Q1 19/20

Aug 19, 2019

Good day, ladies and gentlemen, and a very warm welcome to the IAF Finance Q1 FY 2020 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 the conference call, please signal an operator by pressing star then 0 on your touch tone phone Please note that this conference is being recorded. I now hand the con conference over to the management. Thank you and over to you. Good afternoon, everyone. On behalf of team, I as well. I thank all of you for joining us on this call. I'm from the overall CFO. I complete my demo jam our chairman, R Venkataraman, Managing Director, and Sue Bali, CEO of IFL Finance. I will now pass the mic to our chairman to comment on the overview of the group's strategy and plans. Thank you, and welcome to the call. So I can take a few minutes to share my thoughts on current macro environment as it is relevant to our business and what our strategy going ahead is. So don't think we are seeing negative yield on 10 year and 30 year government bonds. And that, food is getting resilience of dollars. We're very unusual, but it suggests impending racism or a huge liquidity, which is coupled with the risk aversion. And therefore, delivery investors are normally compelled, to reconcile the negative return on long dated security, but also risk of a huge NPM loss if it just it just say it was rise, you know, a little. In contrast, India is still a long term growth story and has ability to be valued good long term hit us. So one of the expected India to attract huge capital or given very low negative return outside. However, at least in the near future, investors are concerned about, economic slowdown here. I've been connected to the non banking lender. And as all of us know, the MBS keys and the Sixties have passed through trial by file. In the 8th of IIMIS default. And the first and the 3rd file is default is just about a month away. And in the last one year time period, we haven't seen any, a default of, significance or anything within major. But most Indian season activities has slowed down the loan growth, given the inability to raise the debt resources on the return. RB and government majors will have far reaching implications for the industry's future. In particular, the ongoing skin can be game changer. And also, of course, I mean, there's a scheme to analyze the process of the 10% this can also be a significant booster. Historically, NPSC grew with 2, different strategies. 1 is opportunistic by wholesale funding at high interested to, develop a real estate sector and, loan against their supporters. And 2 by complimenting bank effort and fulfilling the credit gap, for productive activities as well as for, retail customers. The online learning scheme clearly is not to bail out. I mean, it's for future loan. I mean, it's not his liquidity stress. The team is very clearly to start growth and it's for future learning. If you see all the teams and the major the government is doing, it's very clear. That RBI as well as all the banks in government recognize, the indispensable role that MBS teams can play in filling the credit gap. And delivering last mile credit for both. And that's where they can partner and compliment banks offer. So other than longer lending, you know, sometime I hope you also saw a permanent scheme. So I think, you know, policymakers have to realize that the governments were on to some extent that caused by the deceased squeeze. The sector has passed through kind of crisis, and the crisis should not be wasted. And as I pronounce, we are stopping our focus on core retail loan assets. We are reducing our exposure real estate sector. Our strategy is to bring it down to, single digit 10 in our total loan area. And that's to focus on our project, especially where we can be a partner for home loans and, end user buyer. We have entered all the project and have contacted, and I'll also adequately provide it for. So I've seen it for, loan book in, our MBS C carries more than 400 crores in the provision as though the current GLPs are just about 139 closed. So we're gonna cost you for making sure that, all the projects basically are monitored carefully, and we don't end up with any, additional losses there. But other than that, on the retail core assets, the the core product, the way that's why we have seen the significant volume growth or significant volume growth. On a wireline basis, if you look at our loan AUM, there's a 28% of wireline growth in this quarter. In the core retail assets, which are focused for growth including home loan, the small business loan, micro finance loan, and the Google. Even business loans, there's a small negative growth, but then if you break it up into the last ticket, lapse in the small ticket, business loans and the large ticket letters are de grown, but the small ticket loan which is our focus has been considered. Well, when we look at our GMPs, in June or, say, previous quarter or previous year, you might see a marginal increase or small increase in all the retail assets. There are two reasons. 