Ladies and gentlemen, good day and welcome to the Q1 FY 2027 earnings conference call of Aditya Birla Capital Limited. As a reminder, all participant lines will be in the 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 touchtone phone. Please note this conference is being recorded. I now hand the conference over to Ms. Vishakha Mulye, MD and CEO, Aditya Birla Capital Limited. Thank you and over to you, ma'am.
Thank you. Good evening, everyone, and welcome to the earning call of Aditya Birla Capital for Q1 of FY 2027. Joining me today are my senior members of my team, Bala, Rakesh, Pankaj, Kamlesh, Mayank, Pinky, Vijay and Deep. India's growth momentum continue to remain strong despite the challenging global backdrop underpinned by healthy domestic demand, continued investment activity and broad-based credit growth. However, higher input and energy costs makes the growth very uncertain and the future. At Aditya Birla Capital, we continue to focus on driving quality and profitable growth by leveraging data, digital and technology. Coming to our financial and business performance. For the quarter, we have delivered the consolidated profit after tax of increase of 40% to INR 1,175 crore in Q1 of FY 2027. The total consolidated revenue grew by 29% year-on-year in the first quarter.
This performance was supported by the strong growth momentum, improved profitability along with the healthy quality in our lending and insurance businesses, and continued expansion in our asset management franchise. In our previous earning calls, we have highlighted our approach on pursuing the growth opportunities while maintaining a strong focus on return of capital. This approach, along with our disciplined execution, has enabled us to grow our businesses across our platform. Coming to the growth across businesses. Our NBFC portfolio grew by 28% year-on-year, mainly driven by the healthy growth across all segments. Our Q1 FY 2027 has been the landmark quarter for our housing finance business. Our housing finance portfolio has grew by 50% year-on-year and crossed the milestone of INR 50,000 crore. In insurance business, we remain among the fastest growing companies and continue to gain the market share.
The individual first year premium in our life insurance business grew by 20% year-on-year and around 50% year-on-year in our health insurance business. In our AMC business, our quarterly average mutual fund AUM grew by 6% year-on-year. Talking about our profitability and quality of our portfolio. I'm delighted to share that in NBFC business, our profit after tax grew by 35% year-on-year and ROE expanded by 14 basis points to 2.39%. In our HFC business, the profit after tax almost doubled year-on-year with a continued expansion in ROE. Our asset quality across both lending business remains strong despite the volatile market conditions and uncertainties in the operating environment. In our AMC businesses, the fund performance remains strong with approximately 75% of our equity AUM in the top two quartiles.
In our life insurance business, I'm happy to report that our VNB margin almost doubled year-on-year to 15.1% in the first quarter. This was mainly driven by the increase in the share of a non-par business protection and annuity in our product mix. We continue to see a similar trend in our health insurance business. We implemented IFRS in our health insurance business from this year. We reported a profit during Q1 of FY 2027 compared to the losses in Q4 and Q1 of last year. The combined ratio for the quarter was 106%. We continue to leverage data and technology as a core enabler. AI now is becoming a core operating layer for us, we are scaling up its use across our businesses and functions like underwriting, sales, voice calling, audit compliance, customer service and operations.
This will significantly enhance our customer experience, reduce turnaround time and improve productivity. The initial results have been very encouraging. Our business CEOs will cover and take you through the select use cases in more in detail in their discussion. Moving to the other strategic developments during the quarter. I'm pleased to share that we raised a growth capital of INR 4,000 crore by preferential allotment, comprising of INR 3,080 crore from our promoter and promoter group and INR 920 crore from IFC, a member of World Bank. Out of the total receipt, 87.5% proceeds will be used for meeting the growth objective of NBFC business, the balance amount will be used for general corporate purposes, including the investment in our subsidiaries and joint venture associates. We sincerely thank our promoters and IFC for their trust and confidence in our long-term growth strategy and potential.
At Aditya Birla Capital, we remain excited about the long- and medium-term opportunities in the Indian economy despite the near-term uncertainties and volatility. Over the last few years, we have built a diversified and scaled financial service franchise with a leadership position across our businesses. We believe that our strategy, disciplined execution, a strengthened capital base, AI and digital capabilities, we are well-positioned for the next phase of our growth. We will continue to deepen our customer engagement and create a long-term value for all our stakeholders. Now I request Rakesh to talk about the performance of NBFC business. Over to you, Rakesh.
Hello, Rakesh, sir. Can you hear us?
Sorry. We were on mute. Thanks, Vishakha, and good evening, everyone. I am pleased to report yet another strong quarter for our NBFC business. In quarter one, FY 2027, our AUM has reached INR 1 lakh 67,456 crore, registering a year-on-year growth of 28% and a sequential growth of 5%. Bottom- line delivery remained robust with a profit after tax for the quarter growing 35% year-on-year and 12% sequentially, supporting strong business momentum. In FY 2026, we built a strong foundation for a sustainable scale-up, which has based on re-engineered end-to-end customer journey, efficient file processing, improved decision-making frameworks, et cetera. These initiatives reduced the turnaround times, enhanced branch productivity, and improved our sourcing quality. Building on this momentum, our disbursement for the quarter stood at INR 21,201 crore, up 34% year-on-year. These disbursements were driven by retail and SME, our chosen segments for growth, where we continue to experience a strong customer demand.
