Ladies and gentlemen, good day, and welcome to the Home First Finance Company India Limited Q2 FY twenty-five earnings conference call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need
assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj Viswanathan, Managing Director and CEO of Home First Finance Company India Limited. Thank you, and over to you, sir.
Thank you. Good evening and greetings to everyone, and a warm welcome to all the participants, to the Home First earnings call to discuss the results for quarter two of FY twenty-five. Today on the call, I'm joined by our CFO, Mrs. Nutan Gaba Patwari. Together, we extend a warm welcome and hope you had a chance to review our investor presentation and press release that have been uploaded on our website
and stock exchanges. Additionally, Excel fact sheets, including the historical data, have also been uploaded on our website. Let me start by giving you the highlights of our quarter two performance. We are pleased with the company's strong performance during the quarter. We continue to expand our distribution footprint deeper into our existing markets.
In quarter two, we added nine new branches, two branches in Gujarat, one branch in Maharashtra, one branch each in Maharashtra, MP, Chhattisgarh, New Delhi, Uttarakhand, UP, and Rajasthan, bringing the total to 142 branches. With digital and potential branches, we now operate across 351 touchpoints in 138
districts spread across 13 states and union territories. We continue our track record of quarter on quarter increase in disbursements with the highest ever disbursement of INR 1,177 crores for quarter two. The AUM has grown by 34.2% year-on-year to INR 11,229 crores. Employee strength has grown from 1,249 in March to 1,642 in September 2024, which puts us on a good wicket for further expansion.
Our asset quality remains strong with early-phase delinquencies under control. 1+ DPD stands at 2.5%, which is flat on a quarter-on-quarter basis. 30+ DPD stands at 2.8%, which is down ten basis points on a quarter-on-quarter basis. Gross stage three GNPA at 1.7%, again, flat on a quarter-on-quarter basis. Our
credit cost at 20 basis points has decreased by 20 basis points on a year-on-year basis and has remained flat on a quarter-on-quarter basis. The profit after tax for the quarter stood at INR 92 crores, which is an increase of 24% on a year-on-year basis, delivering an ROE of 16.5%, which is an increase of 20 basis points compared to quarter one.
Our well-diversified borrowing profile has enabled us to manage borrowing costs, effectively maintaining the spread at 5.3% in line with our guidance. Technology remains central to our strategy. Account Aggregator adoption has become mainstream, with an adoption rate of about 49% among new approvals. This was 41% in last quarter. We continue to exploit opportunities in technology and data
analytics and keep optimizing and tracking our operational processes and productivity. Penetration is strong, with 95% of our customers registered on our app. Digital fulfillment has reached 75% plus with the use of digital agreements and in-house mandates. 89% of service requests are raised on a mobile app. 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, Manoj, and good evening, everyone. Let us start with the key financial metrics. Starting with spreads. After repricing in August 2024, our spreads, excluding co-lending, expanded by 10 basis points, and is at 5.3% right now. Net interest margin was 5.2% owing to leverage effect. Operating expenses to assets were maintained at 2.7% for the quarter, in line with our expectations. The slight increase in
employee cost is due to the new ESOP grants during the quarter. We expect the OpEx ratio to remain range-bound within 2.7% to 2.8% as we focus on expansion. Fees and commission income saw an increase. This is due to our products and agreements put in place with insurance companies after we received the proper agency license in FY 2024. Credit cost is at 20 basis points.
Our annual guidance for credit cost is around twenty to thirty basis points, just being conservative here. Moving on to the balance sheet and capital position. Balance sheet remains robust, providing a solid foundation to support the company's growth ambitions. The company's borrowing profile continues to be well diversified and cost effective, reflecting our prudent financial management. We continue to maintain three months of cash on the balance sheet and high liquidity buffers. Liquidity buffer at the end
of September was INR 3,000 crore plus. We also added a US dollar ECB to the borrowing mix with a drawdown of $35 million from DFC during the quarter. This is a ten-year loan, fully hedged on our balance sheet. As part of our liquidity management strategy, we also executed a direct assignment transaction of INR 154 crore during the quarter.
With this, the borrowing mix now is 60% from banks, out of which private sector banks are 29% and the balance is from public sector banks. NHB refinance is 16%, direct assignments is 13%, and co-lending is now 3%. NCD and ECB each constitutes 3% in our borrowing mix. We have no commercial paper and
zero borrowing through any short-term line. Our cost of borrowing is competitive at 8.3%, excluding co-lending, and 8.4% on the total, enabling us to maintain healthy spreads. On capital adequacy and liquidity, again, our total capital adequacy is 36.4%, and Tier one is 36%. Our basic equity is 3.9%. As of September, our net worth is INR 2,289 crores. Our book value per share is INR 257 per share.
Finally, moving to the provisions and asset quality, we continue to adopt a conservative approach to provisioning, maintaining a provision overlay above PCR requirements. Our stage three provision coverage ratio is 48%, because NPA reclassification as per RBI circular, the provision coverage ratio is 64%. Overall, our business remai
ns on a strong footing, supported by diversified borrowing profile on a solid capital base and proven risk management practices. We remain focused on leveraging technology, expanding our distribution network and ensuring operational efficiency to deliver sustainable growth. With that, we conclude our opening remarks, and happy to take your questions.
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. The first question is from the line of Ganesh from ICICI Securities. Please go ahead.
