Ladies and gentlemen, good day and welcome to the L&T Finance Holdings Q3 FY2023 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 require assistance during the conference call, please signal an operator by pressing star then 0 on your touchtone phone. Please note that this conference is being recorded. We have with us today Mr. Dinanath Dubhashi, Managing Director and CEO, and other members of the senior management team. Before we proceed, as a standard disclaimer, no unpublished price sensitive information will be shared during the call. Only publicly available documents will be referred to for discussions during interaction in the call.
While all efforts will be made to ensure that no unpublished price sensitive information will be shared, in case of any inadvertent disclosure, the same will, in any case, form part of the recording of the call. Some of the statements made on today's call may be forward-looking in nature. A note to this effect is provided in the Q3 results presentation sent out to all of you earlier. I would now like to invite Mr. Dinanath Dubhashi to share his thoughts on the company's performance and the strategy of the company going forward. Thank you, over to you, sir.
Thank you. A very good morning to everybody. Let me at the outset wish you all a very happy new year. We at L&T Finance enter this new year with immense zeal and passion, as the Q3 FY2023 for this quarter particularly, following the previous Q2 , has been excellent for us on account of multiple reasons. We have touched new highs on the business side again in this quarter across various business verticals that we operate in, and have also performed well on driving various Lakshya strategic initiatives, all of which have immensely motivated us to keep delivering great results in the future also. My presentation to you today will revolve hence around these two themes.
Number one, update on business parameters, that is our strengths, business performance for the quarter, etc., More importantly, how are we driving the organization towards retail growth and retailization. Number two, which is quite particular to this quarter, is about Lakshya strategic initiatives, specifically speaking, sale of mutual funds, enhanced retailization through an accelerated sale down of retail book, Last but not the least, the proposed merger of our various entities. It has been now close to eight months since we unveiled our strategic plan, Lakshya 2026. We did that in May 2022, wherein we shared our strategic goal to make L&T Finance a top-class digitally enabled retail finance company, moving forward from a product focus or a product excellence approach to a customer-focused approach, especially by creating a fintech escape.
Every word of this line is important, we have worked on every word. In fact, every decision we have taken ever since have been taking in mind, keeping in mind the targets of Lakshya 2026. All our goal, and in fact our goal is to achieve our targets by FY 2026, we continue to strive and drive our efforts towards achieving them well before that year, that is much before FY 2026. The last time when we met at the end of the Q2 FY 2023 results, I have reiterated the confidence that as we traverse on the path of Lakshya 2026, we will deliver the results promised while continuing to improve our products and services we offer to our customers.
With every passing day, we are working towards making our company one of the top NBFCs in the country that caters to rural, urban mass affluents, aspirers, and SME segment of the country. Broadly, thus broadly covering the whole gamut of the retail lending space. Our strategy of retaining our customers and using them for cross-selling and upselling our offerings has been working well. This as, I mean, one, capturing new customers as well as farming existing customers is enabling us in our efforts to deliver consistent results. Through a better understanding of our customer needs, we are firmly etching ourselves in the mind of our customers, and we believe are creating a ongoing strong customer franchise.
Today, I can say this with firm belief that with the strong business liability and fintech franchise that we have created and a well-defined strategic roadmap in place, L&T Finance is strongly positioned to fully transform itself into a top-class retail finance company. The scaling up of retail business over the past Q3 has been made possible due to the strong retail franchise that we have built actually over the past seven years and kept on, and , particularly strengthened it over the last two years on the foundation of digital and data analytics. Now allow me to talk about a few numbers here for FY, for the Q3 FY2023.
Retail book has reached now INR 57,000 crores, which is a 34% YoY growth and a 10% QOQ growth, which is comparing very, very well with our target of at least 25% CAGR. The retail portfolio has reached 64% of our total book already. Retail disbursements reached an all-time high of INR 11,607 crores in a quarter, up 53%, and this is actually the first time that we have crossed INR 11,000 crore level in a quarter. Improvement has been witnessed across asset quality parameters with retail GS3 now down by 38 basis points YoY to 3.47% and NS3 down 45 basis points YoY to 0.73%. Let me point out that our Lakshya goal is less than 1%. We are already there and very confident of maintaining and improving it.
PCR, retail PCR is at 79%. We have delivered a total PAT of INR 454 crores, up 39%, and the retail PAT now is almost 87% of the total PAT at INR 394 crores. Retail return on assets is already 2.6% in Q3 FY2023, with ROE, that is retail ROE, reaching 14.97% during the quarter. Reminding you our FY2026 goal is 3% ROA. Actually, if you see the retailization, retail growth, GS3, NS3 and ROA, numbers are quickly approaching levels of our FY2026 target, which make us confident that we will probably achieve or exceed these targets much earlier than that. I would take this opportunity now to pause for a moment and explain a bit about the retail ROA tree that we aspire to not only achieve but sustainably achieve.
With the current pace of retailization, our retail ROAs are trending well towards the targeted 3% range, where, as I said, for Q3 it is already 2.61%. Accordingly, our guidance for a steady-state ROA is as follows. A return NIMs which you would see that is at 11.4% through ups and downs, interest rates, et cetera, et cetera. We clearly expect this to be a minimum of 11%, a trend towards that number. The OpEx plus credit cost number in the medium term should start trending to about 7%, thus yielding a pre-tax ROA of 4% and a post-tax ROA of 3%. That's what we are targeting towards. Obviously, work is on on every aspect of this.
