Ladies and gentlemen, good day, and welcome to Repco Home Finance Q2 FY 2024 earnings conference call hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sanket Chheda from DAM Capital Advisors Limited. Thank you, and over to you, sir.
Good afternoon, all. Welcome to the Q2 FY 2024 earnings call of Repco Home Finance Limited. We have the entire senior management team with us, Mr. K Swaminathan, MD and CEO, Mr. T Karunakaran, Chief Operating Officer, and Ms. K Lakshmi, Chief Financial Officer. Without much further ado, I would like to request Mr. K Swaminathan for his opening remarks, and post which we can take the question- and- answer session. Over to you, sir.
Thanks, Mr. Sanket of DAM Capital. On behalf of Repco Home Finance Limited, we would like to welcome all to this earnings call for the quarter ending September 30, 2023. I wish you all a very happy Diwali. Thank you all for joining us, especially during this busy season today. We are happy to announce that the growth momentum seen in the last quarters has continued in Q2 FY 2024 as well. The company is progressing on its business parameters and is positive of meeting its yearly numbers. The structural changes that have been in process across the organization, which we also mentioned in our previous earnings calls, like delegation of powers, implementation of new IT software, et cetera, are beginning to yield results, and we are confident that we would be able to see the combined effect of all these changes in the coming quarters.
We were able to achieve disbursements of INR 797 crores as against INR 746 crores of Q2 FY 2023, registering a growth of 7% YoY. Our sanctions stood at INR 860 crores as compared to INR 820 crores last year, recording a YoY growth of 4%. Our AUM stands at INR 12,922 crores, an increase by around 7%. The ratio of exposure between loan, salary and salary segment stood at 51% and 49% respectively. The share of housing loan is 76% of the book, and that of home equity is at 24%. During the quarter, we were able to reduce the GNPA significantly from INR 695 crores to INR 637 crores, which is 4.9% of the AUM, and the net NPA stood at INR 272 crores at 2.2%. GNPA numbers have come down by INR 150 crores approximately YoY, that too organically.
We have a total provision of INR 526 crores with a provision coverage ratio of 57.4%, exclusively for Stage 3 assets. Our systematic and relentless action on NPA pools is proving fruitful and would continue. As of September 30, 2023, we hold INR 573 crores of restructured portfolio outstanding, of which approximately INR 183 crores are in Stage 2, Stage 3, and the remaining are in Stage 1 and 2. Profitability parameters. Our NIM for Q2 FY 2024 improved to 5.4% from 4.9% in Q2 FY 2023 and 5.1% in Q1 FY 2024. We have been able to successfully transmit the increase in our borrowing costs and also improve our margins. With a spread of 3.4%, our average yield on loans sanctioned rose to 11.8% in Q2 FY 2024 as compared to 11.6% in Q1 FY 2024.
The net profit grew 10% sequentially and 38% YoY and amounted to INR 98 crores as against INR 89 crores in Q1 and INR 71 crores last year. Our ROA and ROE improved to 3.1% and 16.1% respectively in Q2 FY 2024 as against the figures for Q1 at 2.818 and 15.8%. We are gladly informing that the company has achieved these numbers despite the increase in establishment costs due to salary revision and increase in legal costs due to increased recovery efforts. As regards IT, bulk of phase I of Project One, comprising of CLMS, LOS and ETL are completely integrated across branches and almost stabilized. A few more applications will get completed shortly under phase I.
The company has started preliminary work in implementation of phase II applications covering HR, audit, et cetera, and the entire phase II of the project comprising of department specific applications is expected to be completed by first half of next year. A total of approximately INR 20 crores have been spent so far for the new software. Branch network. As of September 30, 2023, we have 199 touchpoints across 12 states and one union territory, comprising of 166 branches and 33 Satellite Centers with additional two asset recovery branches. During the first half of the year, we have upgraded seven SAT centers into branches and have also opened seven new SAT centers. Our board has also approved opening of eight new branches, upgradation of one SAT center into branch, and opening of four new SAT centers. The company is on track on its profitability and GNPA figures.
We have planned a reduction of INR 100 crores in GNPA for the entire financial year, against which we have already reduced INR 82 crores in a span of six months. Our profit guidance was INR 350 crores for the whole year, and we have achieved INR 187 crores in the first half. In the remaining two quarters, our focus would be on taking the growth numbers to the next level, and we are quite positive on this. To summarize, I will summarize the key financial highlights for the quarter before opening the floor. The loan book stood at INR 12,922 crores, registering about 7% YoY growth. PAT for the year stands 38% to INR 98 crores YoY. ROA and ROE stood at 3.1% and 16.1% respectively. The core profitability has remained strong with a solid spread and margin of 3.4% and 5.4% respectively.
