Ladies and gentlemen, good day and welcome to the Cholamandalam Investment and Finance Company Limited Q1 FY25 earnings conference call, hosted by Kotak Securities. As a reminder, all participants' lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nischint. Thank you, and over to you, sir.
Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited. To discuss 1Q FY25 performance and share business updates, we have with us the senior management today. The senior management is represented by Mr. Vellayan Subbiah, Chairman and Non-Executive Director, Mr. Ravindra Kundu, Managing Director, and Mr. Arul Selvan, President and CFO. Let me start by, first of all, congratulating Mr. Kundu for the elevation. I would now like to hand over the call to Vellayan for the opening comments.
Okay, Nischint, thank you so much. So, quick results for the quarter: disbursements were at INR 24,332 crore, which is up 22%. AUM stood at INR 168,832 crore, which is up 38% year-on-year. And net income for the quarter was at INR 3,033 crore, which is up 43% year-on-year. PAT is at INR 942 crore for the quarter, which is up 30% year-on-year. So, I'll just go through quick performance highlights. The board approved the unaltered financial results for the quarter ended June 30th, 2024. Aggregate disbursements, like I said, were at INR 24,332 crore, as against INR 20,015 crore in Q1 for a growth of 22%. Vehicle finance disbursements were at INR 12,766 crore in Q1, as against INR 11,301 crore in the same quarter last year, which is a growth of 13%. LAP is at INR 3,874 crore for disbursements, as against INR 2,679 crore for the same quarter, which is a growth of 45%. So, that has grown strongly.
Home Loans were disbursed INR 1,778 crores, as against INR 1,454 crores, which is a growth of 22%. SME business disbursed INR 2,160 crores, which is a growth of 6% over INR 2,045 crores in the same quarter last year. Consumer and small enterprise loans disbursed INR 3,486 crores in the quarter, as against INR 2,355 crores, which is a growth of 48%. SBPL Secured Business and Personal Loans disbursed INR 268 crores, as against INR 182 crores, which is a growth of 48%. Assets under management as of 30th June 2024 stood at INR 168,832 crores, as compared to INR 122,755 crores as of June 30th, 2023, which is a growth of 38%. PBT for Q1 FY25 was at INR 1,268 crores, which is a growth of 31%. PBT ROA was at 3.2%. ROA for the quarter was at 18.9%. The company continues to hold a strong liquidity position with INR 14,324 crores of cash balance at the end of June 2024.
That includes INR 1,551 crores in G-Sec, INR 1,606 crores in T-bills, and INR 611 crores in STRIPS shown under investment, with a total liquidity position of INR 14,767 crores, including unwritten sanction lines. The ALM is comfortable with no negative cumulative mismatches across all time buckets as per regulatory norms. Consolidated PBT for the quarter was at INR 1,275 crores, as against INR 956 crores in Q1 FY24, which is a growth of 33%. stage 3 levels representing 90-plus dues increased to 2.62% as of June 2024, from 2.48% at the end of March 2024. GNPA percentage, as per RBI norms, increased to 3.62% as of June 2024, as against 3.54% as of March 2024. NNPA, as per RBI norms, also increased to 2.37%, as against 2.32%. NNPA is below the threshold of 6% prescribed by RBI as the threshold for PCA.
The Capital Adequacy Ratio of the company was at 18.03%, as against the regulatory requirement of 15%. Tier 1 Capital was at 14.76%, Common Equity Tier 1 Capital at 13.63%, as against the regulatory minimum of 9%. And Tier 2 Capital was at 3.27%. I think I'd also like to personally congratulate Ravi Kundu, who will take over as the MD effective October 7. Ravi has been with us for 24 years, and I'm really glad that somebody that has been kind of grown in the company from within has taken over as the MD. And I have full faith that Ravi and Arul and the entire team here will continue to grow Chola over the foreseeable future as we see it. So, I'll stop with that, and thank you, and turn it over to you for questions in a moment.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah, good morning. Thanks for the opportunity and congratulations to Mr. Kundu for his elevation to the position of MD. A couple of questions. The first one, if you can help us understand, if we see, I mean, the PCR in LAP and SME segment, you have taken down materially. So, what is driving this sort of, I mean, what gives you in this quarter particularly where you see some kind of a rise in delinquencies? And also, I mean, so the PCR reduction in these two segments, the LAP and SME material, what is driving that? And the ECL in, this thing, the vehicle seems to be inching up. I mean, of course, the Q4 to Q1 is a typically seasonality. But even, I mean, if I take kind of a longer-term trend also, there is a jump. So, this bit, if you can clarify.
And second, in the vehicle segment, seems to be sort of have come off. Is it because of some mix of vehicles that have changed in this quarter or something else? Thanks.
