We will now begin the question -and-answer session. First question is from the line of Sameer Bhise from JM Financials. Please go ahead.

Thanks for the opportunity and congrats on the strong set of numbers. Just wanted to ask about the growth rates. I mean, we are currently running well above our long-term guidance versus the 35% to 40% AUM growth, we are running upwards of 50 %. So, how do you think it over the medium-term and where should we see some bit of moderation and where we should see continued momentum?

Thank you, Sam eer. So our asset s under management stood at ₹ 21,946 crore as on 31st December, reflecting growth of almost 58% YoY. The growth has come from the gain in market share of existing products focusing on organic distribution. Over the last two quarters, we have become a significant player in all the products segment that we operate as was stated in Vision 2025. Today, we have a 4-5% market share overall in pre-owned car, business loan as well as in loan against property products on incremental disbursement basis. If we were to look at only top 100 markets where we operate , this is a significant number and align ed to our philosophy of going deep in markets rather than spreading ourselves thin. The focus o n the markets and this clinical execution has helped us to grow here. We will strive to maintain and remain in line with our long-term guidance of 35-40% on a yearly basis. Though our base is low but considering the overall thought process of traditional lenders and rating agency in the ecosystem, I think we'll stick to 35-40%. We can grow much hi gher, but now we will increase our margin. And I think we have predicted this. We need to control the growth. If you listen to Q1 of last financial year, we already predicted that we need to control the growth since the segment which we are targeting is very unique. No one has targeted this segment as we have mentioned in the IR PPT also, that is a combination of bank, NBFC as well as fintech. So, the user experience which we are giving, the kind of rate , fair practice, zero prepayment, I think there is enough opportunity available . Again coming back to your question, we will stick to 35 -40% growth and 7 -8% QoQ further. We will focus more on increasing profitability, increasing margin, and reducing OPEX.

Also, secondly, on margins, we are tracking above our guidance. Though they have come off on a sequential basis , do you think you will be able to meet the 10% margin guidance despite a 50 50 secured, unsecured mix going ahead?

Sameer, you're right . Considering secured, unsecured mix, our original guidance was 50 :50. Considering that only, since last four quarters , we are giving guidance of 10 %, but because of the short-term loans and unsecured loans, we were getting enough margin. So, currently NIM is at 11.03% which is much higher (1% above) than the guidance of 10 %. The rationale for the steady state margin of 10 % is threefold; the first being , that we focus on a better credit risk segment through credit tested high bureau score customer where the risk-based pricing needs to be commensurate with the same and thereby resulting in lower yield. Our play is not to be driven by spread, but the risk adjusted return, which gets reflected in our ROA number. Secondly, the NIM contraction is because of the rundown of the legacy book and write-off of the legacy book. Because the entire write-off amount is used, especially on the legacy side that gets adjusted in ECL, NCL and that's not getting added into revenue. So , that is the major reason . Actually, in this quarter also, if you see in real sense, sequentially also, there is no reduction in the NIM. But, because of the higher write-off of the legacy book and rundown, that entire amount as per accounting standard, it gets adjusted in ECL, NCL and not gets added to the revenue. Overall if you see the portfolio of that yield was higher because t hat was agr i, CV, tractor, entire cash collection. Lastly, the change in the mix of the portfolio of secured to unsecured, the secured to unsecured from 45% to 55% in Q1FY24, now it is 52% secured and 48% unsecured. So, in the medium term while NIM may contract marginally, but with a better risk adjusted return, I think we will continue to deliver . We are confident of delivering NIM above 10% and again, we are confident on delivering ROA guidance numbers as well.

Congratulations on the good set of numbers. I have a couple of questions. Number one was on the app launch. If you can explain two things, what is the current usage and how do you manage credit risk in your app?

Thank you. We launched app last quarter, and we are seeing good traction on our app. We have been growing on app downloads steadily and now we have downloads of more than 2,000. The rate of increase of download is growing at a rate of 1.5 x on a monthly basis. This is while we are promoting the app organically and not doing any burn to drive the download. We see a very healthy daily active user metrics of about, let us say , 13% to 14%, which is one of the best for any lender. Also, our uninstallation rate is less than 15%. We are continuously refining our app journey and adding more and more features to drive the engagement. The typical maturity , if you see curve for any app is anywhere between 9 to 12 months and we see our app is on the right track. Risk management in app lending is based on the right customer selection. We follow a consent-based architecture and leverage consented device data through the app for better customer understanding. We use our proprietary scorecard; we are providing risk-based pricing and multiple loan offer to the customer. We ensure that identity checks including KYC are done online and we insist on Aadhaar checks also. As a risk strategy, we only focus on credit tested customers and with a bureau score of 700 and above for entire personal loan and other loan products as well.