The gross NPA has shrunk to 4.9% with a Stage 3 coverage of 57.4% and net NPA is at 2.2%. Once again, I thank DAM Capital and all people who are participating, and we would welcome all your questions.
Thank you, sir. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch- tone phone. 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 Mr. Rajiv Mehta from YES Securities. Please go ahead, sir.
Yeah. Hi, sir. Good evening. Congrats on very strong set of numbers, and thank you for giving me the opportunity to ask questions. Sir, firstly, you said that you are very confident about achieving your growth numbers for the year, which is around 12%. When I look at our first half's growth, or otherwise, when I look at our first half disbursement growth, we need to achieve much more in the second half. Mathematically, we need to achieve 30% growth YoY in the second half disbursements, as well as in terms of AUM, we need to grow AUM by 4% sequentially for the next two quarters. Are we very confident about it, that we will do it? Also, going into the next year in FY 2025, how do you see growth? Because you spoke about the focus now will be on the next level growth.
How do we see growth in FY 2025, and what is the plan to achieve that growth?
Thanks, Rajiv. Thanks for bringing the particular issue in focus. See, I do agree that maybe the first half, we did not do as much as we were originally planning as regards disbursement numbers. But one of the issues that are facing now in the second quarter is the festive season that is already ahead. N ormally, our second half will always be better than the first half. These are the factors which give me some confidence that-
Sir. Hello, sir.
Yeah, I'm there. I think his line is dropped.
Yes. Participants, please continue to hold. We have got the management line disconnected. Please hold on. Participants, we have the management line. Sir, you can proceed with the answer.
Yeah, I would like to answer Mr. Rajiv's query. Mr. Rajiv, you are right, that maybe the first half numbers, especially on disbursements, are not as per our target. W e are somewhat positive as regards second half, for the simple reason that the festive season is ahead. Historically, this company has been doing very well in the second half compared to the first half. So with all these numbers, at least for the present, we do not want to revise our numbers around disbursement for the whole year. Maybe we will take a view at the end of the third quarter, then we will take a call. A s regards the other numbers, as I told you in the initial speech itself, as regards recovery and profitability, we are on track. We are confident that the growth numbers also will pick up in the coming months.
Sure, sir. Part of the question was about how you look at growth in FY 2025, because we've been emphasizing about the next level growth. If you can just kind of spell out whether, can we go to 15% + growth in the next year? Is that a part of our plan?
Okay. See, today I'm unable to give you a specific number because I have not got any board approval for the same. W e as a management, we would like to have an increased number, maybe 15%-20%, like any other housing finance company in the next year.
Got it, sir. On Stage 2, if you can tell us how was the movement in Stage 2, because initial bucket collection team was also strengthened by us and whether are we seeing any benefits in the form of any reduction in Stage 2 assets?
Stage 2 numbers, though we have not given Stage 2 numbers, are steadily coming down. As of now, it is around 12%. We are quite confident that by the quarter end, we will be breaking 10%. Going forward, the Stage 2 numbers will come down quarter-on-quarter, that is for sure.
Sure. There is just one last question is on sort of spread and NIMs. Sir, the portfolio yield seems to have gone up by 30 basis points sequentially. If you can elucidate what are the factors behind this sharp increase in portfolio yield, and is there any one-offs related to a very significant NPA reduction that we saw? I mean, did we recover any interest on the NPAs and which is why there could be some one-off or lumpy interest recognition in the quarter? Is there anything of such item in the portfolio?
That actually there is no any one-off either in the income side or in the expenditure side. There is no such one-off event. Maybe in some of the OTS recoveries, maybe we would have got some extra interest, but that is the only thing. There is nothing special. One thing, maybe because we have started repricing on our book every third month instead of every sixth month earlier. Maybe that is giving an effect on the increase to profitability.
Got it, sir. I will come back in the queue. Thank you so much.
Thanks, Rajiv.
Thank you. The next question is from the line of Mr. Abhijit Tibrewal from Motilal Oswal Financial Services. Please go ahead, sir.
