POONAWALLA — earnings call
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Questions and answers
21:02:20 +05'30' · Research Analyst
Poonawalla Fincorp Limited
M ZAMAN · Research Analyst
MR. ARVIND KAPIL – MANAGING DIRECTOR AND
CHIEF EXECUTIVE OFFICER · MR. SUNIL SAMDANI – EXECUTIVE DIRECTOR
MR. SUNIL SAMDANI – EXECUTIVE DIRECTOR MR. SANJAY MIRANKA – CHIEF FINANCIAL OFFICER MR. SHRIRAM IYER – CHIEF CREDIT AND ANALYTICS
OFFICER · Management
Poonawalla Fincorp Limited April 25, 2025
Moderator · Conference Operator
Ladies and gentlemen, good day, and welcome to the Poonawalla Fincorp Limited Q4FY 24-25
M ZAMAN · Research Analyst
Thank you, Arvind.
Good evening, ladies and gentlemen.
The lending landscape has witnessed recent changes via regulatory guidelines aiming enhanced transparency, protecting consumers and harmonizing lending norms across financial institutions.
This, coupled with a steep repo cut of 50 basis points in the last 2 quarters, intends to boost our country's economic growth.
With this emerging backdrop, Poonawalla Fincorp is geared and well positioned from a risk management standpoint.
We are ensuring a well-calibrated AUM growth with risk diversification through launches of various products, along with consistently strengthening the existing product suites.
Now let me give you a glimpse of the asset quality.
Our first EMI bounces improved over the last quarter by more than 25%.
Sequentially, our overall credit cost, which was ₹348 crores in Q3FY25 came down to ₹253 crores in Q4FY25, resulting in a significant reduction in the credit cost by 27%.
The erstwhile STPL portfolio, which was at 21% of the total on-book AUM as of September- 2024, had come down to about 15% as of December-2024 and further, now it is down to about 8% as of March-2025.
It is important to note that 80% of the residual book is zero DPD, and we do not expect any increased stress on the residual book.
Last quarter, we had ₹520 crores of write-off in the erstwhile STPL, which included ₹163 crores of accelerated write-off.
I would like you all to take the note that there is no accelerated write- off in Q4FY25, and the policy write-off is only ₹141 crores.
Poonawalla Fincorp Limited April 25, 2025 Our overall credit cost for erstwhile STPL has come down to ₹137 crores in Q4FY25 as compared to ₹200 crores in Q3FY25.
That is a reduction of 33% over the previous quarter.
This makes it quite clear that the erstwhile STPL issue has been addressed and with significant improvement in collection efficiency, we are in control of the residual book.
As I move on, I would like to apprise you all on the key building blocks the team has focused on by re-emphasizing sustainable profitability through a calibrated risk management approach.
First and foremost, with respect to risk framework, the rigorous recalibration taken up by the risk team with month-on-month tracking and cohort level decision variations on the existing book has meticulously yielded reductions in early delinquency, and I spoke about this on the first EMI bounces earlier.
The team is closely monitoring our Prime PL 24x7 that was launched, the industry's first end- to-end digital product, which is tailored with enhanced credit swim lanes to augment the credit decision journeys.
The decision engine is supported by insights driven by alternate data, digitized information, company risk calculation and much more.
You will notice a strategic move on the secured product launches covering gold loans, commercial vehicles, education loans over and above the existing secured product, there is a clear drive to improve the secured mix in the overall AUM.
Point number two, furthering the focus on strengthening and enhancing efficiency of the physical credit underwriting framework, PFL launched an industry-first AI-powered credit decisioning aimed at boosting the credit managers' productivity by 40% in retail lending.
In partnership with IIT Mumbai, this solution combines artificial and human intelligence to automate the credit evaluation processes.
By analyzing multiple data points, the solution helps credit managers to make quicker decisions while ensuring accuracy, efficiency and scalability.
In the next phase, PFL aims to evolve the current AI functionality to more sophisticated self- learning AI model.
This will leverage powerful deep learning algorithms, enabling autonomous decision-making and continuous system improvement through pattern recognition.
