Poonawalla Fincorp Limited analyst Q&A

Thank you very much. We will now begin t he question and answer session. O ur first question comes from the line of Chintan Shah from ICICI Securities.

Thank you for the opportunity and congratulations on another strong quarter. Sir, firstly, on the yield, we have started giving the disbursement yield range. So, sir, could you help me with what would be our disbursement yield for the quarter and what would be our book yield for the quarter? Just trying to understand the difference between the disbursement yield and the book yield. That's the first one. And secondly, on asset quality. The asset quality has been continuously improving. But given the geopolitical situation, do we envisage any risk to that ? And particularly, are we looking at making or did we think of making any overlay or provisions just to strengthen our provisioning in terms of any risk if it emerges, given that we are also almost 50% portfolio is uns ecured. So, in that context, yes?

Yes. Thanks, Chintan. I think let me address your second point first. I think on the credit side, if you look at , I’ll rope in Shriram, but, our exposure in my limited view, remains well within the defined risk tolerance. Internally, w e do a lot of worst-case scenarios, stress test modelling across not just the portfolio but across liabilities and a whole lot of disbursal yields. Which is why, if you notice, normally liability yields in the industry changes fast and asset repricing power is very tough to get. But in our case, if you notice the way we've built the model structurally to make it stronger, of course, we didn't know the war is going to come in, but we wanted to fundamentally make it stronger. And with that intention, you start seeing that our disbursal yield in Q4 has gone up by 40 basis points, and your portfolio yield will gradually do the catch-up. But the more your disbursal yield goes, what does it show? It shows that if you were approximately, I'd say, 15.56% was your disbursal yield a quarter before approximately. And if it goes to a 15.96% and next quarter, it goes inching higher, that means you have the pricing power in a business, which is not a very easy visible side across the industry, across any company normally. It's the strength of the construct, which it i ndicates in my limited view. And I think that's the way I would read it. We see a lot of promising increase in our disbursement yield leading to subsequently, obviously, the portfolio will catch up. But we have a healthy pace of growth in this financial year plan. And as far as the calibration is concerned, see, the very fact that we have diversified across consumer durable, gold, these are investments. And if you look at PL Prime, the digital side is giving us the first right to refuse, despite our size. Look at loans against property, we structurally do over ₹50 lakhs. We don't do micro-LAPs. We've kept ourselves disciplined on the credit calibration. If you look at education loans, commercial loans, even if you look at business loans and pre -owned cars, you'll be surprised. Unlike our overall growt h rate, which looks very high, there are products like business loan where we've asked the team to operate right now on low teens to mid-level teens on that MSME. But if you look at LAP, we are doing a healthy robust growth because it's over ₹50 lakhs. And if you look at preowned cars, which is also an industry relatively riskier, we've again said low teens. So, we've calibrated ourselves in investments and balancing of the profit so that you can sustainably grow faster. But Shriram, would you like to add something on the war side, which he's asking about and impact that you see?

Yes. As Arvind said, if you look at our assets under management, the focus is on the low -risk assets like loan against property , we don't do less than ₹50 lakhs. And we've seen that the portfolio is below ₹50 lakhs, tend to be a higher portfolio at risk, and that is a portion which we don't do. And we also focus on gold loans. Our exposure is only to the top corporates, employees where we give personal loans, education loans. So , all these assets, in my view, is that these are very less vulnerable to the headwinds in the external environment. I don't see any risk. And if you look at your GNPA quarter -on-quarter has improved, the slippage ratios have improved. My 6MoB has significantly improved, even my 90 -plus 12 MoB, if you see, there has been a significant improvement of 50% over. So, if you look at overall from a portfolio point of view, I don't see any risk here. Hence, these assets are less vulnerable to headwinds in the external environment. And hence, the management maintains a cautious optimism and continues to focus on monitorin g and recalibrating our portfolio if required.

Correct. So, we are closely watching, Chintan. I mean it's not to say that war should be ignored. Without a doubt, we're closely watching the environment. But consciously, somehow, we wanted to make a more moderate risk model. So, kind of vulnerability probably index is not the right word. Our portfolio could be a little more crafted in a manner which gives more solidity to it, but we are closely watching the environment.

That is very detailed. And so, sir, just one last question, if I could squeeze in. In terms of this 6MoB30+, it has been continuously on a declining mode, and that is around 1.05%. So, what could be a steady state number here that we would be looking at , probably at which level it could settle down?

Yes. So, if you look at , it's coming down quarter -on-quarter, as you've seen the numbers, it would be range bound. But if you actually look at the products such as gold loans, personal loans prime, all of these assets when they start having a larger share into the overall AUM, these numbers will trend downwards. So, that is something which I can tell you.

But I think you must remember one thing, like I said in the conversation, which I was speaking, GNPA normally, in my limited view and experience, normally shows you the lead indicator of what's coming ahead. So as your mix of gold will increase, you had, for example, I think I don't remember the exact number, but let's say a ₹900 - ₹1,000 crore book of gold, but you have 400 branches. So obviously, your March number would have been close to a substantial number. And you can well imagine how the contribution of gold will go up. Now you know the industry cost of gold. So, these are strategies we shared with you. Every word of what we shared over the last 23 months in my limited view has been executed precisely before or on the time. And that credibility, you can trust us that we normally keep adequate margin of safety when we talk. And of course, we are moving steady and steady. The credit cost and the portfolio, the way we stand for multiple reasons gives us fair confidence that the portfolio strength should get stronger and stronger from here.

Our next question comes from the line of Kitav from Anand Rathi.

Congratulations on a good set of numbers, sir. Number one question is on the fee income trend that has been trending very robustly. So , if you have some guidance around that, that would be the first question?

