Ladies and gentlemen, good day, and welcome to Q2 FY 2024 earnings conference call of Home First Finance Company India 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 that this conference is being recorded. I now hand the conference over to Mr. Manish Kayal from Home First Finance. Thank you, and over to you, sir.
Thank you, Yashaswini. Good evening, everyone. I extend a very warm welcome to all the participants on our Q2 FY 2024 conference call. I hope everybody had an opportunity to go through our investor deck and press release uploaded on stock exchanges and on our website yesterday. We have also uploaded the Excel fact sheet on our website. On today's call, Home First is represented by our MD and CEO, Mr. Manoj Viswanathan, and CFO, Ms. Nutan Gaba Patwari. We will start this call with an opening remark by Manoj and Nutan, and then we will have a Q&A session. With this introduction, I hand over the call to Manoj. Over to you, Manoj.
Thank you, Manish. Good evening, everyone. I'm pleased to share with you the highlights of our Q2 FY 2024 performance. Q2 performance has been strong across all operating and financial parameters. We have delivered an ROE of 15.6% in an inflationary and peak interest rate environment. This level of consistent and superior returns is a testimony to our strong risk management, use of right technology, and scalability of our model. We continue to build distribution by simultaneously entering new markets and deepening our presence in existing markets. We added seven branches in Q2, and now we have 120 physical branches. Including potential and digital branches, we now do business across 295 touchpoints, across Tier 1 to Tier 3 markets in 13 states.
Disbursements in quarter two at INR 959 crore was higher than quarter one, with a growth of 36.6% on a year-over-year basis and 7.1% on a quarter-over-quarter basis, leading to an AUM growth of 33.3% on a YoY basis to INR 8,365 crore. Spreads at 5.5% remain ahead of our guided levels of 5.25%. Our asset quality continues to be strong with a focus on early delinquencies. 1+ DPD is at 4.5%, 30+ DPD is flat at 2.9% in quarter two, with a decline of 40 basis points on a year-over-year basis. The gross Stage 3 GNPA is at 1.7%, which is at a 20 basis points decline compared to the same quarter last year.
Prior to RBI classification, this stands at 1.1%. Our credit cost is at 40 basis points for the quarter. We will now move on to some more details of the business and our outlook for the current year. Talking about technology, technology has been at the center of our business since inception. Systemic tech-led controls have been implemented across all our operations, providing a strong backbone for our risk management and internal audit processes. Digital app adoption continues to be strong and a key area of our focus as we grow. Some of our recent initiatives on technology include successful adoption of the account aggregator model to access bank statements of customers. This has now gone mainstream with a 30% penetration rate within two quarters of implementation.
An employee KRA module has been developed with full integration with our loan management collection system to make goal setting and tracking process more effective. Tableau visualization has been brought within Salesforce to help drive superior analytical outcomes. Property Insight Version 2.0 has been launched and to digitally validate the property titles and have an independent authentication of our primary security for the loan. On distribution, we added s even branches and 13 touchpoints in Q2. We now have 120 physical branches and 295 touchpoints. We're targeting an AUM growth of 30%+ for FY 2024, to enable us to cross the INR 10,000 crore AUM mark in the next twelve months.
Coming to people, we are pleased to report that we have added 137 employees in quarter two, to reach a total strength of 1,242 employees, and we plan to add another 100- 150 by March 2024. We've expanded our ESOP coverage to encompass 335 employees, which is 27% of our total employee base. Employee attrition is down from FY 2023 levels as a result of initiatives, initiatives implemented by us to reduce attrition, supported by hiring lulls in certain sectors. Demand continues to be strong in the affordable housing sector. With our expanded distribution and employee base, we are well placed to gain market share and deliver strong numbers in the rest of this financial year. With respect to quarterly results, there are a few metrics that we would like to address.
One is balance transfers, which have increased during the quarter. It is a result of series of interest rate hikes that our customers have witnessed in the past 18 months. We have sensitized our teams on customer retention and coached them on techniques to address balance transfers. On the bounce rate, there is an uptick in October. We still see that a substantial portion of these bounced customers pay within three days of bouncing the installments. Bounce rate normalization to pre-COVID levels will take time, and we are working towards improving this behavior change that has happened during COVID. The NPCI data also validates our view that the bounce rate, bounce volume has increased. Our overall collection efficiency remains strong, and we continue to focus on containing early delinquencies as a collection strategy.
With this, I would now like to hand over the call to Nutan to take you through the financials. Nutan, over to you.
Thank you. Good evening, all. I would like to start by mentioning that we've delivered our medium-term industry-leading ROE goal of 15%-16%, way ahead of our expectations. Our superior performance in a tough environment gives us the confidence that we can outperform, outperform these returns in two to three years. moving to financial performance, our Q2 NIM is robust at 6%, is in line with our guidance.
We mentioned in our Q1 call that our about the stable yield and increase in Q2 in CoB, which has led to 10 basis points decline in NIM for Q2. Net interest income has gone up by 27% in Q2 on a YoY basis. Spread at 5.5% remains well above our guiding range of 5%-5.5%. OpEx to assets is at 2.9% for the quarter. We expect this ratio to remain in the range of 3%-3.2% going ahead as we focus on expansion. Cost to income at 35.2% is Q2, is a decline of 110 basis points on a QoQ basis. Credit cost remains at 40 basis points and is within our guide range of 30-50 basis points.