We have promised, as far as growth is concerned, we have promised at the beginning of Lakshya 2026 that the CAGR of our retail book will be at least 25%. The growth we have been able to achieve in the first 9 months of the financial year makes us very confident that we will be able to exceed this target comfortably. This confidence stems from our on-ground capabilities we are building in our existing products, the rapid scale-up we have been able to achieve in recently launched products, and the product launches we have got planned over the next Q2 . Last but not the least, the geo-agnostic PLANET app capabilities that we are building. As I said, ROA trending as I indicated, and retail growth we expect to comfortably be above the 25% target.
These are the numbers we are working towards and are confident of delivering consistently. That's our idea of a top-class retail finance company powered by digitization and data. Having spoken about the retail franchise, let me now make a mention of other strengths that we have built over the years which have emerged as sustainable differentiators. Just to count a few, a AAA rating, rated liability franchise with a strong CRA. Transformational digital and data analytics. We have integrated now 100+ fintech partners with 40+ algorithms, which has helped us in transforming our digital and data analytics. A granular customer franchise and distribution network with a database of about 2 crore customers and a strong distribution network of 16,000+ partner touchpoints.
We are now firmly etching ourselves in the minds of the customer as well as in the geographies. High customer retention.
We have a customer retention now of repeat business of more than 30%, which has helped us in cross-selling and upselling our products. I'm talking about these only loan products repeat business. For insurance products, what we do CLI and other business, obviously we are much, much higher. I would specifically like to talk about the PLANET app, which is an augmented customer-facing interface. Our D2C app, which is named PLANET, was launched in March 2022 and has already crossed 17 lakhs download users and has witnessed more than INR 970 crores of disbursements till December. This is including the website app also. While processing INR 117 crores of payments, that is collections. This application is available both on App Store and Play Store and has been rated 4.3.
Having added features like credit score card in Q1 FY2023 and Insta Loan for consumer loans in Q2 FY2023, we launched the following additional features in Q3, which is Mandi price for our farmers, customers and wellness insurance. Going forward, the company will continue reimagining customer engagement by incorporating features like self-driven customer journeys for two-wheeler loans. This will actually include an end-to-end journey where you can choose a two-wheeler, you can choose the dealer, you can book a test drive, you can book the loan. I mean, there are only two physical parts in it.
One is the test drive, which you have to drive on a physical two-wheeler and then take the delivery of a physical two-wheeler. Everything else will be done on the app. Rewards and referrals, utility payment, HospiCash Insurance, et cetera, making it closer to a full-fledged Fintech app.
Now slowly taking it towards a complete marketplace. We envision this app developing into a full-fledged marketplace, enabling prospection, customer onboarding, customer retention, and most importantly, what we are concentrating is customer servicing for a seamless service experience. In addition to that, it will also have many value-added services, making it attractive for our customers to use it. Now coming to some of the updates on our delivery of strategic initiatives, which were three parts. One, unlocking value by sale of mutual fund, accelerated retailization, and merger to form a unified operating lending entity. Let me discuss this one by one.
The sale of mutuals. As you are well aware, L&T Finance Holdings had entered into a definitive arrangement with HSBC AMC on 23rd December 2021, almost one year back, to sell 100% stake in its mutual fund arm to HSBC.
The sale was finally completed after all the regulatory approvals on 25th of November 2022. As a part of the transaction, we received a sale consideration of INR 3,485 crores and a surplus cash balance, which we could take out, of INR 764 crores, thus totaling the total consideration to INR 4,249 crores. This amounts to 5.7% of the AUM of the mutual fund as on the closing date. The capital gains realized from the above amounted to a post-tax number of INR 2,160 crores. Post-tax number after capital gains tax of INR 2,160 crores. This, according to us, clearly indicates the strength of business we have built over the years, and the value unlocked from it will clearly help us in furthering our Lakshya objectives. The second part was focused retailization.
Our retailization transformation journey is a mix of two key pillars: organic strong retail growth and the reduction of the wholesale portfolio. As far as the strong retail growth is concerned, I have briefly spoken about it, and we'll dwell deeper later in the later part of the call. As far as the second pillar, reduction of wholesale portfolio, is concerned, we had earlier communicated our intent to explore the divestment of the wholesale port-book through sale and realizing value, et cetera.
Not having concluded the above exercise, the wholesale book reduction is now envisaged to be achieved through a combination of various means, and that too fairly rapidly, like repayments, prepayments, sell down of loans, et cetera. In this regard, it is important to highlight two major parts, aspects. First, the wholesale portfolio now. In October onwards, we actually started this rapid sell down, rapid reduction.
The wholesale portfolio sharply reduced to about INR 31,000 crores now as compared to INR 41,000 crores approximately a year back and even just three months back. That is, as of 30th September, it was INR 37,597 crores. This book reduction now is happening quite rapidly, 18% Q on Q, and it mainly comprises of prepayments, repayments of about INR 4,002 crores, INR 4,200 crores, and sell down volumes of about INR 2,900 odd crores. Simultaneously, in accordance with the renewed strategy, in order to pivot towards retailization, we have now decided to change the business model in wholesale to enable an accelerated sell down. To reflect the change in business model under Ind AS, the assets in wholesale are now reclassified from amortized costs through a fair value through profit and loss.