Multi-modal communication capabilities will further solidify PFL's leadership position in technology-driven financial services, providing agility while ensuring the best risk management practices.
On the credit and fraud risk decisions, we are leveraging multiple solutions at a cohort level, driven by varied sources of information across credit history, alternate data, banking information via account aggregator, GST, partnership data and much more.
In-house calibrated models are augmenting the risk management framework, supporting decision around auto rejection, differential credit swim lanes, higher deviation authority, exposure limitation and pricing.
The analytics team has institutionalized a process of continuous model recalibrations used at various decision points across different products to align the evolving product mix.
Given the Poonawalla Fincorp Limited April 25, 2025 complexity and the velocity of data being utilized, the teams are moving the design structure from traditional models to machine learning algorithms.
Finally, our pivotal transformation initiatives in debt management have significantly bolstered our confidence.
So let me detail some key initiatives already deployed in debt management.
A.
On the collection side.
Our in-house analytics capabilities have enabled us to design and deploy sharper machine learning models to assess not only repayment propensity at the borrower level, but models to identify optimal channel of customer engagement across the customer collection life cycle.
To be specific, at the early bucket stage, sizable proportion of the customer cohorts are engaged digitally only for resolution, supporting cost-efficient channels.
B.
Technology synchronization with business goals has supported monitoring near real-time portfolio performance, giving agility to take corrective intervention on the go and this is extremely important area in the debt management practices.
Well thought through views of key input and output metrics get refreshed almost every 30 minutes.
These dashboards are clickable with actionable insights, enabling even the ground level collections team to make timely, data- driven decisions and optimize performance at every stage.
I am humbled by the pace at which our collection team has adopted some of the best-in-class technologies to improve productivity, speed and precision to connect with the customer.
Our digital collection campaigns are getting sharper to balance the cost of engagement versus payment performance metrics.
We have introduced campaign management tools, allowing us to orchestrate digital and telecalling campaigns without human intervention, saving critical product time and ensuring error-free strategy implementation.
We are also monitoring our digital campaign performance in real time, refining our deployment plans with multipronged personalized strategies.
Additionally, we are in the implementation of humanless field agent allocation system that reduces the time taken from 3 to 4 days to under a few hours to complete allocation.
As of now, we are the ones who are going to implement that, enabling faster customer engagement post delinquency across digital, tele calling or field channels.
Centralization of standardization of the processes reduces subjective decision-making and human errors, thus ensuring fairness and consistency.
This data-driven approach blended with digital process adoption optimizes resource utilization and efficiency, and that's where we will be able to bring in resource management.
Lastly, GenAI is enabling us to monitor the call across agents with a focused scorecard and training guidance, replacing traditional limited manual sampling process.
The scorecard provides insights into engagement quality, identify areas of improvement and drive targeted upskilling.
This reinforces compliance and accountability across the collection engagement channel, and this is extremely important in collections.
Now over the next few quarters, we will be moving towards the adoption of a few advanced workflows, and I want to cover this.
Poonawalla Fincorp Limited April 25, 2025 1.
GenAI-based actionable using near real-time performance insights for our line management teams.
Managers will be able to sharpen their focus on areas requiring immediate attention by concentrating on micro cluster on the leaderboard.
2.
Digital adaptation of state-of-the-art legal module.
This will enable us to initiate paperwork digitally and monitor the impact of legal recourse in real time.
This will reduce the long processing time due to manual efforts and enhance the seriousness of such actions for delinquent borrowers.
The campaign management engine that we discussed earlier will autonomously consume and analyze data across every customer interaction, including digital communications, tele-calling, field operations and legal actions.
The tool will determine the best action for each customer without the need for manual intervention.
This is an enabler for the strategy team to deploy 100+ micro strategies that are aligned with the customer profiles, preferred communication channels and optimal engagement timings.
As I conclude, I would like to share that we are excited about the future, and we are confident in our team's ability and unwavering commitment in continually delivering remarkable results by leveraging the tech advantage and focusing on risk-first principle.
Thank you and I would like to hand over to Sunil Samdani.
Thank you, Shriram, and good evening, everyone.
