Ladies and gentlemen, good day, and welcome to Satin Creditcare Network Limited Q2 and H1 FY 2023 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. H.P. Singh, Chairman and Managing Director of Satin Creditcare Network Limited. Thank you, and over to you, sir.
Thank you so much. Good evening, everyone. Thank you all for taking the time to join us and discuss our financial results for Q2 and H1 FY 2023. I hope you and your family had a great time during the Diwali festivities. I'm hoping that you could get a chance to go through our quarterly results and investor presentation.
Those who have not seen them yet can access the same via our website at stock exchange. During the first half of FY 2023, we are delighted to share that with you all that we have addressed all the asset quality concerns which emanated due to COVID-19 pandemic and the high inflationary environment. This was possible because of the resilience of the people we serve, as well as the dedication and innovation of our team, supported by a bounce back in economic activities.
The restructured book has reduced from INR 1,151 crore as on September 2021 to INR 318 crore as on September 2022. In percentage terms, reduced from 21.4% to 6.4% of on-book portfolio as of September 2022. The reduction in restructured book is a result of INR 495 crore of collections and INR 338 crore of write-off done from this book.
As on September 2022, 62% of the book amounting to INR 197 crore out of the INR 318 crore is 0 DPD. 22% is in one to 90 bucket, which is INR 70 crore, and the balance 16% is PAR 90, that is INR 51 crore. The company has created provisions amounting to INR 76 crore on this portfolio.
We do not expect any further stress in this portfolio. The on-book GNPA of the company stood at INR 198 crore. That is 3.96% of on-book portfolio, down from 8.71% as on September 2021. Assam constitutes 70% of on-book GNPA and excluding Assam GNPA as on September 2022, the GNPA stood at 1.2%.
The successful completion of disbursement to Category One and Category Two borrowers under AMFIRS. We believe that the relief to Category Three borrowers will come in as per MoU signed. In fact, the government has released relief under Category Two yesterday.
To give you more, some more sense on the asset quality of new disbursement, PAR 90 addition of portfolio originated from loans disbursed from July 2021 onwards is just a mere 0.2%, representing 84% of on-book MFI AUM as of September 2022. The company has maintained sufficient on-book provisions amounting to INR 148 crore as of September 2022, which is 3% of on-book AUM.
The company has written off loans amounting to INR 209 crore during Q2 FY 2023, totaling to INR 483 crore during H1 FY 2023. The write-offs done during Q2 FY 2023 were primarily from the provision, hence no hit to the PNL. Further during H1 FY 2023, we have collected INR 16 crore from written off loans. On the operations front, we are experiencing an uptick in our disbursement.
For the period under review, our disbursement was at INR 1,709 crore on a consolidated basis, up by 30% from INR 1,315 crore in Q2 FY 2022. With disbursement back on track, we expect growth to come in the coming quarters.
The company has started acquiring new clients, and as a result, 37% of standalone disbursement in Q2 FY 2023 was to the first-time clients. Gradual pickup in the disbursement led to 3% growth in consolidated AUM, which now stands at INR 7,575 crore. The standalone AUM stood at INR 6,417 crore. It grew by 2% on a year-on-year basis. This growth is despite a write-off of INR 483 crore done in H1 FY 2023.
Pre-write-off growth stood at 9% on a year-on-year basis for standalone AUM. As of 30th September 2022, the company has a CRAR of 24.1%, up from 22.6% as of 31 March 2022. During the quarter under review, the promoters infused INR 25 crore against conversion of warrants. Till date, the company has received INR 100 crore out of INR 225 crore of preferential allotments via issue of equity shares and fully convertible warrants.
The company continues to maintain a healthy balance sheet equity, INR 700 crores of surplus funds and has undrawn sanction worth INR 445 crore. Out of the undrawn sanction, the company received INR 140 crores on 3rd October 2022. We have constantly evolved over the years by putting a significant emphasis on customer-centric technology.
The driving force behind this is to bring technological solutions that enable seamless experiences as well as to work at the grassroots level to empower our clients. With this intent, the organization will move towards a more robust, scalable, secure and completely paperless technological journey with the advent of AWS and eKYC into the system.
