Release Date: October 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Asset quality has improved with GS3 numbers declining to 3.8%, below threshold levels.
- Credit cost numbers are expected to decline, with FY25 exit projections in the range of 1.3% to 1.5%.
- Operational efficiency has improved, with OpEx numbers trending down.
- The company has seen strong disbursement growth in the past, which should support book growth aspirations.
- The company has made strategic hires to strengthen its leadership team, particularly in risk management and new business areas.
Negative Points
- There has been a recent uptick in GS3 numbers, particularly driven by the tractor segment, indicating some asset quality challenges.
- Disbursement growth has been muted in FY25, reflecting underlying market conditions and cautious lending.
- The diversification metric has trended below plan, with the company admitting it has not met its aggressive targets.
- The company faces challenges in maintaining margins due to elevated interest cycles and lower yields from prime customer segments.
- There is a noted increase in provision and credit cost due to higher GS3 numbers, particularly in the tractor and CV segments.
Q & A Highlights
Q: Can you elaborate on the NPLs this quarter, particularly regarding tractors, and whether there is any spillover of MFI stress into your segments?
A: The increase in NPLs is primarily due to the tractor segment, particularly in agrarian states like Maharashtra and Gujarat, where late rains have disrupted cash flows. However, this is more of a delay than a default. We do not see significant spillover from MFI stress into our segments, as our customer base is different.
Q: What is the outlook for growth in the second half and the medium term, especially in segments like tractors and PVs?
A: While the first half has been muted, we expect some improvement in the second half, particularly in the tractor segment due to favorable monsoon conditions. However, overall growth will remain conservative. Over the next three years, we aim for a 15% to 20% CAGR, leveraging new business segments like SME and mortgages.
Q: How sustainable is the strong fee income seen this quarter, and what are the expectations for ECL coverage going forward?
A: The fee income is structural, supported by partnerships in insurance and other non-loan income sources, and is expected to grow. We anticipate improvements in ECL coverage ratios in the second half, reflecting better LGD numbers.
Q: Can you explain the decline in capital adequacy ratio and any plans for capital raising?
A: The decline in capital adequacy is due to dividend payouts and asset base growth. However, our Tier 1 capital remains strong at nearly 15%, well above the regulatory requirement, so we do not foresee the need for fresh equity this financial year.
Q: What are the plans for the co-lending arrangement with SBI, and what targets do you have for this partnership?
A: The co-lending arrangement with SBI aims to leverage our distribution network for prime customer segments in PV and CV. We target a monthly throughput of INR 25 to 40 crores with each partner, enhancing our market presence without stretching our balance sheet.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