Our balance sheet is stronger than before. Starting with borrowing, the company continues to have a diversified and cost-effective long-term financing sources. This diversified base, across banks as well as NHB. Our borrowing mix is 55% from banks, private sector is 33%, and public sector is 21%. NHB refinance share is stable at 22%. We have drawn INR 250 crore in Q2 FY 2024. We have another INR 450 crore to draw, which we will calibrate as per requirements. 16% is from direct assignments and 2% from co-lending. 4% is from IFC NCD. We continue to have zero borrowings through commercial paper. Our cost of borrowing is competitive at 8.1%, increase of 10 basis points from 8% of quarter one. We further expect 20 basis points in the second half of the year.
Coming to capital, capital adequacy is at 45.5%, and Tier 1 is at 45%. Our debt to equity is now 3.1x. Our September net worth stands at INR 1,947 crore. Our book value per share is INR 221. Moving to provision, we have remained conservative and continue to carry provision over and above the ECL requirements. Total provision coverage ratio stands at 52.3%. Prior to NPA reclassification, as per RBI circular, provision coverage ratio stands at 84.6%. On specific transactions, we did DA of INR 97 crore during the quarter as a liquidity strategy. We continue to have a robust demand for our portfolio of assets, and this number is well within our guided range of INR 100 crore, ± INR 20 crore. We also executed co-lending transaction of INR 50 crore in Q2.
Co-lending business is growing and expect this to contribute around 10% of disbursements in the near future. With this, I open the floor for question- and- answers.
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 touchtone 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. We have our first question from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah, good evening, everyone, and congratulations, Manoj, on the good quarter. First thing, I mean, there are a couple of things on the opening remarks that Manoj made. First, I just wanted to understand first thing, I mean, you did touch upon BT outs being higher during the quarter and the fact that you have sensitized your team on customer retention. But I mean, incrementally, what we are seeing is the competitive intensity is very, very high. And are these balance transfers typically happening to banks? If yes, whether, I mean, they're happening to PSU banks or private banks. Is there any particular bank which is overly aggressive and leading to such high competitive intensity? That is my first question.
Mm-hmm. The, you know, the players are the same that we have seen in the past. I don't think there is any change in the mix of players. Of course, some NBFCs are also doing balance transfers now at low rates, which probably is not sustainable. That might be more a tactical move, you know, you know, in a particular quarter. We see the balance transfers more as a reaction to the rate hikes that have happened over the last year. So three consecutive rate hikes, a lot of customers have gone through a 125 basis points rate hike.
You know, their tenures also, you know, when the loan was originated, the tenure was 20 years, but now suddenly their tenures look very extended, probably 25-30 years. So this is provoking the balance transfers. We think it should moderate, you know, with the passage of time.
Got it. And the second thing I think you touched upon was, was employee attrition, which is down from March levels. I mean, another, another HFC which had its earning call just before you, was kind of hinting at, I mean, a significantly higher, employee attrition, especially at, the, the sales force or for that matter, the relationship officer level. How is it like for us? I mean, in the past, we used to talk about that in industry level, attrition remains very high. I mean, has it, has it gotten better for us? Are we seeing more stability in our frontline staff now?
Yes, the first quarter was also low. See, last year we had kind of elevated attrition levels, and we were talking about it, that it has reached about 40% levels. And, but in the first quarter of this year, it was lower than 30%. This quarter also, it has been around the 30-ish level, 32-odd so. So definitely for us, the attrition has come up. We can, it is visible to us. We have, we have taken some steps, as, as we had mentioned, that, you know, we had expanded our resource program. We had started, in, you know, a different onboarding program for our front-end employees. So we have done a number of-- we've taken a number of initiatives.
However, we have also, I think, this year, we are also getting support from hiring lull in certain segments and certain sectors of the industry. So, I think a combination of these factors has led to a lower attrition for us in this year.
Got it. Just one last question, you know. I mean, again, if I kind of look at your, your AUM today, looking at the run rate, right? I mean, probably early, early next financial year is where you'll probably look to hit the milestone of INR 10,000 crores in AUM. I think from, from a business model perspective, we've been unique in terms of the connector model that we have, as well as the fact that, our sales and collections, both the hats are worn, by our relationship officer. So I think, I mean, over the course of time, over the last, few years, we've, we've grown, this, this business model. Just wanted to understand, I mean, even at that size and scale, our conviction remains put, right?
That this business model is something which will help us scale further, beyond INR 10,000 crore towards INR 15,000 crore and INR 20,000 crore.
Yes, of course. We are feeling very confident now. We are seeing a strong demand wherever we go, you know, and, you know, we are confident of expanding and deepening our distribution in some of our focus states. In some of the other states where we had a thin presence, we are looking at expanding distribution more in the central and northern states. So distribution expansion itself should allow us to, you know, get from the INR 10,000 crores to INR 20,000 crores level. And, yeah, so, we are feeling very confident. And the model, as far as the connector model is concerned, there is still a lot to be done.
