Ladies and gentlemen, a warm welcome to Home First Finance Company India Limited Q2 FY 2027 earnings conference call. 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 this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I hand the conference over to Mr. Sunil Anjana, Head Treasury and Investor Relations of Home First Finance Company India Limited. Thank you and over to you, sir.
Thank you, Ikra. Good evening, everyone, and welcome to Home First Finance Company's earnings conference call for the quarter ended September 30, 2026. Our investor presentation, press release, and historical Excel fact sheet are available on our website. The presentation and press release are also available on the stock exchanges. We hope you have had the chance to go through them. Joining us today, Mr. Manoj Viswanathan, MD and CEO, Mr. Ajay Khetan, Deputy CEO and CBO, and Ms. Rinkoo Somani, CFO. I now invite Manoj to take you through our performance and outlook. Over to you, sir.
Thank you, Sunil. Good evening, everyone. Before we begin, I would like to welcome Ms. Rinkoo Somani, our new CFO, to Home First, and we look forward to her contribution to the company's continued growth and success. With that, let me turn to our performance for the quarter. Home First second quarter performance reflects our focus on growing the franchise while strengthening its earning capacity. AUM increased by 27% year-on-year while profit after tax grew by 29.1%. This growth was accompanied by stable early delinquency indicators, an improvement in gross Stage 3, and lower operating cost ratios. At the end of September 2026, AUM stood at INR 18,010 crores, up 27% year-on-year and 6.3% sequentially. Quarterly disbursal reached INR 1,705 crores, an increase of 32.2% year-on-year and 4.7% sequentially.
This expansion in the business translated to profit after tax of INR 170 crores, a growth of 29.1% year-on-year and 6.5% sequentially, supported by a 31.9% growth in net interest income and improved operating efficiency. Return on assets remained healthy at 4.2%, while return on equity improved by 40 basis points to 14.9%. The relationship between growth, portfolio quality, and profitability is central to how we assess our performance. I will take you through each one of these, along with the investments and funding capacity supporting the next phase of growth. We continued to build distribution capacity during the quarter, adding six branches and taking our network to 181 branches and 379 touchpoints. As the network expands, our focus remains on combining customer reach with branch productivity and disciplined execution. Individual housing loans accounted for 84% of the portfolio, while origination yield, excluding co-lending, was 13%.
Our key markets of Maharashtra, Gujarat, and Madhya Pradesh continued to deliver strong growth compared to previous years' first half while maintaining healthy portfolio quality. U.P., Rajasthan, NCR, and Karnataka recorded strong year-on-year growth. Tamil Nadu, which was marginally down on a year-on-year basis in H1, returned to growth with a 12% increase in Q2, reflecting early signs of a strengthened team. Overall disbursal grew 32% year on year in H1 and 5% quarter on quarter in Quarter 2. Overall, the network remains well-positioned to drive profitable growth while maintaining a strong focus on portfolio quality. Portfolio growth continued to be accompanied by stable asset quality. Both early delinquency indicators were unchanged sequentially, with one-day past due at 4.7% and 30+ at 3.2%. Stage 3 improved by 10 basis points sequentially to 1.7%. Credit cost for the quarter was 40 basis points.
Stage 3 provision coverage was 23.6% at the end of September. We also continued to hold management overlays above UCL requirements. Including these overlays, total provision coverage to Stage 3 was 46.4% as of September 26. As the portfolio scales, preserving underwriting standards and collection discipline remains a priority. The combination of stable early delinquencies, lower gross Stage 3, and contained credit cost provides the context for this quarter's growth. On technology and productivity, technology remains a key differentiator for Home First. It is lifting productivity, sharpening underwriting, and supporting scalable growth. Our digital-first foundation and structured data have prepared us well to apply AI across the lending life cycle. Four in-house developed capabilities are live today. Cue records and analyzes 95% of customer calls. Clarify prepares a single case page for underwriters on 100% of the loan files.
BankLens turns a bank statement into cash flow view in about a minute. DocIQ reads all documents that form basis for underwriting and other operational activities. Together, they are shortening turnaround times and lowering document handling costs while every credit decision stays with our underwriters. Over the next 18 months, we will move from these three-point solutions to one shared data and decision platform and extend AI into sourcing collections and servicing in phases. Let me now take you through the financial performance for the quarter. With respect to income yields and margin, the total income for the quarter stood at INR 567 crores, registering a growth of 18.4% year on year and 5% sequentially. Both portfolio yields, excluding co-lending, and disbursal yields stood at 13%, reflecting consistency in pricing discipline and quality customer acquisition.