Yeah, thank you. Good evening. Sir, first things first, if you could just explain this trade-off between NIMs and growth that we are seeing very clearly. Sir, congratulations to you and your team. A very good expansion in margins, almost 30 basis points expansion in margins that you've reported. But at the same time, sir, there is muted loan growth that we are seeing in the book. At the same time, you said there are no one-offs in the yields. But sir, if you look at the entire mortgage space, incrementally everyone has reported or is talking about yields to come down because they are trying to retain good customers by offering attractive interest rates. The new business that happens at lower rates than the existing customers.
Sir, will it be kind of fair to say that, I mean, BT outs which can be stemmed by offering attractive interest rates or top-up loans to customers, you are not doing at this point in time. So either you are not retaining your good customers or another way to think of it is maybe you lend to customers who do not come to you for BT outs because there is no one else higher up in the pecking order who lends to them. So how should we think about this whole NIM versus loan growth kind of a conundrum?
Okay. Thanks, Abhijit . As far as BT outs is concerned, I am confident that the BT outs is not an issue for our loan growth. One of the things, BT outs in the last quarter was only INR 30 crores as against BT in of INR 60 crores. So BT outs is not a major issue. One such thing we must also take into account. This is because of our increased efforts. Our NPA is also coming down. So our net group should also take into account the reduction because of NPAs. That is one of the reasons which is a differentiating factor between our company and the others in the sector. Because of our higher NPAs and the recoveries are also bringing down our book growth. This is one thing. To your point on NIM versus growth, yes, that is well taken.
We will also discuss internally. If there is an issue, we will definitely take a view going forward. Only thing is, our mix of salaried and non-salaried, our documented, non-documented team is slightly different from the other HFCs. So we are somewhere in between and neither we should yield too much, nor we should charge too much. This is our predicament. Definitely, we will take a view going forward.
Got it, sir. This is useful. Sir, the second question that I had was how should we look at home loans and LAP, these two products that you do? Sir, I think I remember I asked this question last time as well. If I look at the YoY growth, 1% growth in home loans, 30%, freezing 30% growth in LAP. Look at the two-year CAGR, again, 1% growth in home loans, 18% two-year kind of a CAGR in LAP. So you yourself have been around as the MD CEO of Repco Home Finance for almost a little less than two years now. So even under your tenure, sir, you would have seen home loans have not really grown. Whatever growth that we are seeing has largely been on LAP. Sir, why I ask this is, we gave out product-wise asset quality as well.
There also, if we have seen in the past also, it is actually LAP or non-mortgages which have been a bigger pain point for us in the past as well.
Okay. Thanks, Abhijit. See, I think we are very clear. I think I told last call also. It is not purely LAP. We call it as a home equity. It consists of CRE residential, CRE commercial, and LAP. Information in Q2 FY 2024, our home loans is 76.2%, but LAP is only 13%, 13.9% to be exact. CRE residential is 6.8%. Suppose a person is having more than three flats, it is taken as CRE residential. CRE commercial is 1.4%. See, all these are taken into consideration, and it is not purely LAP which is growing. So home equity, and some of the things are more or less linked to your home loan, this is how the percentage is growing.
I would like to assure you that as far as the new book is concerned, including those which have been sanctioned in the last one year, quality of the account is quite good. See, we would have sanctioned approximately around INR 5,000 crores in the last nearly two years. Our actual NPA we have worked out is INR 700 crores. So to that extent, the new book is performing quite well. Only the legacy accounts are there either in Stage 3 or Stage 2. That too, we are attacking vigorously, and we are quite confident that the numbers will speak in the coming quarters.
Got it, sir. Sir, just one last follow-up to that. I mean, if you look at-
See, one, as far as our underwriting standards are concerned, see, now that the new platform is also with us, we are slightly more rigorous in selecting a customer, in pricing the product and all that. More than 75, all our CIBIL scores are almost above 750, almost all the new cases, average. So with that, I feel that the asset quality of the new book is not an issue. The old ones, especially those people who are used to paying late and all that, maybe it is a mindset change that is to happen in the customer's mind, that we are focusing and we are confident that going forward, this will also change. Yeah, sorry, I interrupted.
Yeah. Got it, sir. This is reassuring. Just a follow-up, sir. Essentially from what you just said, is it right to then conclude that maybe in the next one or two quarters, we should now start seeing growth in your individual home loans as well? I mean, your point against non-mortgage loans, the split that you gave is well received. T hese individual home loans that you report, should we start expecting that now we should start seeing some growth in individual home loans?