Yeah, hi, Manoj Vishwanathan. Congrats on a good set of numbers. Just two questions from my side, one on the bounce rate, right?
Sorry to interrupt you, sir. I would request you to please use your handset.
No, I'm using handset only. You are audible now?
Yes, sir.
Okay. Yes, so I have two questions, one on the bounce rate. So you know, while there has been a steady improvement since past many quarters, but when we look at the October month number, you know, there has been a sharp 40 basis points increase in bounce rate to 15.6, and this is, in fact, the highest in last 8 quarters. So how one should read this bounce rate rise in October month?
As of now, nothing to read into it, because, if we actually look at the... I mean, we are on twenty-fifth of this month, and, you know, a majority of the collections, bounce cases, collections actually happens by twenty-fifth. So we are actually trending, you know, you can say very well as far as the collection is concerned. So, I mean, if you were to, let's say, look at, you know, some of the good months of collections that we had in the last, let's say, seven to eight months, I mean, October ranks, you know, kind of on par with that. So as of now, I would say nothing to be read into it.
Also, if you see the collection figures, you know, six days post the bounce, so 15.6 was the bounce rate. Within six days, about 5.6% of the people have actually paid back. So if you look at the bounce number after six days, it is 10%, which is in line with what has been happening in the last, you know, several months or several quarters.
Got it. Got it. So basically, it is fair to assume that in last ten days, let's say the collections, by and large are at par with the previous months?
Yes, yes. Yeah.
Got it. Got it. Okay. And my next question is on the employee expense, right? So even in first quarter, that line item grew by 14% sequentially. This quarter, it is up 20% sequentially. And also, when we look at the employee counts, you know, we have been adding almost 250, 350 people on annual basis. Last year as well, we added 250. First half, we added 350. So are we redesigning our business model wherein the incremental, let's say, disbursement of the business will be more driven by the DSTs and less from the connector? Or, I mean, how one should think about it?
No, we don't have a DST model as such. It's, you know, the connector model, which is basically a completely variable expense model, is what we are, we continue to operate with. Our employees basically consolidate these leads and, you know, then they contact the customer and take it to closure, so whatever model we have been following for the last fourteen years, we have not changed anything in
that, so number of employees, as we pointed out, we have actually increased the number of employees in the last two quarters. You know, and that is, in kind of, you know, on track with our plan, so we are basically building the employee base for, you know, expansion over the next two to three years. So that is in line with our plan.
Got it. Got it. And Manoj, just last question, on the, let's say, slightly medium term point of view, now since we have sort of crossed that, ten thousand crore mark on the AUM side, from next two to three years perspective, how confident we are, about sustaining this thirty plus, growth rate, or do you foresee moderation in that?
No, we don't see moderation in that. You know, the design was that we will grow by. We want to grow by 30% and you know, all other activities in terms of employee hiring, branch expansion, you know, new location expansion, et cetera, we have planned on that basis only. And so that is going, you know, going as per plan. So if you look at this year also, we have disbursed more than INR 2,300 crore in the first two quarters. And so the plan is that in the next two quarters, we should get to about INR 2,500-INR 2,600 crore. That was the plan. And so we are on track for that plan.
And that would deliver the 30% plus growth rate. Similarly, the plan for next two years is that, you know, we get to a 500 crore run rate next year and a 600 crore run rate the year after. So the expansion and employee base increase is on par with that.
Okay. Okay. And maybe let's say, given the current stress in the MSME, our customer segment is very different, and you know, given the regulators also sort of not happy the way you know HFCs or NBFCs are growing. So do you foresee that risk, let's say, playing out for our growth plans in near term as well?
No, the MFI sector is, I would say, fairly disconnected with our sector, and we have had cycles, the MFI cycles in the past as well, but it has not really impacted our sector too much. The housing loan customer is generally fairly conservative in their outlook and, in terms of their borrowing profile. And we have very, very little overlap with the MFI sector, actually. So these would be customers who generally would have started their borrowing, you know, borrowing profile with maybe a consumer durable loan or a two-wheeler loan, not really a MFI loan. So it's a different, different profile of customers.
Regulatory risk?
Regulators, see, the as far as housing is concerned, frankly, you know, regulators, what we are seeing is they are pro-housing. I think most of their actions have been to curtail unsecured lending and to curtail lending where, you know, they don't know the end use, et cetera. But as far as housing is concerned, actually, there has been a lot of support coming through and, you know, the PMAY has also been relaunched. And in all our discussions with the regulator, et cetera, they, for the core housing sector, frankly speaking, there is, we are not seeing any headwinds from there at all.
Got it. Got it. This is very helpful, sir. Thank you, and best of luck.
Thank you. The next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah. Hi, Manoj and Nutan. So first question with respect to the geography, particularly Karnataka, it seems to be doing quite well, both with respect to sequential as well as the year-on-year growth. Anything specific to read into this? Is it like maybe the overall segment led by the network expansion, or there is something else? Because the growth seems to be quite high. Both Karnataka and I think UP is anyway choice because of the presence, but Karnataka in particular.
No, nothing specific as such. It's, if you remember, maybe a year ago, there was some struggle with Karnataka. But we have kind of turned the corner there, and you know, it's growing as per our expectation now. So, there is, other than that, there is nothing else to read into it.
Okay. And, second, with respect to fee income, not sure if you indicated, but, slightly higher fee income during the quarter. So is there any element of one-off out there?