We have tried to explain this in details in our investor presentation as well as financial. In line with this, a fair valuation of the wholesale assets was conducted by independent value-valuers. Since the book is quite good, at the first stage, the valuer evaluated the fair value largely the same as there was no change in the underlying asset quality. However, given a shift to the accelerated sell down of the wholesale book, certain illiquidity discounts were to be considered during the sell down, and it is possible that there will be illiquidity discounts to be given to a buyer during the sell down.
To give effect to this, a one-time provision of exactly INR 2,687 crores have been created on account of this reclassification, consequent to the change in business model and the fair valuation of the wholesale book to facilitate the rapid sell down process. Through this accelerated sell down, while we have promised achieving the retailization of 80% by the end of FY 2026 as per our original Lakshya plan, we expect to sell down the wholesale book in a much more rapid manner, which we believe will help us achieve much higher than that 80%, perhaps closer to 90% retailization by end of FY 2024.
We firmly believe that these provisions will be sufficient, the provisions that we have created will be sufficient to cover any downside risk of such accelerated sell-down, thereby not impacting retail growth or retail profitability going forward.
I hope that you have got ample clarity now on what we propose to do as far as the business strategy for increased retailization and reducing wholesale is concerned. The merger process that is transforming to a unified operational retail entity, lending entity. One of the topmost priorities that we are going to focus now is to make L&T Finance into a unified operational lending entity. I will explain the background of this proposed merger. Since 2016, LTFH has embarked on a strategic rationalization of companies.
This particular initiative comprising merger of various subsidiary entities through the right structure initiative. This led to reduction of number of lending entities from seven in 2016 to two by 2022, that is L&T Finance Limited and L&T Infra Credit Limited, which resulted in simplification of corporate structure along with the enhanced governments and controls.
In continuation of our guidance towards moving to a one company structure, LTFS, post the sale of mutual fund now, has proposed the merger of its subsidiary lending entities, that is L&T Finance Limited and L&T Infra Credit Limited, with the non-lending listed holding company, L&T Finance Holdings Limited, since the holding structure is not relevant anymore after the sale of mutual fund. Just to explain very clearly, the regulator was not in favor of a operating NBFC holding the mutual fund, and hence the CIC structure was relevant. Now that we have only lending business, that is not relevant and hence there will be only one monolithic NBFC in the group.
What this would result in a simple one entity structure which goes in line with our intent to have a right structure leading to optimal utilization of capital and effective utilization of management bandwidth.
Needless to say, of course, that this merger would be subject to necessary statutory and regulatory approvals and clearances. We believe that it will take a good part of FY 2024 for it to finally happen. Excuse me. Allow me to deep dive into some of the operating numbers. We have seen the highest ever retail disbursements. Retail disbursements stood at INR 11,600 crore, up 53% YOY. This has resulted in retail book growing 34% YOY and 10% Q on Q. Retail mix has grown to 64% from 50% last year and 58% in Q2 FY 2023 itself, and we hope to show you a much higher percentage even by the end of this year. These numbers indicate the strengths of the business franchise we have built over the years.
I would like to take a moment here to highlight that We have been successively posting highest ever quarterly retail disbursements. First in Q1 FY2023, which has then surpassed Q4 FY2022 levels, followed by Q2 and then now in Q3. Of course, I mean, there are lot of businesses which are seasonal, but we expect overall a trend of good strong retail disbursements to continue. At this juncture, I would like to give you a flavor of how performance of various macroeconomic variables which have a bearing on our businesses have been taken into account while arriving at various decisions.
At L&T Finance, we are greatly influenced by the inputs of our chief economist team on all the relevant variables that have a decisive influence on the agricultural cash flows, especially rural cash flows, like sowing progression, water reservoir status, mandi prices, employment levels, inflationary trends, liquidity pressures, et cetera. These insights are of immense value, not only for business planning, but even for actual resource allocation as well as credit decision making. They serve as very good early warning signals for us to be better prepared for future. Broader movement of macroeconomic variables suggest that rural demand this year is expected to stay reasonably buoyant in the remaining of FY2023 and at least in the H1 of FY2024, and then of course, we will have to see the monsoon.
Healthy rabi sowing, good kharif procurement, and hopefully likely exports of wheat have kept the investment sentiment upbeat in rural areas. We see good progression in rabi sowing season with higher water storage levels and improved soil moisture. During the first three months of rabi sowing season, that is till December, the total sown area surpassed the normal area of all major crops, with all states reporting higher rabi acreage, barring five states, which are Telangana, Haryana, Gujarat, Punjab and Uttarakhand. Other than this, all other states have reported higher area under sowing of rabi, leading to higher chances of a bumper rabi crop. This progress in rabi sowing gives us tremendous hope that it will offset the dent in total food grain production, which we have seen during the kharif season.
The 2020 to Northeast monsoon progression has now already in the surplus. With a cumulative rain precipitation being 19% above normal, the water surveys, storage positions across reservoirs is not only higher than normal, but also higher on a YOY basis. All regions have now reported healthy water storage positions, barring some eastern and southern regions on a YOY basis. Over the past few weeks, however, of course, the storage position has moderated, but still we believe that this will lead to a good rabi season. The MGNREGA statistics until December 22 show that all India daily average wage rate under the MGNREGA scheme is higher than the previous year. Thanks to the ongoing rabi sowing, the job demand in rural areas is largely met.
