INDOSTARNSEQ3 FY22February 14, 2022

IndoStar Capital Finance Limited

9,509words
167turns
12analyst exchanges
8executives
Management on call
Deep Jaggi
CEO, INDOSTAR CAPITAL FINANCE LIMITED
Jayant Gunjal
TREASURY, INDOSTAR CAPITAL FINANCE LIMITED
Benaifer Palsetia
CHRO & HEAD CSR, INDOSTAR CAPITAL FINANCE LIMITED
Kaumudi Biyani
HEAD FINANCE, INDOSTAR CAPITAL FINANCE LIMITED
Mohit Mairal
CHIEF RISK OFFICER, INDOSTAR CAPITAL FINANCE LIMITED
Amit Kothari
CHIEF TECHNOLOGY OFFICER, INDOSTAR CAPITAL FINANCE LIMITED
Salil Bawa
HEAD INVESTOR RELATIONS, INDOSTAR CAPITAL FINANCE LIMITED
Abhijit Tibrewal
MOTILAL OSWAL FINANCIAL SERVICES
Key numbers — 40 extracted
82%
disbursements. I'm happy to inform you that today as on 31st of December our retail book is about 82% of the overall AUM. We are on course to becoming a pure 100% retail finance company.
100%
our retail book is about 82% of the overall AUM. We are on course to becoming a pure 100% retail finance company. I'll just take few points which I would like to highlight; IndoStar is co
18%
hich is clearly can be seen from the percentages that we have, that 82% of the book is retail and 18% is corporate. Now coming to the profitable growth and the 5-year plan. You can see the quarter wi
INR 560 crore
growth and the 5-year plan. You can see the quarter wise numbers. Q1FY22, the numbers were about INR 560 crores of disbursements, Q2FY22, it was INR 1,129 crores of disbursements. Q3FY22, it is INR 1,450 cror
INR 1,129 crore
er wise numbers. Q1FY22, the numbers were about INR 560 crores of disbursements, Q2FY22, it was INR 1,129 crores of disbursements. Q3FY22, it is INR 1,450 crores. I can just also highlight for the first time i
INR 1,450 crore
INR 560 crores of disbursements, Q2FY22, it was INR 1,129 crores of disbursements. Q3FY22, it is INR 1,450 crores. I can just also highlight for the first time in the month of December, we have touched a disbur
INR 500 crore
ust also highlight for the first time in the month of December, we have touched a disbursement of INR 500 crores which seems to be likely a base for us now from here on and from here on we can just grow from t
rs,
till 2025. We have already made our pan-India presence. Now in the next couple of years or 3 years, we will be adding just spokes which helps us in a way that we already have our underwriting set up
90%
calling to the customers to arrest the new losses or new flows with which we have approximately 90% of our book is in Stage-1 in the fresh disbursement that we have done. Besides that, we have also
80%
, especially in the commercial vehicle, in the commercial vehicle disbursement that we have done, 80% of business is coming from use business. So overall the weighted rate here is close to about 16.5
16.5%
80% of business is coming from use business. So overall the weighted rate here is close to about 16.5% to 17% which is a very-very healthy weighted IRR as a scale is going up, especially the commercia
17%
usiness is coming from use business. So overall the weighted rate here is close to about 16.5% to 17% which is a very-very healthy weighted IRR as a scale is going up, especially the commercial vehic
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Guidance — 20 items
Deep Jaggi
opening
“These 1000 branches will be controlled by 200 hubs.”
Deep Jaggi
opening
“Now in the next couple of years or 3 years, we will be adding just spokes which helps us in a way that we already have our underwriting set up there.”
Deep Jaggi
opening
“It will be an easy task adding from 400 branches to 1000 branches.”
Deep Jaggi
opening
“So overall the weighted rate here is close to about 16.5% to 17% which is a very-very healthy weighted IRR as a scale is going up, especially the commercial vehicle space our overall weighted IRR of the book will be much better within next couple of quarters.”
Deep Jaggi
opening
“It just it is going to impact and there will be a good growth in the used space.”