The microfinance industry stands for financial inclusion while also contributing to impact and sustainability, which is the basis of all round growth and the economic development of any society. Our work is a reflection of our commitment to this first principle thinking.
We put all our energies towards creating social impact by way of serving the unreached population and contributing to social development goals or SDGs one, five, eight, and ten as the core of our business. We, over the years, come across as one of the largest NBFC-MFIs in terms of numbers of customers and our presence across India.
As a progressive institution, we have always employed innovative approaches to secure the interest of all our key stakeholders. It makes us happy to share that our CSR initiatives contributed to women empowerment while promoting education and equal opportunities. We also try to support the community during distressed times.
We are committed to ESG as our guiding principle. We believe our conviction, passionate workforce, experienced board, and healthy asset quality will help us achieve sustained growth and ensure the overall development of all our stakeholders.
Going forward, with solid ground in business, we anticipate strong growth momentum in terms of disbursement, collection, and steady AUM progress quarter on quarter. Now let me run you through the financial and operational highlights of our company.
Starting with the consolidated operational highlights. Our AUM, 30th September, stood at INR 7,575 crore. We have a customer base of INR 26.8 lakh as of 30th September 2022. Our disbursement for the quarter stood at INR 1,709 crore as compared to INR 1,315 crore in Q2 FY 2022. Our assigned portfolio stood at INR 1,413 crore.
As of 30th September 2022, 100% of our disbursement is made through cashless mode, while cashless collections stood at 5%. We have also adopted website payment options and UPI auto debit. Stand-alone operational highlights. Our stand-alone disbursement over the quarter stood at INR 1,564 crore as compared to INR 1,103 crore.
With a gradual pick in the disbursement, we expect growth in the coming quarters. Our average ticket size of our FI lending for the quarter stood at 43,000. Talking about our collection efficiency, our collection efficiency trends are as follows. Q1 FY 2023, 97%. Q2 FY 2023, 100%. The collection efficiency of Q1 and Q2 FY 2023 is excluding restructured portfolio.
The collection efficiency on restructured portfolio H1 FY 2023 stood at 77.6%. We have a well-diversified customer base, a well-penetrated branch network of customers with 76% rural exposure. On-book GNPA reduced from 8.71% as of Q2 FY 2022 to 3.96% as of Q2 FY 2023. INR 466 crore- INR 190 crore. Out of this, INR 137 crore pertains to SF.
Our restructured book stands at INR 318 crore, which is approximately 6.4% of the on-book AUMs. As of 30th September 2022, our total branch network count stood at 1,237 branches, which is spread across 397 districts. We have a total state and UTs count of 2023, which makes us a well-diversified pan-India microfinance player.
As of 30th September 2022, 96.5% of our districts have less than 1% of portfolio exposure. We have seen a significant reduction in our portfolio risk in terms of exposure to top customers, which contribute 54% in Q2 FY 2023 versus 77.3% in FY 2017. Our well-thought-out diversification strategy has enabled us to sail through difficult situations and capitalize on our idea of enriching our client lives through financing of various program, products.
We have disbursed around INR 23 crore during H1 FY 2023 under the product finance category, which includes loans for bicycles, solar products, home appliances, consumer durables, and water and sanitation. Now an update on subsidiaries. The business correspondent services under Taraashna Financial Services has an AUM of INR 612 crore.
As of 30th September 2022, the company operates through 157 branches and has more than INR 3.3 lakh active loan clients. Satin Finserv, our MSME arm, has an AUM of INR 184 crores with three consecutive profitable years, CRAR of 58.8% and gearing of 0.8x. Total net worth stands at INR 111 crore. Satin Housing Finance Limited has now reached an AUM of INR 362 crore, including a DA of INR 24 crore, having a presence across four states with 4,291 customers.
Satin Housing has a 100% retail book comprising 64% affordable housing loans and 36% of LAP. The company has 17 active lenders, including NHB, CRAR of 59.5% and gearing of 2x. Total net worth stands at INR 122 crore. The quality of portfolio remains intact with GNPA of 0.4% as of September 2022. Just to update you on amalgamation of the two wholly-owned subsidiaries, Taraashna Financial Services Limited and Satin Finserv Limited.