On the liability side, our cost of borrowing remained at about 7.8%, while incremental borrowing costs remained at 7.5%. Consequently, our spread, excluding co-lending, remained healthy at 5.2%, while net interest margin remained at 6%. Moving to operating efficiency and profitability. Our cost to income ratio improved to 30.8% compared to 32.7% in the preceding quarter, reflecting continued improvement in operating productivity as we scale our business. Operating cost to assets stood at 2.6% compared to 2.8% in the previous quarter. Pre-provision operating profit grew by 26.1% year on year to INR 238 crores, reflecting the operating leverage of our business model as the portfolio scales. PAT increased to INR 170 crores, registering a growth of 29.1% year on year and 6.5% sequentially. ROA stood at 4.2% and ROE improved to 14.9%.
Overall, we continue to focus on improving operating efficiency while investing in the capabilities required to support our next phase of growth. Moving to provisions and asset quality, credit costs remain contained at 40 basis points. Provision coverage on Stage 3 assets stood at 23.6%. In addition to provisions required under ECL framework, we continue to maintain management overlays. Including these overlays, our total provision coverage to Stage 3 stood at 46.4% as of September 26, providing an additional cushion against potential risks. Coming to the funding profile, a diversified funding base continues to support our growth. As of September 26, private and public sector banks accounted for 58% of our funding, while NHB contributed 14%. Assignment and co-lending accounted for 20%, with balance coming from NCDs, VCDs and NBFCs. During this quarter, we executed direct assignment transactions of INR 281 crores.
Co-lending disbursal stood at INR 1.8 crores during the quarter, taking the co-lending portfolio to INR 593 crores or 3.3% of the AUM. Along with partners, we are strengthening the infrastructure and operational capabilities to unlock the full potential of the co-lending channel, enabling wider customer reach, capital efficient growth and enhanced operating productivity. Turning to capital adequacy, our capital position provides capacity to support the business as it expands. Capital to risk-weighted assets was 39.8%, with Tier I capital at 39.4%, compared to 42.6% and 42.2% at the end of June. Net worth stood at INR 4,665 crores, and book value per share is at INR 446 as of September. Our capital position continues to provide a strong foundation for pursuing our growth plans. We certified a further 100 homes in our Green Homes initiative during the quarter, taking the cumulative number of certified homes to 650.
Home First also received the ESG and Financial Inclusion Award in the NBFC category at ASSOCHAM's 21st Annual Summit & Awards for Banking and Financial Sector Companies. Looking ahead, our focus is on converting the capacity we are building into sustained portfolio growth and earnings. This means maintaining underwriting and collection discipline as we expand, managing margins through asset pricing and funding decisions, and improving productivity while continuing to invest in the franchise. As we progress on our growth journey, our priorities remain clear: delivering consistent, profitable and risk-calibrated growth while strengthening our franchise and creating sustainable long-term value for our stakeholders. Lastly, I would like to reiterate what I stated during our January 26 earnings call. I remain fully committed to Home First and its long-term future.
My current term as CEO extends till July 2028, and I intend to remain available for reappointment beyond that, subject to the requisite approvals. My priority continues to be execution on our strategic objectives and creating sustainable long-term value for our shareholders. With that, we will be happy to take your questions.
Thank you very much, sir. 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 Renish from ICICI Securities Limited. Please go ahead.
Yeah. Hi, sir. Congrats on a good set of numbers. Just two things. One, on our MP and Gujarat exposures. Many lenders have highlighted that some districts in MP and Gujarat are affected by drought. Just wanted to understand what is our exposure in this drought-declared areas and also how do you see disbursal and asset quality panning out during particular for this area?
Asset quality in Gujarat and MP have been fairly consistent and very good compared to our national numbers. As far as the drought-related issue is concerned, our business is basically serving customers in the manufacturing and service-related segments. Our customers don't have too much of an overhang or involvement or any dependence on the agricultural sector. Things like drought or monsoon do not have that much of an impact on repayment track of our customers. That's what we have seen over the last several years.
Okay.
We don't see as such any significant impact of the drought on our customer segment.
Got it. Asset quality I can understand, but let us say on the disbursal front, would you want to tighten your credit filters for some time in those areas? In that case, do you see any impact on the disbursal trajectory getting into second half?
See, on credit filters, it is ultimately an individualized approach. Each customer is going through filters and we are taking a customized call on each customer. Obviously, if we find any customer who has got, let us say, involvement in agricultural sector or any dependence on that, then we will take appropriate calls. As of now, we are not seeing anything of that sort.
Got it. Last repetition. While calculating FOIR, do we consider agri income for any of the customer, or we just don't give any weightage to agri income?
There will be very rarely because we don't get customers from that segment. Mostly our customers are people who have left their villages or small towns and gone to larger cities for employment.
Got it.
We don't find such customers.
Got it. We are talking about the spread, right? Since we are entering a rising rate cycle and we've already seen few players raising PLR rate, is it fair to assume that spreads have bottomed out and from here on we'll see improvement trajectory going ahead?
No. We are running a fully floating rate book, and we are committed to maintaining a 5%- 5.20% spread. Which is what we have always articulated.