According to CMI, while the urban unemployment rate rose to 10.09% from 8.96% the previous month in December, the rural unemployment rate has actually declined from 7.55% to 7.44%. The same statistics indicate that until December 2022, the all-India daily average wage rate under the NREGA scheme is also higher than the previous year. As such, all indicators are trending to reasonably positive. As far as the overall rural growth is concerned, I am pretty sure that the momentum is a sustained one, and the rural demand in different geographies will present us with good opportunities to grow our rural business in future. Let me now talk about the performance of respective businesses. Rural business finance, which was previously known as micro loans.
This business recorded the highest ever Q3 disbursement of INR 4,281 crores. This was with the book growing 46% YOY. Today, it stands at around INR 17,500 crores. This growth was aided with help of initiatives like focus on repeat customer conversion only for 0 DPD customers, exclusive customer loans that customers who are exclusive only to L&T Finance, calibrated geo strategy, a best-in-class turnaround time, and database credit algorithms. I would like to point out that we were clearly the pioneers of database credit algorithms in this business. While continuing to maintain a collection discipline of timely execution and strengthening the product portfolio, strengthening various product portfolio monitoring metrics. The monthly disbursement rate has been maintained at around INR 1,400 crores, with fresh and repeat disbursements, respectively, at 49% and 51%.
As explained in the earnings call of Q1 FY2023, subsequent to the master directions issued by RBI on this business, we swiftly modified our sourcing digital app for calculation of household income and made changes in the processes. Lending could happen using advanced credit metrics now in households with an income of more than 3 lakhs. This opened us tremendous opportunities here at good credit costs, at acceptable credit costs. Going forward in this business, the company expects to sustain the momentum by launching new products like rural Loan Against Property. That is the first one off the ground in addition to what our group loans product is. Farmer finance. From being one of the leading financers in this segment, today, L&T Finance has a leadership position in Farmer finance with about a 15% market share.
This has been done with the help of a well-diversified footprint of 170 branches across 16 states and a vintage now of about 17+ years. We have built our partnerships with a tie-up with more than 2,500 dealers. We achieved the highest ever monthly disbursement of INR 900 crores, the best ever quarterly retail disbursement of about INR 2,057 crores in Q3 FY 2023, and the highest ever quarterly disbursements of about 40,000 units. Repeat customer disbursements have grown from about INR 160 crores to INR 273 crores, INR 270 crores in Q3 FY 2023. The book size now has crossed INR 12,000 crores mark. This business doing extremely well.
As we come to urban finance, which comprises of two-wheeler consumer loans and home loans through LAP business, we saw a 55% jump in overall disbursement, resulting in a 34% YOY increase in book size. Our two-wheeler business saw the highest ever quarterly disbursement of INR 2,146 crores, up 31% YOY. We, in October, actually achieved the highest ever monthly disbursement of INR 1,000 crores. Q1Q growth in unit disbursed stood at 14%. The book size stood at INR 8,716 crores, which is now 19% growth YOY. Our two special products, which is Sahayata loans and the VIP scheme, which according to us is very customer-friendly product, increases finance penetration, and more importantly, much more improves our portfolio quality and reduces collection costs.
These two products now penetration stands at 23% in Q3 of the total disbursements in Q3 FY 2023. As a step towards expanding geographically, we have been opening new branches. As a result of attractive customer offerings and schemes, L&T Finance's disbursements have grown at 31% YOY, which was better than the industry average of 22%. Maintaining a strong focus on customer value, building preferred dealer OEM relationships with more than 5,000 dealers to grow our market share, the business is delivering on a strategy built around dominating counter share of preferred partners and offering mutual value by leveraging the increased application of data analytics.
I would like to add here something very interesting, that adding to our endeavor to create customer-initiated journeys and reimagining customer engagement, we now propose to launch a digital two-wheeler journey on PLANET app, wherein the customer can purchase the two-wheeler from the comfort of his home without visiting the dealer outlet. This would cover the entire customer journey for selection, test drive of the two-wheeler, onboarding and digital sanction, along with insurance, payment, and setting the bank mandates, followed by delivery of the two-wheeler. With this, we believe that experience of purchasing a two-wheeler by a customer would undergo a significant shift on the back of technology and digital process. We of course, believe that the takeoff of this will be slow. Like all things digital, we believe the pickup after that to be pretty rapid and fast.
Our consumer loans, which is one of our newest products, and our digital native products have now had a monthly run rate of about INR 400 crores per month during this quarter. Our digital aggregator partnership now crossed INR 100 crores on a monthly basis. Disbursement stood at INR 1,228 crores in Q3. The business continues to build significant scale by cross-selling to L&T Finance's existing customers, as well as open market customers. Repeat customer base increased to 44% now Q on Q on account of active analytics engagement. The company increased its customer funnel through channels like new partnerships with e-aggregators and Insta Loans for potential customers.
In this segment too, we are working on initiatives like starting new programs for higher ticket salaried PM and of course, new to credit through banking products and increasing the spectrum of digital partners by utilizing the digital stack. Retail housing side. The retail housing disbursements now stood at around INR 1,200 crore, up 83% YOY and 7% Q on Q. We remain focused on enhancing disbursement volumes, like by deepening geographical presence, solid DSA partnerships, and increasing customer retention. We have also worked incessantly towards reducing our book attrition, what is called BT out, through a proactive and improved proposition. The share of the self-employed segment in the overall HLD disbursement increased to 33% now, as against 12% in last year. Last but not the least, actually the newest product that we have is SME Finance.