The order against the first motion application was announced on hearing date in May 17, 2022 by Honorable NCLT. Further, both the companies have filed joint second motion application with Honorable NCLT on May 21, 2022.
The said joint second motion application was admitted by Honorable NCLT in its hearing dated July eighth, 2022 and issued necessary direction of serving notices and newspaper advertisement. The company has served the notices to government authority and completed requisite publication in the newspaper as per order.
The next hearing is on November 25th, 2022. Lastly, with the worst behind us, we are poised to embark on the path of growth and profitability. With this, I would like to open the floor for questions. Thank you so much.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question.
Anyone who has a question may enter star and one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Any participant who wishes to ask a question may press star and one. The first question is from the line of Himanshu Taluja from Aditya Birla Sun Life AMC Limited. Please go ahead.
Hi, sir. Thanks a lot for giving the opportunity. Sir, just couple of questions at my end and comments for the quarter. Firstly, out of the total restructured pool of INR 318 crore which you have, where you have mentioned in the presentation that around INR 197 crore is out of the DPD, is in the 0 DPD category. What is your expectations of the remaining pool of around INR 120 crore? How much you expect this to slip or convert into an NPA?
See, Himanshu, this is technically about, you know, if you look at it about six months of repayments which is about 12 installments which has come, and that is the reason why the zero DPD technically will not slip, you know. That is what our, you know, understanding is that INR 197 crore will remain over here. PAR one to 90 is close to about INR 69 crore.
Our own sense is, as per the ECL formula which we do technically about 30%-40% just slips from there basically. If we even look at that happening across over there, which we feel is also probably a high number, we have about, let's say about 30-odd%, which is about INR 18 crore-INR 20 crore which will move from there.
On the PAR 90 plus, we again have where about 45%-50% is recovered in terms of our collection efficiency. That's what the numbers have indicated for the last four to five years. Our sense is that, you know, we still have just maybe about INR 20 odd crore-INR 25 odd crores, which will probably be there in the PAR 90 book in Assam over there. We have provisioned about INR 76 crores for both these categories, you know. Our sense is we are, in fact, over-provided in terms of what the restructured book, which stands right now.
Okay, sure. Now, sir, given the most of the restructured book are now I think come to an end and most of the asset quality pain is over with our collection efficiencies also now back to the pre-pandemic. What are the credit costs that you expect basically now incrementally on a steady state basis for the business now? How you expect this to play out the remaining second half to pan out?
See, whatever pain we had, we've taken it, you know, to a large extent. What we don't, you know, expect any further credit cost to probably come in in this year as such, you know. Our own sense is if you look at the dynamics of the new portfolio which we are making from July 2021 till date, our PAR 90 is just 0.2%, you know.
Even if I extrapolate that into maybe double, triple or whatever you call it, you know, the credit cost in the further years, you know, my sense is close to about 1.25%. You know, that is where it is, you know. That's what my guess is looking at the portfolio quality which is happening now post the pandemic, the way we've dispersed, you know.
Our sense is just to be on a very conservative side, it has to be around 1.25 to about 1.50, which again, if you really ask me personally on a one-to-one basis, I will not adhere to that because our whole thought process is to bring these NPA numbers down to the levels where which is there. In fact, if you look at the numbers which are there as 0.2%, you know, probably, you know, stays at that, you know, which is there of the new portfolio which is being now made.
Okay. What's your loan growth? How you are seeing the loan growth now, given the second half to be better for the MFI business, what are the loan growth that you expect, to end the year with?
See, normally, what happens is most of the disbursement technically happened during the H2 of every year, you know. Our sense is and, you know, whatever write-offs we had to do, so, you know, now what we've written is that, you know, we had a pre-write-off growth of about 9%.
Our sense is if now the write-offs have taken place to a large extent, we don't have any further write-offs, you know, which we feel would probably come in. You know, I think, you know, we still stand by about a 15%, you know, 10%-15% growth, which is gonna be there, you know, for sure of the rest of the year remaining this thing, you know.
