INDOSTARNSEQ2 FY22November 11, 2021

IndoStar Capital Finance Limited

7,622words
65turns
9analyst exchanges
6executives
Management on call
R. Sridhar
EXECUTIVE VICE CHAIRMAN & CEO, INDOSTAR CAPITAL FINANCE LIMITED
Amol Joshi
CHIEF FINANCIAL OFFICER, INDOSTAR CAPITAL FINANCE LIMITED
Deep Jaggi
CHIEF BUSINESS OFFICER, INDOSTAR CAPITAL FINANCE LIMITED
Jaya Janardanan
CHIEF OPERATING OFFICER, INDOSTAR CAPITAL FINANCE LIMITED
Salil Bawa
HEAD INVESTOR RELATIONS, INDOSTAR CAPITAL FINANCE LIMITED
Abhijit Tibrewal
MOTILAL OSWAL FINANCIAL SERVICES LIMITED INDOSTAR
Key numbers — 40 extracted
INR 1,000 crore
had a very strong quarter as far as Q2 is concerned. We have crossed a disbursement of more than INR 1,000 crores, actually it is INR 1,100 crores. As we have been articulating in our earlier calls, we continue
INR 1,100 crore
as Q2 is concerned. We have crossed a disbursement of more than INR 1,000 crores, actually it is INR 1,100 crores. As we have been articulating in our earlier calls, we continue to focus on retail disbursements
INR 1 crore
as well as Northeast And our productivity per branch, we have claimed in the past that we will do INR 1 crore per month per branch, but we are clocking more than INR 1 crore per month per branch and the fiel
INR 1,000 crore
s unfolding. Similarly, in the affordable housing finance business last quarter itself we crossed INR 1,000 crores. We continue to do well. As we have articulated earlier, we have made this company independent,
100%
cturing. Continuously our collection efficiencies have moved up and in October 2020 we achieved a 100% rough collection, that is the time we restarted our disbursements. So, the last one year’s disbur
INR 2,500 crore
n stupendous. November 2020 when we restarted the disbursements to October 31, we have done about INR 2,500 crore of disbursement only in commercial vehicle and in that more than 98% is in stage one. Without doi
98%
have done about INR 2,500 crore of disbursement only in commercial vehicle and in that more than 98% is in stage one. Without doing any restructuring, we have been able to achieve. So, whatever we h
17%
resulted in higher yields. In used commercial vehicle finance business we have been able to get a 17% at an average yields with the cost of funds hovering around 9% and 9.5%, our spreads as well as t
9%
siness we have been able to get a 17% at an average yields with the cost of funds hovering around 9% and 9.5%, our spreads as well as the NIMs are going to be substantially higher which will keep mo
9.5%
we have been able to get a 17% at an average yields with the cost of funds hovering around 9% and 9.5%, our spreads as well as the NIMs are going to be substantially higher which will keep moving up.
35%
eads as well as the NIMs are going to be substantially higher which will keep moving up. So, with 35% of capital adequacy and 7%-8% of spread, we can look at 9% to 10% of net interest margin for a
7%
going to be substantially higher which will keep moving up. So, with 35% of capital adequacy and 7%-8% of spread, we can look at 9% to 10% of net interest margin for a period till we have higher ca
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Guidance — 20 items
R. Sridhar
opening
“And we have revamped our executives also in this, and we have been able to attract good talent from very reputed companies with adequate experience in the depth we are confident that we will be able to highly scale this business with profit and asset quality.”
R. Sridhar
opening
“Our stage three efforts have been very stable, and we have been able to make a lot of improvements in the stage one and two and three and we will be more than 90% in stage one by March 2022.”
R. Sridhar
opening
“And as far as the quality of this book is concerned, we have already taken sufficient and adequate management overlay on an estimated basis, and we are very confident that there will be no further probation or write off is required in this book.”
R. Sridhar
opening
“So, we will be focusing more on building this retail business.”
R. Sridhar
opening
“INDOSTAR So, we are in a good shape, and we have a huge aspiration to achieve these things in the next three years and in the next five years we will be one of the strongest NBFCs in the country and we are moving towards that.”
Dikshit Doshi
qa
“Congratulations, as you indicated we will be crossing INR 1,000 crores disbursement and business mix from Q2 onwards.”
Dikshit Doshi
qa
“And what kind of PPOP percentage possible considering most of the top-level hiring is already done and there will be scope for operating leverage?”
R. Sridhar
qa
“So, after 12 months, if you find that there will be no corporate book, only the new book will be there, the old book also would have run off, so we would be having a book which will have high-quality which are mostly 95%+ will be in stage one, requiring less provisions.”
R. Sridhar
qa
“So, with all these strategies, we are hoping that every quarter we will be able to show improvement in our income and profits and lesser credit costs and operating expenses.”
Dikshit Doshi
qa
“What could be the quarterly or a yearly target of opening branches going forward?”
Risks & concerns — 11 flagged
Now infrastructure and all that where mining, if there is a pressure, then we don't fund the tippers.