Yes, definitely. We are focusing on those things. Specifically, we are focusing on those things. But only thing is, I would like to take few people into consideration that, see, this company is around 23 years old compared to many others who are of a recent origin. That is sort of a normal caution in addition to the details. That is there, which is a differentiating factor for this company with the others. But as you were rightly pointed out, yes, we are more focusing more and more on home loans. In fact, for some good quality customers, we have even reduced the interest rate in that category, sir. Thank you for improving the numbers in the home loan portfolio.
Got it, sir. This is very useful. Again, congratulations on a very good quarter. All the very best to you and your team. Thank you.
Thank you. The next question is from the line of Mr. Akash Jain from Moneycurve Analytics. Please go ahead, sir.
Yeah. Thank you, sir. I think we have done a great work on especially the recovery side. I think the kind of recovery we had in the first half, my sense is probably we will end up doing much better than what your guided of INR 100 crores for the full year. I think again, the question is on similar lines to the earlier two participants in terms of growth. I think what I wanted to understand a little was, sir, if the BT out is not so high, like the number you just said, then why is the book rundown so strong? I am not able to understand how our book rundown is so high when the BT out number is so low. I think you did mention a little bit about the fact that we have a much more legacy book, which obviously naturally runs down more.
I think the rundown number is a little bit perplexing given the BT out is not so high. Connected to that question, sir, is that if we were guided for INR 3,500 crores of disbursement for FY 2024. But given the rundown of the book currently, I do not see us getting to INR 14,000 crore AUM on INR 3,500 crore disbursement. So I just also want you to please share your thoughts in terms of how do we get to INR 14,000 crore AUM with INR 3,500 crore disbursement given the current rundown in the book. I think that is the first question.
Okay. As far as the rundown is concerned, see, there are two aspects in it. One is the BTOs that I told, and second one is on the normal closures or pre-closures. That is also happening. See, we have data which says that the pre-closures are also around INR 40, INR 50 crores. Pre-closures. See, our average book says, even though we give it for 15 years or 20 years, average home loan is only around eight years. So people who are nearing eight years or nine years, they tend to close the loans even before the normal closure. That is one of the reasons why our book growth is not to the extent of our disbursement. BTOs are under control, but the pre-closures or the foreclosures are not in our control. I am very confident as regards the numbers, as I told in the initial remarks itself.
Today, till November, I do not want to change the disbursement target. Maybe during January or February, we may have a reset of the numbers. Book growth, let us see. There is also an inorganic way of achieving the numbers. Maybe we will take a view if the factors are favorable. We will see whether we will be able to achieve the numbers, that is something as far as AUM is concerned. But the organic disbursement growth, let us see the activities that are adding, and we are focusing on our sales vertical on each and every file. H opefully and positively, we feel that later on, this will be better as far as growth is concerned.
Sir, is our prepayment rates higher than other HFCs? We have looked at rundown numbers for others as well, and a lot of them also report their BT out numbers. If I do that, our prepayment or rundown is higher than the other HFCs. In your opinion, is there a reason why our prepayments are higher than other HFCs? Is there something that you think is there in our particular either customer set or our legacy customers or whatever?
Okay, Akash, I have not studied. Normally, see, our total prepayments are around INR 500 crores, including the normal repayments, prepayments, BT outs and all that. We have not studied the other HFCs. You have given a clue, let us see. If we are different, we study the others.
Okay.
It is a lot.
Okay. Sir, the other question is, on the strong recovery we had, you have already done recoveries of INR 82 crores, like you said, in the first half itself. Do you see us overachieving the INR 100 crore guidance you gave, given what has happened in the first half and whatever processes you are following in terms of surfacing and recoveries?
Yeah. On that score, yes, I am pretty confident that we will surpass our guidance.
Okay, sir. Thank you so much.
Thanks.
Thank you. The next question is from the line of Mr. Bunty Chawla from IDBI Capital. Please go ahead, sir.
Thank you, sir. Thank you for giving me the opportunity, and congrats on a good set of numbers. Sir, as you said, as we have seen the margins almost at 5.4%, which is almost a decadal high for you, and you said you will be focusing now on the growth path, specifically on the individual loans. How one should see the margins going for the next half of the year, and if there is any revision in the margin guidance, which you earlier said 4.7%-4.8%, which is comfortable for you. How one should see the margin in the second half, and similarly, are there any still pressure on the cost of funds in second half?
See, as far as margin is concerned, yes, 4.7%, I think it should be easily achievable. That is not a big issue for us. We will also see whether we can sacrifice a bit of margin from the percent level to see that the growth numbers happen. That is one thing. As far as cost of funds is concerned, today it is slightly higher compared to one year back. Hopefully, some things are not in our hands. Hopefully, this cost will be maintained in the second half itself. Even if it goes up, we will be able to pass on to a certain extent without compromising on our growth.
