,813 crores. As an organization, we are foc

INR7,813 crore

res for the quarter, up by 72% from INR 522 crores in quarter 3 of FY '23. The total AUM stood at INR7,813 crores. As an organization, we are focusing on the used Commercial Vehicle segment and the Affordable

20%

according to the latest reports of CARE as well as ICRA, domestic automobile sales grew by around 20% year-on-year and each of the categories witnessed double-digit growth. We saw 2-wheelers moving u

17%

-on-year and each of the categories witnessed double-digit growth. We saw 2-wheelers moving up by 17%, passenger vehicles by 27%, commercial vehicles by 34% and tractors by 12%. Particularly in the

27%

tegories witnessed double-digit growth. We saw 2-wheelers moving up by 17%, passenger vehicles by 27%, commercial vehicles by 34% and tractors by 12%. Particularly in the Commercial Vehicle segment,

34%

git growth. We saw 2-wheelers moving up by 17%, passenger vehicles by 27%, commercial vehicles by 34% and tractors by 12%. Particularly in the Commercial Vehicle segment, the growth of 34% has been r

12%

-wheelers moving up by 17%, passenger vehicles by 27%, commercial vehicles by 34% and tractors by 12%. Particularly in the Commercial Vehicle segment, the growth of 34% has been robust based on - -

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Guidance — 20 items

Nikunj Jain

opening

“What has happened due to this new commercial vehicle momentum is, this has given a large impetus to the used commercial vehicle market, immediately creating a pool of second-hand commercial vehicle, which is IndoStar's target segment, UCV, which has a much lower ticket size.”

Nikunj Jain

opening

“A new Chief Risk Officer will be joining shortly, and with these changes in place, we have a stable management team, which is well-equipped to ensure this company goes on a growth path.”

Vinod Panicker

opening

“The collection against the pool sold to the ARCs have also given us confidence that we are -- that we will be writing back a lot against the SR in the future in the coming quarters.”

Vinod Panicker

opening

“These achievements reflect our commitment to maintaining a healthy loan portfolio going forward.”

Vinod Panicker

opening

“And we are confident that we will be driving profitable growth in the coming quarters and years to -- and the current year.”

Vinod Panicker

“So going forward, it would be more in line with the fourth quarter numbers.”

Vinod Panicker

“So we expect the SRs collection also to happen.”

Harsh Shah

“What kind of increase or decrease in cost of fund can we expect going forward?”

Vinod Panicker

“With housing -- CV business as of end of March, the CV portfolio was at about 47% of the total, and we expect that as a percentage to go up significantly.”

Sumit Bhalotia

“Can you elaborate on the guidance that you have given on the full year disbursements for FY '24.”

Risks & concerns — 8 flagged

A new Chief Risk Officer will be joining shortly, and with these changes in place, we have a stable management team, which is well-equipped to ensure this company goes on a growth path.

— Nikunj Jain

The Stage 2 asset also experienced a decline coming down from INR 1,770 crores to INR 1,203 crores as of end of March '23.

— Vinod Panicker

Our consolidated net Stage 3 was at 3.2%, demonstrating effectiveness of our credit risk management strategy, which has improved from 6.4% as was seen as of 31st March '22.

— Vinod Panicker

This is the first time our AUM has grown after 3 consecutive quarters of decline.

— Vinod Panicker

On the collection against the stress pool, like both Karthik and me both of us has told during our speech, the collection against the sold portfolio has been excellent in a sense that in the last transaction that we did, not only the amount that we received in cash against the sale that has got collected, we have been able to collect substantial amount of collection against the SRs as well.

— Vinod Panicker

So any impact of that, which we'll see on yields or margins?

— Harsh Shah

And another question, do we see any pressure on the net interest margins considering there are many players in the housing finance segment?

— Darshan Shah

We've always been at 5.5% to 6% spread range and we don't see any challenge in keeping that range.