We currently have probably about 2,500-2,600 active connectors in a quarter. And that number can go up multi-fold, you know, as we expand our distribution. So we are confident of the model and confident of the model helping us to achieve those numbers.
This is useful. Thank you so much, Manoj. Wish you and the team the very best. Thank you so much.
Thank you.
Thank you. We have our next question from the line of Renish Bhuva from ICICI Securities. Please go ahead.
Yeah. Hi, Manoj and team. So again, circling back to BT out rate, you know, so despite the higher BT out rate, our growth has been, you know, quite steady at around 8% sequentially. So once we, you know, sort of restrict the BT out, if you highlight that we initiated several steps, so what kind of AUM growth do we target in near term?
Renish, we are looking at a 30% growth rate. I think that's the growth that we have been talking about last couple of years and which we have been delivering. It's a number that is more arrived at through a ground up calculation of, you know, how much we will be able to... how many distribution points we will be able to add, how many people we need to hire, et cetera. So it's a ground up calculation, so our growth projection remains the same at our 30%+.
Got it. Got it. And again, on the... Just to understand, you know, bit more on the BT outs. So, you know, so most of these BT out is due to, you know, the rate excitement. There is no other thing which can sort of restrict or, you know, result in a higher BT. So, when you say that we have taken initiative, could you highlight what kind of initiative we have taken to restrict this BT outs? I mean, apart from rates, if and if we sort of get into the rate war, then would you assume any margin compression going ahead?
Yeah. So, you know, across the board, reduction of rate is not really, you know, would not be really useful to, you know, address this BT outs, because then our yields also will get reduced. So that is really not what we are aiming to do. What we have done is, we have, you know, kind of sensitized our teams on the ground on how to address the BT outs. Because there is a certain point at which the customer approaches us, you know, at an initial— So we are, the BT, the person who is doing a balance transfer needs to be approached or counseled at an early stage.
When the person is coming with the BT check or with the you know transfer from the other bank, so that at that point it will be difficult to stop the person. So we have run some coaching camps for our team to you know help them understand how to you know how to address the BT outs. Plus, we have also circulated you know or tagged the cases which have a high likelihood of BT outs, so that they can give special attention to those cases. Overall, what we feel after having talked to our teams, et cetera, and traveling across the country is it's more of a you know you can say awareness and sensitization issue.
If we are able to pay more attention to customers who are at an initial stage of exploring a balance transfer, we will be able to reduce those numbers.
Got it. Got it. So maybe so try to assume that October monthly BT out will be lower than last quarter average?
Yeah, can't say for sure. Yes, yes, hopefully, yes.
Okay. Okay, got it. And lastly, only, you know, so my interest in the Stage 3 we have had , I mean, is there any specific trend which is impacting or this is just an arbitrary nature?
The delinquency, no?
Yeah, 90 DPD.
Yeah. No, this is, you know, first half of the year. Generally, there is little, but see, because March, the March figures, are extraordinarily good generally. So after that, you know, any figure looks worse than March. So which is, really what we saw this year also. So, the level of collection efficiency that we managed to achieve in March, was not repeated over, over the last six months. So that, that kind of performance again comes in, in the second half of the year. So it's more a seasonal, seasonal movement, nothing, nothing else to it. Because if, if you see the 30 DPD figures, they are, they are flat compared to last quarter. So nothing really to, to be, read into the figures.
Got it. Got it. And, just last question from my side only, ROE, you know, so, we have been able to achieve this, mid-tier ROE, maybe higher than our year plans. And now we are exploring 10% of co-lending on the business front side. So what's the next level of ROE we are targeting? And, the co-lending piece, would it add anything to our earlier assumption on the ROE front?
Dinesh, if you see in the last six months, we've been able to expand the ROE by almost 200 basis points.
Right.
So, you know, it will be a little bit of a stability here for some time. And the co-lending business will require a little bit more time to grow, plus in the right interest rate environment. In a good interest rate environment, this present co-lending can be good. So, you know, give us some time, and hopefully we should outperform these numbers as well.
Got it. Got it. So the near-term target would be to sustain this mid-tier ROE?
Yes. 15%-16% range is what we will sustain in the near term.
Got it. Got it. That's it from my side. Thank you, and best of luck with the next quarter.
Thank you.
Thank you.
Thank you. We have our next question from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity. Firstly, on the growth for this year, you have guided for 30% growth. How should we think about growth for subsequent to year FY 2025? And how are you preparing for that, any guidance on branch addition, et cetera?
So, Nidhesh, our growth of 30%, we are looking at two to three years, because our planning generally is in what do you call two to three years. so, 2.5 years ago, we said we will be able to grow at 30% for the next three years. So, as per our current plans and what we are seeing on two to three years, we should be able to grow at a 30% kind of a level.
What would be the branch addition plans for that?
Branch addition, broadly, we are thinking about 20-30 branches in a year, is the number that we are looking at. But the addition or the distribution will be, you know, more on the number of locations we are adding, the number of relationship managers, number of connectors, et cetera. So those will get added, and that will contribute to the business. So 295 touchpoints is where we are today. We should be adding another 150 touchpoints in the next two years, and corresponding number of RMs. So we are at about 1,200 employees as of now.
And so that number should probably go up to about 1,500-1,700 employees in the next two years. So that's what we are looking at.
