Hello. Thank you for the opportunity and congratulations on the quarter. First ma'am, I had a question on the merger. So currently, what approvals are pending? And how much time do we anticipate, I think by March 2025, we expect the merger to be over. So, are we through with the timeline? And secondly, related to the merger only, we have around 45% stake in AM C and around 46% stake in Health Insurance and 51% in Sun Life Insurance. So, any thoughts on whether the regulator, RBI, would be comfortable with our main NBFC lending arm having almost 50% stake in other subsidiaries. Usually, we have seen in case of some banks wherein RBI restricts the stake in insurance to 20%. So, what are your thoughts on that? ABCL – Q1 FY25 Earnings Call Page 11/22

Okay. So, first is on the status. As we said, we have already got an in-principle approval from both BSE and NSE, which is the first step. Going forward now, first, we need to get a no objection from RBI. After we get no objection from RBI, our registered office is in Gujarat, so we will have to file the merger proposal in the NCLT of Gujarat, which is at Ahmedabad. And then, of course, as you know that there is a process which the NCLT will go through. My expectation is, since this is the merger of our 100 % subsidiary into ABC, typically the time required is shorter than the normal merger. The second is, both the companies have their registered office in Gujarat. So that makes it a little simpler because both will be applying to the Ahmedabad NCLT. As you rightly said, our endeavor would be to complete the process by March 31, 2025. And we will keep you informed about the progress in every quarter. So that's the status of the merger. Talking about the specific approval, I don't want to pre-empt and really comment on how RBI will look at it. The only thing I would say is that regulation does not prohibit NBFCs from holding the percentages that we are holding today in the companies that you mentioned. In the case of banks, typically, there is a banking regulation act which prohibits the banks to hold more than 30% in any company. It can either be a subsidiary or what you hold in any company has to be less than 30%. So that's the act. And therefore, whatever that you spoke about is applicable to the banks and not necessarily to NBFC. In our case, of course, as we had mentioned before, in case of insurance, we are allowed to hold more than 50% with a specific approval from the Reserve Bank of India. There is no prohibition. And in our merger proposal, we have asked for that specific approval. So again, we are very hopeful, and we have no reason to believe that they will have any objection to what we have made an application for. But again, we will keep you informed about the progress on that front as well.

Sure ma’am. That is actually quite helpful. Now a specific on the NBFC business. If you look at the growth in the NBFC business, it was around 2% sequentially and still we are guiding for around 25% year-on-year CAGR over the next 2-3 years? So how do we look at it? What would be the main driver? If we look at the AUM mix, it seems that we are defocusing, or we are growing slowly on the unsecured p iece and that is also high yielding. So given that the margins also have given up quite a bit in the current quarter. So, is that due to the unsecured mix change? And will that continue or are we again going to build the unsecured mix?

So, if you look at it, we have grown 25% year-on-year. Yes, sequentially, it is 2%, but that's a calibrated growth . We had done some calibration in Q3 of last year, that small ticket unsecured loan, where the risk weights had gone up and also RBI had concern on this segment, and that's the reason we had recalibrated growth. And as you see in the last 2 -3 quarters, we have dialed this segment down. ABCL – Q1 FY25 Earnings Call Page 12/22 But as we have committed, we continue to be very positive in terms of growing 25% + year- on-year, with a clear focus on SME segment, which we will continue to grow. So, if you look at our secured business has grown by 43% year-on-year and MSME segment if you look at, that's grown 39% year-on-year. And also with the recalibration, which has already been done in the personal and consumer, and we have really built our direct sourcing channels , as I spoke that in the initial comments that the branches which we are setting up, the direct open market acquisition engines which we have built , the ABCD app which we have launched , all of this will help us to grow our personal and consumer business. So yes, it's a recalibration in the last couple of quarters, but we expect this to grow and with the clear direct acquisition models, which I spoke about. Also, on the unsecured business, we are very positive in terms of growth on the unsecured business, and that should help us in terms of mitigating the margin compression, which you mentioned. Yes, the margins have compressed because of the change in the product mix. But as we grow our unsecured business and scale up our direct sourcing channel for personal and consumer, we should be able to manage our margin.

Sure. That is quite helpful. So, for FY24 we had a margin of 6.9%. So, do we expect margins to stabilize around similar levels for FY25 or there will be some compression on yield level?

So, it should be around these levels is what we see this year. Yes, in the next few quarters, it will be in this range itself.