— Shreejit Menon

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Q&A — 12 exchanges

Good Afternoon and Congratulations on steady performance. My questions were twofold. One was on the stressed portfolio that you sold and you have some -- and you also retained a certain component of that. How is the collection efficiency in that portfolio working? That's question number one. And question number 2 is on a stand-alone basis. If you take out ESOP, which you have done, sequentially, the cost -- operating costs seem to have come down, if I read it right from INR40 to INR44 crores. What would you see as a trend -- or going to be the trend in operating costs in the future? Thank you

Vinod Panicker

Vivek, thanks for being on the call, Vinod here. To answer your queries, I will take the second question first. Operating -- last quarter, we -- in terms of the employee cost, I think we had included some bit of incentive and bonus provisioning for the first couple of quarters because the third quarter was the first time when we saw things steady, and therefore, we wanted to create those provisions, which would be payable. So that is the reason Q3, Q4 -- in the fourth quarter, you're seeing some bit of reduction versus the third quarter. So going forward, it would be more in line with the four

Hi Everyone, My first question is that CV finance and housing finance are going to be our focus areas. But in that context, can you just elaborate a little bit on what kind of tie-up are we looking with JM Home Finance? Like is it eventually going to be an outright sale? Or anything on this particular news item, which was there?

Vinod Panicker

So the company announced on April 24, 2023, that we were engaged in preliminary discussions with JM Financial Home loans to explore potential strategic options, including potential combination and listing of the retail mortgage portfolioof JM Financials and the Home Finance Business of IndoStar Home Finance, including other mortgage-backed businesses of IndoStar Capital. Now these discussions are ongoing, evaluations are on, due diligence is going on, and we will come back to you when there are further developments. Okay. Okay. Okay. Fine. My second question is that now the new management has

Hello Sir, congrats on a good set of numbers. Sir, what I would like to understand largely is that how is the cost of fund behaved in the quarter end? What kind of increase or decrease in cost of fund can we expect going forward?

Vinod Panicker

In the fourth quarter, the total -- the cost of fund was in the range of about 10.5%. And we believe that this is possibly the peak for the cost of funds because in the recent past, we have been sourcing funds in form of NCDs and things like that. We were all waiting for the Q4 results to come so that we can with the financials go to the banks and ask for funds. We have been speaking to most of the banks and they've asked us the simple thing that no, come back to us after the fourth quarter, we are very keen to look at it. We are very keen, we are very confident that the banks -- bank funding

Congratulations for the good set of numbers. Can you elaborate on the guidance that you have given on the full year disbursements for FY '24. So this INR350 crores average monthly disbursement target that you have given, this includes housing as well?

Management

No. CV, we want to do INR 4,000 crores. That's average INR 350 crores, which we have mentioned. Housing will be a separate number, which will be around INR 1,100 crores. Okay. Housing will be INR 1,100 crores. So broadly INR 5,100 crores, INR 5,200 crores for the entire company but the rest of the segments, corporate and SME would be fair to degrowing, right? See corporate, there are -- as I mentioned last time also, there are a few deals where we are the only lender though incrementally small kind of disbursement will keep happening, but it will not be a major portion. Major portion of INR 4,

Hi, Thanks for the opportunity with regards to the announcement that we made with JM Financials, something to do with JM Financials. So can you help us understand what is our intention? Do we want to sell our business? Or do you want to collaborate in some way?

Shreejit Menon

So the Board of Directors had kind of provided an in-principle approval to the business review committee to engage in discussions because you know the way our business has trended over the last 5 to 6 years, and we've withstood the test of time and COVID and the underwriting has helped us. We did receive interest from prospective investors, and so we got that approval to explore options for value unlocking, which will help the housing finance company deliver long- term growth. So there were multiple corporate actions that we were exploring as a part of that. And we met several prospective cand

Hi, Thank you for the opportunity. Sir, my question is if you could guide us loan book growth over the next 2, 3 years and what kind of product mix are we looking out through?