Sure. Secondly, so in the last two years, we have expanded into Tier 3 locations as well. In the past, we were operating largely in Tier 1, Tier 2 locations. So, how is the experience in terms of asset quality, bounce rate, in tier three geographies?
The asset quality, bounce rate, et cetera, lastly, very similar to the existing portfolios. So location-wise, we don't see, we don't see any major, major differences. I mean, and we don't. When we go, when we go to Tier 2, Tier 3 locations, and these are generally not very remote locations. I mean, they would be within kind of a driving distance from a branch. So, in that sense, they would be periphery of urban areas, not really remote Tier 3 locations.
Sure. Sure. And lastly, on the BT out, are there any trends that... So, are you monitoring connector-wise, the BT out, and are you seeing any trend there, any connector which is inducing this BT out?
There would be sporadic instances of, you know, connectors referring our customers, et cetera. But those get addressed very quickly, you know, by kind of blocking those connectors or penalizing those connectors. But the trend is more towards, you know, larger cities, you know, larger branches, where there are more BT outs because of more intense competitive activity.
Okay. Sure, sure. Thank you. That's it from my side.
Thank you. We have our next question from the line of Shreepal Doshi from Equirus Securities. Please go ahead.
Hi, sir, and hello, ma'am. Good evening, and thanks for giving me the opportunity. So my question is pertaining to the NHB's undrawn pipeline that we have, which we can draw during the second half, if that's possible.
Mr. Doshi, your voice is cracking, sir.
Yeah. Okay, now?
No, it is not clear.
Am I back now?
Uh,
Hello.
You can go ahead.
So, ma'am, my question pertaining to the end. Okay, we have, which can we draw down in the second half of the year during, I mean, during April 2024?
We have an unreleased sanction line of INR 4 crore-INR 6 crore, which we can utilize between now and June 2024. We will plan based on the business need and how we need to utilize it.
Got it. Got it. And then, with respect to the share of end customers, so we've seen that sharing of honestly-
Shreepal, your voice is not clear.
Am I audible now?
Yeah.
Just wanted some comments or, or color on where do we see the share of salaried customers stabilizing in the overall loan book?
Share of salaried customers, I mean, there is, we are not structurally changing any direction on that. But I think as we penetrate deeper into markets, et cetera, there would be probably, you know, more self-employed customers could come on board. I would say right now we are at about 70/30. You know, I would put it maybe in the medium term, maybe at 60/40, if at all. There is no such strong trend, but, you know, if you're asking for a number, it could be 60 salaried, 40 self-employed.
Got it. And since you highlighted that we are focusing on little deeper geographies as well, but
I'm sorry, Mr. Doshi, your voice is not clear. No, we cannot hear you.
Please come in the queue.
Okay, thank you. We have our next question from the line of Subhranshu Mishra from Phillip Capital. Please go ahead.
Hi, thanks for the opportunity. A couple questions: the first one is on the regulations and the collect, and the documents that need to be given back to the customer and a time that's been stipulated. How does that change our OpEx? That's first. Second is: why are we not looking at, or why are we not making any kind of representations to the rating agencies for the rating upgrade, despite having a strong asset quality numbers? Third is, if you can talk on the cost of acquisition for our home loan customers across markets and across connectors. These are my three questions. Thanks.
Sure. On the documentation, see, we already have a practice of returning the documents within 30 days to customers. So, does not really change anything for us. So we have a fairly strong strong monitoring on that. As far as the rating is concerned, yes, at the suitable time, the rating will get updated, and we are in continuous discussions with rating agencies. So at the point when they find it, you know, find it appropriate, it should, it should, the rating should get updated. On the cost of acquisition, there is not much differential across markets. It is, it anyway follows close in a tight range. So the acquisition cost is generally 30 base, 30-50 basis points for the connectors.
So it's agnostic to markets. It's broadly based on size and nature of the connector, et cetera. So it's a very narrow range of 30-50 basis points across the board.
Sure. And if I can just squeeze in two more questions. The first one is, if you can decompose the 30% growth guidance that you're giving, how much will it... How much would come from the ticket size increase, how much would come from productivity increase, and how much would come from volume increase? That's the first. Second is, we're talking about BT out. However, given the ticket sizes that we deal with and across lenders, the affordable housing comes at a higher yield, and the fee is barely anything in it for someone to really churn a customer, for a connector to churn a customer. So why should we have BT out in the first place?
Yeah. So, addressing the first question, which is the growth, see, most of the growth will come from distribution expansion. We have not really factored in growth on account of ticket size or productivity. You know, those should come as an addition. So currently we are targeting distribution expansion for the growth. Coming to BT out, see, BT out is largely, you know, customer-initiated because which is why the BT out has kind of spiked now, because, you know, this has come on the back of three consecutive pricing increases for the customer.
As customers are getting more irritated, you know, with the extension of their tenures and increase in rates, they initiate the balance transfers more from their side. So which is why I said customer-initiated balance transfers are not many. I mean, there could be sporadic here and there, but not really a major cause. The major cause is customer-initiated only. But when the customer sees a differential of, you know, maybe 4%, you know, on the loan, where they feel that they can get at least a 3%-4% reduction, then they try very hard and pursue a balance transfer. So largely they end up being customer-initiated.
