SAMMAANCAP — earnings call
The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.
Prepared remarks
Moderator · Conference Operator
Ladies and gentlemen, good day and welcome to the Indiabulls Housing Finance Q4
Questions and answers
Now just to put some numbers in perspective
Over the course of the last five years our balance sheet which was at the end of FY2018 at ₹ 1,32,000 Crores has rundown by 43% to ₹ 57,000 Crores and that is the quantum of repayment that we have done so the balance sheet is now at about ₹ 75,000 Crores down from ₹ 1,32,000 Crores.
This has all happened by loans coming back and is thus reflective of the asset quality of our borrowers to whom we have given loans as of FY2018 and thereafter.
Loan AUM is down by ₹ 54,000 Crores again by about 45% but what is interesting is that despite the facts that we have done a ₹ 10,000 Crores classification of loans as either NPAs or technical write-offs, our network has gone up 30% in the same period by over ₹ 4,000 Crores from ₹ 13,400 Crores to ₹ 17,316 Crores.
Even last year from March 2022 to March 2023 the network has gone up by over ₹ 650 Crores, while our balance sheet was still down by about ₹ 7,000 Crores.
So, net- net the important thing is that despite NPAs which were down despite the cleanup that we have done and the recoveries which have happened, we are still expecting further recoveries of ₹ 2,500 Crores in the next six quarters and this enhancement in net worth and this management of asset quality has happened in an environment where we have undergone 15 inspections by regulators and other statutory auditors Since October 2019 we have been going through a concurrent audit by our lenders of every rupee in and out of the company.
We have fully adopted a much stricter NPA recognition and upgradation policy.
We have gone through COVID, we have gone through a period of unprecedented liquidity squeeze for non-banks as well as the real estate sector and despite that not only have we increased our net worth by ₹ 4,000 Crores we continue to recover and recover handsomely and year- on-year we have grown our retail disbursals to 2.5 times.
We have gone through a perfect storm much more than the most stringent stress test and believe now that FY2024 should be a period where we reorganize, rebrand and restart the growth journey such that we can get back to a respectable ROE over the course of the next three years.
Through this period and even recently our engagement with the rating agencies continues to remain positive.
All of them have only recently revalidated our ratings.
To conclude, as we shift further and further towards co-lending on the retail engine scales up, we believe there is a large opportunity of doing co-lending on the wholesales side also and we are creating dedicated vehicles for that.
We believe Indiabulls Housing having done scaled up business of home loans, LAP loans as well as wholesale loans is in an unique position amongst NBFCs to take advantage of the emerging opportunity and thus we should be able to grow our retail AUMs, we should be able to grow the assets and the management of our AIF and target a 3%+ ROA very shortly.
Indiabulls Housing Finance May 22, 2023 This was the update for the quarter.
We are now open for questions.
Moderator · Conference Operator
Thank you very much.
We will now begin the question-and-answer session.
Ladies and gentlemen, we will wait for a moment while the question queue assembles.
The first question is from the line of Craig Elliot from NWR.
Please go ahead.
Craig Elliot
Good evening, Sir and thank you.
Congratulations on the excellent results.
I am especially excited about the turning point that we have got up in this previous year and the growth in the new business more than makes up for the rundown of the legacy business so congratulations especially on that.
My question has to do with slide 10 the asset quality is excellent, and we talked a lot about the old book I see that we are now seeing about 0.1% delinquency 90 plus days what do you think that number looks like through an entire cycle higher, lower or how do you perceive things developing things?
Gagan Banga
Yes, thanks Craig for the kind words.
To answer your question the way that through the cycle the retail asset typically performs is that in about five years from origination home loans will settle at somewhere between 1% to 1.5% of the disbursed amount as NPAs and retail SME loans will be about 100 basis points higher to that but these are 90 days past due numbers at peak and then the recoveries start and eventually the loss given default is only about four to five basis points since all of these loans are secured and the recovery process takes about 12 to 18 months after the loan gets classified as an NPA.
So what is 10 basis points this is on concurrent basis.
If you look at it on a static basis this will probably be closer to 20 basis points, this is a book with a blended average of about 12 to 14 months on our book.
By the time it is 60 months on book it will get to between 100 to 150 basis points and then we will start the process of recovery on the static book, and we will start recovery.
The wholesale piece where we are not incrementally doing a lot of business, we are doing only a little business through the AIF there typically the delinquencies will go much higher they will go as much as 7% to 8%, loss given default will be about 1.5% to 2%, but as I said there the pricing power is such that you still make about 5% ROA.
The ₹ 10,000 Crores of write-offs and NPAs that we took we expect that through the cycle over the next further three years or so the total recovery will be between 60% and 70% of that 25% has already happened over the next six quarters 25% more will happen.
We got delayed by almost three years in the whole process because for three years, two years of COVID and then certain forbearances continued by the courts, etc., recovery proceedings practically came to a standstill since the Repossession Act in India was put on in a band but it has been about eight months that we are being able to again restart all the recovery proceedings and we are already seeing a good traction on that so these are broadly the numbers which will play out through the cycle.
I hope I have answered your question.
Indiabulls Housing Finance May 22, 2023
Craig Elliot
Thank you very much and all the best.
Moderator · Conference Operator
Thank you.