Okay, sir. S ir, lastly, on the restructured assets, you said it is approximately INR 570 crores, out of which INR 180 crores in Stage 2 and Stage 3 assets. So can you give currently what is the repayment and all, how this book is panning out, and any specific Stage 2 assets, if you can give the amount?
See, let me be very clear. It was once INR 770 crores. INR 700 crores of principal and INR 70 crores of interest capitalized. So at the time of restructure, it was taken. One year back, it was around INR 770 crores of the total book. Now it has come down to INR 570 crores. Okay. Of which I would like to give a clarification that the NPA is INR 170 crores.
Okay.
NPA was once upon a time, it was around INR 230 crores. It has now come down to INR 170 crores as of now. As far as Stage 2 is concerned, it is around INR 200 crores, which was there even last quarter also. But the Stage 3 number is getting maintained. Slowly it is coming down. See, I cannot have a magic wand to bring down the Stage 2, especially in a restructured book. It is slowly coming down, and we are focusing more and more, and the numbers will come down only gradually. Because the person who has not paid for two or three years is slowly recovering from COVID, and so he has started payment. Okay? It is coming down. T he flow from restructured book is not at an alarming level. That is the one thing. Otherwise, our NPA should have shot up like anything.
Some of the accounts are still maintained at the Stage 2 level, but only thing is the overdue number of days are coming down. I do not have the exact numbers for each and every account, but the Stage 2 numbers in restructured book is also coming down gradually.
Thank you. Thank you very much. That was very helpful.
Thank you.
Thank you. Before we take the next question, we would like to remind the participants that you may press star and one on your touch-tone phone to ask a question. The next question is from the line of Mr. Amish Thakkar from Siguler Guff India Advisers Private Limited. Please go ahead, sir.
Hello. Hi. Thank you so much, and congratulations, sir, on the continued recovery and delivering on your guidance so far on both asset quality and AUM growth. What I want to understand is, I was just looking at a couple of slides in your presentation which talk about the branch count and AUM by state. Basically, let's say there are two core focus areas I want to understand. One is your home market, which is Tamil Nadu, and the next is the next four states, which is Maharashtra and Karnataka and Andhra Pradesh and Telangana. Who are your main competition in terms of the people in the pecking order? You are competing with private sector banks and maybe even small finance banks on the B2C outside where you're grouping customers too.
Given the ticket size and the cost of funds advantage that you may be having in some of the other new age affordable housing finance companies like Aadhar, Aavas, HDFC. I don't want to take names, but there are a bunch of them in these micro markets. I just want to understand who's your real competition in your home market, who's your real competition in the next three, four states that are focus areas. Maybe the last part if you want to talk about, the other segment that you've reported seems to be growing much faster compared to the top four or five states for you, 17% quarter-over-quarter growth in the other states.
Which are the areas where you think the competition is limited and hence your focus area will be going forward in terms of AUM growth, adding more branches and where your cost of funds advantage and your understanding of the target customer is better than the competition and the strategy going forward?
Okay. See, Amish, I do not want to give specific names, especially on competition or things. As far as the new loans are concerned, yes, there are so many other HFCs also which are playing in the same area geographies where we are operating. So in the new loans, the HFCs are our competitors. Whereas in BTs it is mostly the banks, especially those with a two or three-year vintage and when their CIBIL scores have improved, the banks are the competitors who take over from us. Okay? But in the new proposals, it is like any other HFC. All other HFCs are also our competitors. The banks are not in competition as far as the new loans are concerned because our segment of customers is totally different from the banks.
Yeah. What is happening in your core market, which is Tamil Nadu, and the strategy in some of the other non-core markets and the new states where you are growing 17% quarter-over-quarter? What is happening? Are you adding more branches in these states? Which are the focus states, if you can just highlight one or two states?
Okay. See, we have already opened a few Satellite Centers. We call it a SAT center. That is the hub branches that we are calling core hub branches. We have already done something in Karnataka. We will be opening two or three more branches in Andhra Pradesh and Telangana. We have plans to open one or two branches in our Gandhinagar region, comprising of Gujarat, Madhya Pradesh and all that. We will be opening. So another seven centers we will be opening in the second year in non-Tamil Nadu area. Tamil Nadu, where we are having core operations, we will be doing at least another six or seven in the second half.