Okay, sure.
Okay.
Yeah. Thanks a lot from my end. That's all.
Thank you.
Thank you. Before we take our next question, we'd like to remind participants to ask a question, you may enter star and one. The next question is from the line of Ritesh Veera, an individual investor. Please go ahead.
Hello, good evening, Mr. Chairperson.
Hi. Good evening.
Yeah. Actually, I have a question with regard to optimization of the equity in the company. For example, if I see the equity statement for the standalone financial statements, it's higher as compared to consolidated financial statements. What I understand is because the company has done the fair valuation of the subsidiaries, as a result the profit is coming from a forward perspective also.
While the consolidated will be in the historical perspective. Then when I see further, the additional investment done in the housing finance company, it has a premium of 198%. Like, what are the steps you eventually want to take across? Basically because the market is discounting the share price as compared to the book value.
When you see the additional investments being done, for example, housing finance company, it's a premium to the par value. What are the steps being taken by the management to take care of this?
I think, you know, Ritesh. Ritesh, our sense is I think, you know, if you look at the history of our four years of the housing book, you know, technically, whatever premium we've, you know, which is being fair valued by a SEBI Category I registered valuers, probably looks at what an investment would do in terms of. Even if you go to the other method of not having an opportunity cost to it or the opportunity income to it, that is only the fair value which is, you know, practically being taken across over there.
You know, for a young organization which has got so much of capital and 0.4% GNPA, I don't think so the fair valuation probably has somewhere which can be discounted by the investors in terms of the share price. In fact, my view is completely the opposite.
I think, you know, for people to really understand the value of what the subsidiaries are creating, I think, you know, just looking at the share price or maybe by looking at other factors, it probably does not give you the right sense. But our sense is the way we've invested into these two subsidiary of ours and the way they are shaping up in terms of both portfolio quality as well as disbursement, as well as the category which they serve in.
My sense is, I think, you know, that monetization will happen at some point of time, and it's only for, I think, you know, real values to really understand the values of both these subsidiaries for the trust to invest. That's my limited answer to this.
Yeah. Mr. Chairperson, going forward on this, for example, what are the steps you think can be taken from the directors and management perspective to basically upscale the interpretation of the stakeholders in the valuation of the company? For example, do you contemplate to come across with a bonus issue or something different in that aspect?
Because if I see, the paid-up share capital is very less as compared to total equity size of the company, even the standalone financial statements. Are there plans, any thought on that, on bonus? Secondly, are there any thoughts with regard to the dividend distribution policy? Because there's no dividend distributed by the company for quite a long time. What are your thoughts on those areas?
Ritesh, my sense is, I think you have to do your homework a little bit more in terms of understanding how an MFI operates and how the subsidies are related to the MFI operations. Technically, you know, I haven't seen any MFI technically giving out a dividend or somebody giving out a bonus. I think these are theoretical questions which we are talking about.
Okay.
Our own sense is what you have to understand, and I think for you know I think for the overall thought process which is there, I think it's the business which we focus upon, you know. The way we are focusing on the business post the pandemic, you know, I think you know that's one statement which we've given out across which says that our July 2021 disbursements has a portfolio quality of 0.2% of GNPA. I think that's a very big statement which we made.
In terms of our GNPA, which is there post the pandemic, we've taken care of all the write-offs which has happened, all the pain which has happened. Today, if I exclude Assam is a separate category of you know thing which is happening across with the MoU being signed with the Assam government.
We have no qualms that we will not get the money back from the Assam government, which will come in. The Category one and two has already come in. My sense is if you look at the GNPA post the pandemic, after all write-offs and everything which has happened, it's just 1.2%.
I think it's probably one of the best in the entire industry. That is what we want to focus upon. I think, you know, for us, you know, I think bonus shares, dividend, I think as the results speaks for themselves and the quarter speaks for themselves and the business volumes speak for themselves, I think that's a sufficient ground for us to look at how this probably has to be looked at.
Thank you very much. I have one follow-up question on this. With regards to the digital wallets being introduced by RBI, so is the company trying to do something on that front also?