The pilot of SME product which was launched in Q3 FY2022, has witnessed a steady pickup ever since. In Q3 FY2023, excuse me, quarterly disbursement crossed now INR 200, monthly disbursement cost INR 200 crores. For the quarter, the disbursement stood at INR 538 crores, and the book size increased to INR 838 crores. This was led by significant geographical and channel expansion. We also launched a new product in November 2022, in addition to our what we have unsecured business loans. The new product is called Dropline Overdraft Facility in order to provide added value to our SME customers. The business has been operationalized in multiple locations now till December 2022, and we expect it to significantly scale up in times to come.
On the collection side, L&T Finance witnessed best-in-class collections in Q3 FY2023 across all business verticals, led by the company's concerted on-field efforts, analytics-led prioritization, and use of propensity-based data analytics to channelize resources. Collection efficiencies across businesses have trended extremely well. Given the way collection efficiencies and performance of portfolios across various buckets is trending, coupled with operational efficiencies, which are expected to kick in in the medium term, we are confident that the retail OpEx plus credit cost will trend towards the targeted 7% range in the medium term.
On the liability side, with the change in interest rate trajectory through successive hikes by RBI, the industry is obviously experiencing a increase in cost. L&T Finance continued to approach its approach of locking in adequate medium and long-term borrowings, which has helped us to contain the increase in weighted average cost.
Overall, the quarterly WAC, that is weighted average cost, for Q3 FY2023 stood at 7.54, against 7.33 in Q2. Obviously, the increase in WAC was due to the repricing of floating rate liabilities and higher cost of incremental debt. Here, the point of highlight is that the quantum of long-term funds we raised was about INR 6,500 crore in Q3, as against INR 8,200 in Q2, and last Q3 was just about INR 2,000 crore. Average CP proportion was kept low at around 9%, and this holds us in good stead because with wholesale going, the overall ALM will work in our favor with the overall duration of asset side coming down, and that will obviously work in moderation of the increase in interest costs on the liability side.
Given our product mix as well as the pricing power and this change in ALM, now rapid change in ALM and the duration of asset side that we have been talking about, we are confident to maintain our NIMs plus fees level at least 11% despite any increase in weighted average cost. Last but not the least, the asset quality. Our GS3 now stands at 4.21 from 6.69 last year. NSP stands at about 1.72% with a PCR of 60%. As I have already said, the retail NSP stands at 0.73% with a PCR of close to 79%. In summary, our established business strengths and proven business models with highest quarterly retail disbursements leading to consistent NIM, NIMs plus fees.
Best-in-class collections along with a strong retail liability franchise resulted in excellent profitability and a stable and well-protected book. The resilient and well-capitalized balance sheet positions us strongly for future growth. I would fair say that whatever we have been preparing over the last Q4 , whether it is a strong balance sheet, a strong liability franchise, business strengths, retailization, we believe this Q3 is, I think, the Q1 in which the profitability is very clearly directionally coming forward, and we obviously expect to improve it Q on Q. Having spoken about the quarter in detail, let me refer to the pillars of our Lakshya 2026 plans, which are four, which are having sustained profit and growth engine, demonstrable strength in risk management and collections, creating of fintech at scale, and a sustainable future growth through ESG.
I have already talked in details now about the first three pillars. Let me talk about the fourth pillar, which is ESG, and let me come to the conclusion. L&T Finance has been one of the pioneers in ESG standards in the financial services industry. A big achievement in Q3 was L&T Finance receiving a CDP score of B level in the recently released CDP score report for Climate Change 2022, which is significant improvement over the previous score of D received in 2021. The score signifies that the company is taking coordinating action in climate issues and highlights the step taken by the company towards sustainable processes and systems, and more importantly, also highlights the way we report that and the seriousness which we take this.
I would also like to highlight that the score is higher than Asia regional average of C and the financial services sector average of B minus. I would like to also share with you that we continue to work towards carbon neutrality, in line with which we have adopted the use of green power across many branches in Maharashtra, including our head office in Kharadi, which will help us reduce the carbon emissions. We also worked on carbon sequestration through Project Prakriti with the initiation of plantation of 50,000 trees and have been recognized with awards like Social and Business Enterprise Responsible Award, SABERA, in the Gender Diversity and Inclusion category, and UBS Forums Awards in the Women Empowerment category for our Digital Sakhi project.
ESG continues to be an important driver of our strategy and growth, we are committed to build and report a ESG conscious organization. To summarize, I would like to say that we have stayed true to our commitments and have been able to deliver consistent performance. The efforts which we put every day are guided by the overarching goal of making L&T Finance a top-notch retail NBFC. We have laid out a path for achieving multiple offerings in the future, which will supplement the strength of our current offerings. Looking at our performance in Q3 of FY 2023, I can confidently say that we strive and drive our efforts towards achieving and exceeding the targets of Lakshya 2026 well ahead of time. With this, I once again extend my good wishes to all of you.
Apologize for taking around 45 minutes, but I think there were very important things to highlight in my opening comments. May the new year bring all of you and your loved ones immense happiness, good health, and a lot of success. I thank you for a patient hearing and open the floor for questions. Thank you.
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 the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use answers 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 Saurabh from JP Morgan. Please go ahead.