If the borrowing cost moves up, we will pass it on to the customer eventually. Ultimately, we have to maintain the 5% to 520 basis points spread.
Okay. We are confident of maintaining 5.2% spread. Do you foresee any upside risk to that spread? Because historically, we have been operating at 5.5% spread also. Just wanted to understand, let us say for rising rate cycle give us some opportunity to pass on that higher rates to the customer in that case, including your spreads. Do you feel that is upside risk in a rising rate cycle for us?
No. See, 5.5% or upwards, there was only a short phase post-COVID when we were getting that kind of spread.
Okay
Due to sharp decrease in borrowing costs during that period. Even while we were enjoying those kind of spreads, we always used to articulate that these were not sustainable and we will be closer to 5% to 525 basis points.
Got it.
That is what we continue to maintain.
Got it.
That we should be able to maintain those spreads.
Okay. Please, very helpful, sir. Thank you and best of luck.
Thank you.
Thank you. Next question is from the line of Shreepal Doshi from Equirus Securities. Please go ahead.
Hi, sir. Congrats on a good set of numbers. My question was on the PLR increase. While we have not taken any hike as yet, while the systemic rates have gone up. When do you plan to take that? And with respect to margins also, this quarter, there was some marginal decline, but overall, where do you see margins stabilizing for the full year?
Our commitment is to maintain the 5%- 5.25% margin spreads on each loan. See, right now we have not taken any PLR increase because our borrowing cost has also not moved up post the PLR change. I mean, post the repo rate change. As and when the borrowing cost transmission happens we will take up the rate. The new RBI draft guidelines have been issued on how the rates need to be set and when we can reprice customers, et cetera. Broadly, we will follow that framework. The spirit of the guideline is that, when the borrowing cost moves up we should be able to transmit it to the customer. That is how we will go about it.
This 25 basis point increase right now by RBI, let's say there is another extra, another 25 basis point increase in December. In that case, for the full year, what is the cost of fund increase that we expect in terms of basis points? If you could give some color there.
See, generally, we have about 20% to 30% direct exposure of external benchmarked linked rates. Whenever there is a policy rate change, immediately we get a transmission of probably 25 basis points will basically translate into about 10 basis points borrowing cost movement for us. A 50 basis points change cumulatively what you are talking about will eventually lead to maybe a 20 basis points transmission over a six-month period. Three to six-month period. As and when that happens, we will then reprice the customers.
Got it. Sir, the second question was on the insurance distribution fee-related draft circular. It does contribute to our P&L also in a decent form. How do you see that impacting us and what levers do we have there?
See, the final impact on our PAT or ROA is about 35 basis points. We have to basically make up the 35 basis points. We are hopeful that out of that 35, about maybe 10 basis points will eventually come back as a concession from the insurance authorities. Eventually we will have to make up about 20 basis points. We have multiple levers to make up the 20 basis points. As you know, we have a low share of loan against property in our books. That is one lever that we have at our disposal where we can increase the share of LAP. We can increase the share of assignment to get some additional income. The balance we can make up through a slight change in the pricing or slight change in the fee.
Should not be difficult to make up 20 basis points, is how we are looking at it.
Got it. Got it, sir. Thank you so much for answering my question and good luck for the next quarter.
Thank you. Next question is from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah. Hi, good evening. Congratulations on good numbers. My first question is on this growth and the execution rhythm that we are now demonstrating.
Are we confident that we will maintain this execution rhythm in the coming quarters? You do not seem to be seeing any demand or asset quality issue at this point in time.
Yes. I think there was a set of issues which we were going through last year which got addressed and since last three quarters, we are experiencing very good momentum and very good stability in the teams across various regions. We are looking to capitalize on that and continue this momentum. We do not see, as such, any risk in the numbers that we are talking about.
Consequently, this ROE improvement trajectory that we have been now also delivering about 20, 30 basis point every quarter. Given that the credit cost should remain stable in your assessment of asset quality, then the ROE improvement will also be very consistently coming through every quarter.
ROE improvement of the, I mean
20, 30 basis points per quarter? Or is there a target for exit ROE, say, for next year, fourth quarter, say, FY 2028 exit ROE? Are we looking at 16.5 kind of a number there?
Yeah. This quarter we had 40 basis points improvement in the ROE numbers. Broadly, the ROE that we are targeting is, we were targeting an exit ROE of 15% this year. So quarter four, 15%. But looking at the numbers now, it looks like there should be an improvement on that. Next year, that is FY 2028 March, we are looking to exit at 16% ROE. Yes, looking at the current momentum, it looks like we can probably exit those numbers, but our target is 15% exit for this year and 16% exit for next year.
Okay. Just one thing on the yields. When I look at your origination yields, they've been stable at 13%, despite the fact that when I look at the mix shift in the book, more of the book is moving towards more than INR 25 lakh loans. Which means that origination point of view, you've done more business on the relatively higher ticket size, but your origination yield is not dropping. Are we able to get good yields even in a slightly relatively high ticket segment because of the assessed income profile of the customer and hence there's no dilution in the incremental yield?