Yeah, I'll address the ECL part of LAP and HL. In both these segments, what is happening is we have been resolving a lot of those old cases, which were running with much higher provisioning percentages. And that's what you saw over the period that resolutions have come down, and we have been able to resolve them. So, as this book runs off, that is, there are old cases with higher provisioning trends off, you will see that the provision coverage seemingly coming down. But basically, their LGDs are very, very low, actually. And we are still following a percentage, which is not even as per the LGDs given as per the trend of these portfolios, but much higher than the numbers which we need to adopt. So, this is the status, and we are comfortable with the PCRs of this. You already talked about that.
Yeah. So, the need of vehicle finance, as we've mentioned in the past, also is a fixed-rate book, and it requires time to grow. And today also, if you just compare the marginal booking, we have increased it by almost 60 basis points, and NIM has gone up by 30-40 basis points. So, there is still some room for increase in the NIM time to come, which is going to be done in the past lane this year, and then something will be coming in the next year also. As far as the delinquency, you have seen that. Delinquency is a seasonal effect, and it is actually from Q4 to Q1 normally goes up. And the vehicle finance, or even in Chola, if you see that, the total delinquency is actually 5% between stage 2 and stage 3, which is a rock bottom level.
Historically, we are much lower level. We closed in the month of March. In fact, it has gone up by 30 basis points for the company in stage 2, and 15 basis points is the company in stage 3. And it is much lower than the quarter 3 closing of 3.06% and 2.82%. Over the period, we will definitely reduce it. Last year, quarter 1 and quarter 2, if you take vehicle finance, it went up from 1.5% to 1.7%, and then from there it started coming down, and we closed the year to 1.20% in terms of net credit cost. So, this year, I'm expecting that the trajectory will be from here, from Q2 it will come down, and then Q3, Q4 further it will come down, and it reached to the level of 1.2% or 1.3%. And then NIM will go up.
At a ROA level, we are going to get benefited. Our profit and disbursement growth in terms of vehicle finance will be much better than last year.
Got it. Thank you. Thank you.
Thank you. The next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Hey, hi. Thanks for the opportunity just to harp a bit more on the credit cost for the vehicle finance business. So, if we compare to last year, there is still an increase, and the OPEX ratios for the vehicle finance business have also increased. What's leading to this increase, especially when I notice that your disbursements have been higher for the larger ticket-sized vehicles? Because I would assume if that's the case, then the asset base is larger, and at the margin, the OPEX ratio should not increase as much. So, just some color on that. That's my first question.
In the case of vehicle finance, in OPEX, we are at 3.12% as compared to 3.18% level after March closing. As compared to the same period, it has gone up. We are at the same level of March closing. If you compare the quarter 4 number, it was 3.46%. We are well within our plan as far as number is concerned. As far as the NCL is concerned, we are actually up by 30 basis points from 1.45% of last year to 1.86%. The stage 2, stage 3 are actually lower than the stage quarter 3 closing. We are, as I mentioned, that both stage 2, stage 3 historically for vehicle finance as well as the company, we are at a rock bottom level.
So, in the Q1, because of the seasonality, it has gone up by 30 basis points in terms of stage 3 and 20 basis points stage 2. If we are going to reduce it over the period, and if we come back to the normal level, we closed the year for NCL at 1.20%. We will be near to that level only. And with the help of the NIM growth and also in terms of OPEX ratio keeping at the level where we are, we will definitely increase the ROA to the last year's closing. We closed at the ROA at, say, 3.35%. We'll be near to that, or we'll improve it from 3.35%.
Understood. Sir, my second question is on the Home Loan business. I see that the number of branches that are there, the incremental addition has been coming down over the last four quarters. Essentially, that was one of the things that was driving the disbursement growth also for us in the Home Loan business. Now, as the branch addition has slowed down quite materially, does this mean that you have penetrated in terms of distribution fairly well, and it will be a more stable and established state growth rendered on the disbursement from here on?
Yeah. As far as Home Loan is concerned, last two years, we have ramped up, scaled up volume substantially, as I said in earlier call also. This year will be a period of consolidation, increasing productivity, seeing everything is in order in terms of delinquencies, control, putting consistency, recording governance. So, this year, first quarter, we have seen that the, in fact, you can see the numbers, the delinquency levels are under control. ED is also doing well. So, we have maintained the consistency. And now the scale-up will happen towards the second part of the year. And accordingly, we have placed the manpower for the current year. Second important point, we'll see the ramp-up in volume in Home Loan business during the second half of the year.
This ramp-up in volume will be led by employee addition, or you are looking to get more?
Yes. Also, we are going to, we have also introduced one more project in terms of going more rural. So, that will help us to increase our numbers, penetrating more into rural market.
So, your incremental ticket size is around INR 1.5 million of INR 3 lakhs in Home Loan business?
We'll be doing it. The stable growth will be stable and will be better than industry growth.
Ticket size also will be similar.
Yeah.