Sir, can you talk more about the co-branding with IndusInd and how that's likely to pan out over the next six months, is it like in place or not in place?

Last quarter, we received this co-branded card approval. Now, integration is under process. A few things are pending with co-branded card which is at IndusInd Bank’s end in terms of IT integration and a few other things. I think we will be able to launch this in the month of March. And this will be a complementary product to our existing product basket, because this will help us to engage with the customer in the day -to-day transaction and overall with the increased penetration of this digital payment co-branded card, it will again help us become an active participant in the payment ecosystem. So , we see a sizable opportunity here in the segment in which we operate. Here also, we will target only the pre-approved set of customers and we can do a lot of cross selling here once we launch this . We will launch in March month . We don't want to be in a hurry because the segment again, in which we are launching, the joining fee will be zero, the annual fee will be zero , there will be two variant s to start with . So, it is a unique proposition. Whatever we did in the past , if you see any of the product s, we are not launching anything which is available in the market. If you compare it with any other NBFC co-brand card, this will be much more beneficial if you talk about the customer-centric approach.

In terms of understanding, what is the organic percentage for acquisition, I mean , in your disbursements how much is acquired organically today and what is the target there? I got the secured and unsecured bit. Given that all your other channels have started firing or are about to launch, what is it that you see over a two-year period?

Correct. Over a two-year period 100% will be organic. That was our strategy initially to do the co-lending and then we stopped onboarding the new customers from September onwards via co- lending. Now, in digital we have done almost ₹ 3,600 crore on the cross sell, on the direct side, we did almost ₹470 crore, DSA was almost ₹ 1,733 crore, then the remaining partnerships, so, total almost we did ₹8,731 crore. Right now, if you see, overall organic is almost 80%-plus. And with the guidance of 35-40% AUM growth instead of 58%, 60%, two years down the line it will be 100% organic. But initially, we tested the customer, and we onboarded the customer and we gave them short term to medium term and long-term loan, and we have started cross selling. So, now everything is in place. We have gone digital across all the products . We never thought we would be able to reach 80%-plus at such a short span of time.

With your secured book at 60% and with our scaling now in size, does the model of sourcing you think still remain the same mode of fintech or we'll see more branches coming to play?

We focus on top 100 markets, and we are increasing our market share in these markets, and the guidance is only 35 -40% considering the low base . We believe that overall there is enough headroom to grow there. The segment which we are targeting , as I said , they are getting user experience, they are getting practical approach and cash flow-based lending approach like NBFC and fair practice, zero prepayment and rates like a bank. So, mix of secured to unsecured is not changing drastically to call for any physical distribution change. Even on the P oC side, LAP side, we have started call center and are digitally including cross selling. We are targeting entire products digitally. So, we don't require any additional branches , unless we cross ₹50,000 crore loan book and the current manpower also , if you see, we are one of the best in the industry in terms of productivity . We have crossed almost ₹10 crore AUM per employee, and with this current employee base, and with the current branch infrastructure, I think till ₹50,000 crore we don't see any challenge . And as and when required, we can always grow the branches, we can grow the manpower step-by-step, but I don't think so for next two, three years there is any need.

If you can talk about the competitive intensity right now in the consumption lending space, how is that looking post the risk weight changes?

I think this is much more beneficial to Poonawalla. If you see our leverage is 1.5 and the capital adequacy is 38%. A very few players are offering . If you see the slide #9, we have actually demonstrated this very well in terms of each of the parameter s in terms of loan amount flexibility, collateral-free loan, quick turnaround time, 100% digital process, low hidden charges, low interest rate, zero prepayment charges, flexible tenure, and minimum document. So, it is a combination of so many p arameters. This is what I call as the ethical lending with a unique product proportioning and customer-centric approach. So, I think there is a huge opportunity for a player like us who has capital risk management practice and entire digital is in place , I don't see any challenge. We discussed it multiple times in the investor call in the past also. We are not in a competition with any of the NBFCs. As of now, we are competing with only top three private banks. Because in terms of distribution, technology and in all the other parameters, now I think we are at par with either top three bank s or top three NB FCs. But, in terms of fair practice, in terms of rate of interest, i n terms of unique product propositioning, I think there is no competition, because it will take time to copy this business model , it requires ethical lending mindset to target these kind of segments and we further get right to select in this kind of a market. In terms of capital challenges, it is an opportunity for us. A lot of other NBFCs with a leverage of above four, they're reducing their unsecured loan. And despite the sale of housing, we are able to maintain 50 :50 secured a nd unsecured. So I think whatever circular we have got from the RBI, we will welcome all the suggestions and whatever tightening norms are there. I think last quarter also somebody asked a similar question much , much before this RBI circular and we said the same thing. I think Poonawalla Fincorp will be more beneficial as compared with any other player in the market for any tightening of the norm, because from day one, I think, we are completely aligned on all these circulars, and we are following most of the norms like a bank. So, there is no impact of any of these circulars till date on the Poonawalla Fincorp.