Together, these segments accounted for 72% of the total disbursement, up from 68% last quarter, and grew 39% year-on-year, reinforcing our strategic focus on granular and diversified growth. In our personal and consumer business, our growth trajectory remains robust and disbursements growing up 41% year-on-year to INR 5,577 crore in quarter one. This growth was supported by a scale-up of new programs introduced last year, improved turnaround times driven by journey simplification and process automation. With continuous improvement in our rule engines and AI-led process efficiency, we have enhanced customer experience while maintaining a risk segmented approach to growth. The AUM in this segment grew 9% sequentially and 41% year-on-year to INR 23,267 crore. The mix in the total AUM improved by 136 basis points to 14% year-on-year in quarter one.
This portfolio continues to benefit from ongoing cohort-level calibrations undertaken over the past two years, supported by use of multilingual gen AI calling bots and behavioral analytics. We have been able to achieve higher front-end efficiency, leading to significant improvement in flow rates. As a result, the Gross Stage 2 and Stage 3 for the personal and consumer loans portfolio reduced by 230 basis points year-on-year and 20 basis points sequentially. Gross Stage 3 for this segment stands at 1.2% as of June 26th. In quarter one, we disbursed INR 9,730 crore to MSMEs, delivering 37% year-on-year growth, supported by deeper geographic penetration of broader product portfolio and faster customer onboarding. Our turnaround times have improved through the use of AI copilot for credit assessment and AI-enabled decision support capabilities, driving greater operating efficiency.
Consequently, our MSME book grew by 31% year-on-year to INR 95,099 crore, representing 57% of the overall AUM, with a prudent mix of 80% of these MSME loans are secured and 20% is unsecured. We continue to be a category leader in the MSME segment in terms of growth and asset quality. Our secured MSME AUM grew at 27% year-on-year, which is faster than the industry growth. The asset quality for this segment continues to be healthy and best- in- class on back of strong cash flows of customers and collaterals, which we have in this segment. The GS3 for this portfolio stands at 1.1%, down 50 basis points year-on-year. In our unsecured business loan segment, we saw the disbursements grow at a healthy 27% year-on-year to INR 1,388 crore in quarter one.
Including the first tranche LoC, line of credit disbursements, the quarter one disbursement in this segment stands at INR 2,445 crore. The momentum in this segment is sustainable on the back of disciplined risk and sourcing calibration we have been executing over last few quarters. Growth from scale-up of new product launches has been encouraging and now contributes nearly to 25% of quarter one disbursement. Our proprietary MSME platform, Udyog Plus, further complements this by providing an end-to-end digitally enabled suite of trade credit solutions, establishing a strong position among MDFCs on TReDS. Growth in this segment is well supported by strong improvement in asset quality with GS2 and GS3 down 30 basis points sequentially. The Gross Stage 3 for unsecured business loan portfolio stands at 1.1%. 40% of this stage 3.1% is covered under government guarantee schemes, excluding which the gross stage is at 0.7%.
Our corporate segment grew at 4% quarter-on-quarter and 16% year-on-year. This segment now contributes 29% of our overall portfolio in line with our strategy to focus on retail and MSME businesses. Asset quality in our wholesale business also continues to improve, where again, GS2 plus GS3 reduced by 40 basis points year-on-year. Coming to portfolio quality at the entity level, our GS2 plus GS3 stands at 2.4%, improving by 127 basis points over the last year. I further wish to highlight that about 72% of our book is secure. Our overall Stage 3 book is well provided with a provision cover of 48.2%, which has improved by 40 basis points over the last quarter. Backed by the strong asset quality, our credit cost for the quarter reduced by 27 basis points year-on-year to 1.03%.
This is clearly an outcome of continued cohort correction carried out in retail and unsecured portfolio since last one and a half years. Moving to profitability, the ROA for the quarter increased by 14 basis points year-on-year and 8 basis points sequentially to 2.39%. We delivered profit after tax of INR 927 crore, registering a growth of 12% quarter-on-quarter and 35% year-on-year. Our net interest income for the quarter has increased 28% year-on-year and 9% sequentially to INR 2,377 crore. The net interest margin, including fee, was at 6.07%, and OpEx to AUM ratio for the quarter was at 1.95%, down by 5 basis points sequentially. Coming to the customer service, we have made meaningful progress on service responsiveness through AI-led interventions, resulting in faster and more effective customer engagement.
In quarter one, 63% of contact center interactions and 71% of service emails were processed through STP, which is Straight Through Processing. Our conversational analytics module has reached 100% automation, providing us with an actionable insight to improve customer interaction and identify new business opportunities. As we move forward, I'm pleased to announce our foray into gold loan business. Gold loan business will further strengthen our product portfolio by complementing our existing lending offerings with a flexible and collateral-backed credit solution and reinforce our position as a diversified financial solution provider. We are in the final stages of operational readiness with our identified locations, branch infrastructure, and execution teams in place. We are going live in quarter two. We plan to scale to nearly 200-300 branches, which will be standalone gold loan branches by March 2027.