So Kunal, it's not a one-off. So we have, you know, rehashed the entire insurance partnerships after the corporate agency that we got in last year. So about four crores of income per month is what will accrue to us on the back of that moving ahead. So it's a new start which is more or less settled now.
This is just for a month. When we look at fee income of now nine odd crores, so this is like a month's income and...
So there are two components to this, fee and commission income. One is the commission income, which is approximately 7.5-8 crores for two months, because the entire partnership actually started from first of August.
Okay.
And, the balance INR 1-1.5 crore is the usual number that we used to have even before, which would be, you know, your loan fee, some of the other fees and charges that get charged to the customer on an ongoing basis. So that's which was there already. And about INR 7.5-8 crores is the new commission income that got added to the line, which will continue on a monthly basis.
Sure. And one last thing on the regulator part again, just to touch upon. So specifically, they are highlighting that, maybe because of the investors' push, there is a chase for growth, ROE, and, maybe, the growth is significantly higher than what the actual demand seems to be at the ground level, and they have indicated HFCs out there. So maybe any read-through for us, maybe any indications from the RBI with respect to maybe how we are conducting or the pace at which we are growing, yeah?
No, no, Kunal. Actually, I would say that, you know, see, on the pricing side, you know, the rate that we are operating at, you know, the 12-13% range, which we are operating at and many several other housing finance companies also operate at, that is a very well-socialized figure with the regulator. You know, it has been... They have gone into very extensive discussions on what that figure should be. And they have also agreed that, yes, a 12-13% rate is what is required in this business, to sustain the cost and, you know, the credit cost, and so on and so forth. So it's a very well-socialized number.
Frankly, we don't find any disconnect at all over there, as far as the pricing is concerned, you know, when we are operating in a 12-14% range. As far as the growth is concerned, again, we have never heard anything in the last two years from the regulator about, you know, being aggressive on growth, et cetera. In fact, we have been part of some discussions where the regulators are actually pushing us for more housing growth. I would say that, you know, this is something that we have not heard at all.
Okay. Okay. Thanks, and all the best. Yeah.
Thank you. The next question is from the line of Sripal Doshi from Equirus Securities. Please go ahead.
... Hi, sir. Thank you for giving me the opportunity. My question was pertaining to the rate hike that we had taken in August 2024. So, do you believe all of it would get, would have been reflected in our pricing or in our yields now? Or would it still take some time for the repricing or for the impact on tenures to get reflected?
Will be reflected.
Will be reflected, but it's... You can say two-thirds of it has got reflected last quarter, because it got reflected only from first August. So kind of maybe a full impact will come this quarter. So if we had a 10 basis points impact last quarter, maybe this quarter, this quarter will be maybe 12-13 basis points.
Got it. Got it. And the second question was on, on the leverage front. So the leverage has been inching up for us in the last, twelve, fifteen months' time period. So what is the peak leverage that we have in mind, which, up to which we will be, we would be comfortable, with and, and you would look to, look at options like capital raise?
So if you see, the key financial ratios, the leverage, right now actually on debt to equity is about 3.7. So we think that we can keep it for a fair bit, perhaps closer to 5. And so we have about maybe 24 months before we need to look at a capital raise. Maybe 12-18 months, we can put it back.
Okay. Okay. Got it. Got it all. And just last question was on ticket size front. So if you look at the above 1.5 million ticket size, there, the increase has been pretty sharp. So in FY 2022, it was closer to 32% of our overall loan book. Today, it stands at closer to 47%. So, I mean, and of course, that is inching our ATS as well. So where do you see this sort of stabilizing, or would it tend towards 1.3 sort of number as well?
You're talking about the more than 1.5 million? Or-
Yes, one point five. So we have we give the ticket size based AUM as well, right? So in that, if you look at the above one point five million ticket size-
Above 1.5 million, yeah. Above 1.5 million, correct, yeah.
So there, you know-
1.5 million you're talking about?
Yeah, so it has increased from almost a 31% in FY 2022 to almost 47% as we speak today. So where do you see this sort of stabilizing now?
So see, some gradual increase will be there because, you know, ticket sizes of properties are increasing. The same property, you know, in terms of size, five years ago and today, the price is very different. I mean, there is an inflation effect on one hand. On the other hand, there is also, because incomes are rising faster than inflation, so there is also an acceleration effect that is taking place. So the same kind of customers, same profile of customers are actually now looking at larger properties. You know, there was once a scenario in Mumbai where there was a concept of one room kitchen.
Now no builder is building a one-room kitchen at all, because there is no demand for one-room kitchen. So even the basic, you know, first-time buyer is now moving from 300-400 sq ft to 600 sq ft or 700 sq ft requirement. So that inflation effect will be there, and the trend that you're seeing will probably continue. You know, there will be, of course, maybe at least a 1% or 2% increase in ticket size every year. You know, that is the trend that we are seeing.
Got it. So just one follow-up here: So are we not seeing decent traction or decent, you know, number of opportunities in the, say, probably seven, eight lakh rupees ticket size as well? Because there would be a customer segment who will be moving from, say, probably four, five lakh rupees in the tier-three, four geography to eight, nine lakh rupee loan as well, as we go ahead, as we look at this inflation scenario playing out for that customer segment as well. So are we not targeting that customer segment or, you know? So just some color here?