1 is our assignments are increased significantly. And then you assign it to the bank obviously, they will not take any delinquent assets. So they will take assets which are, good performing. And to that extent, if you look at our GMP and the loan a year, they remain, you know, they they are lower. And there is a marginal a dip also because of seasonality of the business during the quarter, the June end is typically a slightly higher margin. And this industry particularly for the home loans. Our operating cost has gone up significantly, but that is in line with the growth in our branch network and people. So our branch network also has owned almost 500 number branches. This is, close to 25, 30, 2003. And there's a similar increase in a number of people also. Now these those initiatives have taken about a year back. We have completed them. We're going to use our footprint to make sure that our region of the growth remains robust. And now I see the time to make sure that the the right operating the registered advances, and we do productivity of these balances. We don't have plans for expansion ahead in the near future. In terms of liquidity, if you look at our balance sheet, which is given in our, annual expenditure, we have cash and bank of our 2000 besides that we have to sign codes or committed the, funding of credit lines. So we have been we are verified well placed or visibly comfortable in terms of, liquidity and eligibility to fund, the near term growth as well as all the application that we have. So the market sentiment is going from a restaurant exhibitors to filling original bloom, but we remain focused on our retail business and in this crisis, we have not always offered our focus on the core product, but also taking service test to reduce, operating costs and shopping our technology as well. And we hope that as the I think before we are well placed to, seize the opportunity. So with this, I'll pass it on to provoke. We'll take you through the financial numbers in greater detail, and then we'll take a look here. Hi, Michael. Our current finance net profit was rupees 181 crores. In first quarter FY 'twenty, up 7% Q on Q and down 7% YY. This is after adjusting for 1 off gains on sale of TV business in the last quarter. When we just consider profits from continuing business, that is X CV Businesses, the net profit of rupees 181 crore was up 43% q on q and 2% yoy. No lithium grew 19% yoy and was flat q on q, rupees 34,920 crores. Our Tier 1 car stands at 18.4% and total car at 22.1%. Primary drivers of our Asian growth are small ticket home loans, which grew by 33% YY. More loans, which grew by 46% YY business loans, which grew by 1% y y. And within that, small ticket MSME loan grew by 13% y y. While lab declined by 4% wire wire. And microbanized loans with Uber, under 12% wire wire. On the other hand, Construction And Real Estate Finance and capital market loans declined both on q and q and y y basis. In home loans, our focus remains primarily on small ticket loans to the salaried and self employed section. The fastest growing segment in home loans is the affordable home segment or Suraj loans with average ticket size of 13 to 14 lakhs. Apple Home Finance has been a significant player in predominantly our seasonal credit link subsidiary scheme. Till date, it has provided benefits to 30,000 customers and reversed subsidies of nearly rupees 700 crores. The company is also expanding its footprint and currently has 120 branches across 17 states the customer base for our HFC has crossed 88,000 this quarter. Retail loans, including consumer loans and small business finance constitute 86 percent of our loan book. Another strong characteristic of our loan book is the last proportion of loans that are compliant with RBA's priority sector lending norms. About 57% of our home loan, 47 percent of business loans, and 95% of our MFI loans are PSL compliant. Negregate nearly 40 3 percent of our loans are PSL compliant. The last share of retail and PSL compliant loans are of significant value in the current environment where we can sell down these loans to raise long term resources. We completed securitization assignment collections amounting to these 4595 crores in 1st quarter compared to at least 2562 crores in 4th quarter last year. We sold on both PSL and non PSL loans in 5 product categories, including home loan, lab, SME, gold, and microfinance, to government, private, and foreign banks. Our average cost of borrowing rose by 16 basis points Q on Q and 68 basis points YY to 9.26% in first quarter, access to long term funding. So it is too scarce, and we continue to manage the tight liquidity conditions by capping new borrowing channels like dollar based funding, public issue open cities, market link, debentures, and assignment fees. Of late, banks are warming up to the term loan proposals and few of our proposals with banks are in advanced stages. We also expect incremental refinance from the National Housing Bank. We have been able to reprice our loans and protect our net interest margins Our name was at 8.25%. We currently have 2100 and 10 tranches primarily for our HFC, gold, and microfinance businesses. Consolidated both NPA and net NPA recognized as for RBS credential