Vinod Panicker

Sorry, Rishikesh. We -- your line was breaking. Could you repeat it again? Sir, my question is, could you give a guidance on loan book growth for 2, 3 years and also indicate on the product mix? Karthikeyan Srinivasan:: Product will be used commercial vehicles and affordable housing on the whole book. Our intention is to have a book of roughly about INR9,000-odd crores in the stand-alone business, that is the ICF, which would largely be commercial vehicle and a book of about INR4,000-odd crores in the housing finance system. That's in FY '25. We have... Yes, you were saying something. No. Whil

Hi, Thank you for the opportunity. My question was more on the qualitative side. I wanted to understand both the products that we are trying to focus on, who are our customers and who are our competitors? And how are we trying to differentiate from our competitors? Or what do we think is our competitive sense vis-a-vis our competitors? Karthikeyan Srinivasan: Yes, I'll take this. Thanks, Anand. Thanks for the question. In the Used Commercial Vehicle segment, our key critical competitors will be the larger players like Cholamandalam and smaller players in niche markets like an IKF Finance in An

Shreejit Menon

So on housing, very clearly, we are focused on the informal segment, which is the informal self- employed segment, primarily residing in Tier 3, Tier 4 and looking at constructing their own house. So our average ticket sizes are perfectly in sync with the affordable housing through TrueBlue definition of sub 1 million. And our competitors would largely be players like Aptus and Aavas, which are similarly focused on these markets and these customer segments. And we've actually been able to build a strong foundation in South, which is well recognized as a bastion for affordable housing in the co

Good afternoon, Gentleman So my question is on the ROA guidance for FY '25, so what would be the levers that would help us increase ROA from, let's say, 1.5% in current year to 2.5% next year?

Vinod Panicker

We had actually said -- there's is an echo, can that be corrected. Hello. yes. So I'll repeat my question. I got your question. I will -- it's only the echo, which is bothering me, nothing else. The levers for the change in the ROA would be mainly on account of increased yield overall in, which would be based on the higher yielding CV business that we'll be focusing on. We are saying that over the last one year or so, we had limited -- I would say, funding which were coming from banks and we are confident that a lot will start coming from -- coming going forward. And our focus on ensuring that

Sir, I just wanted to understand on the AUM side, what is the kind of a size are we looking for in, say, another 8 quarters? I mean, need not be -- I mean, it is okay if you don't give the mix as well, but what is the size we are looking, what is the book size we are looking in 8 -- 6 to 8 quarters?

Vinod Panicker

Yes. I will -- I think as mentioned in one of the previous queries, I think we have said that we will be -- by end of FY '25, we are looking at roughly about INR9,000-odd crores for the stand- alone and on a consolidated basis at about INR13,000 crores. Okay. Stand-alone, INR9,000 and INR13,000 crores for consolidated, right. And if I'm not wrong, around INR6,000 crores out of this would be CV finance, right, or it will be more? It should ideally be more because let us say, currently, out of INR13,000 crores roughly 50%, about 47% is CV, so that will possibly go to 60%, 65%. So I think you sho

Thank you for this opportunity. So as you mentioned that your housing finance business will be a key area of focus, so I had just a couple of questions on that end. So my first question was your guidance for FY '24 with regards to AUM growth, disbursements, opex, credit costs, etc etc.

Shreejit Menon

So on the housing finance company side, we should be looking at around INR1,100 crores of disbursements, and we should look at a 50% growth rate over the previous year. That's our endeavour in terms of our assets under management. Our credit costs, as you know, have held quite steady over the last few years. And so we expect our credit cost to be similar and to be under the 0.5% range in terms of overall credit costs. Yes, sir. And operating expenses? So let me put it this way. Our endeavour will be to -- be at return on asset of around 2.6%, 2.7% for the next financial year. Okay. And another

I wanted to get some sense on the Stage 2 movement. In the presentation, we started reporting Stage 1 and Stage 2 combined. One year back when the crisis has happened, this number used to be 27-28 percent and that's the bulk of the recognition has come. So can you give some sense on where these numbers are currently? And what kind of provision do we have excluding Stage 1 provision, so Stage 2 movement and provisioning.