We are not excluding any segment. The key issue is that, you know, earlier, you know, maybe five years ago also, there used to be properties available, readily built properties, I mean, properties built by the developers, which were available in the 5-10 lakh range. Today, those kind of properties are not available in the 5-10 lakh range. So a 5-10 lakh range property is only possible if the customer is constructing on their own, and if they already have a plot of land. So, basically the supply in that segment is also
reducing, you know, for the same reasons that I indicated, which is partly inflation and partly aspiration. The demand for housing in the less than 10 lakh category is also slowly diminishing, so I mean, today the 15, the 10 to 15 is the new 5 to 10, you can say.
Mm-hmm. Got it. Got it. Got it, sir. Thank you so much for answering my question, and good luck for the next quarter.
Thank you. The next question is from the line of Rajeev Mehta from YES Securities. Please go ahead.
Yeah, hi, good evening. Congrats on very good numbers. My first question is on disbursements. So when I look at disbursements on a Q on Q basis, there is a growth, but the growth has been lesser than what we have generally seen in Q2 over Q1, and generally what we have been delivering in the past few quarters. In terms of momentum, there seems to be a slight slowness. Any markets or locations where
we are calibrating growth approach on our own for reasons like pricing, competition, or initial quality indicators? Or otherwise, if you can tell us whether can we revert to again the growth momentum that we've been delivering so far in the next quarter also?
... So Rajeev, I would not read really so much into it, because if you see the trend of, you know, from Q1, Q2, Q3, Q4, so generally Q1 is fairly slow. If you see the last two years before this, the Q1 growth has been generally maybe less than 3% over, you know, Q4. This year we kind of, you know, reversed that, I mean, or, you know, changed that trend, and we had almost a 6% growth in Q1 over Q4. So to that extent, you know, Q2 was a little more moderate. If you actually see H1 over H4, it has the same trend as the last two years. I mean, it's about 11%, 12% kind of a growth of H1 over H2 over H4.
If you take the last three years, the growth of H, H1 over H4 has been about 11-12%, you know, compared to H4. This year also is the same trend. It is, I think, just a rebalancing between two quarters. I mean, it's a question of, you know, maybe 20-30 crores moving from one quarter to the other quarter. I mean, if let's say, instead of booking it in the first quarter one, we have booked it in quarter two, maybe we would not even be having this discussion.
Understood. So on an annual basis, that 20% or 30% disbursement growth run rate should continue, right?
Yeah. So we are actually. Our design has been to get to a 30% AUM growth. Okay, so the design is not for a 30% disbursement growth, it's for a 30% AUM growth. So somewhere between a 20%-30% disbursement growth, we'll be able to, with the 20%-30% disbursement growth, we should be able to
achieve a 30% plus AUM growth. So that has been the design. So the design is that, you know, this year we will clock a run rate of about INR 400 crore per month. Next year, we will clock our run rate of about INR 500 crore. Next year we'll clock about 500, and the year after, about 600. So that has been the design principle. So, and that will help us to reach that 30% AUM growth.
Okay. Okay. And Manoj, do we play on pricing when we get into a new market? Or if you want to grow faster in a certain market, do we play on pricing or is the pricing standardized because the underwriting is centralized? Just want to check on that.
Pricing is actually fairly customized. It's a risk-based pricing model, which we run at the back end and, so, you know, so what we have done is, you know, for each loan, we expect the relationship managers to discuss with the customer and, you know, onboard the customer data on the system. And based on the
customer data, we then run the probability of default and, then throw up the risk-based pricing for that customer. So it's a customized pricing for, literally every customer. So it depends on the customer profile, it depends on the location, it depends on the risk profile of that particular area, et cetera. So based on all that, we kind of throw up a individualized or a customized, risk pricing for each customer.
No, because I think I was coming from trying to understand, for example, a market like Rajasthan, which is fairly mature and established. There's a lot of competition already in that market. And, you know, we've been growing very fast. And, you know, the share of Rajasthan in overall AUM has been increasing. So just wanted to understand whether one aspect of growth could also be a play on price. I understand distribution is a larger aspect, but we don't do that, right? That's what you're saying. It's purely customer profile specific.
Yeah, it is customer profile specific. And, of course, in, for example, larger cities, maybe, you know, maybe a Mumbai or, you know, Ahmedabad or, larger cities where, you know, it's. So it depends on multiple factors. It depends on the product, depends on the city. So, we customize the pricing according to that. So in some places, yes, we may be more competitive on pricing. Some places where we can extract a la- higher pricing, we would be able to, we will be doing that.
And just one last thing on funding. We have got 500 crore NHB sanction. So is it between the two schemes of AHF and refinancing? That's one, first question, and then what could be the blended cost of it when we avail it?
That is, yes, it will be a combination of both. The exact breakup will be known when we come closer to the drawdown, depending on how they are raising the funds from ministry or otherwise. Cost again depends on the proportion. So, for example, the regular refinance is, you know, just above 8%, whereas the AHF portion is, you know, much more attractive. Of course, we have to also pass on the benefit to the customer. So I think only once we availed this, actually, can we give you an exact number, but-
Because the ratio gets determined actually very close to the disbursement date, and.
Okay.
you know, we are still discussing with them on the disbursement. So closer to the date, actually, they determine the ratio. So we have-
I see.
We don't, as of now, we don't yet know that ratio, how much is AHF and how much is normal.
Mm-hmm. And Nutan, just last one thing, the bank loans, you know, the mix, across benchmark, MCLR, repo, and any other benchmark?