and provision as per expected trade loss method prescribed in India stood at 2% and 0.8% of loans, respectively. The NPE ratio would appear higher primarily because the loan book has declined 6% q on q and 13% y y due to portfolio turn downs. Pulling coverage under India is now on stage 3 assets stood at 131%. Total assets for first quarter FY Twenty was at 2.3% and return on equity was at 17.3%. Some update on liquidity We have significantly cut down our borrowing to commercial paper over the last three quarters. In end June, CPE is approximately 17.90 crores outstanding. Which was 5% of our total borrowings. This has been further reduced to almost 0 as on date. Our funding mix is well diversified, including 22 percent from MCD, including subordinated debt, 37 percent from bank term loans, Working up your finance and MSP refinance, 36% from securitization assignment, and 5% from commercial papers. We had raised with this 200 crore in Crunch 1 of a big issue of bonds in January this year. The 2nd tranche of the bonds issue is currently open. Last month, we raised US100 1,000,000 to ECB from EDC Canada. This is a prestigious new addition to our list of investors. We are forced to wear them, whereby in shoes, cover, or exceed expected outflows across all buckets. We have committed credit lines totaling rupees 1949 crores in end June. On the digital front, 99% of the 6.4 lakh accounts boarded in first quarter FY 2020 have been acquired digitally. We have focused on back end process, digitization through multiple innovations, as well as partnerships helping us achieve process efficiencies. We have integrated new CRM with IASL loan tab. This helps in providing better service to our customers. On the analytics front, We continue to drive the use of credit cost and automated decisioning across products and send them risk mitigation by developing and deploying behavioral scorecards for offset and collection scorecard for collection prioritization. There is increased focus on cross sell and win back by using analytics to maximize cross sell opportunities within the group. And by deeper integration of cross sell campaigns with CRM to improve lead conversions. New fraud scorecard is in place to eliminate fraud at pre acquisition stage, along with regular development, I'm fine tuning of fraud triggers to manage fraud at both previous virtual and positive virtual stage. With that, now we will open the floor for Q And A. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question to assemble. The first question is from the line of Subanshu Mishra from BOB Capital Markets. Please go ahead. Hi, sir. Thank you for the opportunity. First question with regards to your developer for financing, I just wanted a little more flavor as to how many, loan contracts and out of them, how many of them are in the top 7 fifties? And what proportion of, these developer finance is still under construction and how much is, ready for, completion in the fiscal 20 That's my first question, sir. In the the call group. Now to answer your questions, one is that we would have about 56 to 58 contracts which are there, in the entire book of about 3000 800 crores. Which are currently live and running. The second, to answer your second question is that all of these projects would be under various stages of construction. Now some would be, let's say, the commitment paid of, let's say, 10 to 15, and some would be a closure stage of let's say about 80 to 90% and so on. Now the moment the construction is completed, which is, let's say, 100% and the occupation is obtained, the obvious result of that being is that we break the project completely. So that's where we are. Now as as far as the, percentages, those will be equally spread across various stages. Now there would be some which would be, I would say, let's say, 20 to 30% 50 to 60, and some should be able to 70 to 80%. So it would be a little difficult to, at this time, sir, to answer exactly specifically the number as to which stage would be where, but just to sort of, you know, overall view, this would be more, more or less equally fed across the various stages. So, and how many in top 7 cities? Oh, all of them are in the top 7 cities. We don't have, much which is, beyond the top parent release. We have in fact, I would, reduce that further. We would have most of our exposures focused in the talk about 4 to 5 cities across the country. Which is 3,800,000. And we have 11,200 crores portfolio, which is also classified as part of delivery leadership, which is just Yeah. So here are the ticket size that Mister James has mentioned would be in the range of around 10 to 12 Pros where these are very small developer terms small projects, and these might be, let's say, entire 2 cities. However, the bulk of the portfolio, which I'm talking about, about 3800 crores would be in the talk about 4 to 5 cities. Visiting mainly, in in fact, it would be about 6 to 7:30. Yes. We should send the email. Sure. And my next question is with regards to your goal loan as well as MFI. Is there any between both the businesses and the branches are co existing or there are separate branches