Sure. This is quite helpful and all the best for future quarters.

Thank you.

Moderator

Thank you. The next question is from the line of Avinash Singh from Emkay Global. Please go ahead.

Hi. Thanks for the opportunity. I have two questions. The first one is again on NBFC. Now you have some sort of recalibrated growth, both in unsecured business and unsecured personal and consumer loans. Now if you can just provide some color, on your strategy changes post recalibration, how the growth in terms of AUM in these two unsecured businesses and unsecured personal is going to look? ABCL – Q1 FY25 Earnings Call Page 13/22 And in this kind of recalibration or running down some passbooks, how is this delinquency or GS 3 target going? I mean, is this the number what we are seeing, particularly the GS 3 numbers in these two segments kind of peak or still, as sort of, until the time the growth comes back full throttle, it will kind of inch up further? So that is the first question on NBFC, I will come back with life insurance question later.

First question was on the growth of these two segments, which is the personal and consumer and unsecured business. In terms of as I mentioned, we continue to be very bullish on both these segments, person al and consumer. We have built direct sourcing channels, and our focus will be completely dependent on acquiring customers directly rather than third party. That's the reason why the recalibration you see, we are seeing in Q1 also, we have seen that our direct sourcing channels have started delivering. Our branches, which we have invested in over the last couple of years have started delivering results. And, last quarter, we have launched ABCD app. Initial response is pretty good. And we are seeing conversion, especially on the consumer and personal loans, the conversion is pretty good. So, these platforms and these engines will fire up for us in the personal and consumer segment. If you see the unsecured business segment, as we have mentioned, this is our chosen segment, MSME is our chosen segment, and we continue to build investments and platform for this segment. We have launched last year, B2B platform Udyog Plus. And we have already seen almost 10.5 Lakh MSMEs registered on this platform. The new customers are being onboarded on this platform. And on this platform, there is a complete seamless digital journey, which we have built. Also, our existing customers are adapting to this platform and migrating on this platform. So, unsecured business segment will grow quite smartly for us in the coming quarters. In Q1, because of supply chain, which is more seasonal in nature, there w ere some repayments, large repayments. That's the reason you see some degrowth.. But in the coming quarters, we look at very positive growth in this segment. In terms of the quality, stage 3, which you mentioned about personal, consumer and unsecured segment both if you look at, this is primarily because of the de-growth in the denominator. In terms of the normal flow and we track it on a month-on-month basis and quarterly basis the normal flow is quite stable. So, we don't see, but it's only in the percentage terms you see a slightly higher stage 3. But it's quite normal if you see in terms of the quarterly flow.

Okay. So, I mean you're saying that growth sort of sequentially will start from this quarter in both the segments?

Yes. ABCL – Q1 FY25 Earnings Call Page 14/22

Okay. Coming on life insurance now in Q1, if you were to look at the margins, of course, the margins have dipped quite a bit, could be due to product mix changes and due to the growth coming under some pressure in some banca channel. Now still you are guiding like for the full year, a very similar kind of margins. And if we try to look particularly in the backdrop that okay, from H2 FY25 you are going to sell a new variety of the non -linked products with the new surrender norms in place. So, what gives you the confidence that you will be, by and large, able to come back to the same margin level? Is it that you are hoping for a big shift in the product mix? Or is it that you are expecting growth to come big time providing a better cost absorption. First quarter, there is a big shift, but for the full year, you are looking confident to achieving the flattish or slightly a minor decline in margins?

So, the first quarter for us is if you look at even in the last three years, there are quarters in which you could have done 3%, but you still were able to reach 20% + VNB margins. So, we catch up on our net VNB margins through the year, as you would have seen in the previous few years itself. You have to remember that the G -Sec rates are coming down, we've also passed on the reduction in some of our benefits to customers in our traditional products. Some bit of it has already been happened. As I speak, in the month of June, which is in line with what the industry has done, plus incremental growth, like I said, we are thinking that the ULIP mix will continue to be where it is at 30%. But in the traditional products, because of the G-Sec rate coming down and whatever benefit we have passed, that's one element. The absolute value of growth will catch up with the banca channel also in subsequent quarters, Axis has started in the month of July mid, IDFC and Bank of Maharashtra will scale up as well. So, the absolute value of what we will be able to generate in terms of premiums will help us generate those margins. If you look at it, the guidance is still 18%+. Last year, we were at about 20.2%, so if you're in the 18% -19% range, we are still saying there could be a loss of about 100-250 bps, which we had said even before and we are in line with that trajectory to be able to get there by the end of the year.

