Please note that this conference is being recorded. I now hand the conference over to Mr. Kamal from Investec. Thank you, and over to you, sir.
Good afternoon, everyone. Welcome to the Q1 FY25 earnings conference call of Sammaan Capital Limited to discuss the financial performance of the company and to address your query. We have with us Mr. Gagan Banga, Vice Chairman, MD, and CEO of Sammaan Capital Limited. I would now like to hand over the call to Mr. Gagan Banga for his opening comments. Over to you, sir.
Thank you, Kamal. A very good day to all of you, and welcome to the Quarter 1 FY 25 earnings call. I would request all of you to keep the earnings update, handy. It's been emailed to most of you, it's on our website and should also be on Bloomberg. Before moving to the numbers, I would like to cover the key highlights for the quarter. In July 2024, earlier last month, following a detailed review process spanning over 6 months, the Reserve Bank of India issued us a certificate, a fresh Certificate of Registration as an NBFC-ICC, which is a non-bank financial company, investment and credit company. With this, we are now an NBFC, supervised and regulated by the Reserve Bank. Since a few years now, the regulatory approach is one of scale-based regulations.
As Indiabulls Housing and HFC, we were classified as an Upper Layer NBFC, which we continue to remain. So in most ways, life does not change for us, particularly since over the years, RBI's thrust has been to do away with any regulatory reporting or disclosure arbitrage, especially between NBFCs and housing finance companies. Following this conversion to NBFC-ICC, the company's name has been changed to Sammaan Capital Limited. The company shares are also now being traded under the scrip code, Sammaan Cap, on the stock exchanges. Sammaan in Indian languages means respect, honor, courtesy, and dignity. The company intends its brand and the meaning of the word Sammaan in the Indian context to emphasize and convey to its stakeholders a customer-centric approach, a sense of pride in buying a house or owning, owning a business.
These are the two products which are our focus in our retail loan product suite. We expect and hope that we are able to pass on to our customer an approach of a very dignified business conduct. As a systematic, systemically important lender, a mortgage-focused lender, and a company with a varied set of stakeholders, including investors, regulators, bankers, rating agencies, et cetera. The brand name Sammaan connotes and conveys what our business stands for and how it is done with respect to each of these stakeholders. This is also the 25th year of our operations. The erstwhile Indiabulls, from which the company originates, was incorporated in the year 2000. Our rebranding exercise around the new brand and our 25 years of operations is underway across various channels and our branches and points of presence.
Slide three of the earnings update covers the entire rebranding outreach. I will now move on to the quarter's number. We request all of you to refer to slide four of our earnings update. The net worth of our company as of June end stood at INR 20,269 crore. As most of you would be aware, the final call monies were called, and the window to pay up the call money opened on eighth of August and will close on the twenty-second of August, 2024. When this money is in the company, the net worth would rise by a further INR 2,462 crore. The AUM and loan book have resumed growth, supported by retail disbursements. Net interest income has come in at INR 927 crore this quarter, versus INR 562 crore quarter one of last year.
Profit after tax for quarter one, fiscal 2025, was INR 327 crore versus INR 296 crore in quarter one, fiscal 2024. Gearing is a moderate 1.9x. Our target is to maintain it between 2-2.5x. Return on assets for the quarter for the overall book was 1.8% versus 1.7% in quarter one last year. Gross NPAs are at the lowest level in 16 quarters, at 2.68% and net NPAs at 1.52%. Now, if you can please turn to slide five. As I mentioned in the previous quarter's results call, subsequent to the receipt of the new Certificate of Registration from the RBI, the company will initiate a detailed business planning exercise, keeping in mind the feedback received from the RBI and various stakeholders.
We have since then received the new Certificate of Registration and the feedback. Through the course of planning for the rights issue and in our subsequent meetings with the large shareholders of the company, as well as through the meetings with bondholders through the dollar bond issuance done by the company in March, our IPO stakeholders have given us feedback cutting across various aspects of our business. Our shareholders have provided us with the necessary capital buffers, which in the short term, provide us liquidity, and over the medium term, very importantly, a tactical tool to ensure the legacy book, which is the book sourced in fiscal 2021 and prior.
Our goal is to try and run this book down to single-digit % of AUM level by fiscal 2027. Some of our larger shareholders have also committed support to management in the form of either debt or equity capital, as and when required, and have asked the management to focus single-mindedly on the execution of business, so as to be able to provide the mid-teen ROE to the business by fiscal 2027, which is a target that we have taken upon ourselves. Capital, both debt and equity capital, is extremely crucial for a non-bank finance company to kickstart operations, to scale them up, to make sure that one can continue to invest in the retail franchise.