and you're targeting different target market segments. So we started about 8 years ago, and microfin 90 years ago, actually, and microfinanced, we acquired the company about in a way, practically, we got to control and started responding only 2 years ago. Right. So we're trying to map out and, have this. Is there ever physical locations can be together. But, you know, the I mean, it's it's, as of now, the golden guy network is much more much lighter. Right. I what I'm trying to understand is the future synergy that you find between both the, businesses, but every branch will be co located Yeah. So now the, the fuel expansion that we've done in last, in 1 year, there there are few branches that are co located. But, you know, one difference is that in microfinance, we go to Google, but, in 1000 cities. So there are some, locations where there can be, you know, co location advantage. But, okay, it's not something which is, with the recall, I I we've said the gym, which is is there in some cases, but not all cases? Right. Sure, sir. I'll come again with you. Thank you. Thank you. The next question is from the line of Dipan Jankos from Kotak Securities. Please go ahead. Hello? Hello? Yeah. Who? Yeah. Hi. So just two questions from my side. Trouble. Hello. Am I audible now? Yeah. I can hear you fine. Okay. So First, I wanted to get a sense of the assignment income booked in this quarter and also, FY 2019. So this part is 72.4 and the full year is not necessarily that clear. Okay. Thanks. Also, just to get a sense of, so the end of the, the book that you sold on in the last quarter, much of the receivable are still, pending and how much have you already received? It's still outstanding, and I think the code is still not 4 100 code. So hold on a half and receive. Okay. Alright. But there's a monthly payment schedule. So they are, you know, they're they're paying it as a schedule. Okay. Sure. Sure. Just one last clarification. So if I'm not from the listed entity, basically, hold around 8 NPSC Business. Am I correct? That's right. No. 80 5 percent of the salary is 15% of the CDC. And, you know, going back to your question about the new start, you know, the the receivables come to the school from where we pick it up. So most of that The prepayment other amount has paid upfront as soon as these monthly settlements come through, normal prepayments of the month also. Sure. Thanks. Nothing from my side. Thanks. All the best. Thank you. The next question is from the line of Keisha Kumar from Unifi Capital. Please go ahead. Yeah. Thanks for the opportunity. Can you take us through the movement of the GMPs from the developer, MasterCraft Finance segment? So how, what are the number you started with, what are the resolution, and what are the recordings you made, and, finally, what are the number you ended with? So Well, I okay. There are many cases. And, if you see, from last quarter of this quarter, it has fallen from four point four percent to 2.9. Primarily, you know, so some of the the developers who might be in the 90 day plus they might come back. Some of the cases have been resolved and acquired by some other benefits. There's some more products that are so so it's a so for me, if you see that there's a decline of about $140 or something in the and stuff, you know, what are we getting our assets paid also? So because of last quarter, you said that, you started with on the $4.18 gross, and we got about $2.10 gross. So your left is up to $205,000,000. So now the number has fallen to 1 number now, has fallen 150 gross? Okay. So 200, 5 crores, you know, 199 crores or the water. Right? Yes. Okay. Any updates or recordings you got from the Australia right now, Judith? Not in this part, actually. With the last part we had covered not in this quarter, nothing was significant. Okay. So I'm just contacting for this credit card summary projects. How's your number? Okay. And going forward, sir, what's the outlook? Are you seeing initiatives coming into the books or do you think this is the bottom? I think we have seen the bottom since you start recovering. But last time I said that we have seen some recovery this quarter. So, you know, As I explained in last quarterly, the thing that are excluded is not in the central Mumbai where our facilities just continue for much longer. But we are mostly in the suburbs of the larger cities. So if you see, our exclusion in Bombay, Delhi, NCR is all in a say your voice, or maybe not very awkward. And then we are seeing that, the project is they get executed. They're in a good sense. They're selling a price, but they sell. Other cities like today, Bangalore, they also been pretty okay. I mean, not that the sales are booming, but they're not they're not as bad as as if everything is over, so they they are moving. Okay. So so you're not interested, just to gather with the E and P number. Yeah. I'll just wait. It's 7:11 by 2 or 3 o'clock. Okay. And since you have taken complete write off, what is the time frame you expect or which you can see some recovery coming back? This next to the couple of quarters you should see some recovery. Okay. So since there are