So, the repo, T-bill, et cetera, which is your short-term benchmark, will be close to 20% of the entire borrowing book of the bank portion I'm talking about. The rest will be MCLR, three, six, and 12 months, broadly equally split.
Okay.
So let's say once the rate cycle reverses, the first three months, we should be able to get about 30-40% of the book repriced.
Repriced. Right. Yeah, yeah, thank you, and bye.
Thank you. The next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Hey, hi, Manoj, and hi, Nutan, from Rajasthan Results. I have three questions. One is, can you give some sense on whether the balance transfer requests this quarter were relatively on the higher side versus maybe what you would have seen in the previous few quarters or last year. And also, if you can give some sense on, what percentage of the BT requests were retained by you, as compared to last time. So any broad sense would do. Just trying to understand the comparative intensity there for you. That's my first question.
So a balance transfer, it is, you know, because the numbers are very close to each other. I think the peaks that we have seen is about 8%, and last quarter was about 6.7%. So, I mean, one way to look at it is, yes, there has been some moderation on the BT out, because last two, three quarters, the number has been
more, closer to six, rather than eight. So there has been some moderation in the BT out. Now, it's difficult to say whether there is, it's actually because of, reduction in, intensity, BT intensity in the market, or whether it's because of our own effort. Because, see, about two, three quarters back, we launched a very concerted effort to retain the balance transfers.
So we put in place a protocol and training for the branches to retain that. So we would like to believe that that has made some impact. So I wouldn't say there is any reduction in the BT intensity in the market. It's more, could be more or less similar to what it was in you know over the last several quarters. But yeah, I mean.
This was the reason that I was, you know, trying to what I was trying to understand was that you've taken a PLR hike in this quarter, right? Two-thirds of which has been passed on. And despite that, what I see is that the origination yields are flat. So, I was just correlating as to, you know, whether, you know, the yields, incrementally yields being flat here, does it mean that, you know, you may have passed down some kind of benefit to the customer, and as a result of that, you know, you may have been able to control the BT for you?
Sir, Raghav, why are you comparing the origination yield with the PLR increase?
Okay.
Book yield, right? The book yield is not flat.
Right. Yeah, the book yield has increased by about ten basis points.
Okay. So, there's no correlation as such.
Yeah, and the increase happened effective first August, right? So, it is not a full year basis.
Last year, you see, Raghav, the, you know, not last year, up to April 2023, that is actually in FY 2023, the rate increase that was passed on was almost 125 basis points, you know, at one shot. Well, not one shot, across two, three installments. But, so that was a pretty large increase that was passed on at that point. Compared to that, what we have passed on now is very small, 35 basis points, and it is coming after almost a gap of 15 months. So this has not created any ripple as far as, you know, the customers are concerned. Also, a large part of this rate increase was passed on through a tenure change.
You know, almost 93% of the customers actually underwent only a tenure change. I mean, they did not undergo any EMI change. So to that extent, you know, they did not get disturbed. So I would say there has been not much impact of this rate increase on the customers.
Understood. That's fairly clear. Another question is, you know, it's pretty clear that you've been very aggressive in terms of hiring compared to the usual trend that's there for your company. And as a result of that, what I am seeing is that the number of employees per branch has increased. It's, I think, at an all-time high of some 11, 11.5 employees per branch. Is there some change in sourcing strategy or organizational structure? Can you throw some light, you know, whether, you know, later on, maybe you'll expand branches at a higher rate, and not the employee base, so the employee per branch would come down? That's my limited question.
Yeah. So hiring, see, there is, there has been no change in the hiring strategy. Hiring, normally, we do a lot of hiring in the first two quarters because, you know, that's the placement season, and, you know, we do most of our hiring from campuses. So they all, the campus, you know, the campus recruits join during
these two quarters. So that trend has continued. I think what you would be seeing is a more sharper increase in the employee base, right? From 1,215, you know, end of last year, to about 1,650. So about 400 employee increase in the last first two quarters, which, generally it is little more, a little more modest. That is because of the attrition also shrinking parallelly.
So generally, there is also attrition, which is 30%-35% plus. But this year, the attrition has been sub 30. So to that extent, we have been able to retain more employees. So as a result, you're seeing the employee base going up sharply, more sharply. But we don't intend to let up on the hiring, because we
feel that this is a good opportunity, you know, while the attrition is shrinking, this is a good opportunity to hire more employees, and kind of, you know, build the employee base for the future. So that is really, I think, what is behind the strategy. So, in the normal course, if attrition was lower, probably, you know, we could have ended up hiring fewer people. But we have continued with our hiring plan so that, you know, we are able to kind of get, you know, add the employee base for the future.
So is it fair to assume that in H2, the employee hiring would be a lot more moderate compared to the trends that have been there in first half?
No, hiring, we actually do the hiring in H2. So we do the campus visits, and we make the offers, et cetera, in H2, which we intend to do now. We are already in the process of doing. But the candidates generally tend to join us in the first two quarters.
Understood. And you are still sticking to that, branch opening for this year, right? I think, twenty or thirty. Is that correct, for the full year?
Yes, we continue to operate on that format. So about 25 to 30 branches per year is what we're looking at.
... Thanks a lot, and that's all from my side. Thank you.
Thank you. The next question is from the line of Arvind R from Sundaram Alternates. Please go ahead.