Yes, I think on the fee income side, we all, as a management team have handled fairly large businesses. So, we understand the various vectors of fee income, whether it's your processing charges, whether it's your insurance businesses, whether it's various cross-sell businesses or we plan to launch some new stuff. So, I think you will see a fair amount of strength coming in this year. As we've already done a lot of effort in launching all our businesses, things are stabilizing, distribution are stabilizing. It's becoming more a regular calibrated growth from here on , instead of a massive amount of launches that our effort went in. So, a lot of focus will go on to ROAs. And I think all of us are well aware that our fee income is a very important component of ROAs. And ROA fundamentally for any company, valuation professionally has to be given the due respect of being a North Star. I mea n I just used it to say that in our heads, a lot of our decisions will be basis on ROA because as a company also, we'll do robust profits plus investments. So that's the way we believe sustained profits get created. You cannot lower investments just to further boost profits because that's not the way sustained profits happen. But fee income between various vectors, I'll be honest with you, it's very strongly under our focus and the entire team is working on it, but there's no guidance that we give on these things. Let me have something in the back of my pocket. Broadly, we've given you everything on it.

Right. Yes, sir.

How AI and tech has been progressing so far to the best of your knowledge, where you are in that journey, if you can spend 2, 3 minutes on that, that would be grateful on what we can look forward to in the next couple of years?

See for us, AI and digital, let me put it as 2 vectors, which could give you value. On the PL prime digital side, if I share the figures with you, our entire business like a ₹480 to ₹500 crore kind of disbursement number that we are looking at, now 30% is digital. Imagine a 30% or 40% gradually becomes fully digital of this scale in a personal loan prime corporate India taking from us. This is something which we've executed. This is not something which we are trying to execute. But now how does this scale over the next few years? Business loan is calibrating SME ticket sizes. And right now, we are very, very strict on its calibration. But within 6, 9 months, once we are very s olid on that stuff. We will come up with some interesting turnaround times on the digital side of the business loan as well. We are looking at digitizing a lot of business, even if it's halfway through on the front side with the customer. We all come with distribution background. The turnaround time for us is going to be key. So that's where the digital path rest. On AI, you have to appreciate that the idea of giving you these 76 projects is to give you a sense that we haven't launched two businesses or four businesses which only did credit underwriting. Today, for example, to give you a sense of the output, a single product like a personal loan , PL prime, we are not hiring new underwriters despite our growth rate being substantially robust this year. So, we've kind of frozen our manpower last year. And because of our ability with AI and the way our credit is calibrated, we have successfully managed to grow the operating leverage there. Similarly, one by one, all products will start seeing that value. You'll have to take a product at a time and start doing it. And if you look at across the organization, whether it's a small initiative or large, you'll find th ese 76 projects bringing in a culture where whether it's a finance department doing automation, operations trying to do automation plus AI or a department like business trying to figure out which parts of it can he use AI. There's a cultural focus on the fact that we've got to create an operating leverage with both AI and digital. So, it has to be net impactful. I'm not into technologies which don't change my life yet. So, for me, every step that we take, either culturally builds our efficiency of innovation, and there will be some products which could far exceed the others on the impact. we are very clear that we'll keep moving forward with this. All these projects, I think, should give you confidence that culturally, we are extremely rich and agile as a company in these areas.

Our next question is from the line of Jay Betai with NBIE.

Congratulations on a good set of numbers. Sir, my question pertains to AI and the returns we are generating. So, if you can share some color that how are we focusing on increasing our ROA going ahead first? And second question is on disbursement. I would like to know the disbursement number for the full year as well?

Let me start with, I think the most interesting one is the ROA. ROA, I think we've taken a 1.81%. If I look at the NIMs, in my limited assessment, looking at the environment, I think our NIMs in my assessment overall are looking positive and accretive. So, I think that's a strength, which gives me confidence that we are very confident as I see through the future of the next few quarters. Right up to the 4 quarters , ROA should gradually start moving strength to strength. We don't give any intermediary guidances. But like you can see, we never gave a guidance of 1.81% either. But step by step, we are building on the businesses. I'll keep balancing investments and profits. But I see the ROAs from here on moving strength to strength for probably a couple of quarters or probably a couple of years. And I think we've reached that point that our strength is emanating out of our pricing power. If you see our disbursement pricing, 40 basis points, you're well aware, is not easy to increase on the disbursement yield side. And with the growth rate that we have, probably this year, disbursals will be one-third of our book. So , I think that will also give substantial strength to the NIMs, adding to the ROAs. We have also fairly positive despite our investments with minor fluctuations in quarter -to- quarter as you cluster the branches. But I think structurally on the Opex-to-AUM, we are hoping to reach a lower level by March end despite the fact that our Opex-to-AUM is actually substantially improved than even we had anticipated, to be honest. And it's productivities are kicking in and stabilizing. That’s giving us the confidence. Credit cost also one of the vectors, which adds to the ROAs, from here on, looking fairly robust, both by design and by calibration and I must mention by collections. We are making substantial investments in collections, both in terms of focus and technology for us to see the results. Jan to March has seen a substantial strength on the collections, and we are hoping to keep it robust. So that's, I think, one part of it you asked.

Disbursement number for the full year?

So, I think we've given a guidance of AUM of 35 -40%. We could be probably a notch better, but it depends. We'll watch closely how this environment plans out. But directionally, I think we would like to look at a 35 -40% and commensurate disbursements along with it. And that's the balance that we'd like to keep.

Just one more thing. If we see on Slide 22, for the longer-term horizon, we have some negative ALM. So, if we factor in the amount raised of ₹2,500 crores, how do we see that gap bridging out?

Thank you. That was our last question, ladies and gentlemen. On behalf of Poonawalla Fincorp Limited, that concludes our conference. Thank you all for joining us. You may now disconnect your lines.