I would like to thank multiple pools of capital, both debt and equity, which have worked with us. Some of them have participated in our various issuances. I'm sure in due course of time, most others would either be forming part of our lenders list or our cap register. I would like to thank all of you and also thank our large shareholders who've given this assurance to the company. Now the management can therefore not worry about liquidity, et cetera, and fully focus on this execution and execution around the eight milestones that we had set up in quarter one.
I would also like to inform all of our stakeholders that along with Quarter 2 Fiscal 2025 results, which is the next result, we will not only reiterate our key milestones for fiscal 2027, provide you an update on these as I will shortly for Quarter 1, and provide you an update for these for Quarter 2. We would also like to unveil a completely new corporate structure. We have, as part of the board outcome, gathered that we are merging 6 of our smaller subsidiaries. We've also lined up the identification process of a couple of fee-based businesses.
What we intend to unveil for you as part of the corporate structure is how we would continue to pursue our retail businesses, as well as complement those by a bunch of fee-based businesses, and what the overall structure would look like in light of the feedback received both from RBI as well as our other stakeholders. We had committed that hereon, starting from Quarter One, we would provide updates on eight aspects of our business. We've identified loans which we've sold prior to fiscal 2022, which is up to fiscal 2021, as what we would like to call legacy AUM. The distinction between the legacy AUM and the incremental AUM is largely. Can everyone put yourself on mute, please? The distinction between legacy AUM and the incremental AUM is that the incremental AUM is a very transparent book.
It is a book that has been validated both by our credit team as well as the credit team of the purchasing bank or the financial institution on a case-by-case basis. To go back to the point of legacy book, the legacy book would be reduced to single-digit % of AUM by the end of fiscal 2027. If we look at our track record since fiscal 2022 on the reduction of this book, this book has been reducing by, on an average, INR 4,000 crore a quarter. To reduce this, we have estimated a very conservative INR 3,000 crore a quarter of collection, which we are fairly confident we should be able to achieve. It is a dynamic world. Regulations change every day. There is a geopolitical uncertainty. There are certain macro headwinds.
But given the fact that the company, when itself was trying to establish a new business model, was able to collect very consistently across the last three financial years at a quarterly run rate. Now, with the management's full focus on only this, one is fairly confident that the single-digit % of AUM by end of fiscal 2027 for the legacy book would be achieved. Since fiscal 2022, the company has disbursed INR 35,195 crore, of which already INR 22,658 crore of disbursements have been placed through co-lending, assignment, and securitization. As I mentioned earlier, this is a very transparent book and a book that has been validated both by us and the purchasing partner on a case-by-case basis, including all loan application and documentation, et cetera.
The collections are passing through an escrow account, and this is a pure and simple validation of the scale that we've already achieved in our asset-light model. The goal by fiscal 2027 is to make sure that this book grows to at least INR 1 trillion. Our incremental AUM. So we disbursed INR 35,195 crore, of which there has been rundown. So our incremental AUM stands at INR 29,180 crore, of which INR 22,000 crore has been sold down. We have a runway in terms of manpower, distribution, capacity to steadily ramp up disbursal, and that's the target of INR 100,000 crore or INR 1 trillion of retail AUM by fiscal 2027. We can get there only by consistent disbursements.
Our quarterly disbursements as of quarter 1 stood at INR 3,115 crore, and we shall be trying to ramp this up to INR 5,000 crore by the end of the current fiscal year, which is quarter 4, fiscal 2025. We will be targeting a quarterly run rate of INR 5,000 crore. If we keep growing that on a normal basis, that should add up to INR 100,000 crore of retail AUM by fiscal 2027. On all of our other target parameters, such as incremental ROA, cost-to-income ratio and net NPA ratio, we've provided a clear glide path, as well as an update on the incremental number that we are achieving already, and thus we are firmly on track to achieve our target for fiscal 2027. Slide 6 contains an update on the asset-light disbursements for quarter 1, fiscal 2025.
Under the asset-light model, we disbursed INR 2,058 crore, which is, we did transactions of about INR 2,058 crore. Presently, the company has nine partnerships. We have inked another partnership in quarter one and gotten a letter of approval in quarter two from another public sector bank. By the end of this quarter, we should be at about 10 functional partnerships. We also do sell-down transactions with 16 banks and financial institutions. So in total, we'll have close to about 26 partners with whom we are doing business. Moving on to the ALM and the liabilities part. The most important point of the liabilities part is the kind of diversity that we have been able to achieve in our incremental source of funds.