Hello, sir. Thank you so much for the opportunity, and congratulations on the good set of numbers. Sir, like, one question I had on disbursements. I think you answered that in terms of, you know, like, you know, QOQ, the growth was flattish in disbursements. I understand that, but I also wanted to understand, like,
you know, in terms of asset quality. I understand, like, you know, our GNPA is being, you know, stable. But do you, you know, track any data in terms of, you know, our customers in, you know, either defaulting or anything like that in their unsecured or in their other loans? Do we have any set of data or anything like that to track?
See, the data scrub we do once a year, but then, you know, that would be a bit dated. So, you know, I mean, we would not have something which is. I mean, this phenomenon which we are seeing in the market is more recent, maybe in the last two, three months, kind of a thing, phenomenon. So we would not have recent data to say anything about whether that, that is, that is happening. The data scrub normally happens once a year, so that will take some time.
Okay. Yeah, because of the stressors not just seen in MFI, but also in, you know, unsecured portion of even some large banks. So that's why I was trying to understand that.
Yeah.
And, also, sir, like, in terms of fee income, I understand that, you know, this insurance broking business is just panning out, and it can also grow. But it, do we see any other, you know, forms of, you know, fee income drivers that can come in the future? Like, do you foresee anything like that?
So we want to focus on insurance, because insurance itself is a large, large business.
Yeah. Yeah.
So we want to kind of focus, stabilize that before we think of something else. So next two years, we will be basically focusing on this to kind of stabilize it. And maybe after that, we can think of other, you know, other options.
Okay. Mainly, like, is this life insurance or like a, you know, general insurance, health insurance?
Life and general both. So life insurance basically to protect the loan in case of any unfortunate event to the customer. And the general insurance basically protects the property, you know, from natural disaster, et cetera.
These two insurances we generally do. Okay.
Yeah. Yeah.
Okay. Okay. Sure. Thank you so much for the opportunity, sir.
Thank you. The next question is from the line of Chandra from Fidelity. Please go ahead.
Hi, good afternoon. Three questions. One is, so what percentage of the people was the last increase in PLR rolled out to? Was it rolled out to everybody or just a certain set?
So the PLR increase basically happens on, you know, on the entire, the entire base. So, it's a benchmark change, internal benchmark change, so that happens on the entire base. But what we also did was, the, you know, the customers who had a good track record for maybe, more than one year, two years, we also gave them a discount on the rate. So to the extent of, you know, so basically helps them to get a, to adjust to the PLR, increase in PLR. So you can say the PLR increase affected about maybe 50% of the customers.
It's that? Okay. Okay, got it. Secondly, is it fair to say that spreads are sort of now, plateaued, from where they are? I mean, how do you think this around cost of funds and spreads? And then, you know, in the sort of previous cycle when, cost of borrow went down, you managed to, you know, show an increase in spreads. As we sort of look over the next twelve to twenty-four months, with sort of the rate cycle, going the other way, at some point in time, how does... How do you think, of spreads? And then just lastly, the ESOP pool, can you just remind me, does it cover, what percentage of people in the branch, does it cover as well?
Yeah. So, see, spreads are, you know, spreads we have been maintaining that, you know, 5-5.3 is the kind of spread that we will be able to achieve in this business. And, so it's kind of hovering over there. But if the rate, you know, there is, if there's a reduction in rate or cost of borrowing reduces, there will be periods where we probably enjoy a larger spread, because, you know, there will be some lag in passing
that on to the customers. But, on a steady-state basis, 5.2-5.3 is something that we should be able to maintain. As far as the ESOPs is concerned, so we basically provide ESOPs to, you know, from any, from a supervisory level. So basically, at the branches, it is all the branch managers who are covered through the ESOPs. In other functions, it's basically people who are supervising teams.
Right. So every branch manager, basically, of these 140 branches is covered in the ESOP pool?
Yes, yes. They will be covered by the ESOP pool. I mean, unless they have kind of just become a branch manager and they missed the previous cycle. But otherwise, they will all be covered.
Right. Okay, great. Thank you.
Thank you. The next question is from the line of Harshit from Premji Invest. Please go ahead.
Hi, sir. Congratulations on-
Sorry to interrupt you, sir. I would request you to please use your handset.
Is this better?
Yeah. Yes, go ahead.
Yeah. So just one thing, so on the model which we follow of the connector, I think when we recently look at the other players, maybe they were late in catching up, and maybe it could have been they were not aggressive in this, but the peers have started becoming aggressive on this channel itself... and in a very similar concept to ours, building up an app, and then giving it to making more technically technologically easier for them. So do you per se see this, that is there a greater competition aggressiveness on this part of the segment?
Yeah, there is always some, you know, new player coming or, you know, some players starting this concept. Also this concept always, I mean, concept always existed in some form or the other. Probably, you know, more companies are getting more formal or giving it a more formal structure to it. But otherwise, you know, the many companies were sourcing through connectors earlier also. So ultimately it boils down to, you know, what new insights you can gain and how you can kind of make your own app more user-friendly for the connectors. And develop certain insights which will, you know, kind of make it easier for them to deal with us.
So we continue to kind of, you know, keep innovating on that front. So there will be others who are trying to catch up, but we will try to stay ahead of the, you know, stay ahead of them. Because we kind of have a customer advantage, so we have certain insights, we have certain database, you know, and you know, track record of these connectors. So we will hopefully stay ahead of that curve.
Got it. Got it. Sure, sir. And one more thing, sir. I think for us, if I'm not wrong, the underwriting part is something that happens, the valuation, legal validation of the documents, et cetera, the technical part, that happens in-house, in the central location in Mumbai, if I'm not wrong.