Yes, you are absolutely right and which is what we have been also trying to convey since some time, that it is just that the borrower profile remains the same and borrowers' incomes have over time increased. Because their challenges remain the same in getting a loan, we are also able to get good yields from that segment. The compression in yield in the 25 lakh plus segment, compared to our less than 25, is very marginal. It is insignificant.
Okay. Then why did our book yield fell in this quarter by 10 basis points? Because the incremental yield is stable at 13%. Previous quarter, the book yield was 13%, but we still saw a drop of 10 basis point. If I were to read that with, say, your basis points also remaining low at 4.5%, did we reprice some of the loans so as to control the basis points number?
No, it is not like that. There was a phase when the rates were expected to go down. We had also passed on that rate to our new customers. Some of that is impacting the book now. It is just a quarter-on-quarter fluctuation. Nothing more to read into it.
Got it. Thank you. Best of luck.
Thank you. Next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah. Hi, sir, this is Kunal, over here. So a couple of questions. Firstly, on LAP, when we look at it overall in terms of the proportion and the growth, it has been lagging the overall AUM growth now almost at 22 odd percent and closer to 15 odd percent of AUM. So how should we see it now going forward? Maybe in terms of maybe the stance on LAP. Are we now comfortable with the environment and start to grow or we will keep it measured at closer to 15 odd percent of AUM only?
Our broad guardrails that we have agreed as a company is that 80% will be housing and the remaining 20% we can do other products. So LAP will remain within that 20%. So as of now, it is running at a slightly slower pace. But the broad guardrails are 80% and 20%. So we will remain within that.
But the only reason is now asset quality is also stabilizing broadly. This time we saw 1+ DPD, our overall GS3 being managed quite well. So would that give you much more confidence in terms of, again, getting onto the growth in LAP, or it will be still a home loan-driven growth?
We want to remain strongly committed to the home loan growth, which is what is reflecting in the numbers or the stronger growth in home loans. We do keep LAP as a kind of, you can say, advantage that we have or a headroom that we have. We can increase by another 5%. An increase of 5% in LAP can give us maybe a spread increase of maybe 6, 7 basis points. That is something that we are keeping as an advantage that we can use.
Yeah, especially in the rising interest rate environment, that would help support the margins as well.
Yeah.
That was the question. Is it like maybe now would that be the time or maybe we would still want to wait and see?
Yeah. Because we are not seeing any pressure. We are able to originate housing at very good rates. There is no need to use that, you know, headroom in LAP. We can keep it for a later date.
Okay, sure. Secondly, on OPEX. This time there was a decent decline on the OPEX ratio, both cost to income, cost to asset. Is there any one-off within this? No doubt Q1 had a higher base, but in general also we saw some optimization. Is there further scope to optimize the OPEX as we pick up on the growth side? We are at almost 27% now, and if it sustains or if it improves from the current level, should we see further levers on the OPEX or maybe it would continue to be at a similar level?
On OPEX, again, see our commitment is to reduce by 10 basis points every year. So OPEX to assets, we would like to push that down by 10 basis points year on year. That is what we are working towards. So this year we are on track for that number. We will keep continuing to work on that.
Okay. One last data point. This bounce rate increase in October. Anything to read into this or this would be more transient getting into the festive? We generally see some deferment which will lead to the bounce rate higher in October compared to that of September and it should stabilize as we get towards the December end.
The bounce rate figure is also a function of on which day the particular fourth of the month falls in. So if it is a Saturday or Sunday, then the bounce rate is slightly higher. If you see last October also, the bounce rate actually it was higher than this October. So in that sense we are not anxious about that number. So it definitely seems to be better than the last year's number.
Got it. Perfect. Thanks, and all the best.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. We will take our next question from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Good evening, and thank you for taking my question. Manoj, just trying to understand, the momentum has been really good last couple of quarters, especially in terms of originations. The growth has been maybe tracking slightly higher than what we had maybe targeted at the beginning of the year. So I'm just trying to understand, in the past you had spoken about some of the changes that we are doing in the team. Would you like to comment on what exactly have we done? Are those things moving in the right direction now? Because I think if I look at our AUM mix based on the geographical mix, except maybe Tamil Nadu where the loan growth, the AUM growth continues to lag, all other states have started doing very well. So if you could just comment on that first.
Right. It is a reflection of the stability in the teams that we have in most of the states. Whatever we had put in place over the last 12- 18 months is kind of bearing fruit. So we have stronger teams in each of these states and it is leading to good growth. Even in Tamil Nadu we had mentioned that the teams are in place now and over the next two quarters we should start seeing a reversal of the trend and the growth coming back. Some early signals are there and in quarter three, quarter four, it should get further strengthened. So yeah, it's a reflection of overall stability in the team, a slightly lower attrition that we are currently experiencing. All of these factors.