Thank you. This was very helpful. Best of luck.
Thank you. We have our next question from the line of Omkar Kamtekar from Bonanza Portfolio. Please go ahead.
Hello, thanks for taking my question. First question is with respect to, are we seeing, can we have a bifurcation to understand is there a specific bucket size of a specific ticket size seeing more growth? For example, is it INR 2 million-INR 2.5 million having higher, you know, diverse sales than INR 1 million-INR 1.5 million? Is there some-- Is there... Can you see some change in there? Are we seeing some trends there?
Ticket growth is largely coming from, I would say, INR 10 lakh+ . Maybe less than INR 5 lakh is not really an area of growth. There is moderate growth in INR 5 lakh to INR 10 lakh, and largely the growth is from INR 10 lakh+ .
Okay, okay. With respect to the cost of borrowing, so, so our current cost of borrowing is, as per H1, 10.81. The incremental cost of borrowings, what would be that if we, if, if we can have some color on that, what, on-
Incremental cost of borrowing for the last two quarters is in the range of 8.60%-8.70%. We also actually published that on our slide number 27. This 8.60%-8.70% range does not include the NHB borrowing. If you were to include that, the cost of borrowing is around 8.1%.
Okay, okay. Okay, so, so that would be what, what would also go ahead, for maybe for, two, three quarters or more? 8.7 is what we have.
Assuming no change in the policy rates, yes.
Okay, okay. With respect to branch addition, I think you had mentioned, but I did not catch it. What is the number of branch additions that we are looking at and geographical expansion, also, if you could add?
Branch additions, we are looking at 20-30 branches a year. Geographies, our focus markets are West and South. We have Maharashtra, Gujarat, Tamil Nadu, Andhra , Telangana, Karnataka. Our branch additions are currently happening in these markets. We are also beginning to expand in the northern market. MP, Rajasthan, UP also, and you know, we are kind of gaining traction there. In future, you will also see some branch additions coming from those markets. Yes, that you can say maybe like a, say, 70/30 split, 70% will come from our focus markets, West and South, and 30% would come from the northern markets.
Okay. Is the southern market seeing more growth than any of the other markets? Because generally we, we have, you know, dichotomy with the South being the slightly more prosperous and higher income earning states. So is there, is there something of a trend going on that we might see more concentrated growth in the southern states, is, I think, would be, would that be fair?
See, in southern states, growth is more, stronger in higher ticket sizes, because of the reason that you mentioned, which is incomes are going up, et cetera, and states becoming more urbanized and industrialized. Northern markets are also, you know, I mean, they are growing in the core affordable segment, which is, you know, INR 5 lakh-INR 15 lakh segment. Growth in different forms is coming from both, both areas.
Okay. And finally, just a macro update on the specific low ticket size, affordable housing housing segment. What is your view with respect to the two, from a two or three-year horizon? Are we seeing systemic problems in the space or-
Not at, not at all. Not at all. See, there are large, you know, different states are at different income levels, if you look at the per capita incomes. If you see, for example, an MP or Rajasthan, UP, they are at a certain level, you know, which is probably, you know, if you look at the average for the entire country, it's 2,000, let's say on a PPP basis, it's about $7,000. These states are at about $4,000-$5,000 PPP level of per capita income, whereas the southern states are closer to $10,000. The growth is coming in different, different forms. In these large northern states, we get growth in the core affordable segments.
So ticket sizes between INR 5 lakhs-15 lakhs, you know, is growing fast. In the southern states, that more higher ticket sizes, INR 10 lakh- INR 20 lakhs, is growing fast. So, in different forms, we're getting growth from both the sectors. So we don't see a problem at all. We are actually seeing a very, very strong growth at the ground level. I think it's only, you know, our own capacity to grow, our own capacity to hire, train, et cetera, which is a limiting factor. Supply of housing or, you know, demand is really not a limiting factor at all.
Okay. Thank you. That's it.
Thank you. We have our next question from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.
Hi. Thanks, and congratulations, Manoj and Nutan. So my question is now, Manoj, we are looking at a percent CAGR growth for next two years, which means that we are-
I'm sorry, you're not clearly audible. There's a lot of interference.
Is that clear now?
Better. Please go ahead.
So, Manoj, when we are talking of a 30% CAGR growth, so we expect to double, more than double the, our size of the portfolio, see AUM from March 2023 level. And when we are seeing that you are also expanding distribution where the ticket size is little low and where we have to also develop a new connector, so... And our own capacities, which you just highlighted. So how do one really see that will happen?
May I request you to mute when you are not speaking?
Okay.
Sorry, sir, please go ahead with your answer.
I think this, I mean, our distribution strategy is, you know, what we have planned for the next two to three years is as follows. One part of it is deepening our distribution in our existing states, where, you know, which were states which were already urbanized, industrialized, where we had a decent presence. There we are deepening our present penetration. In Gujarat, Maharashtra, Tamil Nadu, et cetera, where we were already present to some extent, we are deepening our present penetration there. I mean, I think three years back, we said that we are going to focus on these states, and we said that we will keep the expansion in the northern states for a little later.