Do I have time for one more question?
Go ahead. Go ahead.
Sure. Just your write-offs and slippages have also been elevated this year. I'm comparing it to Q1 of FY 2024 because I understand that Q1, Q2 is not the right comparison, right? So, when I look at YoY business, we've increased. Which product segments are leading to this steep increase in slippages and write-offs?
Oh, actually, write-off and settlement of our vehicle finance out of 1.9% and last year 1.5%. It is the same level of 1% only. Increase is only in the ECL from 0.5% to 0.9% in terms of vehicle finance, and that is a major bump. So, when vehicle finance is actually consistently maintaining for the company, also write-off and settlement are the same level.
Sir, your write-offs are INR 320 crore, right, versus INR 200 crore last year?
Yeah, that's the absolute value. But in terms of currently, in terms of percentage, percentage remains as it comes.
Right. But sir, at the same time, your AUM has also increased, right? So, mathematically, that is bound to come down. But if I look at write-offs as percentage of opening NPAs, then it's fairly elevated compared to last many quarters. So, that's the reason why I asked.
So, in CSEL, for example, last year, we started doing write-off and recognizing FLDG, not in Q1, but subsequently. So, that difference will keep coming until you come to a same level of representation happening in both sides.
Sure. So, it's majorly driven by CSEL, right?
Yeah.
Thanks. That's all.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants, please restrict your question to two per participant. The next question is from the line of Abhijit Tibrewal from Motilal Oswal Financial Services. Please go ahead.
Yeah, thank you. And good morning, everyone. Congratulations, Ravindra Sir. My first question is for you. How should we look at OPEX, not just in the near term, but slightly, I mean, over the next two, three years? Why I ask this is, I mean, we have indeed put out new businesses which are doing well. And I'm sure, I mean, they are in investment mode. We're just trying to understand over the next two, three years, I mean, then maybe we'll kind of look at a few more product lines. By when can we expect this investment mode to get over and kind of transition to a productivity, improvement in productivity mode, let's just say?
Yeah. One is that in the new businesses, we have been continuously expanding across the country in terms of putting up more branches for them and putting more number of manpower. That's one. Second is that our experience in terms of expanding the businesses like vehicle finance from CSEL to financing mobile and then CD is also on. So, therefore, as of now, we are focusing on growth and keeping the NCL down and increasing the NIM. The OPEX will start coming down. Obviously, the OPEX level of the new businesses, if you see that, they started coming down, and their ROA has started improving. CSEL has come down from 5.1% to 4.8%, and they are expecting this and go down as low as 3%. So, there is an upside there, but it will come in the next two years' time.
Similarly, if you see the SBPL, their OPEX is down from 13.5% to 9.7%. Their ROA is 8% level. And he's afraid that if I ask him to reduce further, the ROA will go up. But definitely, there is a scope to improve it. But at the same time, if we continue to increase the branches and increase the manpower, our disbursement growth will go up, and ROA will continue to be there. Slight improvement is there. So, if we continue to do this exercise, maybe the best result will come in three years' time. But every year, we will improve the OPEX.
Okay. So, Ravindra, I mean, is it then fair to say that maybe in another two years' time, we should even start seeing an improvement in our ROA profile, PBT ROA profile, not just from margin expansion, but also from improvements in OPEX?
Yeah. Home Loan also, if you see that there are in the past, when they were only focused to South India, they were delivering more than 5% ROA. Now, they are at 4.5% ROA. Their OPEX went up to 4.3%, which has come down to now 4.1%, and it is likely to come down further in the quarter 1. It has come down to 3.8%. Prashant is saying that you've mentioned that it should come down further. So, it will help us to increase our ROA in HL business more than 5% again.
Thank you. Thank you, Ravindra Sir. And my last question is for Aru Sir. The more near term, I mean, cost of borrowings seem like stabilizing now, while there is that narrative of a rate cut now kind of building in in the second half of this calendar or fiscal year. Just wanted to understand how are we positioned ourselves on the borrowing side, particularly in terms of our MCLR borrowings? I mean, are we positioned in such a way that whenever rate cuts are there, it will start benefiting us quicker than maybe some others?
Our bank borrowings are predominantly driven by priority sector on-lending by the banks. Here, we try to do it benchmarking with the T-bill or any of the benchmark indicators because the MCLR rates are higher. So, as if the liquidity position improves and T-bill rates come off, then we should see the benefits. We are seeing that already in our portfolio where it has been benchmarked with such indicators. Of course, public sector banks, we do with MCLR. There we are still seeing some increase happening in MCLR, but that is something we need to manage between these two to get the overall rate steady at the current level.
Okay. Sir, so just to conclude, I mean, in the near term, if repo rates remain status quo, cost of borrowings are now stabilized except for those PSU linked MCLR borrowings?