Hi, sir. Congratulations. This seems to be a cheering quarter for you guys.
Thank you.
Just have three questions. Three questions. What would be your market share now in this, in tractors and two-wheelers? Microfinance, I think you'll be number three, but what will be your market share, and are you holding to that top, two or three position? The second is if you can help with the write-off and slippage in the quarter. Your Gross Stage three has gone up a little bit. I'm just wondering what are the slippage. The third is, did I hear you right that you said 90% retail by March 2024 is the internal target even though the Lakshya target is higher?
If that is the case, then well how are you thinking about this excess capital, which will probably be there on your book?
Okay. Let me answer one by one. The market share in tractors approximately 15%. Market share in two-wheelers will be 11% approximately. In micro loans, it depends on how people measure it, but it is around 5.7. We are number four in micro loans, not number three.
Okay. Tractors and two-wheelers, sir, what would be their market share?
As of December... What was your second question? I forgot. I remember your third question.
No, no. Tractors and two-wheelers, what would be your market position now?
number 4, two-wheeler also.
Okay. Tractors?
Tractors, number one as of December end. Having said that, us and the next competition is a difference of a few hundred tractors. We keep having fun every month measuring it.
Okay.
It doesn't matter. I mean, there are two, three players who are at the top, especially the two NBFCs that .
Okay. Okay, I understand. What will the write-off and the slippage in that quarter?
Let me just answer about this because I can't give numbers which we have not given. GS3 increase, I will just explain to you. There is a rapid drop in book write. The % will happen like that. In fact, you will see heard me guiding more and more on the retail ROA, pre-retail balance sheet. , if I guide you on the total number, the better I do in our wholesale, sell down, some of these numbers in short term will actually look worse, right? I don't want to guide you on the total PAT and things. That's for you to calculate. Even today, I don't know how fast my wholesale book will come down quarter- from- quarter.
Based on that total ROA, total PAT, total leverage, everything will depend on that, right? I can't obviously give very specific numbers for next quarters because I don't know. I mean, if I knew exactly how much wholesale I will sell next quarter, I would have sold it this quarter. That's, that would be the imponderable. That's where our guidance comes. What we will strive at, I will not like to talk about as specifically as internal targets, et cetera. We now believe that with the one-time provision that we have taken in order to deal with any, let me say, discounts that the buyer may ask for illiquidity discount, it can be pretty fast and maybe we hope to touch about 90% by the end of this year.
Hence now to actually take up your other question. In 2024 then the calculations will show that the more rapidly we go towards the Lakshya goal of reducing wholesale and retailization, the capital may look excess in this particular year. It may look excess. The board still has to take decision whether we will give a special dividend, et cetera. That is also subject to regulatory approvals. As that any specific dividend more than a particular amount in CIC, we'll have to take special approvals, et cetera. So that's the that's the the guidance on the total leverage. That is why if you would see through my speech, I talked about the retail balance sheet and the retail P&L.
Yes, FY 2024 maybe this year where if I rapidly reduce wholesale to say 10%, the leverage may be limited at in FY 2024. Then 2025 onwards, the leverage will only go upwards as retail grows. That is why I tried and guided you without giving a number about the retail growth that we are seeing. You would see that all indications are that the CAGR at least for the first couple of years can be well in excess of 25%, right? Those are the indicators that I would like to put.
Okay. If that were to happen, your fiscal 25 ROA could have hit 2.83%, I mean.
ROA? ROA, that is retail ROA? Yeah, we are quite confident of even approaching close to 3% retail ROA.
No, I was talking at the company level, sir. By 90% by March 2024.
Exactly. Saurabh, that's why. It is everybody's calculation and guess how rapidly I reduce the wholesale book. Correct, na?
sure. Yeah.
I mean, I don't want to give you all the analysts their Excel sheets, right?
Right. Okay.
Particularly for the reason that even I don't know. This is a very funny thing, that the metric which is total profit will actually go in the opposite direction of how well I do, right? If I reduce it very rapidly, the upside of the balance sheet in FY 2025 will even be better, but FY 2024 leverage will be lower, and FY 2024 profit coming out of wholesale will be lower. The important thing to consider, I would invite all of you to think like that. The retail growth trending definitely more than 25%. Retail ROA trending to 3%, well before time. Most importantly, because of this one-time provision we have taken, which we really wonder whether we will use it totally, but let's see. We don't want to...
This is based on evaluations that we have done, we have kept it. Because of that, as I said in my speech, we are very confident that any sell down in wholesale will not come and have any splinters or hurt to the retail profitability. Hence, the retail profitability is very quickly approaching steady state. Right?
Got it.
I believe that FY 2025 onwards, when the retail balance sheet is, say, 90% or 90% of the total balance sheet, the growth will be starting to see clearly.
I understand. Thanks. Thank you.
Thank you. I mean, this is as clear answer that I can give. Very frankly, as much I can estimate. I will try my hardest to reduce the wholesale book as much as possible. Unfortunately, what will happen because of that is leverage will stay that much lesser, no? We should not be worried about that and look towards maintaining and growing the retail book profitably for FY 2024, so that FY 2025 growth will catch up.
Thank you. Very clear. Thank you.
Thank you.
Thank you.
Thank you. The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.
Hi, Kunal. How are you?