So we are starting that expansion now. We feel that this is the right time to start expansion in the northern states, so MP, Rajasthan, UP, et cetera, which are at a kind of a threshold level today. And where we see that in the next five years, the demand for affordable housing will be really good. So we are, you know, setting our footprint there, you know, establishing certain locations so that we are well prepared and to serve the customers over the next five years. So that is, you know, really how we are looking at our distribution plan.
And second, also, you said that our own capacity to increase because when we are doubling the, more than doubling the portfolio, our asset AUM, but in that kind of, this kind of a number of addition of the branch or is that or addition of the people will be that sufficient?
Yes, sir. No, which is why we said we are looking at a 30% growth. I mean, if we are able to move faster and, you know, because we also have a limitation on number of people whom, you know, people, branches, et cetera, that we can add. You know, if we are currently at about 1,200 employees, we may be able to add maybe another 400 employees in the next two years, not more than that. That is what I mentioned as a limiting factor. If somebody can move faster than that, then the market is not the limiting factor is what I basically meant. I mean, there is enough demand in the market.
Okay. And last question, you said that demand for affordability will continue to grow over the next four to five years. So what is the underlying assumption that are we taking, I mean, that this market will grow? Because in past we have seen there is a lot of ups and downs. So with that background, so if you can give little more color.
Affordable housing is a direct, you can say, a function of incomes. You know, income of the, I mean, income in that particular state. So we are seeing that correlation quite strongly. So states where the incomes have risen, for example, Gujarat, Tamil Nadu, et cetera, the affordable housing demand is really high. So today, for example, a state like Gujarat accounts for about INR 25,000 crore of affordable housing every year, which is actually, you know, probably higher than the affordable housing demand in a state like UP, which is four times the population of Gujarat. So, it's a, we have seen that the affordable housing demand is a function of incomes, per capita incomes.
Which is why, you know, in states like UP, Rajasthan, MP, et cetera, we feel that as the incomes start rising in the next few years, the demand should reach the same level as the other states, you know, Gujarat, Tamil Nadu, et cetera. So which is why, you know, we are projecting that this demand will continue to be relevant, continue to grow over the next five years.
But do you think that in that case, competitive scenario may further increase? Because everyone were looking of this kind of a market, but they were not actively going on. And now the kind of a transfer that also we are seeing.
So competitive intensity has been there, and I think it will continue to be there. But it's also, you know, a business that has a lot of complexity. So, somebody who has been in the business for a while, who understands that complexity and who is able to execute well on the ground, are the ones who will succeed. So competition, I think competition will continue to exist. We have to find ways of addressing that.
Okay. Thank you very much, and all the best.
Thank you.
Thank you. Before we move on to the next question, we would like to remind the participants to press star and one to ask a question. We'll take the next question from the line of Chandrasekhar Sridhar from Fidelity International. Please go ahead.
Hey, good evening. Nidhesh, I had a couple of few questions to you. One is, you know, from the start of the rate cycle, our borrowing costs are up 90- 100 basis points. And, just curious to understand that it... And, the marginal cost of borrowing basically for the last couple of quarters of NBFC basically not really changed. Just, you know, just curious to understand whether we've had the entire cost of fund, you know, the rate cycle sort of showing up in our books, right now because the marginal number has not changed. So it seems, you know, the rate cycle is still, I mean, the rate cycle has been much, the increase in rates has been much higher, but it's not showing up in, you know, in the books.
So, Chandra , you're right. The transmission is largely done, but there is some residual transmission that's still to come in. That is why, you know, we've been saying that, this 8.10 could look more like 8.30, by March. So let's say another 10 basis points increase in the next, two quarters. Let's say there is no further rate changes, then, that should be where we should be for a while.
Understood. Understood. Okay. And so does that mean, I mean, the 525, which you've already said, you know, just in terms of spread, that's still pretty much what you're working with because, you know, spread has been holding up reasonably well?
Yes. Absolutely, yes.
Okay. Okay. And, and then, you know, on, on the yield side, we've taken a cumulatively, 125 basis points hike starting, you know, from July last year. But, you know, the on-book yields are up since then, only up, you know, 60 basis points. So is it, is it fair to assume, so one, I, I would assume onboarding deals must be lower, for customers. Also, is it, fair to assume that some of this, because it is slightly higher balance transfers, that, you know, you've sort of given some discount in yields to, some customers? Is that a way to think of it?
Or are you basically given that, you know, our cost discipline hasn't driven as much, that you've been, you know, far more okay, you know, just on passing on yields entirely, I mean, for some customers?
So, Chandra, actually, customers have been repriced 125 basis points. However, what also happened is, as and when we get the NHB AHF funds, we reprice the customers downwards, and that reflects in the yield line. So you will see that while the spread is protected, the yield shows an optical reduction that is largely because of this NHB AHF fund. And last two or three quarters, we've been doing quite a bit of it, also. On the origination yield, it has stayed around 13.50%-1 3.60%, almost, since the increase of the policy rates. So that has not changed. And-
Right.
- that is the second part. The third part is, you know, our co-lending portfolio is at a slightly lower rate, so that is any trades, it gets excluded from the origination yield, but not from this particular line. But that is sitting at a lower rate, so that also pulls down the rates here.