Anything in Tamil Nadu where one may be working on the team and we expect things to improve or are there any other reasons in Tamil Nadu which is not allowing us to grow maybe in line with how other states are growing?
No, in Tamil Nadu the teams are in place now. Last year there were a couple of regions where there was no leadership, et cetera, but leadership has been put in place. So now across the state we have a fairly stable team, which is now working towards improving the originations.
Got it. Lastly, Manoj, I think towards the end of your opening remarks you again clarified that your tenure is till 2028 and you remain available for appointment. Just trying to understand, this thing kind of keeps coming back to us time and again, what are your plans to I remember you had clarified earlier and clarified again today. I'm just trying to understand, are there some conversations happening around maybe you taking up a role which is more strategic in nature at the board level and then maybe someone else take certain more operationally intensive CEO role. Are there conversations like this which are happening or what we keep hearing something we can safely ignore?
There is no such conversation going on. Since the several years, between myself and Ajay, we have been handling the execution. There has been absolutely no change in our method of working. There's no such conversation going on anywhere.
Got it. This is useful point. Thanks so much, and I wish you and your team the very best.
Thank you. Next question is from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity, sir. First question is on branch addition plan for this year and next year. What are our plans to add branches this year and next year?
Branch additions we normally do at a run rate of about 20- 25 branches a year. Broadly at the same pace. At the moment, we have added about 10 this year. About 10- 15 will get added in the next two quarters.
Sure. Next year, we also plan to scale up U.P. as a state, right? Are those plans on track?
Yes. Plans are on track. U.P. again, we are strengthening the team. We are on track to take U.P. to the next level in terms of growth.
Lastly, what is the count of active connectors for the quarter?
It is about 4,400.
4,400.
Yeah, about 4,400.
Sure. Thank you. That is it from my side.
Thank you. Next question is from the line of Aditya Pal from MSA Capital Partners. Please go ahead.
Yeah. Am I audible?
Yes.
Yeah. Thank you so much for the opportunity. Great set. Congratulations to the team. Just wanted to double-click on what Abhijit asked a few turns back. When I look at the growth ex-South, all our geographies are growing above 25% year-over-year. When I look at the South markets, Tamil Nadu, Andhra Pradesh, Telangana, and the lot, other than Karnataka, all are growing at sub-teens and Tamil Nadu is growing at single digits, which you've already answered. Is there any specific geography-related issue in the southern markets today? Is it because of higher competition or a credit call that you're taking internally?
No, it's not that. I think southern markets are slightly different in the sense that it is largely a self-construction-driven market, so the dynamics are a little different. Having said that there is no other characteristic as such which is very different there where it should lead to a lower growth. There is nothing of that sort. Since it's a self-construction market to get that momentum, it takes a little more time because the construction is done in stages, the disbursal happens in stages. You cannot quickly turn it around. Even when the turnaround starts, it takes a couple of quarters to start giving the benefit. Whereas in other markets, it is faster because when there are more apartment-driven loans, the sale is quick and the disbursal is also quick. That is, I think, one of the basic differences. Otherwise, there's nothing else.
Manoj, where I was coming from is that if all these geographies had also grown, the growth that we would have posted would have been much larger. Where I'm coming from is that because if Tamil Nadu starts growing and if the other two geographies, that is Andhra Pradesh and Telangana start growing. Can we say that we can post better growth in the upcoming quarters?
Yeah. If everything goes well, obviously, growth will become better. See, that's the nature of a diverse country where we're operating in multiple states. There is always a drought in some place, there is some rain in some place. Those things keep happening, right? Of course, there are phases when everything goes well everywhere, and then growth is excellent. Like we are experiencing now. There are always sometimes ups and downs. Which is why, broadly on a portfolio level, we are saying 25% growth is something that we're confident of.
Understood. Wishing you and the team all the very best. Thank you so much for taking all my questions.
Thank you. Next question is from the line of Paresh Chaudhari from Latent Advisors PMS. Please go ahead.
Hi. Thanks for the opportunity. As you have mentioned previously in the call that growth has been pretty broad-based. Just wanted some color on the fact that we have closed a couple of branches in Rajasthan and also exited a district. If you could give some color on that.
Yeah. These kind of changes keep happening. There are places where due to let us say slow growth or it does not meet our expectations in terms of the pace of growth certain branches don't pick up. Then we end up closing those. It's BAU for us. Every year there are one or two branches where we think that it's not meeting our expectations, we close those.
And sir, secondly, on the ECL coverage of Stage 3, there is a slight uptick. So how should I read into it?
No, when we keep updating our numbers on our probability of default and our expected credit loss for various cohorts, there is movement from quarter to quarter. This is just a reflection of that.