We remain confident in the long-term opportunities across the retail and MSME segments where we have demonstrated our ability to scale substantially and these segments will continue to pivot our growth strategy. As we continue to enhance our sourcing capabilities, broaden our product suite, and leverage our proprietary digital platforms, we believe we are well placed to further consolidate our position as a lender of choice. Overall, our approach remains consistent, grow responsibly, stay close to our customers, and deliver steady long-term value to all our stakeholders. With that, I will hand over to Pankaj, MD and CEO of our Housing Finance business.
Thank you, Rakesh, and good evening, everyone. I am pleased to share that Q1 FY 2027 has been another strong quarter for ABHFL. During the quarter, we achieved three important milestones. First, we crossed a significant scale milestone with AUM surpassing INR 50,000 crore and reaching INR 51,833 crore, reflecting 50% year-over-year growth. Second, the quarterly PBT reached INR 300 crore while continuing to maintain one of the strongest asset quality franchises in the industry, with Stage 3 at 0.41% and Stage 2 and 3 together at 0.78%. Third, we successfully completed the INR 2,050 crore primary capital infusion from Advent International, strengthening our capital base and enhancing our capacity to support the next phase of growth. Let me briefly take you through the key highlights for Q1 FY 2027. AUM, as I mentioned earlier, stands at INR 51,833 crore, registering 50% year-over-year growth and 9% sequential growth.
Disbursements stood at INR 7,515 crore, growing 39% Y-o-Y. NII increased by 52% Y-o-Y to INR 532 crore. Profit before tax, as I mentioned, grew by 95% Y-o-Y to INR 300 crore. ROA stood at 2.12%, while ROE was 11.29% for the quarter. The ABG ecosystem contributed 16.2% of our retail disbursements during the quarter. We provide an update on our strategic priorities. First, distribution. Distribution, as we have earlier mentioned, continues to be one of the most important growth levers for ABHFL now. As part of our branch expansion program, we have launched 50 new branches in this financial year so far across metros, Tier 1, and Tier 2 and 3 markets. What is particularly encouraging is that these branches are delivering productivity levels comparable to mature branch cohorts much earlier than expected. The objective of this program goes far beyond increasing physical presence.
It is about deepening penetration into high potential micro markets, expanding sourcing capacity, strengthening customer access, and creating the distribution foundation required for the next phase of our growth. Our channel ecosystem has also continued to strengthen meaningfully. During the quarter, our partner franchise expanded further with the overall base crossing 40,000 partners supported by digital onboarding and engagement initiatives. Second, Data and Analytics. Technology, data, and AI continue to be core pillars of our strategy and are increasingly becoming embedded across every stage of the customer life cycle. During the quarter, we continued to make strong progress across our AI roadmap, with 13 AI use cases now going live. These initiatives are focused on driving productivity, improving customer experience, accelerating decision making, and strengthening governance. Let me highlight a few examples. Fintellect.
Fintellect has gone live and enables AI-generated insight-enriched credit assessment memos called CAMs to support faster underwriting decisions. Second, we operationalized our AI-enabled discrepancy check capability enabling greater process standardization and reducing timelines across workflows. In parallel, we launched Partner- ONE, our next generation partner platform, which will enable a more seamless digital experience for channel partners through intelligent offer journeys, rule-led scorecards, and enhanced engagement capabilities. Collectively, these initiatives are helping us create a scalable operating model that combines human expertise with AI-led decision support, strengthening both growth and operating efficiency. On asset quality, the Stage 2 and 3 assets, like I mentioned earlier, together are at 0.78%, while Stage 3 further reduced to 0.41%, with portfolio quality continuing to remain best- in- class. It is the outcome of our disciplined risk framework supported by extensive investments in analytics, digital collections infrastructure, and early warning mechanisms.
Our collections ecosystem continues to evolve through the use of multiple analytical models, pre-delinquency interventions, digital collection capabilities, and AI-enabled engagement tools. To conclude, Q1 FY 2027 has been a quarter of both strong performance and strategic progress. With a strengthened capital base, an expanding distribution footprint, differentiated digital capabilities, and unwavering focus on portfolio quality, we believe ABHFL is well positioned for its next phase of growth. Over the next 8 to 10 quarters, as we mentioned earlier, we remain focused on building a INR 1 lakh crore plus AUM franchise while delivering 15% ROE and sustained top decile asset quality. Thank you for your attention. With that, I will now hand over the call to Bala, MD and CEO of our Asset Management Company.
Thank you, Pankaj. With respect to the average AUM at ABSL AMC, including alternate assets, we crossed INR 6 lakh crore milestone this quarter and our AUM stands at INR 6.28 lakh crores, reflecting a robust 48% year-on-year growth. This in fact includes the mandate received from both the SIC and the EPFO. We are also, of course, happy to say that the EPFO mandate approximately INR 6.08 lakh crore hav e been received in our account. With this landmark, our closing total assets under management as of 30 June 2026 had crossed INR 10 lakh crore milestone. This achievement reflects the trust and confidence our clients and partners have placed in us over the years. Our mutual fund industry quarterly average AUM stood at INR 4.82 lakh crore, representing 6% year-on-year increase. Our equity mutual fund quarterly average AUM stood at approximately INR 1.9 lakh crore, growing at 10% year-on-year.