Yes. Yes. You can keep it. The cost of borrowings will be at similar levels. Yeah. Just for my clarity, Abhijit, first, the yield and NIM will go up. Second, the OPEX will start coming down, or maybe cost of funds will start improving, and then our ability to finance and vehicle finance too with ticket size will go up. And then MCLR will start coming down. So, in general, everything will improve. Don't worry.
Yes, sir. This is very compelling. Thank you so much, and all the very best to you too.
Thank you.
Thank you. The next question is from the line of Shweta from Elara Capital. Please go ahead.
Thank you, sir, for the opportunity, and congratulations to Kundu, sir. So, I have two questions. One, do we have capital raising plans, and therefore, how are we positioned on our growth targets for next two years? And second, sir, my question is to Kundu, sir. Sir, although you explained the ROA to be maintained or increase on the vehicle finance side, but could you just give a drawdown on how do you perceive credit cost, which increased quarter-on-quarter this quarter to 1.55%? So, how do you perceive this number, and therefore, the consolidated ROA? Thank you.
On the capital, let me answer. See, we are comfortable on the Tier 1 after doing the raise. We are above 14%. And this is before converting the compulsorily convertible debentures, which should happen sometime in the coming FY26. So, between these two, Tier 1 would be comfortable. We are raising the Tier 2 capital by way of subordinated debt and perpetual debt, and that would sort of supplement the capital. So, we would be comfortable for the next two to three years considering this growth.
How about the growth targets? How are you positioned vis-à-vis this capital position? Sorry, I interrupted.
We have said we will be growing in the range of 25%-30%, and that level we still hold. With, if we keep achieving pre-tax ROA of 3.5%+, that should be self-sufficient by itself. Only if the growth exceeds beyond that and we don't do it, do the profitability at these levels, then we'll have a problem. But we shouldn't look at it on a quarter-on-quarter basis. We should look at it more on a year-on-year basis.
Sure.
Regarding MCLR of vehicle finance, we've been closing the MCLR for the year, the last three years at 1.20% level. And last year also, we started 1.45%, 1.5%, and then went up to 1.7% in the second quarter. So, from quarter 1 to quarter 2 was 1.7%, and we are at 1.9% level. From quarter 2, from 1.7%, we closed the year 1.20%. This year, the trajectory we are expecting that from here, it will go down in quarter 2 because the monsoon has been very good and evenly raining across the country, and there is no problem. And between July and August, it will complete, and then September, we'll get a best collection. And therefore, it will come down. And then from there, it will be quarter 3 and quarter 4, which we have been doing. We have been seeing the results last two, three years.
The same thing will happen. So, the MCL expected is at the same level or maybe 1.3%. And the NIM, which is going to go up further, will help us to increase the ROA.
That is helpful, sir. Thank you so much.
Thank you. The next question is from the line of Viral Shah from IIFL Capital. Please go ahead.
Yeah. Hi. Thank you for the opportunity. I have a few questions. So, one, in terms of the credit cost, so while we have a changing book mix, which is where I would say that from a medium-term perspective, your credit cost could be a bit higher. But do we see also the fact that the recoveries in the Home Loans and LAPs, now that that will moderate your credit cost, where will it kind of say, not for this year, but say 2026, 2027, where it would kind of settle on a BAU basis?
No, that vehicle, the HL LAP, we have been doing the write-back till last year. Now, they are at 0.2%-0.3% level.
Correct.
So, you can notice that from last year, we split up all the quarters. Credit cost was negative primarily because of our write-back from the stage 3. We've come to the steady state where current quarter, for example, the credit cost is about 11 basis points. I think at that level and continue to be about 20 basis points, we should be at a fair amount of control on the overall credit cost. And then we see that that is the way it will continue on a steady state.
We are at lowest ever, the stage 3 and stage 2 numbers. Try to control upside. As of now, we are at 0.30%. Going forward, we'll try to maintain this on the basis of increase in growth. Percentages will try to maintain this. But upside will be 10 basis points higher in the scenarios which will be difficult.
That is going to go down.
So, then my question is that while you are in Home Loans and LAPs, there will be a bit of upside from where we were in FY2024. Plus, of course, the new businesses, they are even despite the higher credit cost, they are still ROA operative. So, where will the kind of normalized credit cost settle? Will it be like 140 basis points levels? And I'm not asking for FY2025, but more like say 2026, 2027, how one should look at it?
So, we mentioned that 1%-1.20%, the range. We still see that that range we will be there. We are at 1% level now. So, worst case scenario, 1.2%. The best case scenario is 1%.
Okay. You are saying the total credit cost, right?
Yeah. Overall at the company level.
Got it. Sir, the next question is in case of the new businesses, right? As you mentioned that we have seen, of course, improvement in our profitability, both driven by OPEX moderation as well as NIM expansion. And consequently, our ROAs have kind of improved. What further scope over there in these new businesses is there in terms of further improvement in profitability?