Let me take you all through the quarterly and full year financial highlights. • The Assets under management stood at ₹35,631 crores, reporting strong growth of 42.5% YoY and 15% QoQ with good momentum across all our product lines. • In terms of our AUM mix, contribution from MSME was 36%, followed by personal and consumer finance at 23%, loan against property and pre-owned cars at 24% and 14%, respectively. • Our on-book secured to unsecured mix was 57:43 compared to 54:46 in previous quarter and 49:51 in the same quarter last year. • In line with our debt strategy and projected AUM growth, we have further diversified our liability book with focus on long-term funds.
The share of long-term borrowings has gone up by 207 bps QoQ. • Going forward, the share of long-term borrowings is expected to improve further with greater focus on NCDs.
In fact, in April of 2025, we've raised ₹1,525 crores through NCD issuance subscribed by top 5 mutual funds and a bank.
The share of variable rate borrowings in our total liability stood at 70%, which puts us in the advantageous position with the declining interest rate environment envisaged. • Our Net Interest Income for the quarter stood at ₹715 crores, up 12% YoY and at ₹2,708 crores for FY25, which is up 23% YoY. • Pre-provisioning operating profit (PPoP) during the quarter was at ₹333 crores, as against ₹373 crores last quarter.
The PPoP in the quarter was lower due to investments in new Poonawalla Fincorp Limited April 25, 2025 businesses and the change in mix with bias towards secured book.
The PPoP for FY25 was ₹1,417 crores, up 2% YoY. • Opex-to-average AUM was 4.8% for the quarter and 4.6% for FY25. • During the quarter, the credit cost reduced by 27% QoQ at ₹253 crores against ₹348 crores in the previous quarter. • Our profitability has continued to improve in the quarter with a profit after tax of ₹62 crores as against ₹19 crores in Q3FY25. • The asset quality remains stable with GNPA at 1.84% and NNPA of 0.85% for the Q4FY25. • The provisioning coverage ratio stood at 54.47%.
Cost of borrowing remained flat QoQ at 8.07% despite an increase in share of long-term borrowings. • Our debt-to-equity ratio stood at 3.2x.
This gives us enough headroom for our growth. • Our capital adequacy continues to be healthy and comfortably above the regulatory requirement at 22.94%, of which the Tier 1 Capital is 21.67%. • The LCR, the liquidity coverage ratio stood at 126% as of March 31, 2025. • On the liquidity front, we remain comfortable with positive cumulative mismatch across all buckets and a surplus liquidity of ₹4,686 crores as of March 31, 2025.
Thank you, and I would now like to open the floor for question-and-answer session.
Moderator · Conference Operator
The first question comes from the line of Roy Menes from Flagpoint Capital.
M ZAMAN · Research Analyst
So just 2 questions from my side.
The first question is that, obviously, we are seeing a significant divergence between the asset AUM growth and the NII growth.
Can you give us a guidance or some sort of indication in terms of how will it trend going forward?
Because I'm assuming that you are investing in secured businesses, more prime customers, et cetera, because of which the divergence is quite high.
But FY27-FY28, how would it trend is something that I wanted to ask was my first question.
Arvind Kapil
Yes, I think not a specific guidance, but I'll give you an answer, which will give clarity.
AUM growth because you see a diversification and our acceptance in the market of distribution.
So, we are sticking to whatever guidance we have given on the AUM growth.
It is moving better than expected, and it should continue on a robust scale from here on quarter-on-quarter.
Now why you find a difference in NII?
Because if you recall, I had said that the earlier STPL, which was at a very high rate, which was creating a high interest- NII at that time or boosting it.
We had for 6-7 months, slowed it down considerably from 1,000 to 150-200 levels and recalibrated it.
But over the last 2 months, it started to inch upwards because the bounce rates there have actually improved considerably to 1/3 level.
It's a very robust business for us now and we have now started calibrating it upwards.
So, the future guidance is, it's going to inch upwards, but we're not giving any specific number to it right now.
And that gap will start getting narrower, and it will be a strong strength for us because we managed not only to calibrate it well, it's actually turning out to be a big strength area for us from here on, not just for 1 year, but probably for a couple of years.
