AAVASNSENovember 02, 2023

Aavas Financiers Limited

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124turns

11analyst exchanges

10executives

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Management on call

Sachinder Bhinder

MANAGING DIRECTOR AND

Ghanshyam Rawat

PRESIDENT AND CHIEF

Ashutosh Atre

PRESIDENT AND CHIEF RISK

Siddharth Srivastava

CHIEF BUSINESS

Surendra Sihag

CHIEF COLLECTION OFFICER – AAVAS FINANCIERS LIMITED

Ripudaman Bandral

CHIEF CREDIT OFFICER – AAVAS FINANCIERS LIMITED

Jijy Oommen

CHIEF TECHNOLOGY OFFICER – AAVAS FINANCIERS LIMITED

Anshul Bhargava

CHIEF PEOPLE OFFICER – AAVAS FINANCIERS LIMITED

Rajaram Balasubramaniam

CHIEF STRATEGY

Ghanshyam Gupta

INVESTOR RELATIONS – AAVAS FINANCIERS LIMITED

Key numbers — 40 extracted

INR 12,585 million

thank all our stakeholders for their continued trust and support. For Q2 FY 2024, we disbursed INR 12,585 million, registering an 18% growth Q-o-Q and 10% Y-o-Y growth. We continue to grow in a calibrated manner

18%

heir continued trust and support. For Q2 FY 2024, we disbursed INR 12,585 million, registering an 18% growth Q-o-Q and 10% Y-o-Y growth. We continue to grow in a calibrated manner, registering AUM gr

10%

d support. For Q2 FY 2024, we disbursed INR 12,585 million, registering an 18% growth Q-o-Q and 10% Y-o-Y growth. We continue to grow in a calibrated manner, registering AUM growth of 22% as of Sep

22%

o-Q and 10% Y-o-Y growth. We continue to grow in a calibrated manner, registering AUM growth of 22% as of September 2023. Further, Opex ratio has witnessed gradual moderation from 3.79% in the last

3.79%

AUM growth of 22% as of September 2023. Further, Opex ratio has witnessed gradual moderation from 3.79% in the last quarter to 3.65% in H1 FY 2024. While maintaining our operating metrics, we deliver

3.65%

mber 2023. Further, Opex ratio has witnessed gradual moderation from 3.79% in the last quarter to 3.65% in H1 FY 2024. While maintaining our operating metrics, we delivered a PAT of INR 2,313 million,

INR 2,313 million

st quarter to 3.65% in H1 FY 2024. While maintaining our operating metrics, we delivered a PAT of INR 2,313 million, translating into a growth of 18% Y-o-Y for H1 FY 2024. While we continue to borrow judiciously

INR 30,761 million

a growth of 18% Y-o-Y for H1 FY 2024. While we continue to borrow judiciously, we raised around INR 30,761 million at 8.19% during H1 FY 2024. As of 30th September 2023, we maintained a sufficient liquidity of INR

8.19%

for H1 FY 2024. While we continue to borrow judiciously, we raised around INR 30,761 million at 8.19% during H1 FY 2024. As of 30th September 2023, we maintained a sufficient liquidity of INR 50,037

INR 50,037 million

ion at 8.19% during H1 FY 2024. As of 30th September 2023, we maintained a sufficient liquidity of INR 50,037 million in form of cash and cash equivalents & unavailed cash credit limit of INR 20,987 million and unav

INR 20,987 million

idity of INR 50,037 million in form of cash and cash equivalents & unavailed cash credit limit of INR 20,987 million and unavailed document sanctions of INR 29,050 million, including INR 10,000 million from the Nat

INR 29,050 million

uivalents & unavailed cash credit limit of INR 20,987 million and unavailed document sanctions of INR 29,050 million, including INR 10,000 million from the National Housing Bank. We are undergoing an accelerated

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Guidance — 20 items

Mayank Agarwal

“And what could be the trend going forward on the margin?”

Mayank Agarwal

“So basically, what will be your margin outlook?”

Sachinder Bhinder

“But I think from a perspective of this, we will be guided in that range.”

Sachinder Bhinder

“And further, on the technology transformation, we are out of the ports, but if you want guidance with the transition which is happening in the institution, a couple of quarters to really settle that out on a perfect basis because we got into the second phase of technology transformation, which is LMS and ERP.”

Abhijit Tibrewal

“So by the end of this year, you're suggesting this digital or technology transformation will be completed, including the LMS and the ERP?”

Sachinder Bhinder

“Yes, that's our target, actually, Abhijit.”

Abhijit Tibrewal

“And going forward, I mean, how should we look at the employee expense segment?”

Abhijit Tibrewal

“By when should we expect that we'll kind of start achieving disbursements that you internally aspire for?”