Our equity mix for the quarter stood at 46.5%. Our SIP contribution for June 2026 stood at INR 1,080 crore, supported by 40 lakh contributing SIP accounts. The total industry folio for June 2026 stood at 1.11 crore. The new SIP registrations for the quarter were approximately 5.5 lakh. These efforts have translated into significant improvement in fund performance. This has also further strengthened the investors' confidence supported by healthy inflows across our flagship fund offerings.
Turning to our alternate business, we witnessed good growth during the year, both in our PMS and AIF assets, which increased from INR 2,750 crore, including EPFO, now to about INR 2 lakh crore on average assets under management. In real estate business, AUM stood approximately with INR 100 crore, reflecting a healthy 20% year-on-year growth. Fundraising is currently underway in some of our fund products that we will launch at this current quarter. With the recent grant of our retail license, GIFT City, we are enabling NRIs and global investors to seamlessly access both inbound investments into India and outbound opportunities across global markets. Building on this momentum, fundraising is currently underway for the ABSL AMC Flexi Cap Fund. We are also on track to launch a more retail product via GIFT City in the upcoming quarter.
Let me now give a quick update on passive business, which remains one of our key strategic focus area. We have strengthened the team recently. With this, we see a significant opportunity in this segment and remain committed to building a leadership position with the new team coming on board to build this business. During the Q1 FY 2027, our passive quarterly average AUM stood at approximately INR 47 crore, representing 14% year-on-year growth. Our investor base also continued to expand, with the total folio reaching 17.4 lakh. With the passive, our ETF products delivered particularly strong momentum and ETF quarterly average AUM grew by 47% year-on-year, significantly ahead of the industry growth of about 29%.
In the FX FIA segment, which is a new category, we launched our first product, the FX FIA Hybrid Long Short Fund, backed by our strengthened investment team with a specialty in long short and derivatives-based strategies. Building on this momentum, we are now preparing to launch two more new FIA offerings, such as Equity Long Short Fund and Equity Next Top 100 Long Short Fund. In terms of revenue, our revenue for the Q1 was about INR 620 crore as compared to INR 560 crore last year. Q1 FY 2027 profit before tax is close about INR 406 crore as compared to INR 372 crore. Profit after tax is about INR 309 crore as compared to last year about INR 277 crore. With this, I will hand it over to Kamlesh Rao, MD and CEO of Aditya Birla Sun Life Insurance.
Thank you, Bala. The overall life insurance industry registered a growth rate of 16% in Q1 of financial year 2027, with the private life insurance industry growing at 15%. During the same period, ABSLI clocked a premium growth rate of 20% in the individual life insurance segment. This growth was across both lines of business, with proprietary business growing at 7% and the partnership business growing at 25%. In the proprietorship business, the growth was backed with better productivity as well as growth in the retail part of our business. We now have a distribution network of 450 plus branches across the country, and we will add 10% more through the balance part of this year. The partnership growth of 25% came across all our existing 11 partner banks.
In the bancassurance space, we have a healthy mix of private as well as public sector banks, and have banks that have both a large national presence as well as ones which dominate the regional space. Mindshare in the large banks has grown in this quarter, and in a large part of the regional private sector as well as the public sector banks, we continue to have a dominant mind share of their total business. The partnership business had a balanced product mix, with margins going up through the year for all banks. We will continue to expand our presence further at Axis Bank, as well as pursue adding more banks to our distribution network going forward. In the product mix of the individual business, traditional business including protection increased to 71%, and ULIP came down to 29%, helping expand margins for the year.
We are seeing a healthy growth in the annuity segment, with 16% of our retail new business coming from this segment alone. In the group life insurance segment, the overall industry grew by 18%, the private industry by 46%, and during the same period, ABSLI recorded a growth rate of 74%. We continue to be ranked two in ULIP AUM in the industry with an AUM size of INR 70,000 + crore. Current life business delivered growth rate of 51% during the first quarter, supported by all partners and now with 33% of our business coming from the captive channels of our own NBFC as well as the housing finance business. In the group term life insurance business, we continue doing business at 20% + ROE. Group AUM collectively now contributes to 26% of the overall AUM at INR 30,000 crore.
Our total premium for the first quarter at INR 4,743 crore was up by 13%, with 13-month persistency at 83%. Renewal premium grew by 19%, of which the digital collections alone now account for 83% of our renewal premium. We continue to work on customer lifetime value, which is reflected in our upsell ratio of 40%. On the quality parameters, our overall customer NPS now stands at 67 as compared to 62 same time last year, and the OpEx to premium ratio in the first quarter is at 24.8%. Total AUM at ABSLI is now at INR 117,487 crore with a Y-o-Y growth of 13%. 24% of this AUM is in equity and balance in debt. On YTD basis, more than 86% of our funds continue to outperform as compared to their respective benchmarks. Our digital adoption across various areas is demonstrated in the investor deck in slide 48.