See, you know, technically we are technologically very sound in terms of creating our own wallet, our own website, as well as our own mechanism of, you know, actually doing transactions through cashless collection mode as well as the cashless disbursement which we are doing. I haven't had too much of a look into what the RBI wallet is all about.
If it is significant for us to probably encompass into our own technology level, I think we have all the expertise in our technology levels to probably look at it. No, I clearly, to be very honest, I don't have an idea too much about what the RBI wallet is all about because we have our own customer service app. We have our own app. We have UPI too.
We have various other mechanism in which we can actually make a digital payment for our borrowers, for collection, et cetera.
Thank you, sir.
Thank you.
Thank you. We'll take a next question from the line of Ronak Singhi, a retail investor. Please go ahead.
Hi. Good evening. Good evening, Mr. Singh.
Hi, Ronak.
Very happy to talk to you and the team. Sir, a few questions, specifically on Assam portfolio. Just wanted to get some sense of the GNPA of what is across.
Sorry to interrupt. Mr. Singhi, if you're on a speaker mode, can you switch to handset and speak? Your audio is a bit muffled, sir.
Okay, sure. Thank you.
If you could repeat your question as well, please. Thank you.
Am I audible now clearly?
Yeah. You're on.
My first question is basically on the Assam portfolio, on this INR 137 crore of GNPA. You mentioned that, and also in the presentation, the Category one and Category two relief has been given by the government. This INR 137 crores, out of which, how much we are expecting in Category two? Because as you mentioned, it has been released yesterday. Is the balance to be, we'll recover everything in Category three or do we have eventually any write-off in this INR 137 crores?
I think some numbers I think Jugal will probably be able to give you. Just to give you an insight. Category two is the overdue amounts, you know, based on a certain cutoff date in which the government paid. It's not much in terms of, I think, you know, I don't have the exact figure, but it's a very less amount technically which has been relieved by the government.
The underlying position is that, you know, since there are three categories, the more volume is in the category C borrowers, you know, in which all the overdue amounts will be repaid by the state government to us, you know, basically. That is the main one.
The fact of the matter is that, you know, once the category one and two have been released in probably a good time, you know, I think, you know, category C is also there. I think we're getting feelers of you know, giving our data to the state government now. I think that work is also starting now, which indicates that we'll probably be there. In terms of number, I think just give you a insight.
You know, just to give you a overall sense as per the original MoUs signed, the cutoff date was March 21, which, you know, after due discussion and the time elapsed has changed now to July 2022. A lot of borrowers have moved from category one and category two to category three.
Most of the relief now is expected in the category three. Then based on our best estimate, we have already provided for a large parts of INR 137 crores. We do not anticipate you know, any further hit coming in and coming from Assam.
We have provided for almost INR 70 odd crore on the Assam portfolio and our best estimate is that the relief in category three will be much more than the unprovided portion out of this INR 137 crore.
Sure. Out of this INR 137 crore, how much is, from the policy perspective, how much is recoverable if everything goes well? That will give us a sense of whether there is a overprovisioning or there is a cushion in there.
You know, I can probably say that, you know, our sense is that out of that INR 137 crore, we are expecting close to about a 75%-80%. 80% is what our belief is that we will get back from the state government, and that's the reason why we are on a conservative basis, we've taken a 50%.
Provision.
provision onto that, you know. We are hoping at least, whatever, you know, we know we get from the Assam government, it would be close to about 75%-80%. That's the reason why we've provided about 50% of that, you know. In any case we have overly provided also in terms of what is, what we get back from the government.
Thank you. Thank you. That helps. We are expecting this in a best case scenario by end of this financial year.
Yes, I can tell you also, yeah.
Yeah, yeah. Okay. Thank you. One question, the promoters have converted the warrants and paid off their share. There was also the venture capital investor in Florintree, which had also subscribed to these warrants. When is the management planning to call that money? Because the debt-equity ratio is relatively higher compared to the peers in the industry, that capital will just help you propel the next level of growth. If you can indicate any timeline, it will be helpful.
As you know, both promoters and the investor has time till July of next year. It's not our call. It's basically the call of either the promoter who are the, you know, subscriber to warrants or the investor. It is their choice when they want to get it converted.