Sachinder Bhinder

“I think we will be in a strong position to come back on the base of what we are there at this period of time.”

Raghav Garg

“Do you expect that this could decline further in the second half?”

Risks & concerns — 15 flagged

The key portfolio risk parameters:- Asset quality and provisioning: One day pass due stood at 3.58% in H1 FY2024 as against 4.45% at the H1 of last year.

— Ashutosh Atre

Basis the perceived risk and as a matter of INTERNAL prudence, some such accounts with an outstanding amount of INR 779.6 million as on 30th September 2023 have been classified as Stage 2 and provided for as per regulatory guidelines.

— Ashutosh Atre

So you have reported a 10 bps of decline this quarter.

— Mayank Agarwal

So is it because of the increase in competition intensity, which we are witnessing because on the one end, cost of borrowing is increasing and we are witnessing the yield decline?

— Mayank Agarwal

So partly because of rate reduction on that side and some part and some bit on the pricing pressure on the new acquisition, so to say, it's a mix of both.

— Sachinder Bhinder

Is it that mortgages, especially lower ticket size is going through some kind of a slowdown?

— Abhijit Tibrewal

Or would you say that this could be the lagged impact of the withdrawal of the CLSS subsidy?

— Abhijit Tibrewal

Secondly, there is a certain amount of lagged impact of sanctions not getting converted to disbursement.

— Sachinder Bhinder

So INTERNAL sir, if you kind of go to your P&L, look at the net interest income line, excluding the assignment income gain, sequentially we are seeing a decline from INR 226 crores in the first quarter to INR 222 crores in the second quarter.

— Abhijit Tibrewal

What would explain that, given that, I mean, our book has grown -- I mean, on a calculated basis, there is a good 40 basis points decline in margins in the quarter?

— Abhijit Tibrewal

Abhijit, I think we will see in detail those numbers but largely, it is only on account of -- you will see Q1 to Q2, we have seen a decline in the portfolio yield, which is 11 -12 basis points, which is, I think, has mainly impacted on that line item.

— Ghanshyam Rawat

Do you expect that this could decline further in the second half?

— Raghav Garg

Yes, that is not a major impact of reversal.

— Ghanshyam Rawat

What assignment I had done in the, let's say, Q1 or let's say, Q4 of the last year, so those will have a full impact of reversal in this quarter basically.

— Ghanshyam Rawat

So do you think that, that would be a risk in terms of, say, probably your balance transfer?

— Raghav Garg

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Q&A — 11 exchanges

Congrats for the good set of numbers. My first question is on employee cost. So we have witnessed low employee cost this quarter. Any specific reason for that? And what share of the reduction can be attributed to the employee count? Can you please also let us know what is the employee count this quarter? This is my first question. My second question is whether the reduction in the employee count is temporary or it’s something structural, which is led by the technology implementation? Yes. Those were the two questions for me.

Ghanshyam Rawat

Yes. Thanks, Mayank. On employee cost, employee count is the same, as it was in the first quarter or in the same quarter. And if there is a certain reduction in the employee cost, that is mainly on account of the fact that in the last quarter, some one-time cost was there on account of incentive, bonus and one of the senior SMP got resigned in that quarter. Apart from that, I think it's a steady state on employee cost now. So okay, the trend would continue. Okay. And my second question is on your yield. So you have reported a 10 bps of decline this quarter. Is it due to the low rates on the ne

Sir, first question on disbursements. In the first quarter earnings call, you had shared that large part of the teething issues were behind and things have stabilized in June and June disbursements had grown 17% year-over-year. Sir, but if I look at the second quarter disbursements, they are up just about 10% year-over-year. So what would you attribute this to? Is it that mortgages, especially lower ticket size is going through some kind of a slowdown? Or would you say that this could be the lagged impact of the withdrawal of the CLSS subsidy? Or is it just the competitive landscape, which is

Sachinder Bhinder

Thanks, Abhijit. I think we will have to see that quarter-on-quarter we had an 18% growth, whilst we are cognizant of the fact that there was a lagged impact compared to the previous year. But I think from a perspective of this, we will be guided in that range. And on the AUM base, we'll continue to be in the 20% to 25% range. Secondly, there is a certain amount of lagged impact of sanctions not getting converted to disbursement. So if we were to really look at the earlier Sanction to Disbursement ratios, they have sequentially actually dropped from 90% to 80% actually, so to say. So there is

One very specific question. You had a spread of 5.29% this quarter. Do you expect that this could decline further in the second half? Or will this remain at this level?