100% of new business customers are onboarded digitally. 83% of all our services are now available digitally. 67% of these services are straight-through processes, and our customer self-service ratio now stands at 97%. At Aditya Birla Sun Life Insurance, we are bringing our AI initiatives together under a focus program called SARAL AI, designed to improve how we operate across policy issuance, underwriting, and servicing. Through SARAL AI, we are reducing manual effort, enabling faster underwriting decisions, and making policy issuance and servicing more responsive, especially through AI-led handling of conversations through emails, calls, and WhatsApp. We are also equipping our advisors with better insights and tools to improve productivity and customer engagement. The focus is clear: to use AI to enhance human judgment, not just replace it, and drive greater speed, consistency and quality in everything that we do. Our solvency stands at 201%.
Our net margins, as Vishakha spoke for Q1, is at 15.1%, 756 basis points higher than last year, same time of 7.5%. We observed margin expansion due to a controlled ULIP mix, increase in protection and annuity mix apart from healthy rider attachments. This was also augmented by better productivity across all our channels that got half the growth rate that we got for the first quarter of this year. Our guidance continues to grow individual FIP at a CAGR of 20%+ for the next three years. Whilst achieving this growth, we intend expanding VNB margins above 20% and in absolute numbers, double the value of our net VNB in three years' time. With this, I now hand over to Mayank, MD & CEO of our Health Insurance company.
Thanks, Kamlesh, let me now share an overview of the performance of our health insurance business. We have an interesting quarter for the health insurance sector, the industry continues to build on the growth momentum that we experienced in the previous financial year. At Aditya Birla Health Insurance, we had a very strong start to the first quarter, achieving a gross premium on a sales basis of INR 296 crore, delivering a strong growth of more than 50% year-over-year. Our market share thus amongst SAHIs have increased to 16.2% from 14.2%, an increase of 200 basis points from the year. We continue to build on the momentum that we have achieved in the past to continue as the fastest growing SAHI player in this year as well.
The retail franchise experienced a large 47% growth, it continues to be diversified across retail distribution channels. The proprietary channels with the agent base of close to 2 lakh agents registered a 56% growth Y-o-Y. In addition, all our major bank and digital alliance partners also experienced impressive growth. During the quarter, we launched a first of its kind industry first Activ Yuva product for the large and under-penetrated young India. The product combines comprehensive health insurance coverage with wellness-led engagement, rewarding consumers for health-conscious behaviors through our enhanced incentivized wellness program and returns. Built around the Eat, Move, Live philosophy, this product strengthens our differentiated product portfolio and deepens our ability to engage a large and important under-penetrated customer segment. Separately, our corporate business delivered a strong 55% growth in the first quarter, driven by our focus and disciplined strategy to create a sustainable franchise in the segment.
We've now taken our differentiated Health First model to corporates also, we have started seeing good scale-up in this model. Company is at the forefront of making transition to IFRS financial statements. The financial statements for the quarter ending Q1 FY 2026 [inaudible] have been prepared in accordance with the IFRS principles. The profit for first quarter stands at INR 18 crore growth versus loss of INR 28 crore for the same period previous year, on a comparative basis. A combined ratio for Q1 as per IFRS is 106% versus 107% for the same period the previous quarter, a combined insurance service coverage ratio at 104% versus 108% for the same period last year. With our overall claim ratio being better than last year, we continue to endeavor to achieve 100% cover on an IFRS basis in this financial year.
We strongly believe our robust growth and superior unit economics are driven by our digital-enabled and differentiated Health First model, which has now scaled up significantly over the last 10 years that we have been in business. Our Health First model is resonating with our consumers with more than 50% of our eligible retail consumers engaging with us for their health where we use an AI-driven consumer engagement engine. In fact, now 12% of our eligible consumers are on good health-based incentives, up from 9% last year, reflecting a very deep engagement wellness ecosystem. As in the past, these consumers continue to exhibit much lower loss ratios, about 6%-7% and 11% better persistency, shown in slide 59 and 60.
Similarly, our investments in managing consumers with high health risk through intervention with more than 320,000 lives have led to an improvement in the loss ratio by more than 30%. These initiatives overall help us keep our retail loss ratio well under control. We believe that this business model is where industry should move. We are positioned very well with a competitive advantage to stay ahead of the market. Our promise of insurance is centered on providing industry-leading experience. Continued investments in state-of-the-art AI and ML-driven claims and auto adjudication engine continues to enhance consumer satisfaction and enable efficient claims management by reducing leakages. We now process nearly 74% of our cashless claims using this AI engine and more than 35% of pre-op requests are processed straight through.
Currently, we are investing in data and analytics capabilities to create efficiencies across the business life cycle from sales to underwriting claims engagement to further reduce expense and claims. Our app has now got an MAU of more than 6.7 lakh consumers. More importantly, each of them spend nearly 72 minutes on the app, making it a place to go for their health needs. As we look ahead, we will continue to invest more in our proprietary distribution franchise, scale our differential Health First model, and even more deeply embed AI and emerging tech in our business. We believe these will make us well-positioned to outperform the market and deliver sustainable value.
Thank you. Now I'll hand back to Vishakha for our closing remarks.
Thank you, Mayank. That concludes our remarks on Q1 of the 2027 performance. We'll be very happy to take if there are any questions.
Thank you, ma'am. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on your touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Raghav Garg with Ambit Capital. Please go ahead.