Poonawalla Fincorp Limited April 25, 2025
M ZAMAN · Research Analyst
Sure.
That is helpful.
My second question is, obviously, this year, the credit costs have been elevated.
Again, I wanted to understand, I think I missed this part, what is the write-off for the full year?
And for FY27 and even FY26 because that might be a stabilizing year.
For FY27, any guidance on the credit cost and full year write-off number, if you can share that?
So, our full year write-off numbers are ₹1,548 crores, and however, if you look at the Q4, the write-offs have significantly come down as compared to the write-offs which we have done in 2Q2FY25 and Q3FY25.
Right path in terms of credit costs?
So, see, in the last 10 months, all our credit underwriting for incremental businesses, which we have risk recalibrated, every signs are showing better than industry trend.
However, I would like to see the seasoning it out in the next 3 to 6 months before we put it out as a regular information to all of you.
Arvind Kapil
Just to give you a sense that every business that we have come in after the 10 months that we've been here, the calibration is showing better than industry across products.
So, we are very clear because risk first is not just English for us.
This is the way the business, we not only have capability to grow AUM, we have very serious capability to conduct risk railroads well calibrated enough that you will see scale of business and risk well calibrated.
So, this area, as an MD, I can tell you that we'll only get better and better, and we'll probably strive to be the best- in-class on risk.
Moderator · Conference Operator
The next question comes from the line of Chintan Shah from ICICI Securities.
Chintan Shah
So firstly, on the Opex piece, I think strong growth on Opex-to-AUM has also inched up for this quarter, and we have guided that it would be higher for another 2 quarters post it, it settles down.
So, any broad ballpark number on what could be the prudent level which we are looking at Opex would settle in this ballpark rate?
So that would be helpful on that.
Yes, first is on that.
Arvind Kapil
See, Chintan, sorry, you finish.
Sorry, I thought you finished, sorry over to you.
Chintan Shah
Sir, should I ask all together?
Arvind Kapil
No, no, let me answer the operating cost piece first, you can ask your next question.
Would that be fair?
See, on the operating cost, we've already guided for around ₹50-odd crores a quarter.
Now the minute you launch 6 businesses, and you launch 400 new branches, there will be a temporary percentage to AUM increase, while our AUM is going to be very robust.
But as a direction, a year down the line, which means March, 12 months later, we are internally aspiring to see a decline of the operating cost to the percentage of AUM.
So, I've set a prudent measure, prudent levels reflecting operational efficiencies and scale.
Internally, we put on ourselves that we probably should be in a position to have an operating cost with a slight declining trend.
2The reference stands corrected to ‘the write-offs which we have done in Q3FY25’.
Poonawalla Fincorp Limited April 25, 2025
Chintan Shah
Okay.
Sure, sure.
And secondly, on the capital, if I look at the capital consumption, so we have almost consumed 1,100 bps capital during the year.
And now we are around 22% on capital adequacy.
So, in this year, can we see, given the strong growth momentum which you're looking at and the limited ROE profile, do we expect any fundraise in the near term?
Arvind Kapil
I think if I look at the crystal gaze, and we probably would look at early next year.
Chintan Shah
Sure, early next year means calendar year, yes, right?
Arvind Kapil
Yes.
We'll see calendar or financial year.
Chintan Shah
Okay, sure.
Arvind Kapil
We're not giving any guidance on that, Chintan, let's just keep that open.
Chintan Shah
Sure, sir.
That is fair.
And just lastly, on this environment, if we see many players, they have been reporting some inch up in the asset quality in some line there.
But given that we are growing at a very stronger pace and getting market share, so do we see any risk to our growth or probably if things are to go back, do we trim our loan growth estimates from here on?
Could that be a possibility?
Arvind Kapil
See, if you look carefully at the minute details other than the fact that this management team has a fantastic credibility with the distribution, which is playing out very well with our growth.
We are also, if you notice carefully investing in digital journeys.
We're investing in 24x7, across the salaried, we're working on something on the business loan, which are probably the first of its kind.
We've launched 6 businesses.
