Sammaan Capital Limited analyst Q&A

Thank you very much. We will now begin the question and answer session. The first question is from the line of Abhiram Iyer from Deutsche Bank. Please go ahead.

I just wanted to clarify a couple of points. One is on your NPA numbers, may I know what the difference is between what's declared on the financial statement that the NPA is about 3.4% gross and 2% net versus the presentation that's at 2.7% gross and 1.5% net?

Abhiram firstly, thanks to Deutsche Bank for supporting us continuously. The difference could be coming from that we report NP A as a percentage of AUM for us that is very strategically important to make sure that on an overall AUM basis, the NPA is maintained. I have shared in the past with various stakeholders that are moat as far as this business is concerned is the credit quality of our AUM. And therefore we invest lots of reams of paper of the earning update as well on just demonstrating the quality of the overall AUM. So, one difference could be that either it could be coming from the fact that we declare both stand alone and c onsolidated numbers. And in the earnings deck, we report NPA as a percentage of AUM whereas the Earnings Results filed with the stock exchanges are more statutory in nature and I believe they would be following a protocol of own book or balance sheet or so mething like that. So, I am sure my Investor Relations team can clarify that to you if it still requires clarification.

Thank you for that. The second question is on your current incremental funding costs. Can you just enquire what if you say go to the loan market or the retail market at the moment, what would you see your current incremental cost of warranty? And what does that stand versus last quarter?

So, again, I will go big picture down to specifics. We are strong believers of the fact that ultimately cost of capital can only be achieved and brought to competitive levels if there is a free flow of capital. As a Company on the asset side, the strategy that one can foll ow is either we become yield hunters because we are running a certain cost of capital or we continue to do prime loans that we do with higher yield loans as the exception and not the rule. So, when we look at our cost of capital, given our asset-light structure, we have to look at two different aspects. One is what is the cost of capital which is coming to fund the 80% of what we are funding , that number today would be in the handle of 8.5%. And then there is the cost of capital for the residual 20% that we are funding and holding on our balance sheet. For the balance sheet borrowings, we would be borrowing at about 9 .5% today. Between last quarter and this quarter, there has been an insignificant inch up or down. My sense is from the transformation to an NB FC to the name change and all of that , one is clearly witnessing post the capital raise, the flow of debt capital has become a lot more abundant, a lot more free. The quantum of debt capital on a daily basis that we are being able to raise is increasing by the passing day. So, it's a very comforting situation in that sense. We are not going and over borrowing in any particular month. We are very mindful of the ALM, so keeping all of that in mind, I would imagine that the cost of fund material decline that you will see would start emanating in 6 to 12 months from now . At this point in time, we are more focused on the quality of capital. I mentioned that we have raised Rs. 23,000 odd crores from a diverse set of lenders. That's more the focus of the Company that the borrowing mix should be as diverse , it should be coming from more and more lenders versus being skewed towards one lender type or one lender in specific.

Perfect. And just one last follow-up question. As you mentioned your quality of capital and the fact that the call monies will be called and expected by the end of this month, you are expecting basically the full amount to be garnered right with the investor base fully in sync with as you mentioned during the call with your growth plans for this year?

Yeah. So, I am pretty confident, very supremely confident that by the 22nd of August, the call window is 8 th August to 22nd of August . By the 22nd of August , the money should be in the escrow account. And then there is a process which bankers have to follow. So, following that process, it will take another whatever week or so for us to get the monies in our account that's all procedural. This in my mind is already accomplished, it's already done. What one is now working towards is seeing the commitments through which have been made to t he wider set of stakeholders, including the larger shareholders, the smaller investors through these calls, we take on targets on these calls. We take on these targets with the right earnest. It's a dynamic world. The macro keeps changing, the micro keeps changing. The risk framework keeps changing. The endeavour of management is to take on the targets and to keep it very objective. We have set these 8 milestones. We are not worrying about capital anymore. We are just concerned about how efficiently and quickly can we get and achieve those eight milestones and the goals that we have set for Fiscal ‘27 and make it as organic as possible by achieving something and making progress on every aspect every quarter.

Sir, just wanted to understand the statistical rundown of legacy book which is mentioned in the presentation multiple times. What exactly does it mean and what is the quantum of this hit that can come in?