If you refer to slide 16, you would notice that we have, since April 2023, which is the last 5 quarters, raised close to about INR 24,000 crore, of which we've tapped practically each and every source of capital available to us. We've raised equity of about INR 3,700 crore. We've done term borrowings from banks of nearly INR 5,000 crore. We've raised about INR 834 crore through retail issuance. We've placed bonds on a private placement basis of nearly INR 3,000 crore, and co-lending has been going on at about INR 1,000 crore a month, almost INR 1,000 crore a month, and we have now reached INR 11,617 crore.
Aside from the asset-light model, the other big achievement for the company is the fact that we have created a pool of retail and high-net-worth bondholders, who are currently contributing as much as INR 3,000 crore to our resource pool, which is close to about INR 1,000 crore per year, and we have now close to about 45,000 investors who are holding our bond. This is aside from the asset-light structure, a real franchise, very long-term, durable debt capital, which the company is sourcing on a regular basis. Coming back to the point of ALM, at the end of June 2024, on balance sheet, we carried liquidity of approximately INR 7,600 crore. As we've been detailing our ALM, our detailed 10-year ALM is on slide 18 to 22.
At the end of the first year, we have a net surplus of INR 9,785 crore. As the company is now converted into an NBFC, some capital is required to maintain a liquidity coverage ratio of 85%. Against this, our LCR, which is strictly high-quality liquid assets, as of June 2024, stood at 211%. As defined by the Reserve Bank of India—even bank fixed deposits that we keep, which would be included in our actual liquidity, are excluded from high-quality liquid assets. We manage our ALM proactively, and towards this, the company has been historically, voluntarily creating pre-funded pools of money. To meet the upcoming redemption of FCCBs in September 2024, since February 2024, the company has been setting aside 25% of the payable monies every quarter. This is now built up to 75% of the maturity proceeds.
These will be duly paid on whenever the put option is maturing. So far, if we look at the last 10 years, the company from overseas investors, over 215 overseas investors, has borrowed $3.84 billion, of which it has already repaid $3.25 billion. In the last 6 years, it has repaid $2.15 billion. And I assume as our ratings improve with this kind of a track record, overseas borrowings would continue to be a large pool of capital, and periodically it would also tend towards becoming a, a viable pool of capital. Referring to slide 9 of the earnings update on asset quality, as at the end of June 2024, our gross NPAs stood at INR 2,502 crore, translating to 2.868%.
Net NPAs at INR 1.52 crore. NPAs are at a stable level of 16 quarters. As we've been sharing, the company carries imputed provisions of 11.6% of the loan book. The freshly raised capital further provides the company with tactical capital, and all of these provisions on this tactical capital would be deployed over the next 8-12 quarters to make sure that by fiscal 2027, we actually do run down in the most profitable, organic, and systematic manner, the legacy AUM to become an insignificant portion of the overall AUM.
Having come through this six-month detailed review process, before we were granted the fresh issuance, fresh certificate of registration, and keeping in mind the current regulatory environment, where not only is one classified as an upper-layer non-bank finance company, but one is witnessing that the regulator is expecting regulated entities to keep compliance, risk management, liquidity management, et cetera, at the center of the company. I would like to reiterate our key areas of focus. The company would continue to imbibe and deeply imbibe a culture of compliance and risk management.
The business plan that we are evolving and building on since fiscal 2022, and I hope that now with all strategic steps being behind us, the business plan would be keeping in mind compliance and risk management at the core, while ensuring that it remains asset light, the capital requirements are as less as possible, and the fee income generation is as diverse as possible. The company would continue to focus on a very benign sort of an ALM, and our entire borrowing plan is working towards ensuring that in no months do we borrow more than a few hundred INR crore, such that three or five or seven years later, in that particular month, there is no stress. Lastly, in order to remain competitive, as well as to further the cause of compliance and risk management, we are making heavy investments in technology.
We've also just onboarded an advisor who's part of the RBI core group towards IT innovation. Along with him, our technology team and our board subcommittee are emphasizing on upgradation of our technology backbone, making sure that our various risk management modules are as good as they get. From our customer perspective, both our relationship management and as well as the user interface on our app, et cetera, is world-class. We will continue to give you regular updates on this front as well. That was the update for the quarter. We are now open for questions, and thank you all for your support.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask questions may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles....The first question is from the line of Abhiram Iyer from Deutsche Bank. Please go ahead.