Deep Jaggi
opening
“When we talk about 3 vehicles, we will be having minimal losses because all of them have got tracked.”
Deep Jaggi
opening
“He will be responsible for mentoring and guiding IndoStar Home Finance and creating value for the stakeholders.”
Deep Jaggi
opening
“We in terms of cutting costs, we have earlier announced that we will be getting into the smart branches.”
Deep Jaggi
opening
“We will be developing the branches at a lower cost so that the CAPEX impact is less.”
Deep Jaggi
opening
“We are completely a company which is retail and it will be on the used business.”
Risks & concerns — 12 flagged
Mohit Mairal – Chief Risk Officer and Mr.
— Salil Bawa
There is a decline in the Stage-3 overall.
— Deep Jaggi
But if you see Stage-wise movement which is as we follow Ind-AS, we are on the decline.
— Deep Jaggi
With respect to the housing finance income, there is a one-off adjustment which has been done our basis our discussions with right from an accounting adjustment relating to assignments income because of which you are seeing a decline in the revenue from operations.
— Kaumudi Biyani
It would be helpful if you can provide the entire breakup of what was the exact impact of the recent RBI regulation, gross as well as net NPA as of now as of December quarter and also movement in Stage-2 book.
— Sumit Bhalotia
When you're looking at the assets where we see that there is an increase in credit risk, we have already classified them into Stage-2 and created a provision as per as Stage-2 requirements.
— Kaumudi Biyani
So, new going down, risk going down, rates are improving because of the percentage product mix change in our overall portfolio.
— Deep Jaggi
Shouldn't that add pressure to the yields and from where will this growth of 25%-30% come for next 4-5 years that we are guiding?
— Harsh Shah
This the GNPA has gone, there is an increase across the NBFCs, it is not with us but when you talk about the provisioning which is a Stage-3, now Stage-3 for us there is a decline.
— Deep Jaggi
Today it will be very difficult, somebody who's going to take a dip.
— Deep Jaggi
That will be very difficult to comment today.
— Deep Jaggi
Can you please help us kind of articulate changes that you have done on the underwriting side which should now give us confidence that the stress that we had seen in the past, in your organic book, from the book which you acquired from IIFL will not repeat kind of as we move along?
— Abhijit Tibrewal
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Q&A — 12 exchanges
Q
Can you give us the NPA numbers for this quarter versus last quarter and versus last year?
Deep Jaggi
If there are couple of things, one is the Stage-3 numbers. There is a decline in the Stage-3 overall. It has come down to 4.2%. So, it is at 4.2%. Now coming to the GNPA number, there has been a slight change in the RBI norm due to which as of now we are close to about 7.2%. But if you see Stage-wise movement which is as we follow Ind-AS, we are on the decline. My second question is related with housing sector. You mentioned that you want to enter into more aggressively in affordable housing. I see that the operations revenue has come down in this quarter year-on-year basis from INR 6,000 lakh
Q
Every quarter-on-quarter we are seeing this credit cost is coming, provisioning is coming. Last con-call also I think there was a comment that now no more credit cost will come. My question is that is it over or still is it pending? If it is there, why don't we write-off once go and do not give shock every quarter?
Deep Jaggi
Overall if you see our numbers, we have a very high capital adequacy. We are at about 35% against regulatory requirement of 15%. COVID-19 wave 3 in December and January still it is just over. The impact is very minimal. We don't see those problems coming up. This credit cost that you see it's a regular review in the internal policy. We have adopted a conservative provisioning policy, as our customers are just coming out of the regular forbearance. Stage-3, there has been no movement. Let me also share with you. We don't expect losses because of this credit provisioning. We should recover from
Q
First is on the asset quality. So, you've mentioned GNPA numbers. It would be helpful if you can provide the entire breakup of what was the exact impact of the recent RBI regulation, gross as well as net NPA as of now as of December quarter and also movement in Stage-2 book.