Hi, sir. How? Good, sir. Happy New Year. Firstly, I think last time our indication was, we'll be utilizing this money more towards the macro prudential, now it seems to be more like a complete, markdown, okay? A fair valuation. This is more kind of, realized or something which we, expected to go through. Compared to that of the macro, the utilization or maybe, the write backs from this could be, relatively on the lower side. How should we look at that, change in stance from the macro prudential to a fair value, fair valuation?
I have not, I have not indicated macro prudential at any point of time. I have said the word, used the word, strengthen the balance sheet, because we had to also make up our mind as to how we will use it, right? Let me explain the difference of very clearly between macro prudential or any credit provisions and the provisions that we have taken. Right? Today, the book is around INR 31,000 crores. Even if you calculate SRs which are outstanding, it is around INR 35,000-36,000 crores. That's the total book. Now, when we say that this total book we will start at resolving, has rapid prepayments, rapid sell down, et cetera.
Actually, the value, as I said in my speech, when the valuer, when they looked at this overall portfolio, even whatever is the NPA and all that, when they looked at the value, fair value, it came actually quite close to the hold to maturity value. Okay? We felt, and we also spoke to the valuer, our auditors, that trying and being, what do you say? Trying and being very ardent about not passing on any discount. Though we actually I mean, the team carries the target of selling things at par value. We recognize that the more rapidly we sell, perhaps the buyer may need some discounts on certain things. Interest rates have also gone up. Various things have happened. We have put this illiquidity value.
Very clearly, if the book would have remained with us at the same pace or reduced at, say, normal pace of INR 2,000-3,000 crores or so per quarter, we don't think that we had to give this illiquidity discount. We plan, I mean, I indicated, no?
Yes.
We hope that we will come to 90%. You can do your calculations that how much the retail growth is likely to be, and for that to be 90%, how much the wholesale book will be. I don't want to give out internal numbers, but it is very easy to calculate. It will based on your projection of our retail growth, and that is how it will come. But you will see that whatever number you come will be a very small fraction of the today's book. Because that we want to achieve that within a short period of 14 and a half months, we believe that this will provide us with the cushion to be able to do that. That is how you will have to look.
Whether there will be write backs or things like that, we will know after 14 and a half months. I will put it this way.
Okay. If we have to look at it in terms of the maximum markdown.
Kunal, sorry. On the other side, whether there will be any further hit to the retail P&L because of this, that we are very, very confident. As I always say, management has to hope for the best. We have to be optimistic but provide for the worst, and that is what we have done. That we have provided for a worst case scenario that we may have to lose INR 2,700 crore while selling, which as you would see as a percentage of, let's say, INR 31,000 crore is a very large percentage, and that too INR 31,000 crore of a good book. Yeah.
Okay. If you have to look at it in terms of the markdown, between the real estate and infra, how should we look at it? Because maybe still out of INR 31,000 crores, real estate is INR 7,300, and infra is INR 23,000-24,000. I think infra would not be so vulnerable to the markdowns comparable of our real estate. In terms of the proportion between the two, how would the markdown proportion be?
I don't want to give specific proportion, but generally speaking, your conclusion is right.
Okay, cool. Secondly, in terms of OPEX plus credit cost, you said 7 odd %.
7% for retail. Today it is around 7.5 odd, right? That is how we trend. I'll also say why I'm putting this together, right? I believe, and we firmly believe that especially collection costs and credit costs are very fungible costs. It is, there are times when we have to fung one for the other, right? The more we spend on collections, credit costs can be controlled at the very base. That is why we would like to see how these two trend. We will try to do better than that, but that's what... , very simple, as I said, right? Where 11.38 precisely is today's NIMs plus fees. How are things going to happen? Costs are going to increase slowly as we go ahead.
Even though now RBI may not increase it that much, as we reprice our liability, definitely WACC will go up, not rapidly, but slowly. That is what will happen. Our product mix, even if it remains same, probably little bit secured loans will grow. That's what will happen. On the other side, however, the tenor of wholesale will come down and hence our ability, overall ALM, ability to raise shorter term loans, let us say two years, two and a half years, overall vis-a-vis say five years will increase in the ALM. All this together, we are conservatively saying that NIMs plus fees should be around 11%. You would also see that our fees have also little bit come down this quarter, okay?
I would upfront like to say that we are also talking to some of our insurance partners about looking at various other arrangements of booking the full potential of fees. We are also, we've bold passed a resolution to apply as a corporate agent. Till now we were a master policy holder. We will now be applying for a corporate agent and which would enable us to get the full potential of fees. All these things together, we are very confident of a minimum 11%. Hence if we have to target for a 3% ROA, expense plus, loss, credit cost has to be around 7%. It's just very simple arithmetic is what we are looking for.
Yeah. Okay. Okay. What could have been the reason for lower net worth in Q3 compared to that of Q2, particularly on the retail side, post almost INR 400 crores of that in retail?
Just allocation.
my CFO will take this question.
Kunal, this is just allocation between the three businesses. As you would have seen the provisions come in one entity. The gain is sitting in the holding company, so it is purely the allocation which is.
I would say for Kunal, 2024 onwards, no, you will start seeing proportionality of the book. That is why Saurabh's question, you take note of my answer, that retail leverage will actually. Otherwise what? I was there, no, 3% and close to 5%, say 4.75 debt equity, I would be comfortably above 15%, no, as ROE. That is, that will not happen because moment the wholesale book comes down, the leverage of retail will also come down, no?
Yes.