Hi. Good evening, and thanks for the opportunity. I have a few questions. First one is more of a clarification. Based on my calculation, there seems to be some drop in loan spreads. The way that I'm looking at loan spreads is yield minus cost of borrowing. It's not the NIM calculation. This is even after adjusting for some bit of, say, higher balance sheet liquidity. Can you confirm if this is actually the trend or not? Because calculations on quarter averages can vary versus the actual trends. That's my first question.
Raghav, I don't know I got your question, if you look at our yields have been stable quarter-on-quarter. Margins, fee income was slightly lower by three basis points, and cost of funds was better by 5 basis points. That's how the margin NIM is at 6.07%, compared to 6.08% of last quarter.
Sorry, your voice is breaking, but I think what you said is that the margins are stable. Is it? Or are they down? No.
I said yields are stable. If you look at quarter-on-quarter, the yields were stable. They were lower fee income by 6 basis points and cost of funds benefit of 5 basis points. If you look at the margins were stable at 6.07%.
Understood. The second question is, in the HFC business, despite the branch expansion, the OpEx ratios look stable at around 2% OpEx- to- AUM. Is it that the expansion was back ended during the quarter and the full expenses will likely come through in the P&L in the second quarter?
Yeah. Hi, this is Pankaj here. I think the branch opening has been right through the quarter. In fact, the first set of branches we inaugurated on the 10th of April, it's been right throughout the quarter. OpEx, you're rightly seeing that the OpEx to loan book is at 2.21%. It's almost a 10 basis point reduction from where we were. In my assessment, as we ramp- up the number of people, because we have also given a guidance on increasing the branches in the year by anywhere between 80 to 100 branches further. As the manpower goes up, the OpEx will be range bound, and for the year it will be closer to anywhere between 2.15%-2.19%. It'll be very range bound.
While we're doing this, Raghav, I spoke about all the initiatives on the AI and also on our digital platforms. That is fueling the productivity. The productivity also is happening, the increase is happening with the new colleagues that are joining us for the branches and also for the older colleagues. That is really helping us. Of course, the digital platform also gives seamlessness, which also has an impact on partners giving you higher business because it is more predictable, more seamless, and that is also giving you higher business. That is in a sense answer to your question.
My last question, the fee income for the NBFC business, that's up 50% Y-o-Y. Even when I look at fee income as percent of disbursements, that ratio has also gone up. I just wanted some color as to what's happening there.
Raghav, it's primarily the processing fees and the insurance attachment that is driving it. We will continue to be in the same range and keep improving, in fact, in terms of penetration further.
The business, the quarter-on-quarter yields are stable and the cost of funds is down 5 basis points, correct?
Yes.
Okay, wonderful. Thanks a lot.
Thanks.
Thank you. The next question comes from the line of Chintan Shah with ICICI Securities. Please go ahead.
Thank you for the opportunity and congratulations on the quarter. Yeah, just again, harping on the yields front and basically on the margin front for the NBFC business. I think we were of the view once the personal consumer mix increases, the yields could see some inch up and the margins could also benefit. Like now, the personal consumer share has increased from 12.5% to 14% over the last one year. The growth also has been 41%, wherein the yields in the same period, they have declined kind of 13 basis points. Yeah, how should we read into that? Is it just fee income and excluding the fee income, yields have been stable. Yeah, some color on that would be helpful.
Also, if you could just help us understand what will be the portfolio yield on personal consumer portfolio and the portfolio yield ex personal consumer portfolio. That will help to understand the benefit on yields for the incremental share. Yeah.
Chintan, if you look at the last quarter also, our personal consumer was 13%, and this quarter it's close to 14%, and unsecured business was at 11% last quarter, and this quarter it's 11%. Almost 24%-25% of our overall loan book is unsecured business. It will take some time, few more quarters. Once it changes, composition changes from 24% to, let's say, 27%- 28%, closer to 30%. It will take few more quarters in terms of the yield expansion. If we look at the last three, four quarters, and the way we look at unsecured business together, unsecured business and personal and consumer, that was 23% in quarter two, which has gone to 25%. I think the yield will improve in the next, I think it will take few quarters.
Overall, the way we look at it is we look at risk-adjusted return. If you look at the risk-adjusted return across at the entity level, the credit cost has come down by almost 27 basis points year-on-year, and that's flowing into our ROEs as well. To answer your question in terms of what is our yield on personal and consumer, it's around 16.2% is our EIR on that portfolio.
Okay. Got it. Probably, we should look at, as you mentioned, credit risk-adjusted yield. On the risk front, we won't be to increase the yield, we won't be taking any additional risk or loosening the underwriting filters, right?
Yeah. We are very focused in terms of, as Vishakha had mentioned in her opening remarks also, I think return of capital is very important for us. We will not take anything which is undue risk, and we have been calibrating over the last almost 18-24 months. Anything which is high-risk segments, even in our personal consumer, in our unsecured business, we have been removing it from our through the door. That's how we look at risk-adjusted return.
Sure. Thanks. On the HFC piece, just one thing for Pankaj sir. Now, given that we have done the capital raise and because of that there is a hit on the ROE. In how much quarters do we expect the ROE to again scale back to the 15% mark?