Kaumudi Biyani
From an asset quality perspective we would like to highlight that a we being an NBFC are currently on Ind-AS regime. Our financial statements are being prepared under Ind-AS. We are reporting our numbers as Stage-1, Stage-2, Stage-3. Coming back to the RBI circular of 12th of November. That's more of a regulatory requirement in terms of reporting of an NPA number but it does not impact our financial statements reporting of state 3. We continue to state that our Stage-3 level has better off as compared to the previous quarter. Currently we are at 4.3% of Stage-3 book. From a regulatory reportin
Q
If I look at your yields in the SME side, it has come off drastically from around 15% odd to 11%. So, can you help us explain that?
Deep Jaggi
Sorry, come again. The SME finance book. If I look at the book, it has come off quite a bit. It is now for Q3, it was at around 11.5%. It used to be around 13%-13.5%? As of now we are not focusing on the book which is SME book and there was one portion which was of the BL which is personal loan which we were doing; that has been discontinued to stabilize the portfolio. Once we were reworking on our policies and definitely it can be brought up. We are well aware of the things but we are in this part, it is more to have a control. If you see my book in SME it has not grown but we are just stabil
Q
My first question is on the overall CV strategy. In terms of you have mentioned Shriram and Chola, are you kind of the same customer segment as they are? They are in the sense that, the pie is expanding and you're getting more business from let's say unorganized players but is there any qualitative difference in the customer asset between any of these in between you three?
Deep Jaggi
Vivek, so what I expect is here if you see, if you understand the Chola portfolio or a Shriram portfolio. Now Shriram is more into first-time buyers, first time users. They don't focus on the retail customers much. Their bigger portfolio will be at the lower base of the customers which is one vehicle owners or two vehicle owners. Now when you come to Chola, Chola’s portfolio will be primarily, if you see the breakup up of Chola, Chola is much bigger into light commercial new. They have equal participation in used. Whereas what we are talking about is a 75%-80% of our business coming to used wh
Q
Regarding the affordable housing space. So, what I understand is when you are saying rural, what level are we doing rural? Is it like the block level taluka or what exactly do we mean by rural here?
Deep Jaggi
We are talking about Tier II,Tier III cities. You know you have huge announcements coming from Prime Minister Aawas Yojana and that is a particular segment that we're talking about. In the opening remarks you had mentioned you're looking to partner with smaller NBFCs to expand the rural reach. Could we explain this? What are we doing here exactly? There are certain NBFCs and the small NBFC which have got penetration which is more unorganized or they are the companies which are present in the lower segment. Like they will be into the small commercial vehicle funding and those particular aspects
Q
What is the size of this new book. You mentioned that Stage-1 is 90% for the new book which is started all meeting at from last quarter 2020. So how does an entire yield of INR 90 to 100 crores, what would be the split?
Deep Jaggi
Can you repeat the question? You mentioned the new book asset quality is far superior than the older book and yields are around 90% in Stage-1. I'm just trying to understand that what is the quantum of this new book which has been related through the new management take over? What is the quantum of the loan book for which we have been calculating this? Sumit, I will have to actually get into more detail. I can definitely share with you on the mail, what is the quantum of that particular volume. But let me share with you that today is the commercial vehicle approximately 65% of our book is new,
Q
Can you just throw some light on means the way will be expanding our branches rapidly for a 5-year plan? Over next 1-year, how many branches we are looking to add from our 343 currently?
Deep Jaggi
So, Rikesh March, we should be ending close to about 380 to 400 branches. That is what is expect. There could be, we are targeting 400, there could be a blip maybe 10 branches here and there. We do expect to add another 150-200 branches next year. Coming to our cost to income ratio which has been, we have been able to maintain around 59% stable as such. With these increase in branches, do we see that we'll be maintaining around this level or there is a chance that we can dip from 59% over the next 1 to 2 years? What has happened is that we have lost couple of months initially due to wave 2 bec
Q
What is the expected credit cost we are expecting from FY23?
Deep Jaggi
That will be very difficult to comment today. I think once we make our budgets then only, we will be able to answer this question but definitely we are looking at a negative trend. It will be coming down.