Okay. And sir, if you could give the break-up of apartments as a percentage of AUM, which we previously used to give, that would be helpful.
Yeah. So apartments including the row houses, which are also developer-led, would be around 30% of our portfolio. So it is a combination of apartments and row houses.
Self-construction and only plots?
Self-construction again would be 30%.
Right. Only plots?
Only plot is very small. Maybe 1% or 2%.
And sir, if you could just help me with one more number of DPD 90.
Sorry. DPD?
DPD 90.
As in? The Stage 3-
Sir, days past due, 90 as a percentage of AUM.
Yes. That is 1.7%. Stage 3 NPA, GNPA, 1.7%. That is a reported number. It is in the investor presentation.
Okay, sir. That is it from my side. Thank you.
Thank you. Next question is from the line of Sonal Gandhi from Asian Markets Securities. Please go ahead.
Hi, thank you for taking my question. I have just two questions. One is on the co-lending transactions. When I look at the number of the transactions that you have done for the quarter, it is just INR 1.8 crore versus INR 46 crore last quarter. We were expecting this number to pick up. What exactly is happening on the co-lending side, and how do we see this number moving ahead? Secondly, I am not sure, my line was a bit patchy. This is already covered, but when I look at your employee cost, that is down about 7% on a quarter-over-quarter basis. When I look at disbursals, it is up 5% on a quarter-over-quarter basis.
How do we see the sustainability of this cost income or OPEX to assets number because your disbursals are growing, but your employee cost is coming down, especially given that the attrition has been so high in the past? What should be the number that we should look at during the second half of this year? Why is it that the employee cost is over this quarter?
Okay, first to address the issue on the co-lending part. Yes, this quarter the co-lending transactions were quite low. I think last call also we had articulated that we are working through a set of new guidelines which RBI had issued, and we are working with our partners to get that implemented. That took us a bit more time than anticipated and hence the transaction did not go through this quarter. We are almost at the stage where these are getting addressed, so we should definitely see an uptick in numbers in the co-lending in quarter three. As far as employee cost is concerned, generally during quarter two, quarter three, there is a lull in terms of new employees who are joining. Which is why you are seeing those numbers like that.
There is a large batch of employees who join in the quarter one and then the cost goes up a bit. After that it stabilizes for a couple of quarters. Then again in quarter four and quarter one again, there is a next batch which joins. That is the cycle because we basically hire from campuses, so there is a campus hiring cycle that we follow. That is the reason for those fluctuations. On the cost side as I mentioned, basically this year we are looking to deliver 2.6% OPEX to assets. Broadly we are committed to a 10 basis points reduction in that on a year-on-year basis.
Understood. Thank you.
Thank you. Next question is from the line of Gaurav Purohit from Systematix Group. Please go ahead.
Hi, thank you for taking my question. First question is on top-up contribution. Of this INR 1,700 crore odd disbursals in the second quarter, how much is coming from top-ups? If you can share how this contribution has trended over the last three, four quarters, that would be very helpful. Second question is a data keeping question. If you can share with us the average ticket size of disbursals in the second quarter. Third one, a more strategic question. BT outflows have declined materially over the last two quarters. Do you see this as a structural trend and do you think it is sustainable around this 4% mark? I am sure customer persuasion would be a big factor in bringing this down materially.
What has changed in the last two quarters that we have been able to manage this around this level while in the past it has been slightly elevated? These are the questions.
Yeah. Top-up numbers broadly are in the 2%-3% of our disbursals. Broadly that is the range of top-ups.
Okay.
Yeah. As far as balance transfers are concerned, we have been talking about this for last two quarters, that we have put in place a set of measures and initiatives to reduce this outflow. Some of those measures are yielding us benefits. Having said that, it's a very marginal reduction. We used to be at about 5%-6%. We have brought it down to about 4.5%. We don't want to read too much into it at this point of time. Broadly, we want to convey that it will be in the 4%-6% range, the balance transfers. Sorry, I missed your second question which you had on disbursals.
The average ticket size of disbursals in Q2.
Yeah. Average ticket size of new originations is around INR 15 lakhs, INR 16 lakhs.
Okay.
That trend will be there. We have always conveyed that over a period of time, gradually there will be an uptick in ticket sizes because the aspirations and expectations from customers is to slightly larger properties and larger ticket sizes. That number will keep inching up over time but more gradually.
Got it, sir. Just one follow-up on the BT out part. Is top-up the main reason that customers are staying back or you are offering them lower rates for both? Which is the more crucial factor here?
Multiple things. I mean, primarily, it is a four-step process. First is engage the customer, talk to the customer and understand why they want to go out, et cetera. Sometimes customers do not understand the cost of transferring the loan. Spending the time to explain the customer itself saves us some balance transfers. Then the next step is obviously pitching a top-up or asking the customer whether they require the top-up. Then the step comes in terms of offering a rate break. It is a three to four-step process which we have put in place and which is yielding results. It is not just one initiative that is helping. It is multiple things that we have put in place.