Karthikeyan Srinivasan

Stage 2 as of -- on a stand-alone basis, because I am talking about the stand-alone because that is the area where we have actually seen some issues last year. On a stand-alone basis, we had a total book of about INR1,709 crores as of March '22, that has gone down to about INR1,172 crores. Against that -- at that time, we had to keep the higher provisioning of 20.7%, that has now come down to 15.1% at about INR177 crores. Sorry, I missed the number, it is INR1,022 crores as of March '23? INR 1,172 crores. INR 1,172 crores. Karthikeyan Srinivasan: And we will operate it like one account. We exp

Thank you, everyone. I would like to thank the management for taking the time out for this conference call today. And also thanks to all the participants. If you have any query, please feel free to contact us. We are Orient Capital Advisors -- Orient Capital, Investor Relations Advisors to IndoStar Capital Finance Limited. Thank you, everyone.

Management

Speaking time

Vinod Panicker

Sumit Bhalotia

Moderator

Shreejit Menon

Karthikeyan Srinivasan

Rajat Setiya

Digant Haria

Anant Mundra

Harsh Shah

Rishikesh Oza

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Opening remarks

Nikunj Jain

Thank you, Celvin. Good morning, ladies and gentlemen. I welcome you for the Q4 and FY '23 Earnings Conference Call of IndoStar Capital Finance Limited. To discuss this quarter and full year business performance, we have from the management, Mr. Karthikeyan Srinivasan, Chief Executive Officer; Mr. Vinodkumar Panicker, Chief Financial Officer; and Mr. Shreejit Menon, Chief Executive Officer of IndoStar Home Finance Private Limited. Before we proceed with this call, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For more details, kindly refer to the investor presentation and other filings that can be found on the company's website. Without further ado, I would like to hand over the call to the management for their opening remarks, and then we will open the floor for Q&A. Thank you, and over to you, Karthik sir. Karthikeyan Srinivasan: Good afternoon. Thanks, Nikunj. Good afternoon, ladies

Vinod Panicker

Thank you, Karthikeyan, and good afternoon to all of you. We sincerely appreciate your presence on this conference call today. Allow me to provide you with an overview of the financial performance for the past quarter and the fiscal year that went by of March '23. The years, as we had communicated in the last quarter conference call also, was a challenging one. Despite these challenges, we are pleased to report a profit after tax of INR 76 crores for the quarter compared to a loss of INR 754 crores in the same quarter last year. Similarly, for the full fiscal year, the PAT was at INR 225 crores compared to a loss of INR 737 crores in the previous year. These improvements were primarily driven by a reduction in impairment costs due to the various issues identified last year, we had to make substantial provisions. While I would say that many of these were conservative provisions, but that were made by us. We have been able to reverse a lot of these provisions and also the provisioning re

Shreejit Menon

Thank you, Vinod. Good afternoon, everybody. As many of you already know, IndoStar Home Finance is an affordable home finance company with primary focus in providing high-yielding housing loans typically ranging from 14.5% to 15.5%. Our portfolio consists of loans with an average ticket size of INR8.9 lakhs. And I'm proud to say that we maintain a best-in-class asset quality with a net stage 3 rate of close to 0.9% and healthy spreads across our portfolio. We have laid a very strong foundation in this year with our robust branch infrastructure and a dedicated team of employees. With these resources in place, we are fully committed to expanding our assets under management and doubling it, more than doubling it over the next 2 years. This is what we have been able to achieve in the last 3 years as well, including the period of the pandemic. In FY '22, we witnessed a significant increase in our disbursements, doubling of figures compared to the previous year. We used the first half of FY

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