Each business has at least 1%, at least between CSL, SME, and HL. We see that upside is good. SBPL is actually peaked. I mean, it is at 8.01%, so 8.1%, and OPEX is also high. But we'll keep it at this level only. So, CSL, SME, HL. These three businesses, there is upside of 0.5%-1% ROA.
Okay. And in terms of the book mix, now we are at 13% of the new businesses. Where should we settle, say, two years out, saying FY26?
15% max.
15%.
Secure will stay at about 8. 8. Yeah.
Sorry, can you just repeat the last piece?
Yeah. See, the three new businesses, CSL, SBPL, SME put together is at 13%, can go up to 15%. Vehicle finance is at, I think, 57%, which can go down to 50%. The LAP and HL, which is at 30%, can go up to 55%. 35%. 35%. So, 35%, 50%, and 50%.
And just to clarify, unsecured offer LAP, which is the CSL business, will remain at about 8%.
Got it. And finally, in terms of the overall growth, last quarter, you had mentioned the disbursement growth to be in the range of 20%-25% for this year. Now, are we seeing that a bit slower and lower than that in this year?
No, no. Actually, in fact, it is higher than the expectation. We thought that in the election period, the disbursement will get impacted. In fact, we have done better than that. And both asset growth and disbursement growth are higher than our expectation for the quarter 1. And we'll do, actually, from quarter 2 onward, it should further improve.
Got it. So, basically, we are confident of 20%-25% kind of disbursement growth and 25%-30% AUM growth for this year.
Yeah. Yes. That is correct.
Got it, sir. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Kunal Shah from Citi Group. Please go ahead.
Yeah. Hi. Congratulations, Kundu, sir. So, again, touching upon this growth, in fact, when we look at it, the traction, as you mentioned, on the disbursement side is better than what you expected. Plus, almost like 8% sequential growth in a seasonally weak quarter. Doesn't it give the confidence to be relatively higher on the AUM growth? You just seem to be slightly conservative with this 25%-30%, or you are clearly seeing that in some segments, you would tend to pull back on the growth if any asset quality issues come up? Yeah.
We have to conservatively. I mean, we always will guide in what we have a high confidence interval on.
Okay. Okay. But otherwise, there is nothing because in terms of credit cost, also, you are confident that it will come off. Okay. Maybe at least yields will also improve. So, there is nothing which worries us on the growth side considering the traction which has been there on the Q1.
That's correct.
Okay. Okay. And secondly, in terms of the OPEX, so again, you indicated how it would pan out. But just like in 1Q, it's been quite low across the product segments. So, when we look at it, in fact, is there a revision? Maybe you indicated that you will keep on investing into the branches and the manpower. But compared to what we have been highlighting earlier in terms of where it should settle, now, given the growth trajectory, is it giving us the confidence that OPEX to assets may be at a relatively lower level, maybe mainly because of the denominator effect, or maybe whatever we are seeing, positive surprise on the denominator, will get offset by the increase in the OPEX as well?
So, we are always working on increasing the productivity within the people who are there. Then we are increasing the manpower and giving them opportunity to settle down and give them some time so that they start delivering. So, that is what is the OPEX, nothing else. In the quarter 1 to quarter 4, the OPEX slightly move up because quarter 2, we have a salary increment coming up. Then quarter 4, the incentives are basically factored. So, that happens. So, the range of the OPEX is between 3%-3.1% to say 3.5%. That is what is actually happening because we are in growth phase.
Once all the businesses are actually up like in a way for Home Loan, just you want to give you an example that when they were only focusing on south, their OPEX came down less than 2%, and then ROA went up to more than 5%. Now, they are growing in the rest of the country. So, obviously, OPEX is high. And when they complete the growth part, then obviously, OPEX will start coming down. So, OPEX is actually the factor of growing across and investing in the expenditure, what we do it for the people in the branches, as well as moving from bigger ticket size to small ticket size.
Okay. Sure. And one last question in terms of the positioning in the vehicle segments. So, when we look at it in terms of the disbursements, particularly in the used, it's still been steady, somewhere closer to 32%-33% odd. Would we be seeing in terms of the increase in this, maybe given that most of the players are highlighting that there is a huge demand as well as increase in the prices as well for the used vehicle? Do we see that proportion inching up?
So, that's what used, if you focus more on used and two-wheeler and three-wheeler and tractor, then OPEX goes up. It requires more manpower, ticket size is small. So, we need to balance the entire portfolio by focusing heavy commercial vehicle, light commercial vehicle, cars, and ME as well so that OPEX is also stable. We cannot just get the ROA by increasing the yield. And we have been considering that, and that's the reason growth is coming from across all segments. So, as of now, the used vehicle is at say 33%. If you take within the vehicle finance itself, the portfolio mix is 27%, but the disbursement mix is 33%. So, obviously, our used vehicle mix of the portfolio from 27%-33% will go up as disbursement continues to be at 33% level.