Hi, Chintan. You rightly identified the ROE currently is 11.29%, and the ROA is 2.12%. As I mentioned earlier, also in my commentary, we are looking at moving the AUM close to INR 100,000 crore in the next six to eight quarters. That is the time that the ROE also will come closer to the 15% mark. The growth that you have to track us for is it may not be the operating leverage that we have displayed last year was 2.93x. It came down to 2.4x, OpEx- to- loan book. This year we already at 2.21x. The ROAs will be range bound. I think what will increase during the year is almost 150 basis point increase in the ROE in the next two or three quarters that you will see.
The ROE will be close to 13% as we exit the year, maybe Q4 of this year. Then it will inch up towards the 15% mark at the end of between six to eight quarters from now.
Sure. Also this HFC being a capital guzzler, do we anticipate any, for that target of INR 1 trillion, the current capital would be enough, right? Or do we anticipate any further raise before reaching that target?
I think for reaching INR 100,000 crore, it should be enough with the way the calculations have been done.
Sure. That's it from my side. I'll join back in the queue. Thank you and all the best.
Thank you.
The next question comes from the line of Avinash Singh with Emkay Global Financial Services. Please go ahead.
Yeah, hi. Good evening. A couple of questions. The first one is, in lending on the personal consumer side, currently this is largely, I mean, personal loans. In terms of venturing into new product area that could help probably increase your share of retail as well as help your margins. Is there something that you are kind of thinking to venture into, say, overcoming 6 to 12 months? You are happy with the kind of a product offering you have? That's one. Second, that insurance attachment cross-sell led fee income is now showing a reasonable kind of yield.
With this whatever is kind of being talked around regulation and whatever we are reading in media around credit life attachment, do you see some kind of a risk coming onto your fee yield from that if the regulator were to curtail kind of the payouts in case of a credit life product? Thank you.
Avinash, first your question in terms of scaling up the personal loan segment, you're right. This is primarily a personal loan product. Within that, we have different product categories which we have developed for our customer. Also, I mentioned initially that we are pouring into gold loans, that will also help us in terms of getting into retail business, which will be secure and decent yields. That's how we are looking at in terms of expanding into the retail segment. Your second question in terms of insurance, if there is something comes up, I think a lot of it, which we do within the group ecosystem, but if something comes, we will try and see how we can mitigate. That will be an industry level, I think.
On Hello.
Yeah.
On gold, what are your sort of a plan in terms of number of branches you kind of plan to open in next one, two years? Will that have any sort of impact on your OpEx?
We have already budgeted that in our plans in terms of opening the gold loan branches. This year, we are looking at anywhere between 200-300. We will see the first 200 branches and then look at scaling up to 300 in that last quarter. Over the next three years, we are looking at opening close to 1,000 odd branches, which has been captured into our plan, our budgets, yeah, and we are working on those plans.
Okay. Thank you.
Thank you. The next question comes from the line of Abhijit Tibrewal with Motilal Oswal. Please go ahead.
Yeah, good evening. Thank you for taking my question. Sir, first thing again, just coming back to margins, you would have seen, right? A lot of us just trying to understand when will margins pick up. You've been saying it will take a few more quarters. All I'm just trying to understand is you mentioned that this PNC book that is being built, it is at yields around 16.5%. What was the yields earlier when we used to do, because that point is well taken, that we are looking at risk-adjusted yields. The PNC business that you are doing now, I'm guessing is obviously lower credit cost business, which is where maybe the risk-adjusted returns, the risk-adjusted yields are higher.
If you would just help us understand that what is the rate at which you used to do this business earlier versus what you are doing right now.
Four quarters back, it was 16.5%, which is now at 16.2%. As we scale I think, the problem is it's only a percentage point difference which you are seeing. I think the business has to scale up in terms of at least 4%- 5% from here on. As I mentioned, we are at around 14%. We used to be at 19%, and we have come down to 14%, Abhijit. Which is, I think if it goes back to 18%- 19%, you will see the margin expansion.
Got it. Makes sense.
If you see, we have been very strong in that segment, growth is also pretty good. In the next few quarters, you will
Hello.
Yeah.
Sir, am I audible?
Yeah, Abhijit, you are audible. Please go ahead.
Right. That was the first question. The second is, again, just a little bit on gold loans. Just trying to understand, the foray that we are doing into gold loans and all these branches that are factored into your AOP. These are all going to be organic scale-up or like some of your peers have done with some thought around a small acquisition in gold finance and then scale-up from there.
Abhijit, as Rakesh explained, that we already have an organic plan to grow, but if on the way there is any opportunity to acquire a small business and we can scale up, and where there is an opportunity to really learn and make a meaningful part of our business, we'll evaluate that. As of now, as a base plan, we have our own organic plan to grow.
Got it. The last question, just a more structural question here. What we are seeing this quarter, at least in the NBFCs that have reported until now, this quarter, both in terms of credit growth and the risk markers, I think have behaved far better than what we had expected. Even if we look at our GS2, GS3, largely stable, even though this is the first quarter of the fiscal year where we had in the past used to seeing some seasonal weakness. Are there any segments, given that you have a multiple product suite, any risk markers that you are seeing anywhere, anything worth highlighting?