Okay. One last question, sir, before I go is just, from what I understand, the branch level operating model has changed significantly since you have taken over, where because of the new IT systems and everything, we are able to do a lot more things like some of the other new age companies, which is having more sales people who are going out into the market instead of waiting for people to walk into the branch and being more aggressive by working with DSAs and focusing on LAP and which are the fastest growing areas in every micro market that we are operating in at a branch level. But who are they when are going to a new market or even an existing market, we are looking to hire the best sales people, the best performing employees of our relevant competition.
What is our pitch to a potential DSA or an employee who could be working on our own payroll where we are opening new branches? What is our pitch to these people that, okay, what does Repco Home Finance offer compared to new age competition or banks? What is the best hunting ground for us to find the best talent in these markets? What is our strategy on basically hiring the best talent for existing branches as well as new branches wherever we are going?
Amish, sorry, there was a breaking or thing, but I could understand the context. Let me admit, we have still a long way to go as far as the new vertical, especially the sales vertical is concerned compared to those in the industry. We have just started the vertical. We are slowly training them and all that. It is not that we have taken so many people from the market. It is more our own people who were sitting inside the branch. Now we are slowly training them and asking them to go out and start canvassing and getting business. Slowly, steadily, the numbers are improving. Last month, at least 28%- odd of our total business, of our new business came from this new sales vertical. So we are focusing more, training them more. Hopefully, these numbers will increase.
We will also not be averse to recruiting more people on the sales line in the coming quarters. So we are confident, may not be in the current year, but at least in the next year onwards, our sales vertical, that is our own people, will get more and more business compared to the other segments like the DSA.
Okay. Any KPIs that you are tracking in terms of, okay, where we are in terms of the new disbursements per sales employee, versus where the competition is? If you can start communicating that in your investor presentation going forward. We can find out where the competition is, where the listed players are, but at least where you are today and what is your medium term target in terms of employee productivity over the next two, three years, and how you are tracking quarter on quarter on that. That will be very useful to understand, okay, how does the management think about some of these things, and what are the medium-term targets?
Okay. As I said, the sales vertical itself is a new concept for the company, so slowly we are graduating. I think it will be pretty premature if I start giving the numbers straight away. Let us graduate to a particular level, and we will not be hesitating to give the numbers in the coming quarters once we reach a particular level. Today, we are too early, too small as far as the sales vertical is concerned.
Okay. Thank you so much, sir. Congratulations. I am looking forward to hearing more from you.
Thank you.
Thank you. The next question is from the line of Chandra from Fidelity Investments. Please go ahead.
Hi. Good evening. I had a few questions. One is, the average ticket size seems to be still at INR 12 lakhs. This time last year, it was at INR 15 lakhs, and the idea was that over a period of time, ticket sizes may gradually move up, because there is anyway some level of house price inflation. It has actually not moved up for 12 months now. Just what is happening out there, and your thoughts around that. Second is, just going back to some of the starting questions, I am just struggling to see how you will end up actually at 12%, even if the second half is going to be strong, just given the current repayment rates. Do you actually think that you are going to do some portfolio buyouts or something like that to get to that 12% number? Is that part and parcel of that? That is question two.
Third is, maybe just as of today, you could just help us with what the sourcing mix is. How much is getting sourced by DSAs now and other channels? Last is, it seems that the borrowing costs have peaked the last three months. The numbers which you put out has been that INR 8.3-ish. Is it safe to assume right now that our yields on origination and our borrowing costs should be similar for maybe the next six to nine months?
Okay. Thank you. One by one I will answer you. See, average ticket size of 12 lakhs is for the entire book. The incremental book is around 17 lakhs. That is there, which was there even last quarter. So the incremental book is around 17 lakhs. Portfolio buyouts, today I do not have any proposal. But going forward, what are the factors that are expected? If everything matches, we will not hesitate to go for a portfolio buyout, subject, of course, approvals by the authorities concerned. Sourcing mix as of now, it is 30%-odd of DSA, and the remainder is- [audio distortion] 33% DSA today. As of now, it is 33% DSA, which was around 30% earlier. It is now around 33% now.
The remaining is both from our sales vertical as well as walking thing that is happening. This is the sourcing mix now. Borrowing cost, to my knowledge, I think almost all the banks have repriced their lending to us. We do not foresee any increase, sudden increase based on the current levels. We do not see any current increase based on the current levels, average borrowing cost of all the borrowings. But even if there is a small blip, I think we will be able to pass on to our customers. That much we are confident. But in future, we are not aware. Depending on the market, depending on the treasury thing, future may happen. Okay.
