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Questions across 2 calls

Gagan Banga

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Sammaan Capital Limited

Sammaan Capital Limited CC-May26.pdf · 2026-05-20
Yes, thank you, Varun. Thank you for sparing time to attend this call and thanks to BlackRock for being a true rock as far as the support to Sammaan is concerned, both on the debt and th e equity side. We are, Varun, engaged with international credit rating agencies. Both Sammaan's management team, as well as IHC’s management team has had multiple meetings. And now that the financial results are out, our engagement would continue. And I would imagine that the positive rating trajectory that we have witnessed with our domestic rating agencies should get replicated with the international rating agencies as well. For them, a very important metric is the cost of funds. Approximately 90% of ou r borrowings happen onshore. And it is but logical that as an outcome of these upgrades, our marginal cost of funds would decline by approximately 160 basis points. I mentioned that our current return on asset is 160 basis points. So just as an outcome of this upgrade, our return on asset automatically doubles, very high-level math. So this would obviously go into whatever modeling international rating agencies would do. And I am fairly optimistic that given how our overall conduct has been, as well as now with such a strong promoter as IHC, much like the first 50 days have resulted in the domestic rating agencies upgrading, I would imagine the next 25 days would result in a similar action from international rating agencies. On the cost of funds, we have been extremely cautious. We have looked at all of our borrowings. And whatever is long-term maturity and most of our borrowings would be 3 to 4 years maturity, that stock would stay. We have a fair amount of borrowings from banks. We would like to negotiate with them. Let's see how it goes. We are a very attractive borrower from them, having repaid almost 80% of the loans which were given to us by banks on an absolute basis. So banks, like we have seen terminal credit costs on our portfolio. Banks have seen how money lent to Sammaan comes back. And that is obviously giving a lot of credit comfort to them. And that should result in possibly us being able to also negotiate our stock cost of borrowings as far as banks are concerned, which may accelerate the decline in the cost of funds. The bonds can't be negotiated, and they would also have a similar 3 to 4-year maturity. It's our incremental borrowings, which will come in at a lower cost. So the cost of funds in that slide is a mathematical outcome of how we feel that this trajectory would go down. Today, AAA borrows at sub 7.5%. So as we move in that direction, our cost of funds have to move in that direction with a lag of a couple of years given the existing stock of fund borrowings. I hope I answered your question.
So, just as a high -level reaction to that and I will then come down to specifics. As Dalia had mentioned, this is a people's business. We well recognize that. The management team here has managed and we persona lly have managed secured and unsecured loans, personal loans, commercial vehicle loans, loans against securities, all done at scale running into tens of thousands of crores. So these products are not new to us. What is a great enabler now is that tech allo ws you to control and continuously monitor the decisions being taken either by your system. So a lot of the unsecured lending actually happens on your app, which is a continuously learning process. And the second thing is we obviously have to invest in people. It is clearly not possible that I expect the mortgage team on the ground to now start doing personal loans or the personal loans team to start doing gold loans. The branch network has to be unique for gold loans. The personal loan business is more an outcome of how well is the experience as far as the app is concerned. And on top of all of this, the huge amount of profitability is also derived by how successfully are we able to sell other products. Like today, we very successfully sell insurance to over 90% of our borrowers. So that type of cross-sell, which is also not something which is trust on the borrower, but helps borrower manage their own risks is also very, very important. So, we would invest in people. We would invest in tech. What is going to enable this in terms of our ability to be probably as good or better than some other players. One is the fact that we are already starting when we start to grow towards a INR2 lakh crore s book, we already have a profitable INR53,000 crore s book, which is giving us earnings and steady earnings and is not giving us headaches. So whatever has been done has freed up, and it has been done very thoughtfully to ensure that the management bandwidth is fully dedicated to growth. The second part, which I would like to highlight and which probably underscores the overall strategy of Sammaan. In my personal experience, this business is not about asset management. This business is about liability management. This business is about, firstly, understanding that the real asset of this business or the real strength of this business comes out of the way that you manage liabilities. Liabilities could be having a very diversified portfolio from where you borrow in terms of both lenders, as well as the instruments that you utili ze, as well as heading in the direction of the lowest cost of funds. It is known to our promoter. It is known to us that cost of funds is the most significant competitive advantage that we will have, which will enable all and every growth that we are taking up on ourselves and