Okay. Got it. Thank you.

Moderator

Thank you. The next question is from the line of Bhaskar Basu from Jefferies. Please go ahead.

Good evening. I had a couple of questions. Firstly, on the NBFC side, mainly around NBFC. So, this quarter also, you kind of bought loans of about 2%. Last quarter, there was about ABCL – Q1 FY25 Earnings Call Page 15/22 2.2% of portfolio purchase. So, can you help us understand which segment were these loans purchased? And what is the strategy around loan purchases going forward?

We disbursed close to 13,000-14,000 Crore Rupees in a quarter, and this (the buyout) is if you look at, it's a small part of the overall disbursement numbers. Your second question was which segment. This is primarily secured loans. A very small part would be unsecured, but primarily secured is what we have. In terms of what is our strategy, these are portfolio interventions. We look at in terms of whether it's assignment of the portfolio or buyout of the portfolio. We look at both as an opportunity and our ability to cherry-pick good quality portfolio, that's what we look at.

Yes. I mean, basically, the point was it's almost 2% of the book. I mean, so it's almost like 4% of book purchased in the last two quarters. And especially given that your own channels are building up. What is the driver for this essentially? I mean, I wou ld have probably expected more from the organic channel.

So, if you look at organic channel, almost 90% of the sourcing or disbursement, is happening through the organic channel. This is supplementary if you look at. And, Bhaskar, if you look at the repayment on this segment because if there is a PTC or DA transaction, the repayment is quite fast. So, disbursement might be slightly higher, but as you said, the net growth is very small for the quarter. So, it's not even 2000 Crore Rupees, almost 50%-60% of that comes back as a repayment.

And Bhaskar, another thing from a strategy perspective, see one must keep looking at opportunity in addition the direct channel that we have, and we continue to leverage those channels. But if you look at the opportunity today in the market because of the liquidity position which is there, there are certain franchises which probably have no access to that liquidity. Whereas a franchise like us has access to that liquidity at a reasonable cost. Now naturally, people have started building those channels where they're in a position to actually originate the assets. We look at this as a great opportunity for our franchise who has access to capital, particularly the liability capital at a reasonable cost to leverage this opportunity. So, we'll continue to look for buying and selling of the portfolio in the market as an activity. Today, we believe there is an opportunity to buy. If in the future, if our appetite is completed and we have built such a good franchise, we probably will continue to churn our portfolio as we go forward on both sides.

Okay. So just following up on this, essentially the spreads you make on these pools purchased are comparable to less or higher than your organic channel. ABCL – Q1 FY25 Earnings Call Page 16/22

So, we always do our unit economics, two or three things that we look at very clearly. One, we will never compromise on the quality. So, it has to match our credit underwriting standards that we would have done for our own assets. Second, in terms of unit economics, whether it's a return on asset or return on equity, it has to mark up and make that minimum hurdle that we have for own assets. So, these are the two things that we continue to do. And to be frank, this we will do in both our lending companies, as we go forward.

I have two more questions. I mean, one, on the opex side, opex has been obviously lower and is it more seasonal? Is it something to do with more acquisition to purchases? Or do you expect some of it to normalize? So, any guidance on the opex side?

This is for NBFCs, Bhaskar?

Yes, NBFCs.

So, Bhaskar, if you look at last quarter, we had marketing costs, which were there. We had run a campaign. So, there was a marketing cost in the last quarter. We have always operated in the range of 30% -31% cost-income ratio, and we will continue to operate in that range. Yes, there will be one quarter where some marketing expense comes out or some payout comes out, but it will normalize. So, we will continue to operate in terms of guidance, 30% - 31% cost-income ratio is what we have always operated at, and we will continue to operate.

Okay. Just my final question, if I may. On the provision coverage, this has come down sequentially. So is there a recalibration of PD/LGD or you expected it through. What would be kind of the steady -state provision coverage you expect from this book? And t he related question is also around the write-offs this quarter, please.