Abhijit, the way we look at business and within each one of our business, we look at cohorts and through the door, which comes in on a monthly basis. Wherever we see risk which is not within our risk appetite, we keep eliminating that cohort and a segment on an ongoing basis. We don't let it really flow into the portfolio and take a call which is much later. We have been very proactive
As I mentioned over the last 18-24 months, we have been taking those calls on a monthly basis. We have built cohorts and performance of each cohort, wherever it does not fit into our risk appetite, we eliminate and we stop sourcing from those segments.
Got it. Great. That's all I had. Thank you so much for answering all my questions and I wish you and your team the very best.
Thank you. The next question comes on the line of Nischint with Kotak. Please go ahead.
Hi. Thanks for taking my questions. First one is on capital allocation strategy. If you could give us some breakup in terms of how this INR 4,000 crore of capital will be utilized across businesses. Are there any plans to raise capital over the next 12 months for any of the businesses?
Nischint, right that we raised INR 4,000 crore via pref issuance of which INR 3,080 crore has been contributed by the promoters and we raised INR 920 crore from IFC Washington. A very large majority of this will go towards the growth objectives of the NBFC business in ABCL and we have mentioned that in our disclosures, about 87.5% will be that number. The balance 12.5% will be allocated towards the rest of the businesses which includes the growth plans for our insurance companies and any other general corporate. On your second question, whether we have plans to raise capital in next 12 months. If you see, we have provided for capital in the housing finance business which is a large consumer of capital.
We raised capital in ABCL for the needs of growth of NBFC for the next three years. We don't envisage any capital raise at ABCL or at HFC or any other entity in the near future.
Okay. Even the insurance should be fine is what you are suggesting.
We have provided for the growth capital of insurance also for the next three years.
Got it. Just really moving on to the insurance business, life insurance business. If you could give some color in terms of what are the drivers for such large margin expansion and just one more question on life insurance is that while partnership business keeps on going well and I guess with Axis Bank and all you're probably doing quite well. The proprietary business is down a bit so maybe if you could comment on that as well.
Nischint, I'll take your second question first. Like I said, if you look at the private industry, I think the growth that is happening on the partnership specifically Bancassurance is significantly higher than proprietary in general. Within proprietary, if you look at the breakup, I am saying the direct business is doing pretty well for us. We are now managing and investing like I said in the agency business. Whatever presence we have, we are making sure that we are adding more branches to be able to take care of that growth.
Even in Bancassurance, like the suite of banks that we have, we are able to push a little higher growth because it comes value accretive for us because there are a large number of small banks that we have which have become reasonable in size and they help us grow volume as well as the margins at the same point of time. When we look at overall growth, we are looking at growth which basically will ensure we are able to grow along with expansion of margins and within that if that changes the composition between proprietary and Bancassurance that's not something that we are hard coded on and that's the answer for the second question that you asked. On margin expansion, the question that you said, doing something as basic as say riders.
Just addition of riders alone has contributed to about 1.5%- 2% uptick in the margins that we have done and which we do across both proprietary as well as our partnership channels. ULIP has been under control and like Vishakha mentioned the increase in the business on non-Par largely contributed to the growing annuity segment where we see an opportunity and there we've been able to launch a new product where customers can have the participation of both guarantee as well as markets which is a variable annuity product that we were the first guys to launch in March has seen a reasonable uptake which is like 60/40 as per the regulations. That and the fact that of the growth that we have got close to half of that has been coming out of productivity which means there's no cost attached to that.
If you look at the combination factors of that and of course the scale has gone up what we do in the first quarter as compared to previous years is what has helped us get to a margin of about 15.1% for this quarter.
Annuity business margin is way ahead of the company level margin. I think that's a fair expectation, right?
Typically an annuity margin would be comparable to a guaranteed business that is non-Par business margins but that segment is growing which if you know for the industry also is at about 8%-10% right now but we are growing a little better than the industry as we speak.
Got it. Just one last one if I can squeeze on the health side. How are we complied on the UM Guidelines?
Yeah, as mentioned like last time we are well within the limits so that's not an issue for us.
Okay, great. Thank you very much. Thanks for taking my questions and all the best.
Thank you. The next question comes from the line of Ayush Dilodre with Nomura. Please go ahead.
Good evening team and thanks for the opportunity. My first question is for the NBFC segment. As we are planning to open new gold loan branches, can you guide which geographies and states are we planning to focus on? That was my first question.
We are a pan-India player, and we will continue in our gold loan business also, we will continue to be a gold loan pan-India player. We will open branches across the country, depending on which state the branches get ready and on the launch is getting planned. We will continue to be a pan-India player.
Sure, sir. Thank you. My second question is on the health insurance business. On the health returns initiative, we report that customers show 6% lower loss ratios and 11% better persistency. Do these better loss ratios and persistency benefits fully offset the premium given back as rewards? Is this actually portfolio-level value accretive or just acquisition strategy still?
At an overall level, both the lower loss ratios and profitability make this cohort at a core level much better than the non-health return earning portfolio.
Okay. Thank you. Thank you for taking my question.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Ms. Vishakha for closing comments.
Thank you so much for joining us this evening, and if there are any more questions, please feel free to reach out to any of us. Thank you.
Thank you. On behalf of Aditya Birla Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.