committing to all of you in the presentation that I made to you guys. This cost of funds is obviously supported by a strong promoter, but it has to be executed every day by the management. The most important thing is we don't try and do any cute stuff, which is why these guardrails have been built, liquidity principles have been built, capital principles have been built. All of this will ensure that we have a very stable liability franchise, which frankly is going to be the single biggest competitive advantage, which will continue to accrue to us over a period of time. I strongly believe in the India growth story. I strongly believe India is underserved. It may be a cliche, but I believe Bharat is more underserved. So as we go into Tier 4, 5, 6 cities, we would be presented with opportunities where the asset growth is almost endless. It is about being able to push the last mile credit. Nonbank finance companies, the well-governed nonbank finance companies have been able to grow by pushin g the last mile credit. Our further learning is that we have to do this in collaboration with banks and not competing with banks, which would also allow us to pursue prime assets and continue to leverage on the partnership that we have built with banks. All in all, I believe between investing in people, investing in tech, ensuring consistently reducing cost of funds and having the guardrails, which will sustain the steady compounding, we will get to the INR2 lakh crores or the 18% ROE target or the NIM targ et, the ROA target, the cost to income target. Each of those would eventually result in the profit targets being met. Without a key focus on any of them, nothing will happen. But we are in no hurry, which is why voluntarily before anyone asking me this question, we said growth for this year and growth for next year would largely be via mortgages. They are also higher ticket loans while we build capacity, reduce our cost of funds and build the other enabling factors. I hope your question is answered.
Sammaan Capital Limited CC-Sep23.pdf · 2023-11-14
Firstly, thank you, Craig, and thank you, the entire team at NWI and having -- to have really partnered with us through what has not been in 4 to 5 years, both for the company at a macro and a micro or the world with COVID raising, etc. And your words that our a pproach is world class is like a compli ment to the team on how we would aspire to continue to say what we do and do what we say. It's not always easy, but we will try and continue to keep on foot in front of the other entities and hope that we grow from now. CRISIL and Indiabulls have had a 19-year a long association. We have while perfectly understanding that rating agencies go through their own internal cycles as well as there also in that sense, influenced by what is happening externally. There would be divergent views coming from various rating agencies. We have historically in the past tried to work with all the relevant rating agencies in the country. And our goal is essentially not to try and do rating arbitrage and go and get the rating, which is suitable for us at the moment or not. The other big realization for the company is that much like other stakeholders, rating agencies can tend to be a littl e bit more pro -cyclical. And it's a big learning. And I'm not faulting the rating agencies. I believe that when you are on the path of growth, to see an event like what one saw in the IL &FS crisis or through COVID, etc . these are clearly black swan events, which if one starts building into a rating thesis, nobody will ever get to a very high credit rating level. These are all learnings for the company. So I'm grateful to the CRISIL team that they have appreciated the model. They have been extremely patient in giving us the necessary audience to explain our business case, and they continue to be one of the most mature rating counterparties that I have interacted with ov er the last two decades. There reaffirmation clearly helps us both domestically and internationally. Our current audience is the domestic pool of debt captive, largely focused on three pools. One is the co-lending pool, which is the most crucial, the second is the bank term loan pool, which is the second largest pool. And the third is a franchise which we are trying to create, which is raising bonds which are sort of quasi deposits in our case from retail and high net worth individuals and trying to granularize our liability prog ram to the extent that, the exta nt regulations allow us to do. On the co-lending pool of capital, rating agencies and their views are important. So what is even more important given the very long track record that we have with our counterparties on the co- lending and securitization side, is how our underlying pools are per forming. And I keep telling all stakeholders in one-on-one interactions or on calls such as these that the risk on the co-lending or the asset-light business model is not how much demand is there. There is 10x of the demand out there than what we can potentially produce quickly. The biggest risk and in ways -- in some ways, a moat that we have created for ourselves is the underlying asset quality of the loans that we've originated. The moat is that, we have done transactions of over INR 60,000 crores with a bout 25 parties, of thes e 25 parties, 8 of them are current co- lending partners. And over the next -- over the course of the next two to three quarters, this number will expand to 12. So after 25 , 12 would be our co-lending partners. And they will largely long term be guided by how our back, pool is performing. If our back pool continues to perform to what they bought from us last year or the year before that, continues to perform, there would be