That will happen over FY 2024, hence the conversion of ROA to ROE, hence, going that ROE to high teens will perhaps more happen in FY 2025. I would invite you to say the potential of doing that by reaching steady state ROAs pretty soon.
Sure. Okay. One last data point, if you can share, stage 2 for retail?
what, this demand has been there, throughout, and, I would, I promised you last time that we will soon give it.
Yeah.
Reiterate my promise, we were not wanting to start giving some data in the middle of the year. From the next quarter, next financial onwards, we will give very detailed breakup of our portfolio.
Great. That would be very helpful. Yeah. It helps in terms of
Absolutely. I used to give out these numbers. Now that the new regulations don't allow me to do that unless I put it in the investor presentation.
Yeah.
We will start putting it from next F.Y. onwards.
Okay. Thanks. Thanks and all the best. Yeah.
Thank you.
Thank you. The next question is from the line of Ritesh Shah from Credit Suisse. Please go ahead.
Hi. Good afternoon, sir. Thanks for the opportunity.
Good afternoon, Ritesh. How are you?
I'm doing well, sir. Thanks for the opportunity. I had three questions. First one was on the NIMs. Of course, the consolidated NIMs have gone up due to higher retailization. Even if I look at the retail yields in particular, they have increased 65 basis points sequentially. My question is, are there any specific products which are driving higher yields, quarter-on-quarter? Is it mainly microfinance related, or you have been able to take price hikes across the products? That's the question number one. Question number two is relating to the provisioning pertaining to the wholesale book. On that particular point, I wanted to understand the provisioning amount that we arrived at.
Was illiquidity discount the only variable which we used to estimate this number or were there any other variables than, if yes, what were they? Thirdly, just more of a question from understanding perspective. While I believe that taking this provisioning was completely prudent, given that the Lakshya 2026 required the wholesale rundown to be done over the few years and if the book is indeed performing, wouldn't it have been better that rather than accelerated sell down, if we could have recovered more amount and pay up for this illiquidity discount? This is particular because the provision that we have taken is substantial, 13% of the network.
More number have been recovered if you would have done it over two and a half years rather than just next 14 months? That's all from my end, sir.
Excellent question. I will take the last question first. First, simple, in my speech also, in opening comments also, I said that it is mainly illiquidities, largely. Because, when the valuation was done based on credit quality, et cetera, given the provisions we had already made, the valuer didn't think it necessary, that the value is very different. Have we been conservative? I believe, perhaps, yes. I don't want to make too many comments about that. Yes, I would believe that it will be almost completely illiquidities. That is, to answer your first question. Second, it's a matter of P&L versus value, right?
The board and the management is completely convinced that if you look at valuation of peers, we believe that peers who perhaps retail business may not be of the same quality as us, get much bigger value, much better value. Finally, our job is to maximize the value for the shareholder and hence the management as well as the board believes that the earlier we are recognized as a retail finance company, the better. That's the reason. This doesn't mean that we will necessarily take huge losses or anything like that, but we wanted to give very clear strategic direction to this. Secondly, what happens that as much as we believe in the portfolio, that something happening can give some problem in a wholesale portfolio.
, some things here and there, it has always weighed down on investor feelings, perceptions, et cetera. Clearly we want to finish this as early as possible and reduce wholesale to a level where all investors are confident that it is a very small % of the book now. Also, if at all any further reductions or losses have to be taken, they have been already taken and finished. The retail P&L, you can look at a pure pristine P&L, which with no fear. Because many times, I mean, I will come to vernacular. Many times, I was told, all those things were said. We want to now ensure that there is no negative surprise coming to the balance sheet at any point of time.
This is in colloquial words, it is a dry powder that we have learned this from analysts only. Dry powder that we have created for any such issues coming up in the future. That's how you need to take it. It's how the overall P&L will progress vis-à-vis value. We believe and hope that all of you will now give better value to us.
Sir, on the yield side?
Yes, I'll take it. yes it is not just micro loans. There are 3 products which saw very rapid increase this time and all our good yielding products, right? Micro loans, surely that is rural business finance, consumer loans, farm and two-wheelers. These saw very, very good increase, so yields have gone up. As far as passing on is concerned, I will be frank. Maximum pass on actually has happened in infra loans by nature, where the yields are so less that we can't afford to absorb. We have passed on completely. In the other micro loans, for example, we have stayed at 24% through the entire 225 basis points rise because we believe that we are adequately priced and don't do that. That is how it has moved.
Product mix has moved to in retail, moved to little bit more high yielding products, but definitely not necessarily only micro loans.
Perfect, sir. That answers all my questions.
We give product mix numbers in detail, so you can see that.
Yeah, that was from the loan book perspective. I wanted to just understand from yield perspective. Anyway, that answers all my questions. Thank you, sir.
Thank you. Thank you.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Dinanath Dubhashi for closing comments.
Thank you. As, I will only say that let FY 2023 bring all of us, the country itself, very good luck in many things. We are now seeing soon we'll have the budget. We'll soon, hopefully off major issues, major problems. We look at the economy with hope. We believe that, not only through the plans we have, the initiatives we have taken, but also performance that we have shown. We believe that, we have earned much increased confidence from all of you and, very grateful for you for the support you have given. With folded hands, we would ask you to continue this support to us and, give us the credit that hopefully we deserve. Thank you. Thank you very much.
Thank you. On behalf of L&T Finance Holdings Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.