All these 6 businesses, even if you look at the base effect, you might see the percentage of AUM growth on the robust level and the whole idea of diversification was, one, from a risk perspective, which is priority one.
When you have 10 to 12 products, the diversified risk is substantially more manageable at all times in years to come.
And the second is if you want sustained profits and sustained growth, you need a representative pool of businesses to help you grow.
So, our confidence is that the base we are at and the kind of products we have launched I think the guidance is, if you notice also, Chintan, every guidance that we gave even 10 months ago, despite the multiple challenges, as a team, I think we've stood by or exceeded most of them.
And that's going to be our endeavor from here on as well.
We see robust growth ahead.
And I think if the economy is operating at healthy rates the way it is right now, I don't see any concern.
Chintan Shah
Sure.
And just sir, lastly...
Arvind Kapil
The asset quality -- gets stronger, both on the quality of risk and asset building.
Chintan Shah
Sure, sir.
Poonawalla Fincorp Limited April 25, 2025
Arvind Kapil
Sorry, over to you.
Chintan Shah
And just lastly on the ROA for FY27. So, any ballpark range on what kind of ROA are we looking for FY27 or FY26, given that it would be a robust year?
And the ROA range probably for the secured business and the unsecured business, if you could just give any ballpark ranges that would be helpful.
That's it from my side.
Arvind Kapil
See ROAs will, in my view, keep improving because remember one thing I've said that our new STPL book also, we've started building, which is fairly decent ROAs.
Our business loans are moving up quarter-on-quarter.
So, I think we are very optimistic.
I've given a clear guidance of 3%-3.5% in 3 years from the day I joined, it's 10 months gone, so you can subtract and do the math.
We are looking at 3%-3.5%.
So, I think you will, at some point, start inching upwards.
The AUM, I can assure you, are all being constructed at 3-plus percent ROAs and fairly robust sensitive to the ROA models that we are trying to build.
So, I think it's more about mixing of the portfolios and gradually with every quarter getting better.
Chintan Shah
Sure, I think this is very helpful, yes, so I think that's it from my side.
Arvind Kapil
Even our guidance for profit for FY26-27 looks clear and strong, which we had given last quarter.
I'm just reassuring that it looks fairly on robust scale.
Chintan Shah
Sure.
This would be largely on the back of lower opex and improving credit cost, right?
Arvind Kapil
Yes.
So opex in 4 quarters, I think, we should measure of that opex in my limited view every March for the next 5 years, and we'd like to keep an efficiency improving every year.
That's going to be our internal passion, internal what we assess is something we could pull off.
And I think we are working on a very well-calibrated model and fairly tightly measured.
And every step that we take, we are trying to make sure that our commitment stands strong.
Now with 10 months, you can measure as well on all the commitments we gave and what we've achieved so far.
Moderator · Conference Operator
The next question comes from the line of Abhijit Tibrewal from Motilal Oswal Financial Services Limited.
Abhijit Tibrewal
Just wanted to understand 2 things, sir.
First thing first, I mean, how are we thinking about distribution?
I recall when we had put out the press release for the launch of our gold loan business, we had spoken about, I think, 300 to 400 branches that we plan to add.
But how are we thinking about approaching the distribution for the other 5 newer businesses that we have launched?
That's the first question.
And the second thing is, sir, when you joined, you had spoken about opex to the tune of about ₹50 crores higher for the next 6 quarters.
Is it going to be the same trajectory?
Or are we looking at maybe accelerated opex for the first few quarters and which is where we talk about opex to AUM declining significantly by the exit quarter, Q4 of this fiscal year?
Poonawalla Fincorp Limited April 25, 2025
Arvind Kapil
All right.
Let me start with your second question because I gave some color to it just some time back.
I think on the operating cost, it might go slightly higher in the next 2 quarters, and then it will start tapering down is my assessment.
And like I said, Q4 this financial year, we should be able to get fairly prudent levels vis-a-vis this March to next March, and we should be on pretty solid expectations in terms of efficiencies and scalability that we are trying.
That's one.
Your first question was regarding distribution of each of the businesses.
See, each of the businesses, if you see carefully, has a very distinct distribution.