— R. Sridhar
This was I would say, a very important quarter where you have demonstrated that, I mean, obviously last year was a difficult year and I think this quarter we demonstrated record high levels of disbursements wherein we crossed this milestone of INR 1,000 crores.
— Abhijit Tibrewal
Would it be fair to assume here that at this point in time, there are absolutely no pressure on the yields what you have been suggesting 17% in new CV financing and to that extent we will continue to see some benefits in your cost of funds in the coming quarters?
— Abhijit Tibrewal
So, there is no pressure on yield and there will be reduction in the cost of funds which will help us enhance the net interest margin.
— R. Sridhar
You should have adequate cushion for providing for the risk so that your final risk adjusted return is quite high.
— R. Sridhar
So, as we are contemplating mid segment of customers who have some credit track record which eliminates major risk.
— R. Sridhar
The volatile credit cost is because of the transition to a new accounting policy, and we have been in I-GAAP and now we have come to Ind-AS, all the NBFCs.
— Rishikesh Oza
And today when we are growing the new book, we will not have any pressure.
— Rishikesh Oza
Sridhar So, let me take the first question which is a difficult question.
— Abhijit Tibrewal
Post the pandemic and the economic down cycle the MSME have been a hit, there is a huge impact, so we will have to be little bit cautious and careful.
— Ratish Varier
Post the pandemic it is improving but still little bit we will have to be cautious and wait.
— Ratish Varier
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Q&A — 9 exchanges
Q
Congratulations, as you indicated we will be crossing INR 1,000 crores disbursement and business mix from Q2 onwards. So, congratulations for that. If I see in Q2, we have come back to profits, but almost 50% of pre-provision operating profit is from the corporate book which will continue to come down. And the credit cost in commercial vehicles and SME is still very high. So, when do you see this start improving? And let's say in next three to five quarters down the line, what kind of credit cost targets we have for specifically CV, SME and housing? And what kind of PPOP percentage possible co
R. Sridhar
As you rightly said, our corporate lending book is going down. Simultaneously, we are building the retail book. But unfortunately, you know that the last year had been a most challenging year as far as the pandemic is concerned and now our disbursements are going up. So, there is also a run-off on our old CV book which we have bought from another NBFC. So, incremental book is smaller now, so we have to increase our disbursements. So, as you rightly said in the next three to four quarters our retail business will show a lot of profit and when it comes to the credit cost, as I have articulated e
Q
You may have answered it in your previous calls, but just wanted to understand, for your used commercial vehicles what is the tonnage that you are looking for your portfolio, whether it's light, medium or heavy, what is the proportion that you are looking to lend or any specific sub- segment that you are focusing on?
R. Sridhar
We fund all the vehicles, but from our past experience as and when required the policy of lending credit, credit policies keep changing. Now infrastructure and all that where mining, if there is a pressure, then we don't fund the tippers. And during the lockdown we have not funded any passenger carrying busses which have been extensively used by the IT industry and because of work-from-home there were issues. So, we have not been funding that. We have made changes in product mix, and we keep doing that and because of that you will find, as I mentioned, the last one year’s disbursement of 2,500
Q
Just one clarification and one data point, are you saying that you would not be competing with the likes of Chola, Sriram Transport and you would be somewhere in between? And if you could give us some idea on weather the market has that much depth, that would be helpful. And one data point I missed, if you have disclosed, what is the stage two this quarter?
R. Sridhar
See, none of these big companies are competing with each other, even though they are financing the road transport industry. So, as I told earlier that all of them are focusing on different customer segments, so they don't compete at all. So, three companies, top, middle, and the lower segment, that is what they are focusing. But the fourth company when it comes, so I am financing first time borrower to five vehicle owner, so I will be competing with Chola and maybe HDB to some extent. Beyond that I am not competing with Sundaram or Shriram. There will be competition and as I told you, the pote
Q
While you have already shared the stage two numbers at the consolidated level, if you could also, please share the stage two numbers in your three retail product segments, vehicle finance, SME and affordable finance. And also, if you could share the corresponding provision cover that you have on the respective stage two in these three product segments?
Management
For the HFC portfolio, it continues as expected. While the wave two did cause some worry for us. It continues to be less than 5%, it's around 4.6% kind of thing for HFC. And we carry a 4% cover because we are quite confident about that pool going back to stage one sooner than later. For CV it's around 29% includes the restructured portfolio there. There by default we are anyway taking a 10% provision on the restructured. We have some specific customers were required. We have also taken additional provision when we restructured them. So, the cover there is around 11.5%. And for SME the stage tw
Q
Firstly, a clarification, you had said that in the next 3-4 years about hubs that you were mentioning around 200 hubs and INR 7-8 crores disbursements. So, you were saying, INR 1,600 crores disbursement monthly you were saying in 3-4 years? R. Sridhar See, at very hub it’s not only the hub location, it will have 3 branches plus one rural center. This is what we are planning. Including the hub, it will be 5 units, which will do around INR 8 crores, it is estimated today. So, 200 x 8 is 1,600 is the rough disbursement per month.