Bhaskar, if you look at our provision cover, it is quite in line. I think last quarter was 49.9%. This quarter is 49.5% . So this is in the same line and it hasn't come down. Because our portfolio is primarily secured, i.e 70% of our portfolio is secured, this is a very good provision coverage for our portfolio. And if you look at a higher risk segment, which is consumer and personal loans, there our provision coverage is almost 86%. So clearly in line with the unsecured business, which you see 35% -36%, there we have a credit guarantee of almost 4300 odd Crore Rupees of portfolio, from SIDBI. So, it's been quite stable, and there's no reduction. ABCL – Q1 FY25 Earnings Call Page 17/22

Yes, sure. And just the write-off number, please.

It's not readily available with me, but Bhaskar we will come back.

Okay. Thanks. Thanks a lot.

Moderator

Thank you. The next question is from the line of Suresh Ganpat hy from Macquarie Capital. Please go ahead.

Yes, hi. So, I just had a question on your ROA targets in the medium term, right? So, you had earlier guided that in the NBFC business, we wanted ROA to be 2.7% -3%. Now that's on an AUM basis. And as of now, the number is like 2.4% flat for the past couple of quarters. Now you're guiding for stable margin, stable credit cost , are you confident that you can meet this 2.7%-3% range? When will it happen? What would be the drivers? Because really it looks like we are not going to see that kind of a number happening anytime soon. So, any clarity on that would be great.

Suresh, we had always guided that we will come to 3% ROA in the next two to three years year. That's the period which we had always guided. On that front, we still are confident that we will be able to deliver. Yes, there has been some recalibration in ter ms of changes in the product mix. And that's on the backdrop of regulatory requirement because the risk weights went up. There was some concern on small ticket unsecured loans. And that's the reason we took that very calibrated call. So, we will continue to follow 3%, and we will deliver that in the time period. And what will be the drivers, if we grow secured business, instead of, let's say, personal and consumer, then my credit cost will offset this difference because my credit cost will be lower in the secured business. So clearly but as I had mentioned earlier that we are looking at growing both personal and consumer and also unsecured business. And if you look at, unsecured business comes primarily at the same yield range as of personal and consumer. So, we still are following that. And yes, for a few quarters we took this recalibration. But we are confident that we will deliver.

Okay. Thank you.

Moderator

Thank you. The next question is from the line of Nidhesh from Investec. Please go ahead. ABCL – Q1 FY25 Earnings Call Page 18/22

Hello. Good evening, everyone. So, first is on NBFC, so do you expect the share of unsecured to remain at 25% from here onwards or do we expect share to reduce?

So, if you look at personal and consumer. Earlier, we had always guided that our cap on personal and consumer used to be 25% , 50% for MSME and 25% for corporate. But at this point in time, personal and consumer is at 15%, now MSME unsecured and secured is closer to 54%-55% and remaining is corporate. So, we will continue to work in that product mix, Nidhesh. At this point in time, as I said, because the last three quarters, we have calibrated the personal and consumer, which has come down. But as we leverage the platforms which we spoke about, branches, ABCD app and our direct sourcing channels, we will build that up as well, as we go forward.

And what is the share of direct sourcing in unsecured today?

Just give me a minute, I have the number. So, if you look at personal and consumer, we source 53% of our loans through digital, direct is 28% and DSA is 19%. At the company level, if you look at, direct is 69%, almost 70% of our business at a company level, we do it directly. This was 67% last quarter. So, if you look at it, our direct sourcing has been increasing. The personal and consumer also, last quarter, we were at 22%, that's gone to 28%. So that's what we are really focusing on in terms of acquiring customers directly.

Sure, next is on life insurance. Can you quantify the impact of surrender value regulation on a gross basis on overall company, on a full year basis of last year's margin. If we move to the new surrender value regime, what would be the impact on our margins?

So, like I said, there are two impacts. One, of course, is the impact on the fact that the first year surrender value is available to the customer right now, which was not available before. Industry, obviously, will respond to that differently in terms of looking at what kind of commission structures should be paid, whether it should be brought back for whatever has not persisted. So that impact is not very large. The second impact comes on account of high surrender value which will happen in the subsequent years, which is typically year 2, year 3, and year 4. If you look at our persistency numbers over the last few years, we typically now are in the top quartile, 13th month is at 88%, even our 61st month now is at 66% and these are overall persistency. Our persistency in the traditional part of our business is even higher than these numbers. ABCL – Q1 FY25 Earnings Call Page 19/22 So typically, the impact on a portfolio could range basis our mix that we have of the product of traditional, roughly in the range of 100 -200 bps, inclusive of the impact on the first year money to be paid back to the customer, like I said, through multiple approaches, relooking, realigning at structures on distribution, business mix as well as what we want to do on our product offering. We don't t hink that will have an impact for us on the net VNB margins that we have guided 18%+ for this year.