No. So there are two parts to the process. There is legal check that happens through legal vendors in the respective locations. And then that legal report also gets verified or vetted by a internal person, internal property underwriting person. So it's a two-phase approval process that we have.
Okay, and that underwriting team is something which is there in-house in our Mumbai. It's unlike other peers, it's not diversified across the region, so.
Correct. That is correct. That is correct.
If you can, sir, just help with the total team size of that underwriting team and, in general, how has the attrition been in that particular? And then, probably the third question, more practically, since the nuances of individual areas differ a lot, how do we ensure that, any recent updates, et cetera, whatever has been happening in a particular region or in a particular district, gets adequately captured in the underwriting process?
Yeah. So, the underwriting team has a size of about thirty, thirty-five people, and we keep continuously adding to that team. So we do a capacity planning in terms of how many applications likely to be received, and, you know, what is the processing time, et cetera, and we keep adding people to that team.
And so there are two, three things that we do to address the local nature of some of this information. So one is that we have these legal and technical valuers who are located in each of these locations, and we have a relationship with them. So they process the application first, they process the title papers and the, you know, technical report first.
So they bring in the local nuance, and then that report is then checked by our internal person who is sitting here in our head office. What we also do is, you know, we have the underwriting team that you see, 35 people over here. They are actually, you can say, cultivated from various parts of the country. So there would be people who have been branch managers or, you know, relationship managers in various parts of the country. So we actually move them to Bombay to, you know, be part of the underwriting team. So, they bring with them their local experience of those locations as well.
And thirdly, what we also do is, we have a continuous process of field visits by the central team. So every month there are one or two, or two, three people who are visiting various parts of the country, you know, to kind of correlate whatever they do in central, the central office with what is happening on the field. So and to keep kind of updated, keep themselves updated on what is happening in the field. So through this, you know, three-pronged approach, we combine the local nuance with the kind of centralized control.
Got it. Got it. Okay. Okay, sure. Thanks a lot.
Thank you. The next question is from the line of Pawan Kumar from Ratnatraya Capital. Please go ahead.
Hi. Can you just highlight why we should keep growing our disbursements lower than the AUM rate? Is it because of the adjustment you are making for assigned loans that are for which you are receiving money? Or how does that work exactly?
No, so disbursement, the planning that we have done for the next three years is based on a certain AUM growth, right? So we wanted to achieve an AUM growth of close to 30%.
Mm-hmm.
And we have done our planning on that basis. So the-
Yeah.
Disbursement growth will be more of a derived number, you know? So there is a certain disbursement growth that will lead us to a 30% AUM growth. So that number will be the derived number. So for, like I said, you know, the number that we are targeting is 20,000 crores in the next, you know, three years. So, by 2027, we want to hit a 20,000 number. So broadly, that translates to, 30% AUM growth year on year.
Mm-hmm.
The growth, you know, maybe 20%, 25%, 27%.
Okay.
You know, it could vary quarter to quarter.
Mm-hmm.
But the ultimate aim or goal being that we have to grow the AUM by 30%.
Okay. Okay. And, any sign, any signs of stress we are seeing, especially on our lower ticket size book?
No, we are not seeing anything ticket-specific as such in terms of stress.
Okay. And so, going forward, also, we are expecting the credit cost, at least as of now, to stay between 20%-30%. That is what our expectation is, right?
The expectation, yeah.
Okay. Thank you.
Thank you. The next question is from the line of Ravi Nareddy from Nareddy Investments. Please go ahead.
Thank you very much. Mr. Manoj Ji, and your entire team doing very nicely working. It is good thing you reduce impairment on financial instrument. Sir, only thing to ask, our net interest rises 50.4% in this quarter, and so and against our AUM rise of 34%. So what is the reason?
Sorry, sir, can you repeat the last part, net interest?
Our AUM rises by 34%, while our interest, net interest, cost is rises by 50.4%.
64% you're talking about,
INR 176 crore against INR 117 crore.
Yes, sir, that's the increase because interest cost is also increasing. So the interest cost, whenever there's an interest cost increase, then that number increases by a disproportionate percentage. So AUM is growing by 30%, 34%, but interest, first of all, there is higher, I mean, the company is getting more leverage. I mean, there is more debt getting added to the balance sheet, so that is one factor. And secondly, the interest cost is also increasing because of borrowing costs increase. So that is why you're seeing a disproportionate increase in the interest cost line.
So in the longer term, rise of AUM percentage and interest costs will be similar?
So in a steady state it will be similar, but, you know, as the company is growing and adding more debt, the leverage is increasing. So at some point, let us say, we say that, yes, we are going to maintain a leverage of, say, 5.5% or 6%. So at that point, then, you know, quarter on quarter, you will find that both will increase at the same pace. But, as the leverage keeps increasing, the interest cost will rise at a higher rate.
Mr. Manoj Ji, my one concern is there, we are maintaining more liquidity. That is the reason we are paying more interest?
No, sir, there are two reasons. One is, as I said, you know, the debt component in the balance sheet is increasing, right? So the last quarter, you would have seen four point six was our asset to equity ratio. This time it is four point eight. Our debt equity ratio has moved from three to three point five to three point seven. So there is more debt proportionally in the balance sheet. So that is one reason for the increase. In the steady state, once that number stabilizes, I mean, once we hit, once we reach a five times debt to equity, and we are maintaining the five times debt to equity quarter on quarter, then you will not see this disproportionate increase.