Rishikesh Oza
My question is how do you see the OPEX now from going here? INDOSTAR R. Sridhar See, the OPEX because we have to incur expenditure. We are opening new branches and there the maximum cost is coming is the people cost. So, for them to become productive, breakeven, it takes about 12 months and by that time they breakeven, there are new additional branches. Initially our cost to income ratio will be high. That is because the denominator is low. And as and when the business increases, the income goes up, the cost income ratio will come down. We do expect that in the next 5 years we should bring it
Q
Basically, I have just got one question. We are talking about having a target of opening up almost 800 branches and leading to disbursements of almost INR 1,300 to INR 1,600 crores over next 2 to 3 years. So, are you saying that this growth is only a function of the new branches that we are opening or are you seeing any good sentiments overall on the industry front of when you were talking about financing the new CV? What's your take on overall industry sentiment for financing? R. Sridhar The commercial vehicle finance is a cyclical industry. We had a lull for first 2 years. It will move up wh
Saili
Basically, what is our average age of vehicles that we are financing? What bracket are we in? R. Sridhar See, as I mentioned that we are financing all kinds of vehicles. The vehicles which 1 ton to 49 tonnes, 50 tonnes and all that which are all differently priced. But our average ticket is around INR 7-8 lakhs. That is what is coming in the ticket price. When it comes to age first 4 years will be actually new vehicles 5 to 12 years is our segment where we will be financing. Actually, finance 12th year vehicle within 3 years that will be paid off after that it will go to scrap.
Q
I had a few more questions that I wanted to ask. While you have very elaborately kind of laid out entire management team in your presentation and that gives a lot of confidence. What I wanted to understand are precisely two things. One is, you have been talking about building a separate collections vertical which you have shared in your previous earnings call that it has been a kind of learning for you in the past. If you could just elaborate on what are our thoughts around building a separate collection verticals, how are you kind of planning to structure it? And secondly, if you could briefl
Abhijit Tibrewal
On the separate collection verticals that you are building. R. Sridhar Collection vertical, I have come from a company which has done everything through branch banking. Branch manager has been the king and they have done. But when we have set up this business, we are looking at sales, credit, collection and operation separately. So, we have set up sales and credit through sales sources and Credit under rights, but we have realized that collection also, we have to bring looking into the other companies which have done it efficiently. If we are scaling up our business substantially high in the n
Q
Just one clarification with respect to the SME book, you mentioned SME stage two is 35%, R. Sridhar right? Yes.
Ratish Varier
I just wanted to ask you, because if you look at this quarter, the P&L of the SME, we have reversed certain credit cost or provisioning. Do you think we are comfortable with the provisioning what we have done there, looking at the stage two book or are you confident that the stage two book will keep on improving in the near term and longer term in the next 3-4 INDOSTAR quarters, if you can just give some comment on this book, that's it, that's only one question I had? Hi Ratish, this is Amol here. So, on SME, we actually did some deep dive. You would have seen that the restructuring volumes ha
Q
Thanks, Inba. We would like to take this opportunity to thank the management of IndoStar for giving us this opportunity to host their earnings call today. Thank you all for your time and have a good day. R. Sridhar Thank you, Abhijit and thanks for all the participants for taking time. Look forward to discussing with all of you again in the Q3 call. Thank you.
Management
Speaking time
R. Sridhar
13
Moderator
11
Abhijit Tibrewal
9
Dikshit Doshi
6
Management
6
Ratish Varier
6
Prashanth Sridhar
4
Hitesh Arora
3
Rishikesh Oza
3
Saili
2
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Opening remarks
Abhijit Tibrewal
Thanks, Inba. Good morning, everyone. We have with us today the senior leadership team from IndoStar Capital Finance to discuss the Q2 FY22 performance and the strategic direction the company will take in the years to come. Allow me a minute to quickly introduce the management team for the benefit of some of the newer participants on this call. From IndoStar we have with us today Mr. R. Sridhar – Executive Vice Chairman and CEO; Mr. Amol Joshi – Chief Financial Officer; Mr. Deep Jaggi – Chief Business Officer; Ms. Jaya Janardanan – Chief Operating Officer; and Mr. Salil Bawa – Head Investor Relations. Now I would like to hand the call over to Mr. Sridhar for his opening remarks post which we will open the floor for a Q&A session with the investors and analysts present on this call. Thank you and over to you, sir.
R. Sridhar
Good morning to all of you. Thank you for all joining our Q2 results call. First, I would like to tell you that we had a very strong quarter as far as Q2 is concerned. We have crossed a disbursement of more than INR 1,000 crores, actually it is INR 1,100 crores. As we have been articulating in our earlier calls, we continue to focus on retail disbursements particularly in the used commercial vehicle finance business, SME and affordable housing finance. I am very happy to inform you that our productivity has been quite good. We have been opening offices expanding in the entire country including North, East, as well as Northeast And our productivity per branch, we have claimed in the past that we will do INR 1 crore per month per branch, but we are clocking more than INR 1 crore per month per branch and the field of productivity is also substantially higher. We continue to focus on building this used vehicle financing business. And as we have articulated, we have put together a five-year
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