two segments within this dollar for financial, one is for the HFC support, when you do more smaller size, roles and all. And the recurrent side, this happens in MPSC, you will continue the HSE, but you will scale down the NPSC part. Right? So NPSC, we have not done anything implemented, but, yeah, you're right. We'll continue with But your HFC last quarter or last summer has slowed down, but it's asking for a relative strategy that might continue, and the HFC will moved to a fund structure. So as you're aware that, we have funds set up to our, well, subsidy, which is asset management company AI structure. So most of the larger projects might get funded through funds. And the smaller projects, we can take it on our balance sheet. Got it. So one question on the business loans. We see that there's a slight bump up in the GMP number. Any any think that is concerning on there, or is it just a a seasonal component? So, as we this is as we said in the beginning, typically, we see that the q 1 numbers are slightly higher than the q 4 number. That's what is that play here. Typically, these books get resolved over the next 2, 3 quarters. And given the fact that the business within the business loan, which is growing is a higher margin business loan, think we're we're in control of the book, and you should see the number moderate from, later on. Thank you. The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead. Yeah. Thank you very much, sir, for the opportunity. So, sir, my first question, relates to your funding, things. So, is there any problem or as such a grow growth hindrance you are facing in terms of, getting your funding on the liability profile and, and what sort of securitization run rate are you going to maintain going forward? So I'm fine. Yeah. I feel that, a starter industry could take money from mutual fund by your city. And, also, the bank tell me the more and tax. So that tuition came in last 9 months. Mhmm. To my mind, It's been the correction which has lowered you in a way that, I mean, that figure is a different, point of debate. But, many of these, you know, structural funding was the stockroom liabilities are funding long term assets as a typical problem of finance sector, which has played out, called different times in different countries. So that in a way has been, in a way, it's a blessing in disguise for the industry that has been fixed. So that is one part of it. But, sir, we are telling you that our loan book is retail. And with after a time gap, 3 months, 6 months, depending on the season required, almost entirely because eligible for, being sold out to banks. And even the declaration of that we're done, having in the rate of 9 to 9 a half percent. And most of the banks are very billing buyers because they they are they need this as much as you know, need the liquidity. So we aren't seeing any issues there, but, also, I must add that recently last couple of weeks in that, the alarm is easy. Even bang for terminals. ECB also has started moving, you know, so there are a lot of the huge the one happened, the ECB actually always depend on the cost of funding and dollar terms and also the arbitrage cost. Mhmm. So that also becomes valuable with the easing of policies and the regular device. So, anyway, as I said, just a few minutes ago that I think the bottom should the button should be behind us. And even the funding should become much better from here. So, ma'am, so all sources will be open. You know, from your ECB to retail to sort of bank loans to securitization and assignment. And also, the onboard lending guidance are very good because if most of our assets are less than 20 lakh rupees. And, they are a bank loan to us. And then that's because they're a private sector, low. These kind of guidance are there before 2008, actually. And I think we should probably be recommended and, they were taken away, but they come back. So Then for banks, it's very, you know, it's winded because for banks, it's the land of land of pure problems. It need their private sector lend the private sector lending ops. Most of the banks are going to meet the 40% quota of private sector. They understand penalty value of low cost because it is not hard on this. So, you know, I I have a feeling that now that government, I'll be able to become conscious since you get much better, much easier from here. Okay. Just to add one more thing, if you see overall the system liquidity on this term positive for the last few weeks. So it's a matter of now, and you're just building a lot of confidence that the liquidity will start. Okay. So so kind of a growth we are still maintaining kind of a growth we are seeing in FY19 because that's what we have said in the car that we need to maintain this kind of growth, going forward, what we have achieved in April 19. Yeah. So the course, you know, I think if you look at our facilities, we divided our, access classes into goal and synergistic. So as far as our core media assist products are concerned, we expect to maintain the goal. And I just 35% growth is what we are seeing. So is that what we have, maybe is the linear going forward as well? So