As far as margin is concerned, I think we will be able to maintain that 3.5 % spread that we told. I think that we will be able to maintain.
Right. Okay. No, just going back to on the ticket size, you've been giving out this ticket size number for a while now, and the average ticket size of a loan book has actually gone down. The incremental you've been sanctioning. The incremental number has been higher every time, but the average is actually going down. I still really couldn't make entire sense about that.
Sorry, Mr. Chandra. I think it is not, but really, I think it is actually going up. Maybe we can send you the things separately, and we ask our people also to see that this slide is also included in the coming slide deck. Okay.
Right. Sorry. Just to clarify, when you said the 12%, as of now, the thought process still is going to be organic. You're not really thinking of getting a buyout to get that 12% number. The thought process is that this can be organic right now.
As of now. Let me be very clear. As of now, we want to grow organically.
Okay, great. Okay. Thank you.
Thank you.
Thank you. The next question is from the line of Mr. Anand Mundra from Soar Wealth Managers LLP. Please go ahead, sir.
Hello. Yeah. Congratulations, sir, on the good set of results. My first question was, what is the reason for reduction of loan from National Housing Bank? That is the first question. Let's do one by one, sir. It will be easier for me.
Okay. NHB, we have not availed any facility for the last one and a half years, two years. For this reason, some of the covenants we could not meet last year. But now we become eligible. We have applied. Hopefully, if we get, the NHB numbers will go up. It is coming down for the simple reason we have been repaying their debts.
Okay. Going forward, we may see an increase in loans from NHB because we would have met some conditions or we would have applied the loan.
We have applied. I cannot say about the sanction. Once it is sanctioned, we will be availing and the numbers will start going up.
Okay. Sir, you have mentioned in the previous calls that you have put up teams for sales and collection both in most of the branches. Just wanted to understand how many people you have put for sales and how many people you have put for collection.
Sales, around 200 people are there. Collection, around 80 other people are there as of now. Going forward, as and when these numbers have to go up, we are also contemplating, maybe we will increase.
These 200 people you have put from which month, sir? April? From this particular financial year?
I should say it started from July, August, sequentially. Let me be very clear, they are all drawn from our own system. We did not recruit from outside. Slowly we are graduating.
These 80 people in collection team also have been put up in July and August only, is it?
Collection team is fairly old. I think they are now at least six months old. It is slightly well-oiled, I should say, compared to the sales team.
Okay. Benefit of the people for the sales team will accrue in the next two, three quarters now, because they are just put up in the last quarter.
Yes. That's why I'm saying it takes some time for the sales team to move forward, the numbers to go up and all. As I said, still they are new. But collection team is good. That is one of the reasons why we are able to contain our NPAs. NPA slippage.
Okay. Sir, what was our BT in for this quarter?
One minute, sir. One minute. BT ins, INR 68.7 crores. BT out INR 38.9 crores.
What is the slippage for this quarter, sir?
INR 21 crores, sir. This quarter is INR 23 crores.
INR 25 crores. Last question, sir. I have compared the numbers of other housing finance companies, and Stage 2 is quite high for our company, as you already know, sir. How do you see this panning out, sir? What are the numbers we have on Stage 2 over the next two, three years? What is your target, sir?
See, Stage 2 is quite high because of some legacy, sir. I should not say maybe because in the previous years, the company concentrated more on prevention of slippages as well as on growth. Now that we are focusing equally on the Stage 2 control assets, we are confident that at least immediate future should be less than 10%. We should bring it to single digit. That is my immediate thing. By 2024 at least, or by 2025, we should be on par with the market as far as Stage 2 is concerned.
Okay. Sir, before these 80 people you have put in collection, what was happening in collection? There was no specific people in collection before that?
That is what. See, this company was organized more on a bank-wise model. It was more a general model. There was no specific verticalization that was happening in this company. Slowly we have started bringing in that culture, so it is taking some time. Even before that, everybody was doing. It is not that collection was not focused. I should say it was not focused. It was happening. Maybe the branch head as well as some of the staff were calling. But now we have brought in some sort of a systemized way of follow-up as regards to Stage 2.
Okay. Sir, any particular incentive scheme you have designed for collection team?
Yeah. See, whether it is a sales team or the collection team or the core recovery team. See, the incentives are all given based on the numbers, target versus achievement. So that takes them to reach the numbers.
Thank you, sir. Thanks a lot.
Thank you, sir.
Thank you. The next question is from the line of Mr. Rajiv Mehta from YES Securities. Please go ahead, sir.