For example, branches which we are opening are going to be gold loan branches.
So even if you see these branches, they have a headline of gold loans.
So, they're going to be focused gold loan branch.
If you look at each of the business, consumer durable is more at a point of sale.
We are focusing on Tier 2, Tier 3 cities.
And we've received very robust feedback and promising start that we've had.
Our risk calibration is very tight.
So, at the point of sale, I've said around 10,000 to 12,000 outlets is what I'm looking at within the 4 quarters.
It will give us massive visibility and business.
If you look at Kirana stores, it's going to be shopkeeper loans.
We could have 1 to 3 people depending on the catchment running a unified direct channel, just sitting there, not customer- facing, but utilizing the space for business loan, LAP and Kirana store, which we will utilize it for good ROA combined business.
And commercial vehicle, obviously, the business runs at dealerships, and that's the point of sale like you have consumer durable dealers.
Commercial vehicles, we've given you an idea about a couple of them that we've already started business in a robust manner, and we are scaling that up.
So similarly, I think each business has a very precise plan.
On the personal loan side, we are focusing a lot, not only on the DSA network, but we are very excited about the 24x7 product for top corporates and the scale we are building.
So, as I talked to you, we're already seeing business happening every month on an end-to-end fully digital.
And if you see the micro details of the industry, most banks, or for that matter, most of the industry players are not able to pull this off.
At Poonawalla Fincorp, we've already managed to walk this road for an external customer.
And like I said that one of the biggest strengths of Poonawalla Fincorp will be using digital journeys, risk-first approach, risk analytics and AI, in our assessment of external customers with technology.
I think that's going to be a very strong tech competing edge for us.
And this is not a theory anymore.
We can see this monthly, daily, business run rates have started kicking in.
So, I hope that gives you a quick sense.
Abhijit Tibrewal
Sir, and just one follow-up on the?
Arvind Kapil
I said we are not seeing any surprises.
We are on course to what we decided to achieve and whatever guidance we are giving you, seems to be we are walking that road.
Statistics will all fall in place as long as we keep galloping on whatever we are promising you.
I see that as a Poonawalla Fincorp Limited April 25, 2025 strength.
Now with 10 months down the line, it's much easier to see ahead.
It's a clear road ahead for us now, the way I see it in my limited view.
Sorry, over to you.
Abhijit Tibrewal
Got it.
Got it.
And sir, just one last question that I had on the opening remarks that we gave.
I think during the call, we shared that 80% of the residual STPL book is now zero DPD, and we are not expecting any additional stress from the residual STPL book.
So, suffice to say that, I mean, going forward, maybe in the next couple of quarters, there will be no accelerated write- offs or higher credit costs coming out of the residual STPL book?
Arvind Kapil
I think if you carefully go through the transcripts of what Shriram explained, 2 things in my understanding, which we look fairly confident on.
One is we've not done anything which is called accelerated write-offs.
We've just had normal flows.
There's been no surprise this result per se in terms of the way we move quarter-on-quarter in terms of whatever guidance we gave and whatever confidence so far we've been exuding.
I think the worst is behind us in a limited sense, he told you the credit cost technically in the quarter is visibly down.
He said 80%, if I'm not mistaken, is looking zero DPD of a book, which is probably 7.9% or 8% of the total.
So that used to be, I think, 24%, 22% or something.
M ZAMAN · Research Analyst
21%.
Arvind Kapil
21%, and it's down there, and I'm expecting that to rapidly reduce as we proceed in this quarter.
And I think, I heard him say that this is -- we look totally in control.
And I think collection efficiency is rapidly improving.
And I think the best test is you've seen the credit cost decline itself probably validates that.
To answer to your question, I think the worst is behind us.
And like I said, the horses on the courses.
And I think we're galloping with a clear view ahead is my assessment.
Abhijit Tibrewal
Got it, sir.
That's all from my side.
And I wish you and your team the very best.
Arvind Kapil
Thank you so much.
Moderator · Conference Operator
Ladies and gentlemen, we take that as the last question and conclude the conference of Poonawalla Fincorp Limited.
Thank you for joining us, and you may now disconnect your lines.