Understood. Okay. Okay, perfect. And, and then just maybe since lastly, it seems that, you know, over a period of time, the LTV on origination, you know, is, is changing a little marginally. I mean, don't want to read too much into it, but, with the LTV and origination actually at less than 50%, that will going up and more than 80% is actually going down. Is there a change in just the apartment types or anything else or, you know, you just want to add it?
Very marginal change, right?
Yeah, yeah. I mean, it's pretty... I'm just wondering whether it's part of some trend which you have, you know, as a policy which,
No, I think what you'll see in coming years is more self-construction and resale taking a larger share. So the, you know, higher LTV, you know, at origination should keep decreasing going forward. Because the higher LTV at origination is largely only in apartment segment, because, you know, that's a builder-driven market and where the industry practice is to give a higher LTVs. But going forward, you know, as we expand into more, I mean, expand into the other states, where the self-construction is a larger business, self-construction and resale, both, they both come at lower LTVs. So the LTV at origination will keep, should keep declining going forward.
Sure. Manoj, just a last question for you. Just, the thought process behind, you know, the share of, you know, you just make a comment on the share of self-employed potentially going up over a period of time. If it's just a function of distribution as you do get into more and more UP, sort of, which is, is that just natural or is it a conscious strategy to do very more self-employed?
No, no, not. I mean, we never had a conscious strategy to include self-employed. Actually, even from the beginning, I mean, it is just a natural flow of loans to us. That is, I mean, it's the ratio has got formed over a period of time. Partly because, you know, we started out with larger cities, so where there are more employment opportunities, so more salaried customers were there. Plus, you know, we are also more, I mean, our processes are quicker, so salaried customers find it, you know, easy to deal with us. So some of those factors have contributed to a slightly higher share of salaried customers. But otherwise, on in the market, we don't have an articulated strategy of, you know, going only after salaried customers or excluding a self-employed. So that has never been there.
Now, as we are going deeper in the market, we are going into markets where, you know, there are more self-employed customers, I mean, lesser of organized, salaried customers. So I'm just kind of, you know, giving a long-term projection that this could move to a 60/40 kind of a figure.
Good. Thanks so much.
Thank you. We have our next question from the line of Aravind R from Sundaram Alternates. Please go ahead.
Hi, sir, thank you for the opportunity. This might have been answered, but I joined upon lately. Like, the higher ticket-wise book is growing faster than the, like, if I take INR 15 lakhs-INR 20 lakhs or above INR 20 lakhs, kind of, you know, ticket-size loans are growing faster. Like, is it a conscious strategy, like, the profile of customers slightly different when it comes to the higher ticket-size loans?
No. So as I mentioned, you know, it's more a function of, you know, where we are expanding distribution, et cetera. I think, last three years, our articulated strategy was that we will expand in West and South. And as we expanded more in south, you know, the ticket sizes are slightly higher. Like I said, you know, we are getting more loans in the INR 10 lakhs-INR 20 lakhs ticket size range there. But, you know, as we now build our distribution in the northern part of the country, that should again get moderated. So, we are not really going after higher ticket size as such.
It's just the same segment where the ticket sizes in South are slightly higher because, you know, of higher income distribution. And some part of it is also, you know, contributed by co-lending, because now we have a fairly large, I mean, INR 200 crore-INR 250 crore co-lending book, where the ticket size is, you know, naturally high. So as a result of which, also the ticket sizes are showing up higher.
And am I correctly understanding that the yields should not move that much here going forward? Like, let's say, considering if there is no other rate hikes or-
Y es, yes. If there are no further rate hikes, we will not, you know, increase the rate for our customers. Broadly, we should be in the same ballpark estimation.
What is the cost of funds, sir?
Cost of funds, we are anticipating maybe a 10-20 basis points increase, but that's something that we will absorb. We are not looking at passing on a such a small increase to customers at this stage.
Okay, okay. Even though marginal cost of funds is coming down, like, it's still going up. Is it because of the repricing?
Yeah, yeah, the repricing by the banks to us, you mean, right?
Yes, yes, yes, yes.
Yeah. There are some lines which are still left to be repriced. So as they get repriced, it will go up, yes.
Yes. Okay. And just one more question, like, so in the new markets, like, we are entering into this new market, so, does it affect the operating efficiency, like OpEx to AUM, OpEx to assets?
No, not really, because we are. That is something that we are conscious of. So we don't go into really remote markets where, you know, which don't fit into our operating metrics. So we are very much cognizant of our, you know, employee or RM productivity, the disbursal of the sales that an RM has to deliver every month. So we only go into markets where that can be delivered comfortably; otherwise, we will not enter those markets.
Okay, sir. Thank you. Thank you so much.
Thank you. We have our next question from the line of Omkar Kamtekar from Bonanza Portfolio. Please go ahead.
Thank you for the follow-up. So my one follow-up question is, as we keep continuing to hold our 30% growth target, and we are also expanding our, you know, technological capabilities so we can expand and capacity ability. Are we targeting some specific disbursement targets for the quarter or particular month? And do we have something in our mind that we would target this much disbursement per such, per quarter, per month? Anything like that?