Hi, thank you for taking my call, and congrats on a good set of numbers. I just wanted to clarify a couple of points. One is, on your NPA numbers, do you know what the difference is between, what's declared on the financial statement that the NPA is about 3.4% gross and 2% net, versus the presentation that's at 2.7% gross and 1.5% net? From the AUM and it's from standalone.
So the difference could be coming, Abiram, firstly, thanks to Deutsche Bank for supporting us continuously. The difference could be coming from that we report NPA as a percentage of AUM. For us, that is very strategically important to make sure that on an overall AUM basis, the NPA is maintained. I have shared in the past with various stakeholders that our moat, as far as this business is concerned, is the credit quality of our AUM, and therefore, we invest lots of reams of paper of the earnings update as well on just demonstrating the quality of the overall AUM.
So one difference could be that, either, it could be coming from the fact that we declare both standalone and consolidated numbers. In the earnings deck, we report NPAs as a percentage of AUM, whereas the earnings results filed with the stock exchanges are more statutory in nature, and I believe they would be following a protocol of own book or balance sheet or something like that. So, I'm sure my investor relations team can clarify that to you if it still requires clarification.
Hi, Nishit. Thank you for that. The second question is on more your current incremental funding costs. Can you just inquire what if, if you say go to the loan market or or the retail market at the moment, what would be we see your current incremental cost of borrowing? So and that is this stand versus last quarter.
Yeah. So again, I'll go big picture down to specifics. We are strong believers of the fact that ultimately, cost of capital can only be achieved and brought to competitive levels if there is a free flow of capital. As a company on the asset side, the strategy that one can follow is either we become yield hunters because we are running a certain cost of capital, or we continue to do prime loans that we do with higher-yield loans as the exception and not the rule. So when we look at our cost of capital, given our asset-light structure, we have to look at two different aspects. One is, what is the cost of capital, which is coming to fund the 80% of what we are funding?
That number today would be in the handle of 8.5%. And then there is a cost of capital for the residual 20% that we are funding and holding on our balance sheet. For the balance sheet borrowing, we would be borrowing at about 9.5% today. Between last quarter and this quarter, there has been an insignificant inch up or down. My sense is from the transformation to an NBFC, to the name change and all of that, one is clearly witnessing post the capital raise. The flow of debt capital has become a lot more abundant, a lot more free. The quantum of debt capital on a daily basis that we are being able to raise is increasing by the passing day, so it's a very comforting situation in that sense.
We are not going and overborrowing in any particular month. We are very mindful of the ALM. So keeping all of that in mind, I would imagine that the cost of fund material decline that you will see would start emanating in 6-12 months from now. At this point in time, we are more focused on the quality of capital. I mentioned that we've raised INR 23,000-odd crore from a diverse set of lenders. That's more the focus of the company, that the borrowing mix should be as diverse. It should be coming from more and more lenders, versus being skewed towards one lender type or one lender in specific.
Perfect. Just one last follow-up question. In terms of your, as you mentioned, your quality of capital and the fact that, you know, the call monies will be called and expected by the end of this month. Your investor base currently is, you're expecting basically the full amount to be garnered, right? With your return, that's a base fully in sync with, as you mentioned during the call, with your growth plans for this year.
Yeah. So I am pretty confident, you know, very supremely confident that by the 22nd of August, the call window is 8th August to 22nd of August. By the 22nd of August, the money should be in the escrow account, and then there is a process which bankers have to follow. So following that process, it will take another, whatever, week or so for us to get the monies in our account. That's all procedural. This in my mind is a greater company, it's already done. What one is now working towards is seeing the commitments through, which have been made to the wider set of stakeholders, including the larger shareholders, the smaller investors through these calls. We take on targets on these calls. We take on these targets with the right earnest. It's a dynamic world.
The macro keeps changing, the micro keeps changing, the risk framework keeps changing. The endeavor of management is to take on the targets and to keep it very objective, we've set these eight milestones. We are not worrying about capital anymore. We are just concerned about how efficiently and quickly can we get and achieve those eight milestones and the goals that we have set for fiscal 2027, and make it as organic as possible by achieving something and making progress on every aspect, every quarter.
Perfect, sir. Thank you. I'll get back in queue.
Thank you very much. The next question is from the line of Shekhar Singh from Excelsior Capital. Please go ahead.
Just wanted to understand this tactical rundown of legacy book, which is mentioned in the presentation multiple times. What, what exactly does it mean and what is the quantum of this hit that can come in?