Okay, fair enough, sir. Thank you for taking my questions.
Thank you. Next question is from the line of Aditya Miglani from Burman Capital. Please go ahead.
Hi, Manoj sir. Congratulations on the great set of results. Just wanted to understand one thing. Given the one repo rate hike that has already happened, would we consider sort of absorbing it in our spread, given that we were still on the higher end of the 5%-5.25% range and not do a PLR cut? Or would we only do a PLR cut if probably we see another 25 basis repo rate hike?
PLR increase, right?
PLR increase. Yeah. PLR hike.
Yes. We broadly will be following the new draft guidelines that RBI has issued, which is that the final rate to the customer has to be benchmarked to the borrowing cost. There can be some additions to the borrowing cost. Broadly, we will be following that. If we follow those guidelines, then yes, there has to be a significant change in the borrowing cost for us to be able to transmit it to the customer. If there is only maybe 2, 3 basis points, 5 basis points, it is also logistically not feasible for us to reprice the customer because it will be a lot of disruption for the customer as well as for us to reprice the customer just by 4, 5 basis points.
Yes, when there is maybe a 10- 15 basis points movement in our borrowing cost, at that point we will take a decision to change the PLR and transmit it to the customer.
Just to understand, just the one repo rate hike till now doesn't fully warrant a PLR increase as of now in your view, right?
Correct. The PLR increase will be ultimately a function of our borrowing cost movement. As you can see between last quarter and this quarter, there is no borrowing cost movement. Flat. Borrowing cost movement is what will warrant a change in the PLR.
Yeah. Okay. Sure. Thank you.
Thank you. Next question is from the line of Ravi Naredi from Naredi Investments. Please go ahead.
Thank you very much to give me the opportunity. I would like to ask you, which event are you waiting now AUM to cross INR 20,000, profit to rises to INR 650-INR 700 crore, net NPA to come down below 1% or what is in mind of our senior staff to reach any this target?
Yes, sir. Targets that we have at a senior level is one is of AUM target. As I mentioned, 25% AUM growth is what we are targeting. So INR 20,000 crores by March 2027. That is one of the targets that we have. And profitability, as we mentioned, we want to exit this year at 15% ROE. That is again another target. As far as delinquency or portfolio quality target is concerned, we want to maintain it at 1.7% level, which is the gross NPA of 1.7% or the credit cost of around 40 basis points. These are broadly the targets that we are carrying.
Okay. And sir, how you hedge ECB borrowing and what is the cost of hedging?
Sir, we use derivatives to hedge our positions when we borrow from ECB markets. Cross-currency swap is something that we use to hedge our positions. The cost fluctuates from time to time, broadly between 3%-3.5% currently.
Okay. Thanks.
Thank you. Next question is from the line of Vivek Singh from VRise Securities. Please go ahead.
Hi, sir. Thanks for the opportunity. My question is on the asset quality front. If you see in past three, four quarters, despite the macro challenges, the asset quality trend has remained quite strong. In fact, it has improved marginally over the last four quarters. Just wanted to get your sense what has changed on the ground. Has there been any change in terms of the collection effort or in terms of the borrowing profile? Also if you give some sense in terms the improvement is largely due to the lower slippages or improvement in the rollback rates.
What is the reason for the improvement? I think it's maybe just the period of prolonged stability without any major macro issues. Of course, there has been increase in oil price, et cetera, but it has not got fully transmitted, at least in Indian market. Stability always leads to a little bit improvement in the asset quality. As far as the second question is concerned, largely it's coming because of slower incremental flows. New customers entering delinquency or new slippages at a slower pace, and that is what is contributing to a lower delinquency.
Okay, sir. And sir, there's also a concern going around that a lot of the delinquent customer are resorting to other credit like gold loan and PL to pay their dues and become current. Have we done any kind of scrubbing of the portfolio to see if the account has cured? Has them resorted to any such credit facility to pay their dues?
Yes, sir. We do periodic scrubs of our portfolio. At least over the last three years, we have not seen any significant changes in the ratio of customers taking other products. There is a certain ratio of customers who take gold loans, personal loans, et cetera, which seems to be static. There's no significant change in that. And we also know what is that ratio when they are at the point when they take the loan from us. That also does not subsequently change too much. This discussion which is going on around customers borrowing from one source to pay off another could be mostly a different cohort of customers. Customers who are mostly dependent on personal loans, et cetera, may not be directly related to home loan customers.
Got it, sir. And sir, in terms of your Stage 3 provision, because if you see over past three quarters, it has been hovering around 23% despite some challenges on the macro front, the inflation is on the rise. So when was the last time that the ECL assumptions were recalibrated?
Sir, ECL assumptions we are now recalibrating every quarter.
Okay. Got it, sir. Yeah, that is it from my side. Thank you, sir, for taking the question.