Yeah. Yeah. But otherwise, disbursements might continue because you still want to make it slightly more broad-based growth.
Yeah.
Okay. Okay. Thank you. Thank you and all the best. Yeah.
Thank you.
Thank you.
The next question is from the line of Bharat Shah from ASK Investment Managers Limited. Please go ahead. We have lost the connection for the current participant. We'll move on to the next participant. The next question is from the line of Bharath Shah from ASK Investment Managers Limited. Please go ahead.
Raviji, hearty congratulations. This elevation was waiting for a while and most deserving part.
Thank you, Bharath. Thank you so much. Thanks a lot for the kind words.
Absolutely. I just wanted to understand the sense of our destiny. If I look at the past, Chola, if I have to describe it as Chola 1.0, was more about decent ROA, good enough ROA, and reasonable growth while keeping quality and other parameters impeccable, given the context of the verticals that we finance. Chola 2.0 of the recent period, which is still, I think, is going on, is more about enhanced growth rate while ensuring that our quality and capital efficiency parameters don't suffer. In fact, our effort, as it appears, subject to OPEX, is to enhance that. Now, you have talked about moderation of expenses and operating leverage kicking in.
Given the fact that in any case, we have always remained focused on quality of the assets and the emphasis on the capital efficiency, both ROA and ROA, what kind of, in the three to five years, sustainable growth you would think you need to have and you target to have?
So, Bharath, this is Vellayan. So, Bharath, I think kind of like you said, there has been a shift. But obviously, one of the reasons we made the shift and added the new businesses was to add more growth sectors. So, even if you see disbursement growth that's happened, vehicle finance has been a bit lower, but the overall company disbursement growth has not changed. So, basically, the mix is changing at two levels. The mix at the overall level is changing because of the new businesses. And the mix within vehicle finance is changing as we basically move, like Ravi said, more towards used and product like that. Some of these products tend to be more intensive operationally, and hence the shift in operating expenses also.
If we take a five-year view, we see no reason, if we look at the macro in India, to be able to continue to grow at this rate. So, basically, and if you ask kind of broadly, the engine is designed to perform at that rate now. Kind of so, each of the businesses kind of individually make their adjustments and fixes. So, I do believe that this growth rate is sustainable over that period. Obviously, in any business, especially in kind of some of ours, like Viaco, we are going to have cycles, and we will have to usually take a five-year period. In around a five to six-year period, you tend to have one down cycle. So, that will be to be expected. But otherwise, I would think that growth rates can be sustained. It is an intentional shift.
And always, we kind of work around those parameters to say, what does it take to achieve that median of about 3.5% ROA? That kind of swings, depending on the interest rate environment and NCL performance, it goes down a bit, down to the 3.1%-3.2% levels, and then goes up as high as 3.8%. So, that will continue to be the performance band in which we continue to operate. I don't know if that answers your question, Bharath.
No, no, you did. I mean, of course, clearly, deepening the products is a very worthy exercise we have taken so as to reduce overall risk on the business as well as improve the growth quotient. So, my question emanating from that was, given our penchant for maintaining quality, efficiency parameters intake over a cycle, of course, there can be variations in the swing of the cycle in between, but that is to be expected. My question was, given all of that, and now our verticals are settling, our capital operating leverage is expected to kick in.
Given the credit cost control that we typically have in a stringent way, as well as the capital efficiency parameters, in Chola sort of say 3.0, what kind of, given all of these sustained five-year kind of a growth, can we look at more in the band of 30%-35%, or it will be more like 25%-30% kind of bracket?
Bharath, we are actually in charge to basically conservatively target 25%-30% CAGR growth with aspiration to reach 4% ROA.
All right. And which means there will be at least one instance of capital dilution in five years because our growth rate will obviously exceed return on equity. And at some stage, some amount of dilution, it will call for us to aim to grow at 30% over five years.
Yes. You're correct.
Okay. All right. Thank you.
Thank you.
Thank you.
Thank you. The next question is from the line of Pranuj Shah from JP Morgan. Please go ahead.
Hi. Thank you for the opportunity. So, Kundu, Vellayan, one question I had on your branch expansion. It has been pretty fast over the last couple of years. And especially, I think in other sectors, you look at the performance in vehicle finance. But in vehicle finance in particular, before expanding, what are the parameters that you look in a particular market or a district for setting up a branch over there? And my second question is just on the CSEL disbursement. Do you give the mix between unsecured business loan and unsecured consumer loans? Thank you.