Why do you assume of a hit? Tactical rundown means a rundown which is organic, which is well prepared for. We do it in a planned manner. We do it leveraging our provisions. We do it leveraging our capital. And if there are any provisions, like we have demonstrated in the past, that even if we classify loans as NPAs or do technical write-offs, we recover those monies. So we have to do it in a time-bound, organic, efficient manner and make sure that we are free from the legacy and we are able to focus and build on the INR 100,000 crore. So I don't think anyone needs to worry about given the track record of the company on recovery, on how we will be able to run down the book.
Remember, this team has, from a book of INR 120,000 crore, which was there as of September 2018, from that book, already collected INR 150,000 crore of principal and interest, and used that to repay INR 90,000 crore to lenders. So we know how to collect, we will continue to collect. We also have set a goal, and whatever it takes to achieve that goal, we will achieve that goal. Whatever is the planning that needs to be done in terms of achieving that goal, as I've already said, we will present to you a detailed plan, next quarter as to how quarter on quarter, are we going about achieving that, keeping in mind that we also are a regulated entity. We have lenders, to, who, who have covenants, as well as rating agencies who evaluate us on various capital ratios.
Secondly, sir, any indication on what the dividend can be in the years to come, or the dividend policy of the company?
The long-term dividend policy of the company would be to keep dividends between 30% and 40% of profits. We have to use our capital and our earnings tactically. We have said that the 8 milestones that we have laid out are what we are going to be focusing on achieving. If we are well on the way and quarter-on-quarter, we are achieving those targets, historically, the company has taken a lot of pride in declaring dividends. We will happily declare 30%-40% of our profits as dividends.
Okay, thank you.
Thank you very much. The next question is from the line of Abhiram Iyer, Deutsche Bank. Please go ahead.
Yeah, thank you. Thank you for taking my follow-up questions. Just one thing, on your AUM mix, obviously, the commercial real estate loans have come down to about 29% of the book. May I know what the split of this 29 is between project construction finance and your lease rental discounting?
No, commercial real estate will be a combination of construction finance, lease rental discounting, loan against property loan, and everything. So whatever is not home loan would be here. So don't take it as that, that's the technical definition of what CRE is. Please, if you read yesterday's circular of RBI also, they further segregate CRE as CRE resi and CRE others. So don't go by that. I would suggest that all stakeholders, and we will also change this chart from next quarter, should focus on legacy book, which is all kinds of assets, home loans, loans against properties, commercial real estate loans, et cetera.
All kinds of assets which were there pre-Fiscal 2022, and post Fiscal 2022, we have been following the asset-light model structure. So it's that. This is what you guys and everybody else, and this is how we are also internally working. There is one team which is working on rundown and another which is working on scaling up the asset-light model.
... Got it, sir. So hopefully get that, that breakup, next time on. But can we get it now? If I ask what would be the percentage of-
May we please request you to come back in the queue for the follow-up question?
You can, you can get in touch with Ramnath, and he'll provide you with this.
Thank you.
Thank you. The next question is from the line of Narayan Dwivedi, Stock Insider. Please go ahead.
Hello, sir. I am audible?
Yes, sir, you are.
Yes, Mr. Dwivedi, you're on.
Sir, my question on asset-light model. Sir, if we can lend the customer by ourselves, so why we are choosing co-lending? And what strategic benefits it gives us to co-lend?
The big strategic benefit is that you are outsourcing your ALM. You don't take on the borrowing on your balance sheet. As and when the customer pays, you pay back the bank or the partner. It is not this that ever a situation can come that the customer, for any reason, is not paying, but the debt obligation of repayment is on you, and, and therefore your entire business gets disrupted in that sort of a situation. The second big advantage is that the cost of funds of the 80% which a bank finances is a lot lower than the cost at which it would be willing to lend to an NBFC directly.
Given this, the blended yield becomes much lower, and we are able to lend to a far more prime customer, a far more, let's say, higher on the credit bureau score, versus somebody who we could have lent if we were lending solely from our balance sheet. So given both the contribution of a very high quality asset as well as no ALM risk, and therefore a very high quality liability, co-lending is by far the most durable structure. And it's a structure which is in line with how the Western world also finances mortgages, where the originator and the warehouse are different. I'll take... I hope I've answered your question. I'll take just one last question, and then we'll, you can always send us an email or something.
Thank you, sir. Thank you.
Thank you very much. With that, we have come to the close of the call. You can write into the company if you have any further questions. With that, I would like to hand over the call to the management for closing comments.
So thank you so much. Thank you for your support through the multiple rounds of capital raise, and welcome to Sammaan Capital. Look forward to speaking with you, all, all of you again at the end of quarter two. Thank you.
Thank you. On behalf of Investec, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.