Sure. So, this 100-200 bps impact that you mentioned is on a gross basis without making any changes to the structure?

On a product construct basis, it will be a little higher because it impacts only 50%-60% of the mix because it doesn't impact you on ULIP, it doesn't impact you on protection or par. It impacts on you only on the non -par of the business. That will roughly come back to about 150-200 bps.

Okay. Thank you. That’s it from my side.

Moderator

Thank you. The next follow -up question is from Suresh Ganpathy from Macquarie Capital. Please go ahead.

Yes, thanks. Sorry. Forgot to ask one more question which is on capital. You're growing at 25%, your ROE is at 15% -16%. And your capital adequacy is just at 16.5%. So just wanted to understand what your thought process here? Because it is very precipitously close to that 15% mark, right? And I think you need to keep some margin of safety. So, are we looking at any kind of capital raising? What could be the amount? Any clarity on that?

Yes, Suresh, Vijay here. Suresh, as you are aware that we had raised our 3,000 Crore Rupees of equity capital, of which we infused 1,600 Crore Rupees in that NBFC in the last one year and about 300 Crore Rupees in the last quarter in HFC. Further, we did the OFS of our AMC, which got us another 600 Crore Rupees. We got the IRDA I approval to monetize the insurance broking firm, which will help us get another 200 odd Crore Rupees. So, we have close to about 1900-2000 Crore Rupees of equity capital right now. I think this will suffice us for the next about 12-18 months of growth. And, as you know that we have announced the amalgamation of ABFL and ABCL. And as we had mentioned in the last call that it helps us release our capital close to about 3000 -3500 Crore Rupees. So, I don't see capital in near- term should be an issue, and we'll be able to manage that. ABCL – Q1 FY25 Earnings Call Page 20/22

Okay. But the stake in NBFC will go up. Again, you come back to the free float ratio, if that is the case.

Sorry, come again.

Sir, because you will have to infuse money. The holding company infuses the stake in NBFC further goes up, right?

NBFC is a 100% subsidiary, Suresh,.

Okay. Yes. Correct. I’m sorry about that. Sure.

Thank you.

Moderator

Thank you. The next question is from the line of Sameer Bhise from JM Financial. Please go ahead.

Yes, hi. Thanks for the opportunity. So, the Stage 3 inch up in the personal and consumer loans is quite expected. Can you just elaborate what's causing the unsecured business loan delinquency inch up, and some thought there while it is guaranteed for yourself and should not cause any major credit issues, but I just wanted to understand that?

If you look at the 3.4%, which you're seeing, if I exclude the guaranteed portfolio, my Stage 3 is 1.5%, 1.5% Stage 3 for our 17%-18% yield loan book is a very good quality. So that's what I just want to share.

But any specific reason that you are saying, I mean on a gross basis, even if we don't include guarantees?

What is it, come again? ABCL – Q1 FY25 Earnings Call Page 21/22

Any specific reason you wanted to highlight that why would one see inch up in the delinquencies for the unsecured business loan book?

So, if you look at it, it's just the denominator effect here as well in Q1, it is very normal in terms of flow, which we are seeing both in personal and consumer and unsecured business. This is the reason why we are waiting for the guarantee money to come from S IDBI when we can net it off and write off whatever accounts have gone bad. So that's where it is. We don't see a 1.5% Stage 3 or gross NPA, whatever you call it, as a problem for an 18% rate yield product.

Sameer also this is more or less flattish. So, it has not gone up in absolute terms. Just that the portfolio we have recalibrated and therefore, you are seeing a little bit of a percentage and even at an overall portfolio basis, if you look at GS3, it remained where we were at around 2,700 Crore Rupees.

Sameer Bhise

Yes, overall, it's less. This is helpful. Thank you and all the best.

Moderator

Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I would now like to hand the conference over to Ms. Vishakha Mulye for closing comments. Please go ahead.

Thank you, once again, for joining us today evening. If there are any questions, which are pending, please feel free to reach out to me or Vijay or Pramod or A ashwij. We'll be very happy to take any questions. So, thank you. Look forward to continued interaction.

Moderator

Thank you. On behalf of Aditya Birla Capital, that concludes this conference. Thank you for joining us and you may now disconnect your lines.

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