We will have our next question from the line of Renish from ICICI. Please go ahead.

Sir, congratulations on the good set of numbers, just two questions. Once, again, sorry to circle back to the RBI circular. But if you look at the commentary, whether it is on the risk weight side, the NBFC lending or banks or whether it is a commentary on the unsecured loan growth side, is there any implication on Poonawalla, either in terms of higher cost of borrowing or moderation in growth?

Just now few points I've explained to Kait av also. RBI has shown concern around unsecured lending for consumption purposes and specifically in certain ticket sizes. See, the regulator wants this to be rationale and put-up practices to be followed. In this backdrop, the risk weight on this asset classes were increased and there has been tightening of credit to institutions solely focusing on th e segment. We have a very well diversified product base, and we don't have any large concentration. We hardly have any leverage and with debt-equity of 1.5%, capital adequacy of 38% against the regulated requirement of 15%. We have a healthy portfolio mix where secured constitutes 52% and unsecured constitutes 48% and we will be able to maintain 50:50 as per our guidance. On unsecured side, we have a good balance of MSME . Unsecured does not mean forming the largest component of our book. The impact on our capital a dequacy of the higher risk weight was 220 b ps for us and we are sufficiently capitalized. So , as we move ahead, we will continue to grow across segments while exercising due caution. And we don't see any cost of borrowing impact also, reason being, we are CRISIL AAA rated, and leverage is 1.5, lowest in the NBFC segment. So if you see in QoQ basis also, hardly there is a 1 bps impact. Still, there is a legacy borrowing left of around ₹300-400 crore which is at a much higher rate. Technically speaking there is almost a decrease in the borrowing cost, or it remains flat. So, we don't see any challenge there as well.

Secondly, I'm referring to slide #15 of the PPT. When we have disclosed the legacy book data as on December '20, can you just throw some li ght like say as on December '23, how much of the legacy book is still there on the balance sheet? And in terms of the 1.3 , 1.4% gross NPA, how much of that is still coming from the legacy book?

Basically, if you see the legacy book now, we have mentioned the AUM breakup also. From the AUM side, now, only DA and the legacy book is left. See, in slide #24, discontinued legacy plus DA is ₹ 1,822 crore which is 8% of the total book. Out of that, DA was acquired book and legacy now is less than ₹ 200 crore. Maximum we have, either written off or we have provided. That is one. Secondly, if you see the net NPA of the new book is just 0.23% and the remaining NPA of the legacy discontinued book is 4.88%. So , on the co-lending partnership side, the GNP A 90- plus is 1.76%, net NPA is 0.93%. However, we are not incurring any losses here because it is backed by FLDG. In case of new origination, the GNP A is 0.42% and net NPA is 0.23%. The new book is performing well. We have almost completed three years post-acquisition. Then, if you talk about the discontinued plus this legacy and acquired book , their GS3 is 9.04% and net NPA is 4.88%. That's why because of this 9% of GS3 net NPA of 4.88%, you see the total comes to GS3 1.33% GNPA and net NPA to 0.70%. Otherwise, let us talk about new book which we originated, it is 0.42% and 0.23% against our given credit cost guidance of anything between 0.8% to 1.2%. Because of our strong risk culture in the organization, the new book is performing better than our expectation.

While you touch upon the operating leverage part, but if you can just explain us this 4% cost to aside settling it or let's say in the next couple of years?

Currently it is around 4% in Q3FY24, which was 4.18 % in the last quarter and 4.38% in Q1 of FY24. If you see the similar period Q3FY23, it was almost 6.06%. This 4% also includes the ESOP cost of almost ₹ 22 crore. Basically if you see , 0.45% is the ESOP cost. So, already we are at 3.5% without ESOP. Considering this next financial year, you can expect on a yearly basis, OPEX-to-AUM, it will be less than 3.5%. And this is despite of one -time cost , so many consolidation costs, a lot of digital and the IT cost. So, I think we have achieved better than our expectations.

We will have our next question from the line of Sameer Bhise. Please go ahead, sir.