Okay. And one more thing, net profit rise by 24% against AUM rise of 34%. This is main cost. One is interest and other is staff maintenance cost?
Yes, sir. Again, same reason, because interest cost is rising. So we are, you know, the PBT, PAT is rising at a slightly slower rate than the AUM increase.
Okay. But we are keeping the growth rate 30% onwards in for the full year, right?
Yes, sir. Yes, sir, for the full year.
Okay. Thank you. Thank you, Manoj Ji.
Thank you. The next question is from the line of Jatin, from Burman Capital. Please go ahead.
Thank you for taking my question. First one is around the clarification related to fee income. You mentioned that fee income from insurance commission will be around 12 crores. Earlier, we used to book advertisement income from insurance that used to be around 4.5 crores. So is my understanding right, that the net delta would be 7.5 crores or similar?
So the net delta will be slightly higher. We will reduce the marketing income that we used to get, but not fully eliminate it. So the delta could be in the range of INR 9-10 crores.
Okay, good. Second question is around this PMAY CLSS scheme. Now, please correct me if my understanding is wrong. So, my understanding is that if a customer gets the CLSS scheme, then he will have to stick with the same lender for the five years till he's getting the subsidy. If he switches, then he won't get the full benefit of subsidy. So does it mean that BT out rate will reduce because customer will anyway stick to the same lender, and that will also get reflected in our BT out rate?
Yes, theoretically, as of now, the way the scheme is structured, that looks like a possibility.
Okay, thank you.
Thank you. The next question is from the line of Omkar Shinde, who is an individual investor. Please go ahead.
Hello, am I, am I in?
Yes. Yes, sir.
... Yeah. So first question is on Madhya Pradesh growth. So for Madhya Pradesh has been very good, it is now-
We cannot hear you clearly.
We cannot hear you.
Hello? Am I audible now?
Yeah. Just be a bit slow, so that we can follow you properly.
Okay. So for Madhya Pradesh, the growth has been very good. Quarter on quarter, we have seen 15% growth, which is now at INR 800 crore book. So, and almost every quarter, we have added INR 800 crore-INR 860 crore in the book. So my question is, what is it that it is we are doing in Madhya Pradesh, that it is growing so fast? Because share in the area has also increased very, very much in the past four quarters. So that is the first question.
Which location?
Madhya Pradesh.
Mm, okay.
Madhya Pradesh.
Yes, yes, sir. So as we participated, sir, there is, there are, two, three states where we are focusing now. So earlier, our focus used to be in the western and southern part of the country, and last, about maybe one year ago, we said that we will now start, you know, increasing our distribution in MP, UP and
Rajasthan. These three are the, you know, new, emerging states which have large populations and where, you know, affordable housing is coming up in a big way. So we are just going ahead with that plan. So we have actually opened up locations in MP. We have opened up, added more people in MP. So the distribution expansion is picking up pace in MP.
Also true to some extent in Rajasthan and UP also, you will see that, you know, our pace of growth is higher than other parts of the country. So Rajasthan has grown by about 41% and, you know, UP has also grown by about 50 odd %. So in all these three states, we are now focusing on, you know, focusing on expansion and, you're seeing the results from that.
Yes, sir. I was going to also comment on UP. So in the UP, Uttar Pradesh, we showed that it is a combined INR 746 crore. Can you give us the split between Uttar Pradesh and Uttarakhand, if it is possible? What is Uttar Pradesh and Uttarakhand?
Uttarakhand would be about 2% of the AUM, if I remember correctly. And the balance comes from UP. So Uttarakhand would be, I mean, totally it's about 6% of the AUM. So otherwise, Uttarakhand will be about 2%, and the balance will be from UP.
Understood. Understood. And now one question on the ECL provision. So ECL provision Stage 2 has increased to 10.1% in the current quarter. Quarter on quarter, it has been a big jump from 7.8%. So, what is that? Because our credit cost, the provisioning that is there in the PNL, that has remained more or less stable. So have we seen any recovery or anything? Can you please explain?
So when we do the ECL model, we look at the model as to, you know, what changes or any overlays that we may have to take. So if you see, year on year, our number had reduced from 8.6% to 7.8% last quarter, and we just thought it is prudent to kind of, you know, take the numbers slightly higher. So we made some very basic changes to accommodate that. If you look at our 30 DPD, that has improved. If you look at the composition of the credit cost also, about 90% of that is just on account of provision. The losses are actually negligible in the credit cost line.
So this is just being more conservative, that we've added a little bit more provision to the, Stage 2. We've also maintained our, Stage 3 provision at 27%. This is just being, little bit, conservative on maintaining healthy provision.
Okay, so you have changed the model or you have taken management overlay?
Management overlay.
Because the overall provision also has decreased. So that was just to understand. We have taken a management overlay, that is correct understanding?
Yes. The overall provision has increased by almost five crores.
Okay. Okay.
Yes.
Thank you.
Thank you. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. Manoj Viswanathan for closing comments. Over to you, sir.
Thank you everyone for participating and engaging in the call. We hope we have been able to answer all the questions to your satisfaction. In case you want to reach out with further questions, you can always reach out to Nupur or write to us at investor.relations@homefirstindia.com. Thank you so much. Have a good weekend and happy Diwali in advance.
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.