if you see, even on the quarter on quarter, the call growth has been positive by 2 to 3%. The synergistic segment is declined. So we will continue to grow that business. Okay. So coming in, I could not get the last one here. No. I think in the call, the call loan address that we have. Mhmm. We should look at on I realize there's a 15 to 20% volume growth. Gotcha. That's a 15 to 20% volume growth on the core coop. And and and your core asset would be Am I confident, sir, small business with gold and a home loan. Right? Is that perfect? That's right. Oh, okay. Okay. I understood. And, the and, you know, do you do Pearson log? Because our last question of our, loan book would be a creative compliant So so how much impact does that has on our limits? So if you see, these 4 cohort segment of Microsoft Alliance, MSME loan, and code loan, these are all available about 7 to 8 percent in products. And, code loan typically is lower than. So on a combined aggregate basis to maintain length between 7 to 8%. It's something which we are, confident of. Okay. Okay. This confidence is only even half percent. Yeah. It's 48% sustainable is what we It's 7 to 8% sustainable. And and even in terms of credit cost, this quarter was quite low, I think maybe you also contributed due to your sale of assets, the seasonal So is this the the the, like, going forward kind of a credit card that's on this blue card? See, if you look at our last 10 years, loan losses through you that is 0.4% every year. Mhmm. And, so last quarter, I'm very sure that we took a larger rate because We are a long time game. We tried to use it and took, write off and have provision in US Sector, and, you know, we are still exclusive. So I think normally, as of now, the second step is in a year, our loan loss in the process is around 0 point 5 percent. Last year was an abbreviation. Last part was an aberration. It is 0.4 to 0.5 percent per annum rate. Per annum. Okay. Okay. Fair enough. Fair enough. I understood. It's a line that's what you see in this quarter. Sure. Sure. Sure. I I I got that call. Yeah. Sure. That's it for myself. All the way. Thank you. The next question is from the line of Ashwin Balasur Rahmanian from HSBC Asset Management. Please go ahead. Yeah. Hey, my question was regard to the slide on ALM. So, in that slide, in terms of the inflows, which you mentioned, is that coming only from the loan book or, it does not include the securitized portion, is it? No. This is the, current con so okay. This line is based on if you don't do anything incremental, and you get your repayments of existing loan matches as per the payment that we're seeing and all the contracts will be able to repay based on that. Correct. So, I mean, it does not include the off balance. I mean, are are are the off balance sheet, like, both the liabilities and assets included in this, or, it's already on balance sheet. So, like, how much? Because in the like, if I look at, let's say, 1 year comes to about, 15,000 crore is what you mentioned. So so in that, what would be, like, from the repayments and, like, prepayments combine and, like, what would be the remaining sort of number? Because, like, if I just, divide that by the loan book, that's about 60% of the loan. So I'm presuming that this includes the bank lines and, like, unutilized bank lines and other stuff also on this 15,000 crew. Yes. So this includes, you know, the major include, the term loans that we have factored. No. So the total lines of committed credit is 1945 crores. That is, there. Then it will include the the include that we expect from the securitization fee. So we have about 11,000 odd crores of securitization which we've done. Now lot of these are short term. Why you see in the first, you know, less than 1 year bucket is because, you know, about 4000 for a gold in outstanding, which will be all we receive in the next 6 months. So, you know, yeah. So that is, what is reflected in the Cash flow? So so basically this inflow and also both include the, the securitized portion also. I mean, that is I understand. Okay? Yeah. That's it. You're the most weird. Yeah. Okay. Got it. And, in terms of this committed bank line, sir, this is only term loans, or does it also include, like, any secure tie aviation lines, which you have, but, I mean, do you have any with money we have bought in the month of July? Yeah. And then it will include, you know, committed lines of credit include the what are facilities that we have at the bank which are undrawn and to also include some, you know, secure action deal which we have secured where we have received the letter of pension, but which has not been completed. Okay. Okay. Thank you. I'm sorry. Thank you. Star and one at this time. Okay. Then we can provide that. Sure, sir. So as there are no further questions, I hand over to the management for the in comments. So thank you all of you. And, And as always, if you have any more queries, please feel free to get in touch with our investor relations. Thank you so much. Have a good day. Thank you. Ladies and gentlemen, on behalf of IAFL Finance, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.