Q
My first question is for Kaumudi. Can you just help us understand that the credit cost that we have taken in the P&L during the quarter; where have they been parked? Please kind of correct me if I'm wrong but for broader understanding is whatever credit costs that we take in the P&L broadly it either goes into your ECL provisions or it could be in the form of write-offs. When we look at the ECL provisions that you have reported, they have actually declined on a Q-o-Q basis. Where has this credit cost that we've taken in the P&L gone?
Kaumudi Biyani
Abhijit, the credit cost as per the normal accounting norms has been taken into the impairment line. The credit cost consists of two elements as you have rightly mentioned. It's the expected credit loss provision and the write-offs. From both the fronts for this particular quarter we've got a write-off which is nominal, technical write-off of around INR 7 crores which we've taken in this quarter and the incremental credit cost which you see is nothing but it's relating to the ECL provision created on our books. What is this impairment reserve that you talked about? No, there's no impairment re
Q
Can you tell me the total provisioning on the books and break it into the ECL and the overlay provision?
Kaumudi Biyani
The total ECL provision on our loan book is around INR 600 crores and we do not have anything specific as a management overlay provision because we have allocated it across to our portfolios and everything is driven through the ECL model now. Would you like to know product wise provisions also? What would be the provision on restructured book and the RBI required provisioning requirement? On our restructured book we are holding around 16% of our provision is on our restructured book and we are basically carrying it as per our RBI provisioning requirements. It's either a Stage-2 or the RBI-defi
Q
Thank you. I would take this opportunity to thank the team at IndoStar for giving us this opportunity to host the call today and thank you all for being a very patient audience.
Management
Speaking time
Deep Jaggi
58
Sumit Bhalotia
18
Moderator
14
Kaumudi Biyani
14
Pankaj Prasun
11
Harsh Shah
9
Vivek Ramakrishnan
9
Sharaj Singh
9
Abhijit Tibrewal
8
Rikesh Parikh
7
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Opening remarks
Salil Bawa
IndoStar Capital Finance to discuss their 3Q FY22 performance and the strategic direction of the company. We are obviously at the end of the current season and today seems like a busy day for all of us. So, without much delay, let me handover the mic to Mr. Salil Bawa, who's heading the Investor Relations to quickly introduce the management to us. Post which we will have the opening remarks from the management followed by an interactive Q&A. Thank you over to you Salil. Thank you, Abhijit. Good morning, everyone. Thank you for joining us on the Q3 FY22 results conference call of IndoStar Capital Finance Limited. Today we have with us Mr. Deep Jaggi – CEO, IndoStar Capital Finance Limited, Mr. Jayant Gunjal from Treasury, Ms. Benaifer Palsetia – CHRO and Head CSR, Ms. Kaumudi Biyani – Head Finance, Mr. Mohit Mairal – Chief Risk Officer and Mr. Amit Kothari – Chief Technology Officer. Before we begin, I would like to state that some of the statements in today’s discussion may be forward-
Deep Jaggi
Thank you Salil. Good morning to all. Thanks to all the participants for taking our time to join the Q3FY22 earnings call. Hope all of you are safe and fine. Before we discuss the Q3FY22 numbers. I would like to just set the context for our introduction today. Money; as you all know that IndoStar is managing a transition for the past few years moving from a corporate lending business to a granular retail business. When I joined in the month of November, 2020 as a part of well-thought succession plan, the management team and the promoters had finalized a 5-year business strategic and growth plan. Despite COVID-19 and all the micro headwinds over the past 12 months I believe we are well on track for the 5-year plan. I truly believe in a massive growth potential for IndoStar platform which can be seen in the quarter retail disbursements. I'm happy to inform you that today as on 31st of December our retail book is about 82% of the overall AUM. We are on course to becoming a pure 100% retai
Kaumudi Biyani
Coming to, Liquidity perspective would like to highlight that we are highly liquid and as per the company’s strategy we intend to keep around 2 to 3 months of liquidity in our liquid cash and liquid mutual funds for our future growth and disbursement. With this we probably open the call for any further queries.
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