Just two quick questions. We have seen strengthening of the board with new induction. Do you think there are any more changes possible from an executive side? And secondly, can you comment on the credit cost outlook?

So, on the management side, last quarter , we inducted Executive Director, Mr. Sunil Samdani. And since we are growing, it is an ongoing process, we will recruit additional senior people as and when required , and we will strengthen our board who will help us s ail through our next phase of growth. On the credit cost side, we have always guided anything between 0.8% to 1.2% on a steady state basis.

My first question was that as you put on in slide #27, and as you mentioned in your commentary, you become a meaningful player in the pre -owned car market. So, how do you see this part of the business growing further? And other products, specifically the digital-led product innovation that you're pointing to, how is that looking, sir?

Overall growth for us has come significantly from the gain in market share of the existing products. But, over the last two quarters, we have become a significant play er in the product segment that we operate. For example, in pre-owned market also, now share is almost 5% on an incremental disbursement basis. With the same share, we are in business loan and loan against property. We have crossed ₹225 crore in pre-owned car on a monthly basis. In business loan, we have crossed more than ₹250 crore on a monthly basis. Loan against property, we have crossed ₹350 crore. Loan against property, we operate only at 40 branches. Business loan around out of 60-70 branches and pre-owned car is also around 60-70 branches. So, there is still enough room available. Road map clear cut . We can see we will take a major market share in the top -100 branches and that's why we are confident that the segment which we are operating in, there is a huge demand and within 100 branches itself we will try to increase major market share across these three - four products, and again on the consumer side also , now we have completed the digital transformation. You will see in the next two year s the huge transformation on the consumer finance side also because we will increase the market share there as well.

Just adding on to the point on the transformation bit that you just put forth, the transformation in the past two years has been absolutely superb, nothing short of a miracle. Can you just explain investors in brief, I mean, I would just like to understand how did you do such a quick turnaround for such a good amount of transformation that happened?

I think I will say the strategy. Poonawalla Finance was unlisted NBFC of the group. So, we have learnt most of the things there in Poonawalla Finance all the unsecured product, personal loan, professional loan, and business loan, and post-COVID we have come out with a different skill set altogether. We recruited if you see our all-senior team, those who are with us, they all come from Poonawalla Finance. Therein, the equity was more than ₹ 900 crore and we wanted to scale up at a pan-India level . And then we got this Magma opportunity, and then because of t he collection in front, and so many other reasons, we acquired this. Considering that, if you see, we have very strong strategies in place , again unique proposition which is a combination of , we always say, fintech backed NBFC. And because of this , unique business model , technology, system, process, risk management, risk culture, people , the speed of execution, the innovation, and the vision of the management. There are so many reasons, I think we have never expected, even at our level, that we will be able to transform so quickly. Now , 80% of our total time we have given to resolve the existing consolidation, legacy issues, legacy manpower , because we acquired that entity , which was into cash collection , CV, tractor. Now we have completely transformed, and I think we're absolutely on track and you will see fantastic growth, superior profitability and good asset quality going further.

On the digital -first initiative that Poonawal la has incorporated over the last few quarters, the transformation on the digital front is yielding results. Would you like to through some color in terms of the robotic interfaces, the HTTPs, and the multiple self-service channels because I think this is one example that you gave, where Poonawalla probably stands out compared to the rest of the NBFCs pack?

Basically, if you see on all the parameter s, it is a differentiated business model and a branch- light model as well as non-conventional. So, we have well defined all the risk policies, digital - led and branch-led model that differentiates from all the conventional models. And again this model is resulting into lower operating expenses, at the same time it is enhancing our operational efficiency also. We have invested hugely on the web platform , on the app platform, WhatsApp platform. These are all giving results. On the technology and innovation side, I think from day one we have gone digital across all product s on the e-sign, eNACH, eKYC, e-disbursement, e- collection. We have been using BRE since day one, we are using algorithm-based lending risk- based pricing, we are using data analytics , one of the best in the industry supported by AI and ML and again unique product proposition also. So , these are helping us . If you see, again, it requires mindset. All FinTechs are giving superior technology but are they able to provide the better rate to the customer or are they able to leverage balance sheet properly , are they getting lower cost of funds? Other than technology, we are getting this lower OPEX and the lower cost of fund which is resulting into the segment targeting with lower credit cost and that is the result of one of the best Return on Assets in the industry.

Ladies and gentlemen, that was the last question for today. I would now like to hand over the conference to Mr. Hiren Shah for closing comments. Over to you, sir.

Thank you , everyone for joining this earnings call with us . For any further queries or communication, please write to us at investor.relations@poonawallafincorp.com.

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