Yeah. So, we have increased our branch network from 1,387 to now 4,138. So, last year, we increased it by almost 200 branches. And this year, we increased it now from 1,387 to 4,138. So, that is 54 branches. So, this year, I think, again, we will repeat the similar number of branches what we added. In addition to the branches, we have also given how many touch points we are working in addition to the branches. For example, last year, we were working 545 RLs, which is resident location, in addition to 1,387. So, some of these 545 locations are getting converted into branches. And wherever we get the threshold achieved and see the portfolio is supporting us, we convert into Brick and Mortar branches. As of now, we are working on 594 branches in addition to 594 resident locations in addition to 1,438 branches.
Obviously, out of 594, the best locations, which are reaching to the level of threshold what we set up internally, maybe 150- 200 will get converted this year. All depends on penetrating more into Taluka level and seeing them performing for 1- 1.5 years and reaching to the level of the disbursement threshold and early default and non-starters being under control and then converted to branches and provide them more manpower so that they can take it up further.
Understood. On the CSEL part?
The CSEL, actually, consumer durable is very small.
No, it's asking business versus personal.
Last quarter, we have disbursed INR 3,486 crore. If you look at the overall disbursement, the traditional business has been around INR 2,000 crore. And out of that, around 72% is business loans. Then the balance around 15% is professional loans. That is to the doctors and chartered accountants. And 13% is personal, purely to the salary segment.
Understood. Got it. Thank you.
Thank you. The next question is from the line of Nitesh from Investec. Please go ahead.
Thanks for the opportunity. First question is on CSEL. So, the trade call that we are looking is the net of FLDG income or it is the gross of FLDG income?
Gross.
The quantum of FLDG income that we booked in this quarter?
Around INR 12 crore-INR 13 crore.
INR 13 crores.
INR 13 crore. Okay. And secondly, are there any plans to add further products in the new initiatives over, let's say, next two to three years? And what all those products can be that we plan to add?
Sorry? Your question whether we're going to add new products. So, as and when kind of any products are kind of go to proof and we initiate them, then we discuss them. But obviously, until that happens, we don't discuss them in public.
Okay. But in the aspiration of 20% or 30% growth over next five years, are we also building in new product additions or from the existing product itself we can build that sort of growth?
Like I said, Vellayan, we are constantly looking at opportunities. If something is board approved and we come, then we'll obviously kind of bring it to you at that stage.
Okay. Thank you. That's it from my side.
Thank you. The next question is from the line of Shubhranshu Mishra from Philip Capital. Please go ahead.
Hi. Thank you for the opportunity. Congratulations, Kundu, sir. I have a few questions. First one is, given the fact that we are speaking about a 25%-30% growth, our focus should be majorly on higher ticket items, especially vehicle finance, because that is what will propel the growth at those levels. Is that a fair understanding? Also, is there an infinite market for used vehicles? Because almost everyone is doing it. We have our NBFC competitors. There are small finance banks. There are certain banks which are also entering. So, what is the total market size according to our estimates? And where are we in the market share? And where do we think that we would be in the market share? And just one last data keeping question. What were the number of loans that we did in vehicle finance this quarter versus one year ago? Thanks.
Okay. So, first of all, the growth is coming from across all segments, including LAP, HL. In fact, between the vehicle and LAP, HL, if you see, the HL and LAP are growing much better, much faster. And that's the reason I mentioned that the mix of vehicle, which is at 57%, likely to go down to 50%, and mortgage will go up to 5%. And new businesses will go up to 15%. So, we are growing all the businesses, but mix is moving towards LAP and HL because of the long tenor also. That is also the advantage the mortgage business gets when the vehicle finance business is four years and therefore the rundown is high. In spite of the disbursement growth in the same level, the asset growth will be always higher in the mortgage business. That's one point. And second is that the number of customers.
Two point?
INR 2.65 lakh versus INR 2.40 lakh. The number of customers has gone up more than incremental. Vehicle finance has gone up by 16%.
The total number of loans that we did this quarter was INR 265,000 lakhs?
Yeah. Versus INR 2.40 lakh same period last year.
Okay. What is our market share in use? That is one question which is remaining.
Market share is very difficult to assess because we don't have any public data. That's the reason we don't mention it. But we can say that we are one of the largest players in the used business.
Or maybe what is the total market size if we don't have a market share? We would be doing some kind of math to understand that, okay, this is going to contribute to our growth, right?
Actually, it's difficult to assess. There is no authentic data available. Therefore, guessing it and telling you is not appropriate. That's the reason I'm not bringing that number to here. We know that number.
Got it, sir. Sure. I'll take that offline, sir. Thank you so much. Best of luck for the future quarters.
Thank you.
Thank you. The next question is from the line of Sanket Chheda from DAM Capital. Please go ahead.
Yeah. Hi, sir. Congrats on the good set of numbers. And pretty much congratulations to Kundu, sir. Very well. My question was to just the comment that you already had, that 25%-30% CAGR is what you intend to do. And you mentioned 4% ROA target. It appears by when you think we would be.