demand. They would obviously get impacted and influenced both positively and negatively by the rating. But the more influencing factor is going to be the performance of the back pool. The second pool of debt capital is bank term loans. There, again, given the almost a little over $7 billion of sorry -- almost $10 billion of net repayments that we have done with the equivalent. A large portion of that has gone to domestic banks. And that has built a lot of comfort. Obviously, they rely on external ratings to help them assess our current financial health. There also are organizations which are capable of doing their own internal credit appraisal, which they do. And as things stand s today, I think today they're more comfortable with our financial health as well as their understanding of what the company does, how does it work and all of that. Because of regulation, we've had a concurrent auditor appointed by these banks for over four years, auditing every rupee in and out that additionally gives them comfort. I believe today, as our lending counterparties, they've also matured in their practices. They are aided by much tighter and stronger both supervision and regulation of the RBI, and therefore, all of this as a combination provides them a great degree of comfor t that we are an upper layer NBFC. And there are all of 15 NBFCs in the country, which are in the upper layer. And RBI is indicating that the trend line for upper layer NBFCs would be a bank like approach to both supervision and regulation that additionally provides comfort to this pool of capital. The third pool of capital, which is the high net-worth individuals and retail individuals, which today as a percentage of our borrowings would be approximately 5%. But on an ongoing basis, we would like to see this pool contributing starting to contribute at least 20 - 25%. This would get swayed by our credit rating for this pool to continue to give us capital at a comparative cost, we would need to maintain our focus on credit rating and reaffirmation of credit rating coming from the country's premier rating agency is a huge boost in our endeavour to address this new pool of capital for us, which is a relatively virgin pool of capital for us. That's my perspective. All these three pools are providing us at adequate liquidity. So there is no issue as far as the free flow of capital is concerned. Now it's all up to us as a team to really prioritize what our approach has to be, operate within the guardrails that we have said and focus on the quality of the portfolio that we are creating versus the quantity. So when the mana gement team speaks to our feet on the street, we talk about periodically accessing the quality of our origination whether the cost, whether the turnaround time of our co- lending portfolio in terms of how long do we have to hold , the acceptance of what we're originating versus just the quantum of disbursals. So the quality of what we are disbursing is far more important for us. And while maintaining that quality of disbursals, there is adequate flow of capital, which is available to us. Sorry, I gave a very lon g answer to what was perhaps a very direct question, but I just wanted to use this opportunity to explain the model properly to everyone.
Shabad, through quarter two we were fundamentally focused on ensuring that the lumpy sort of liquidity repayments that we had to make. Those were the primary sort of areas of focus for the company. We were also allowing the larger part of the organization to focus on stabilizing the retail distribution platforms. There's a lot of integration work that needs to happen, which we used quarter two for. We haven't really had the bandwidth through quarter two to focus on strategic initiatives as far as wholesale lending is concerned, whether we do it via credit platform or partially via credit platform and partially via an NBFC. It's an important decision to take and it's an important contributor to profitability medium to long term. In the short to medium term, our profits will get aided by the recoveries that we get from the wholesale book. But over the medium to long term, we do intend to do wholesale lending. I woul d request you to bear with me for another month and a half or so for me to really chalk out a very clear plan in terms of the scope of the credit platform, how much effect would be loaded on the NBFC. How much effect we do via third-party funds and all of that. Those are numbers. We clearly see approximately on a steady-state basis, a disbursement of opportunity of anywhere between $2 billion to $3 billion every year. But if we have to do $2 billion to $3 billion, we have to also ensure that we have the capacity to contribute to approximately 20% of that from our balance sheet directly on the NBFC or our – as our contribution to the credit fund. So we are working out all of those details. Please bear with us for the time that we declare quarter three results to be able to give you a more clearer picture as far as that is concerned. Till that time, we rundown of the past book continues. A large part of it in terms of new contributions that we needed to make towards construction, I would say, a large part of that has already happened. We would need to make another about INR 3,000-odd crores of fresh commitments to make sure that the entire pool comes back. These INR 3,000 crores would be disbursed over the next 12 months to 24 months and over the next 24 months to 36 months, we can get back the entire book. But that's not our goal to how to calibrate that, how to mesh it with new disbursals and thereby have a full game plan around that like we have a game plan around our retail business. We should be able to firm up over the next three months.