Thank you. Next question is from the line of Varun Dubey from Share India. Please go ahead.
Sir, I just wanted to understand what would be the rejection rate in this quarter versus the previous quarter.
I am so sorry to interrupt. Varun, we are not able to hear you. Can you use your handset mode, please?
Hello.
Yeah. This is better. Please proceed.
Yes. Good evening, sir, and thank you for taking my question. Just wanted to understand what would be the rejection rate. I mean, the leads to disbursal rate this quarter versus the previous quarter. Has there been any increase in the rejection rate? Also wanted to understand, will you be slowing down on the disbursal, especially in the drought-prone areas?
The rejection rate broadly stays in the same band. We have not seen any fluctuation in recent times. As I mentioned earlier, we do not have much exposure to drought-prone customers. Our customer base is largely people who are dependent on their livelihood in the services or manufacturing sector and who are living in larger cities. We do not have exposure to customers who have any, what do you call it, vulnerability to the situations like drought or monsoons, et cetera.
Okay. Okay, sir. Sir, one more question I just wanted to understand. I mean, last quarter you did a 25% AUM growth. This quarter it was 27%. You are still saying that by March 2027, your target of AUM growth is 25%. I mean, whether you are too conservative or this 27% in this quarter was a one-off. How do you read it?
We are basically working towards a 25% growth target, which effectively means that we have to hit a INR 20,000 crore number by March 2027. There are, of course, sometimes there are tailwinds which kind of take us there faster. This quarter, as you can see, we grew a little faster. We have always conveyed that there will be a 1% or 2% upside if there are tailwinds. But broadly, we are working towards the 25% number.
Okay. Thank you, sir. Once again, congratulations on your superb set of numbers.
Thank you, sir.
Thank you. Next question is from the line of Vivek Singh from VRise Securities . Please go ahead. Vivek, your line is unmuted. You may please go ahead with the question.
Hello. Am I audible now?
Yes, you are audible.
Yes. Sir, just a data keeping question. What will be the share of repair and renovation in the overall portfolio?
Sorry, share of?
Share of repair and renovation.
Repair and renovation.
Repair and renovation is around 1% of our AUM.
Okay. Thank you.
Thank you. Next question is from the line of Aditya Pal from MSA Capital Partners. Please go ahead.
Yeah. Thank you so much for giving me an opportunity again. Manoj, sir, just wanted to understand. When I look at the disbursal growth over the last eight quarters, it has been a tale of somewhat two halves. We are sounding optimistic now, but if we were to just qualitatively state what was wrong earlier and what good is happening now, what has changed that we are seeing growth momentum back again? Because on the ground also, you are seeing some strong momentum. With all the negative news surrounding us, that is consumption slowdown, El Niño impact, the rise in oil prices. Just wanted your take on it. What you are hearing from the ground.
What we are hearing from the ground is positive only at this point of time. First half of the year generally is slightly slower in this industry. There is an uptick in quarter three and quarter 4 in housing. Since first half itself has been strong, we are expecting that momentum to kind of continue and to have a very good rest of the year. What we are hearing from the ground is good. Demand is good across the board. As you mentioned, tale of two halves. We have conveyed that prior to, let's say, three quarters back. There were some external issues like the tariff, et cetera, which impacted some of our markets. Tariff was a key factor. A lot of employers in our key markets like Gujarat, Tamil Nadu, were actually negatively impacted by the tariff.
As a result of which there was employment slowdown. The production was a little slow. All of that was there. That changed around last October. That is one thing which changed. Internally, as we have mentioned earlier, in some of our markets, we had leadership challenges which got addressed a few quarters back. Post both these things changing on the ground, the positivity has come back. It is also being supported by the good demand on the ground.
Understood. Sir, the next question is more internally. When we talk about AI, and we saw this quarter as well, our OPEX to asset ratio is coming down. You already said that the productivity benefit will be 10 basis points, but do you see that our efforts with AI will. There is some potential room to increase our OPEX to asset ratio?
Again, the same, I would say we are working towards a certain number, which is a 10-basis point reduction year on year. But yes, if AI delivers on its promise and we are able to really leverage it in a better way, then yes, there can be some upside to that number.
Because what I'm saying is that you all are among the few people who are deploying AI on an institutional level and well. Just wanted to understand from you if there was an optionality or not. You've answered all my questions. Again, wishing you all the very best. Thank you.
Thank you. Thank you very much.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Manoj Viswanathan for his closing remarks. Over to you, sir.
Thank you everyone for joining us today and for your continued interest in Home First. We hope we have addressed your questions. For any further queries, please reach out to Sunil Anjana or write to us on investor.relations@homefirstindia.com. Thank you and wish you all a happy and safe Diwali.
Thank you very much, sir. On behalf of Home First Finance Company India Limited, that concludes this conference. Thank you all for joining us today and you may now disconnect your lines.