Aspiration. It is taken in response to Bharath's question, which is five years.
Okay. So, sir, and the credit cost guidance stays at 1.2%, right?
I mean, that is again aspiration. We are trying to keep it. We have been doing it 1% at a company level for the last three years. 1.2% is the max level we are having internal target on, depend upon Suresh and Prashant how they handle it.
Perfect. Then it's said to us in that depth would be pulled back in second half maybe.
Yeah.
Sir. Yeah. Thanks. Those were my questions.
Thank you.
Thank you. The next question is from the line of Bunty Chawla from IDBI Capital. Please go ahead.
Thank you, sir. Thank you for giving me the opportunity. Congratulations, Ravi, sir. My question has been answered. Just a data point, if you can share write-offs for this quarter.
Sorry, sir?
INR 322 crores.
INR 322 crores.
INR 322 crores, yeah.
INR 322 crores. Q1 FY24. And similar number for the last year, Q1 FY24?
INR 204 crores.
INR 204 crores.
Best of luck.
Thank you.
Thank you.
Thank you. The next question is from the line of Nischint from Kotak Securities. Please go ahead.
Hi. Thanks for taking my question. This is actually on vehicle finance. I'm just trying to understand as to how do you see the growth going forward for this segment? I believe most of the auto analysts are sort of having very muted or moderate growth expectations this year. And specifically, the tailwind that was enjoyed by the sector in the last two years because of vehicle prices going up, I believe some of the companies are probably expecting some discounts as well. So, in the backdrop of this, which segments of vehicle finance probably grow this year? And what are you really stepping up? And in that sense, how does it change your overall profile?
So, on the contrary, wholesale number published by SIAM shows that it has gone up by 16%. But the FADA said that the retail has been up by 9%. So, we are up by 13%. And they are also saying that there is an inventory piled up to 65 days. So, obviously, wholesale number can go down. But because of the piled-up inventory, the retail has to go up from 9% to 11 or 13. So, that is the genesis of our disbursement plan, which is at 13% level in spite of election and heat wave and all. We are expecting that to move up to higher level during Q2, Q3. And obviously, that is actually driven as of now by the high-yield businesses because we are trying to increase our yield.
The moment the yield journey, the gap between the marginal book yield and book yield is actually marginal book yields are higher by 40 basis points than the book yield. So, that effect will get normalized within, say, 3-4 quarters. Then we will have the opportunity to further start doing the big ticket size, which are funded at a lower rate. Obviously, we are also expecting that some point in time, cost of control starts coming down. Majorly, the focus is on high-yield businesses, small ticket size, and keeping the yield high. Then move to the higher businesses, higher high-ticket businesses in the second half.
And in that sense, the increase that we saw in SCVs this quarter could be sort of more transitory. And next quarter onwards, you will see the other businesses or the share of other businesses in disbursements increasing.
The SCV, basically, we reduced it significantly last year, and we are getting now low base effect, and that is what is happening.
Do you see that base effect continuing in the next three quarters?
I mean, we are not intending to do that. But if our customer segment, like we mentioned, that the large ticket size and medium ticket size, the large fleet owner and medium fleet owners, they are buying the vehicle. Now, the small transport operator, we start purchasing. As in, when they come, we will focus and see that number. But we don't have target to increase directly.
It's difficult to predict also.
Predict also, yeah.
My second question is actually on business loans. We have seen some signs of stress in unsecured loans with some of the lenders. Typically, there is a concern that this kind of morph into stress for some of the other segments. So, are we seeing any increase in bounce rates or anything that kind of raises flags in these segments, which probably will sort of change business or shift business segments in this particular product?
See, as far as the business loans, the quarter one, there was the industry-wise, there was a spike in the month of April. And that is basically because of the election, two-week holidays, and all those things. But if you look at the industry-wise trend and what we have done, our bounce rates are still sub 10%. Our EMI bounce rates are better than the previous quarters. And we have not seen any major spikes in our portfolio behavior. Yes, this book is around 30-33 months only. So, during the course of maturing, we will see a slight movement up, down. But as such, we are not seeing much of any abnormal behavior or the kind of things, the news which is spreading in the market, that kind of behavior we have not seen in the quarter one.
Also, the business loans, we are actually distributing in the select market and select customer segment. You mentioned that all the business loan customers are mostly 700+.
Just for your information, we have our book, the business loan book. 83% of our customers are with a credit score of more than 725. 13% of customers are with credit score of 700-725. You can say that 97% of our customers, business loan customers, which contributes to almost our 73% of our book, is with a credit score of 700+.
Sure. Got it. Thank you. This was actually the last question for the call today. Thank you, participants, for joining us today. And thank you very much, management of Chola, for giving Kotak an opportunity to host this call. Thank you very much.
Thank you. Thank you, Nischint. Thank you.
On behalf of Kotak Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.