Sachinder Bhinder

So I think we have guided, Raghav, with the spread of keeping it around 5%. I think it's a mix of the kind of cost of borrowing, which is the one, which is one input, which is beyond our control. Our endeavor is to be remaining in the range on level of around 5%. So that's been our endeavor. Sir, I'm coming more from a place where I'm trying to understand what is the competitive intensity as far as pricing is concerned. When we look at some of the larger players, they haven't really concerned on pricing. It remains as low as, say, until about 9 months to 10 months ago. So should we expect that

A couple of questions. Partially you did answer, but you mentioned the fact that now the systems are stabilizing and you're almost settling and this should happen by the year-end. So what is the disbursement run rate we should look forward to, especially in the light of H2 being slightly better than H1?

Sachinder Bhinder

I think, Shweta, we've always guided on the AUM growth that we'll be in the range of 20% to 25 percentage. So I think from a perspective of quarter-on-quarter growth, you see in the INTERNAL quarter 2 growing on the quarter 1 at around 18%. So we look at a moderated calibrated growth in the coming quarters, considering the two aspects, which I talked on the call earlier, one is the management transition. And secondly, a big transformational change in the tech side on three platforms all put together, actually. Sure. That helps. And sir, secondly, a little bit on yields, sorry, I might sound re

Sir, just two things. One is on the average ticket size on the disbursement level, which is at 1.3 million. So what is happening on that side? I mean, given our key focus area has always been less than 1 million ticket size. But when I look at the disbursement ticket size, it is as high as 1.3 million. So practically, it is 25%, 30% higher than what we have been doing. So maybe in Q2, if you can highlight the number of, like say, files logged in or maybe volume growth versus the ticket size growth, sir?

Ghanshyam Rawat

It is not so. I'll give the two points here basically: one, if you see my non-home loan average ticket size last year H1 to this H1 has not changed . But in the home loan side, if you will observe that, started from Mumbai, then I think Delhi, Jaipur, i.e. State capitals and the big towns, we are seeing the property prices also increasing. And the thing we are seeing is, our ticket size in last 7-8 years didn't rose at all, basically. So it is basically led by inflation, led by property prices. And we have seen some increase, almost, let's say, 10% increase in our home loan ticket size basical

Sonal, can you articulate again. Your voice was wobbling and we were not able to get your question in right frame.

Sonal Gandhi

Okay. If I look at your non-home loan portfolio, okay, the disbursements in this segment is up by about INR415 crores on a quarter-on-quarter basis. Whereas the AUM is somewhere up by about INR 408 crores on a quarter-on-quarter basis. So suggesting that the repayment rates are very, very low over here. So can you just explain what exactly has happened over here? We are parking this question. I think we will come back to you. If we rightly understood, you are telling that our disbursement of Non-home loan is not reflecting in the AUM growth. Do you mean that? What I'm trying to ask here is tha

Yes. So just in terms of the productivity. So if we really look at it in terms of productivity per sales officer, it seems to be like less than maybe two files a month. So no doubt, overall debt has come off, plus there has been like the increase in ticket size, but not finally reflecting in terms of disbursements per branch. So maybe what could be the ideal level of disbursements may per sales force which we can look at it? Because today, maybe, so if you can help in terms of what are the number of sales teams currently? And looking at almost like, say, INR400 crores, INR420-odd crores of dis

Sachinder Bhinder

Kunal ,this gets bifurcated in two parts. And as you would really appreciate it and you have the full pulse of the market, I think the attrition at the RO level stability becomes concerning. As a result of this, there is a wobbly productivity count, which actually happens. So I think steady state -- because it becomes very difficult to get into a predictable range -- on the one. Once the stability of the front line, which is the RO is there, where we see an increase from 2 to 3 and 3.5. So some of the ones where you have aging which is there, is in excess of that, but the ones where you have n

So my question was pertaining to your point where you said that there is some price competition that we are facing. Any color on any specific geographies where we are particularly facing this price-related competition?

Ghanshyam Rawat

It is not related to any area, any competition basically. Wherever in the market where we have seen ourself as seasoned out for three-year, four-year, five-year completed assets or those assets acquired have completed two-years to three-years with us basically. So sometimes it happens. Nothing specific to any geography, any asset class, any market. INTERNAL Got it. And on the branches front, I wanted to understand when do we consider a branch as mature branch from the size perspective? And what percentage of our branches are mature for us? I think because home loan penetration of rural semi-ur

Just one on the liability side. What would be your book cost of funding as on September 30th ?

Ghanshyam Rawat

Now what we have declared in investor deck, which is 7.86%, is exactly the same. If you will take outstanding liability, multiply with the rate of interest on that day, it is Sumproduct on that day. Okay. And so incrementally, you're borrowing at 8.2%. So should we sort of assume that your cost of funding kind of inches up by maybe another 35 basis points from here? Not exactly. There's two, three strategies playing around that, let's say, on the borrowing side in another six months around. As I mentioned earlier, we got a INR 1,000 crores National Housing Bank sanction. That money is availabl

Yes. I just wanted to understand, I think you mentioned about the better quality customers. So have you seen an uptick in our LTV numbers anywhere else & if you can capture that?