The lock-in will start from the time, you know, we allot them and those shares are, you know, we get the permission to trade them. The investor call when they want to put in the balance money, but statistically they have time till next July.
The other thing, you know, I think you know what is there, we technically have a capital adequacy of about.
24%.
24%. You know, I think, you know, we are in no hurry probably to, you know, to look at it. Once the growth starts hitting it and I think, you know, it can be done, then both of us are, you know, probably, you know, ready enough to bring in the required desired capital for growth.
Okay. Thank you. One more question on this, the write-off there. As you have mentioned that there have been recoveries of INR 16 crore in this quarter. What are we expecting from a future write-off recoveries perspective?
Do we expect a similar run rate because we have written off huge amount over the last few quarters. Are we expecting a similar run rate or do we expect better recoveries or do we expect the recoveries to be much leaner from the write-off book?
Don't ask me for, you know, this is a. If it's a one-to-one question, I can probably give you a much optimistic figure. You know, since, you know, I think, you know, you know, I've got, you know, a thought process to it, you know, let's keep it conservative.
That will be practically the same amount which probably will come in. Our endeavor is always to bring in much more what we can do. God willing, I think, you know, we probably will be successful in doing that, you know.
Sure. Thank you.
Thank you.
Thank you. We'll take our next question from the line of Rishikesh Oza from RoboCapital. Please go ahead.
Hello, am I audible?
Yeah, yeah. Loud and clear.
Okay, great. Hi, sir. Thank you for the opportunity. My first question is why was our loan book flat quarter-on-quarter and when can we start seeing the growth here? Maybe from Q through, would it be fair to assume?
I think, you know, for us, you know, I think, you know, the pain is over. I think we were more focused towards that, you know, rather than looking at, you know, disbursing during the end. Probably the first two quarters are always kind of easy in terms of our disbursement.
Yes, I think, you know, the last two quarters will be pretty good. We're looking at growth from there on, and we don't have any further stress which is left in our books, you know. I think, you know, we'll probably now focus on disbursement going forward, you know.
Okay. Also, sir, the interest expense has actually dipped this quarter while your interest incomes has increased. Could you please throw some light here?
One that we have done some direct assignment transaction where the net income goes to the top line. Just to give you an overall perspective, you know, because of the risk-based pricing, et cetera, blended yield is expected to slowly go up. We have already started seeing some upside in our interest revenue. We feel that on a slightly stable basis, this will go up by at least 1.5% or so over a period of time.
On the cost of funding side from last year fourth quarter to this first half, the cost of funds has gone up by 60-70 basis points. Net debt will be benefited with the, you know, fee pricing and NIM will improve over a period of time.
I think management gave a guidance of around 1.25%-1.5% credit cost. Is it for H2 on an annualized basis?
See, guidance.
Okay. Sir, could you please indicate what levels of cost-to-income ratio are you looking ahead?
See, I think, you know, till the time we are looking at, you know, maybe extra manpower to look at write-backs and other various things, you know, from where we can get, you know, bottom line significance in terms of numbers through these write-backs.
I think, you know, it'll be slightly elevated, but, you know, we've brought it down. It's, I think, you know, our own sense is that once the AUM denominator starts increasing, I think our effects in terms of percentages will also start decreasing from there. Cost to income will also probably have a
Okay. That was good. Thank you, sir. Thank you very much.
You're welcome.
Thank you. Ladies and gentlemen, that was the last question. I now hand the floor back to Miss Aditi Singh, Head of Strategy, for closing comments. Over to you.
Hi. Good evening, everyone, and thank you for coming on this call, taking out time on a Friday evening. I thank each one of you, and I hope we have addressed all your queries through our presentation, through the speech and the question answer that followed.
In case there is some other information or clarification you wish to seek, you may reach out to me. My name is Aditi Singh. I head Strategy for Satin. You can also reach out to my colleague, Miss Shweta Bansal, DGM Investor Relations. Our details are there on the website. So that's it for today. Stay healthy, stay safe, and bye-bye.
Thank you. Ladies and gentlemen, on behalf of Satin Creditcare Network Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.