Why do you assume of a hit? Tactical rundown means a rundown which is organic, which is well prepared for, we do it in a planned manner. We do it leveraging our provisions. We do it leveraging our capital. And if there are any provisions like we have demonstrated in the past , that even if we classify loans as N PAs or do technical write -offs, we recover those monies, so we have to do it in a time bound, organic, efficient manner and make sure that we are free from the legacy and we are able to focus and build on the Rs. 1,00,000 crore. So, I don't think anyone needs to worry about given the track record of the Company on recoveries on how we will be able to run down the book. Remember this team has from a book of Rs. 1,20,000 crores which was there as of September 2018 , from that book already collected a Rs. 1, 50,000 crores of principal and interest and use that to repay Rs. 90,000 crores to lenders. So, we know how to collect, we will continue to collect. We also have set a goal and whatever it takes to achieve that goal, we will achieve that goal. Whatever is the planning that needs to be done in terms of achieving that goal. As I've already said, we will present to you a detailed plan next quarter as to how quarter-on-quarter are we going about achieving that, keeping in mind that we also are a regulated entity, we have lenders to who have covenants as well as rating agencies who evaluate us on various capital ratios.

And secondly, s ir, any indication on what the dividend can be in the years to come or the dividend policy of the Company?

The long-term dividend policy of the Company would be to keep dividends between 30 % and 40% of profits. We have to use our capital and our earning tactically. We have said that the 8 milestones that we have laid out are what we are going to be focusing on achieving. If we are well on the way and qua rter-on-quarter we are achieving those targets. Historically , the Company has taken a lot of pride in declaring dividends. We will happily declare 30 % to 40% of our profits as dividends.

Thank you very much. The next question is from the line of Abhiram Iyer, Deutsche Bank. Please go ahead.

Just one thing on your AUM mix, obviously the commercial real estate loans has come down to about 29% of the book. May I know the split of the 29 is between project construction finance and your lease rental discounting?

No commercial real estate will be a combination of construction finance, lease rent discounting, loan against property loan and everything. So, whatever is not home bank could be here. So, don't take it as that. That's the technical definition of what CRE is. Please, if you read yesterday's circular of RBI also, they further segregate CR E as CRE resi and CRE others. So, don't go by that. I would suggest that all stakeholders and we will also change this chart from next quarter should focus on legacy book, which is all kinds of assets, home loans, loans against properties, commercial real estate loans etc. All kinds of assets which were there pre-Fiscal ‘22 and post of Fiscal ‘22, we have been following the asset-light model structure. So, it's that this is what you guys and everybody else and this is how we are also internally working there is one team which is working on run down and another which is working on scaling up the asset-light model.

Got it, Sir. So, hopefully you get that breakup next time on, but can we get it now if I ask what should..?

You can get in touch with Ramnath and he will provide you with this.

Thank you. The next question is from the line of Narayan Dwivedi, Stock Insider. Please go ahead.

My question on asset-light model. Sir, if we can lend the customer by ourselves, so why we are choosing co-lending and what strategic benefits it gives us to co-lend?

The big strategic benefit is that you are outsourcing your ALM. You don't take on the borrowing on your balance sheet. As and when the customer pays, you pay back the bank or the partner. It is not this that ever a situation can come that the customer for any reason is not paying. But the debt obligation of repayment is on you and therefore your entire business gets disrupted in that sort of a situation. The second big advantage is that the cost of funds of the 80% which are bank finances, is a lot lower than the cost at whi ch it would be willing to lend to an NBFC directly. Given this, the blended yield becomes much lower and we are able to lend to a far more primer customer, a far more, let's say higher on the credit Bureau score versus somebody who we could have lent, if we were lending solely from our balance sheet. So, given both the contribution of a very high-quality asset, as well as no ALM risk and therefore a very high-quality liability, co- lending is by far the most durable structure and it's a structure which is in line with how the western world also finances mortgages where the originator and the warehouse are different. I hope I've answered your question. I will take just one last question and then you can always send us an e-mail or something.

Thank you very much. With that, we have come to the close of the call. You can write in to the Company if you have any further question . With that, I would like to hand over the call to the management for closing comments.

So, thank you so much. Thank you for your support through the multiple rounds of capital raise and welcome to Sammaan Capital. Look forward to speaking with you all of you again at the end of Quarter 2, thank you.

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