Sachinder Bhinder

Sorry, what you said? MT? LTV, Loan-To-Value. Have you seen an uptick, any uptick in that? Because you mentioned about wanting to keep the better quality customers INTERNAL I think we have guided on the conventional parameters on which we have drawn upon. So there's nothing which is inching up the LTVs, actually, so to say. Yes. What Sachinder said, apart from that, historically or I think Aavas is selective in underwriting, undertaking a very calculated risk-adjusted price. Under that, we want to say, around 14,000 to 15,000 IMD based we source the file to be able to give output of 4,500 to 5

Ladies and gentlemen, as we conclude today's earnings call, I would like to express my heartfelt gratitude to each one of you for our participation and engagement. The dedication and commitment of our team, the trust and support of our stakeholders, and the loyalty of our valued customers have been instrumental in our growth story. INTERNAL Looking ahead, I want to emphasize that we will continue to maintain our sharp focus on governance, asset quality, profitability, growth, leveraging technology, and creating a superior customer experience. We remain optimistic about the future and are confi

Management

Speaking time

Sachinder Bhinder

Ghanshyam Rawat

Moderator

Raghav Garg

Abhijit Tibrewal

Kunal Shah

Sonal Gandhi

Shreepal Doshi

Nischint Chawathe

Pallavi Deshpande

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Opening remarks

Sachinder Bhinder

Thank you. Good afternoon, ladies and gentlemen. Thank you for participating in the earnings call to discuss the performance of the company for Q2 and H1 FY 2024. With me I have Ghanshyam Rawat - President and CFO, Ashutosh Atre - President and CRO, Siddharth Srivastava - Chief Business Officer, Surendra Sihag - Chief Collection Officer, Ripudaman Bandral - Chief Credit Officer, Jijy Oommen - Chief Technology Officer, Anshul Bhargava - Chief People Officer, Rajaram Balasubramaniam Subramanian - Chief Strategy Officer and Head of Analytics, Ghanshyam Gupta - Investor Relations; and SGA - our IR advisor. The results and the presentation are available on the stock exchanges as well as on our company website, and I hope everyone has had a chance to look at it. We are committed to support and strengthen the long-term Aavas Vision 3.0. I take this opportunity to thank all our stakeholders for their continued trust and support. For Q2 FY 2024, we disbursed INR 12,585 million, registering an 1

Ghanshyam Rawat

Thank you, Sachinder ji. Good afternoon, everyone, and a warm welcome to our earning call. As on 30th September 2023, an average borrowing cost of 7.86% against an average portfolio yield of 13.15% resulted in a spread of 5.29%. We have been able to maintain our spread above 5% despite competitive pricing pressures. As on 30th September 2023, total number of live accounts stood at 1,98,947, translating into 19% year-on-year growth. Total number of branch count was 350 with four new branches being added in first half of FY '24. Employee count was at 5,731. Assets under Management grew at 22.1% year-on-year to INR 1,53,195 million as on 30th September 2023.  Product-wise breakup: Home loan - 69.7%; Other mortgage loan - 30.3%.  Occupation-wise breakup: Salaried - 40.1%, Self-employed - 59.9%. IGAAP to IndAS reconciliation has been explained in detail for Profit after tax and Networth on slide number 32 and 34 of the presentation. On the borrowing side, there is excess of diversified an

Ashutosh Atre

Thank you, Ghanshyam ji. The key portfolio risk parameters:- Asset quality and provisioning: One day pass due stood at 3.58% in H1 FY2024 as against 4.45% at the H1 of last year. Gross Stage 3 stood at 1.04%, and Net Stage 3 stood at 0.76% as of 30th September 2023. Gross Stage 3 of 1.04% includes 0.13% of up to 90 DPD assets, which have been categorized as GNPA following RBI notification dated 12th November, 2021. During FY 2022, our resolution plan was implemented for certain borrower accounts as per RBI Resolution Framework 2.0 dated 5th May 2021. Basis the perceived risk and as a matter of INTERNAL prudence, some such accounts with an outstanding amount of INR 779.6 million as on 30th September 2023 have been classified as Stage 2 and provided for as per regulatory guidelines. Out of INR 779.6 million, INR 575.3 million is into 0-30 DPD bucket. Total ECL provisioning, including that for COVID-19 impact as well as Resolution Framework 2.0 stood at INR 797.3 million as of 30th Septem

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