Yeah, broadly, the plan is made for the year, so and that is kind of bifurcated into, you know, first half, second half, and we follow that plan. So like you see, we have, you know, our disbursement this quarter is about 7% higher than the previous quarter. So broadly, we follow that kind of a framework, you know, through the quarters in the year.
Okay, okay. So could you, would it be possible for you to, you know, share, what would be the range for FY 2025, if, if it is possible? Or the FY 2024 half, we could extrapolate it.
So FY 2020, so, the current year disbursal, we, you know, the target would be around INR 4,000 crore. That is what we are targeting for this year. Next year, the target will be, maybe INR 4,800 crore-INR 5,000 crore.
Okay. What is the sanction to disbursement ratio, if you can share? Is that data point available, sanction to disbursement?
Normally, around 80% is the sanction to disbursement ratio, 80%- 85%.
Okay. Lastly, a question with respect to quality measures. As we go deeper into your, the, more tier three, tier four city, you know, expand into these areas, we, the probability of us encountering people who are new to credit, and, as you said, the self-employed people, so there is also a higher probability of they having very subpar self-credit. How will... What will be the, you know, measure that will tighten our credit policy so that we don't, you know, increase the NPAs? Will there be specific additional measures involved or the current system would suffice?
So again, you know, while we expand into this market, our basic principles are that the asset needs to be a formal asset, which has got a title, which is a registered title. So we will never deviate from that. That is our basic principle. So, from an asset perspective or property perspective, we will not deviate. We will, maintain that. From a customer profile perspective, yes, in smaller markets, there would be more self-employed customers compared to salaried customers, because there would be, you know, lesser, organized employment opportunities. So that is the only variation that we will kind of, entertain or accept. So as such, we, and so far, we have not seen any asset quality difference in, smaller markets.
We don't anticipate, other than the difference between salaried and self-employed, we don't anticipate any asset quality, I mean, asset quality, difference in smaller markets.
Okay. So, as a consequence, we will also not be required to tighten our measures to, you know, disburse loans to them. I think that that understanding is-
Our screens are more or less the same. There is no difference in screens between a smaller market or a large and a larger market.
Okay, okay. Thank you. That was helpful. Thank you.
Thank you. We have our next question from the line of Punit Daga from VT Capital. Please go ahead.
Yeah. Am I audible?
Yes.
Yes.
Yeah, yeah. Firstly, congratulations on the great set of numbers. Actually, I joined the call a little late, so I just wanted to ask one particular thing, like, could you just state the reason, like, why we saw a decline in our yields by 10 basis points? Is it because of some pricing pressure which we are facing, like, in this segment?
So 10 basis points, there will be some amount of variation month to month, quarter to quarter. Broadly, we are committed to maintaining a 13.5% kind of a yield on an overall basis.
So, we are like, we are envisaging that yields would go down going forward. Like, could you state like, why is it so?
No, no, we have, we mentioned that we are guided to spreads of about by 525. We, you know, so that is more, more from an anticipation of increase in cost of borrowing. Okay, borrowing could go up by another 10-20 basis points. So which we have been saying for the last, several quarters, that we are planning to absorb that, absorb that increase. So which is why we have guided to a spread of 525. Otherwise, the yields are broadly going to be in the same level, that we are talking about.
Okay. Okay, sir. Thank you so much. Okay.
Thank you. We have our next question from the line of Sameer Bhise from JM Financial. Please go ahead.
Yeah, hi. Thanks for the opportunity and, congrats, Manoj and team, for the good set of numbers. Just wanted to get a sense on the co-lending piece. Can you comment a bit on the ticket size of the original origination? And, probably how does it vary, in terms of what customers are selected across banks? Some trends there would be helpful.
Yeah, ticket size is generally, co-lending is allowed up to INR 35 lakhs, the ticket size.
Yeah.
Generally, the ticket size varies, falls between INR 20 lakhs to INR 35 lakhs. So broadly, just we see the average is around 20-23, something around... Between 20 and 25 is the average ticket size for co-lending. From a profile, it is a little more formal customer segment. So customers who have, you know, salary credit in the bank and, you know, working for large organizations, et cetera. So, broadly, that's the profile of the customer. And, so they would be purchasing properties, which are priced between, say, INR 30 lakhs- INR40 lakhs or INR 30 lakhs - INR 50 lakhs. So that's the profile. So this was a profile that, generally, earlier we would avoid because, the pricing would not fit into our, you know, our pricing norms.
But now we can, you know, actually address this segment through the co-lending program.
Is the portfolio quality meaningfully different from our core segment or it is in the similar ballpark?
See, as of now, you know, this is a low vintage, low vintage portfolio. I mean, it's, it would have just, the... I think the oldest case will be probably just one year old. I mean, at least from our own evidence or our own experience, we'll not be able to comment, but logically, yes, it should be a slightly better portfolio, quality.
Fair. Fair enough. This is helpful. I'll probably have some more questions, which I will follow up offline. Thank you so much. All the best.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Manoj Viswanathan for closing comments. Over to you, sir.
Thank you, everyone, for joining us on the call. I hope we have been able to answer all your queries. In case you require any further details, you may get in touch with Manish Kayal. Wish you a very Happy Diwali. Thank you.
Thank you. On behalf of Home First Finance Company India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.