Yeah, hi. Thank you for allowing me the follow-up. Sir, what is the thought process on the Stage 3 coverage? As I see, I mean, we have been resolving a lot of NPLs and it seems that we are not releasing the provisions on them and we are retaining provisioning, which is why the Stage 3 coverage on the remaining NPLs has been going up significantly in the last four, five quarters. Now it is at 57%. So what is the thought process of holding high coverage? Now incrementally also, as you said that the new slippages are lower, and then further resolutions of NPLs will happen and the NPL number will actually come down. You may have incremental reversals of provisions as well now.
Would you take it back to P&L then, the incremental reversals of releases of provision there, or you will keep on adding and till what level of PCR you would want to add?
Rajiv, we do not have any specific target as far as provision coverage ratio is concerned, but at least the present thought process is to retain these provisions that is getting released, so that one, our net NPL will start coming down. At least up to March 2024, as far as now, that is the idea. Maybe if our recoveries accelerate and all that, yes, definitely, as you say, maybe some of the provisions will go for write backs.
Okay. So maybe till March 2024, you are saying maybe you will keep on retaining the provisions from the [audio distortion]
That is the present thought process. It is very recent. Presently, I can say, because you asked this question, presently this is the thought process. Maybe we will take a view going forward.
Sir, can you quote the incremental lending yields for home loan, LAP and CRE residential and CRE commercial?
Okay. See, approximately it is around 11.5%, the total yield. It is around 10% and above for housing loan and around 13%-14% for non-housing loan. So average is around 11.5%.
Perfect. Incremental cost of fund, do you have the number?
Incremental cost of fund is. See, again, I do not have the numbers exactly. Maybe our CFO can give separately. It is around 8.5%, approximately 8.5%, 8.6%. That is the borrowing cost.
Got it, sir. Thank you so much for this.
Yes.
Thank you. Participants who wish to ask questions may press star and one on their touch-tone phone. The next question is from the line of Mr. Abhijit Tibrewal from Motilal Oswal Financial Services. Please go ahead, sir.
Is this my line?
Yes, sir. Please go ahead.
Just one question. Thanks for allowing me to follow up. Sir, you have kind of covered everything very exhaustively, but I think if I remember correctly, during the opening remarks, you have said that you have incurred close to INR 20 crores until now on the technology or the platform transformation that you are doing. How should we look at OpEx and any particular, the tech expenses that you have budgeted? Not necessarily the next six months, but over including the phase II as well, that you guided will be completed over the next one year.
See, our budget is around INR 50 crores pure software costs and the hardware costs for the technology upgradation. This is excluding the other costs like AMCs and all that. Out of this INR 50 crores, we have so far spent INR 20 crores on the phase I. Still some more amount to be spent on phase I, small amount. Phase II is going to be implemented. We have already taken it to our balance sheet as a software cost. The impact, I feel may not be much because the profit growth that we are experiencing, I think that will be able to take care of the depreciation cost of the software.
Got it. If I heard you, what you meant is you have budgeted INR 50 crores for this tech transformation for phase I alone, and then for phase II it will be separate.
Let me clarify, sir. It is for the INR 50 crores for the entire thing. INR 40 crores for the software and hardware for both the papers, plus INR 10 crores for our Security Operations Center, SOC. So INR 50 crores is for all the three applications. Phase I, phase II and SOC all put together.
Got it. Sir, just one last follow-up. How should we think about overall OpEx, given that you are thinking about adding branches, you are thinking about this tech transformation, like you said, there is another INR 30 crore which will be spent over a course of time. Will we see some volatility on the OpEx side or do you think it will be run rate as usual?
See today my cost income ratio is around 23%-24%.
Yeah.
I think we will also gain by way of reduction in our reversal of interest income and all that. Going forward, I think we should be able to maintain the same 23%-24%. I think that should not be a big issue. It should be around the same level.
Got it, sir. That is all from my side. Thank you so much.
Thank you.
Thank you. In the interest of time, that was the last question for this session. I would now like to hand the conference over to the management for closing comments.
Okay. Thank you, DAM Capital for arranging, and thank you for all the investors, analysts who took time off on a Saturday to be here with us. I wish to reassure you all that the company is growing steadily and whatever is the little pitfall, especially on the growth front and all, we are confident and we are positive that we will be able to do something at least in the second half. We will keep talking to you. Maybe the next time we talk, it will present a still better picture. I once again thank you all for taking time off for being in the meeting. Thank you.
Thank you so much, sir. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.