The next question is from the line of Rishikesh Oza from Robo Capital.
Please go ahead.
Rishikesh Oza
Thank you for the opportunity.
Sir, my first question is regarding the loan book growth.
So when exactly will we see the loan book regrowth stop at some point and how can we grow the loan book in FY2024 and FY2025?
Gagan Banga
So, my sense is that by the Q3 of this fiscal year, the next two quarters our retail disbursements will average at about a disbursal of about ₹ 800 Crores to ₹ 900 Crores a month in the second half it will average at about ₹ 1,300 Crores to ₹ 1,400 Crores a month.
The moment it goes about ₹ 1,200 Crores to ₹ 1,300 Crores or higher per month we will start regrowing, net off the money that come back from retail as well as on the wholesale side so for that to happen unless we get some opportunity of being able to very profitably do some large scale disbursement for which we can also raise the right kind of capital which will not come from banks which has to come from other sources on the wholesale side so apart from that which is more opportunistic at this age and not strategic over the next six months I would imagine that we will be flattish in the next six months.
From a sharp decline we have kind of flattened out over the last six months.
Over the next six months we should remain flattish and in the second half as we reach disbursal numbers of about ₹ 1,200 Crores to ₹ 1,300 Crores a month, we should be able to start growing on a net basis.
Now if the co-lending platform on the AIF side is to grow to the level that I fully see that the opportunity is there then this can happen much faster perhaps by a quarter or so not that much faster.
It is something that we will start working on in terms of net disbursals in Q1 itself we have done small business in FY2023, whatever we did in FY2023 we will do as much as that in Q1, Q2 we will accelerate more and then by Q3 some of the partnerships that we have stuck even on the wholesale side should start approving the loans that we are proposing to them.
The typical approval cycle by a fund for any wholesale type of a loan is around two months and then the paperwork takes about two months, so we know exactly what we are going to disburse by June.
We even know what we are going to be disbursing in July and August so that pipeline is already ready and it is on that basis that I am giving you all of this guidance.
So net-net first half of the year we should be flattish, second half we should be growing on a net basis and once you do start doing that then obviously FY2025 we will grow further.
Rishikesh Oza
Thank you Sir.
Sir, my second question is with regards to dividends so can you like give an update on dividends, can we like expect dividends in this financial year?
Indiabulls Housing Finance May 22, 2023
Gagan Banga
We are now technically able to give dividends even for FY2023 but it is a matter that has to be first is a technical qualification then the matter has to be taken up by the Board and subsequently by the shareholders for a final dividend to be declared in the AGM so the only update I can give to you is last year we were not technically enabled since we had dipped into the reserve.
This year also we had dipped into the reserve but we are still technically enabled given the various calculations but the decision has to be taken by the Board and subsequently by the shareholders so we will discuss this in the Board and if the Board so approves then it will be put up to shareholders for a final dividend.
Rishikesh Oza
Thank you Sir.
Moderator · Conference Operator
Thank you.
The next question is from the line of Elesh Gopani from Gopani Securities And Investments Private Limited.
Please go ahead.
Elesh Gopani
Thank you for the opportunity.
I want to ask the question this reorganization can we not end up with big financial partner and grow the business fast and since there are no promoters now so can we not search a good promoter and enhance the business?
Gagan Banga
Yes, so the whole idea of the reorganization is to be able to have specific entities, one which is pursuing a retail business and another which is pursuing the wholesale business.
We would need strong financial partners on the whole sale side.
On the retail side we already have financial partnerships in terms of banks, which are providing us the capital on the co- lending side, and it is a question of putting one foot in front of the other we run a listed company, so we have to make our investments in people and branches in a calibrated manner.
We can only allow our opex to go up by so much.
It is ultimately a human-based business and human beings take a certain time to understand policies and processes to become productive so all of those lags one has to bear so it is not that I can make 5,000 people, 10,000 people and the business will double from tomorrow morning.
It has to be done in a calibrated manner.
Some of these partnerships are in play for the wholesale side on the retail side they are already in play.
As far as equity partnerships are concerned if you have a structure which is very dedicated and focused you obviously become interesting to people who are looking at a specific opportunity.
Some people are more convinced about the retail opportunity in India and some others around the wholesale opportunity in India, so we have created a structure and we have also built a track record.
We have become without a promoter.
Management team does not feel it needs a promoter.
Financial partnerships are something that we will be equity or debt we are certainly open for.
If there is anything which is more specific, we will obviously inform you, but we are obviously taking feedback from the various investors who already either own us or have in the past owned us and we are doing all of this reorganization basis the feedback such that the structure becomes more investable.
Indiabulls Housing Finance May 22, 2023
Elesh Gopani
Thank you Sir.
Moderator · Conference Operator
Thank you.
Ladies and gentlemen, we will be taking the last two questions.
The next question is from the line of Kayur Asher from PNB Metlife.
Please go ahead.
Kayur Asher
Thank you.
Thank you for the opportunity.
Sir just wanted to understand if you could talk about the progress on the liquidation of the wholesale book.
Where we are on that front and if you could quantify the size of the residual wholesale pool and what is the target that we are setting for the coming quarters?
Thanks.
Gagan Banga
So the liquidation process which we started I think more or less is now done.
We do not have to liquidate a lot, another other maybe ₹ 4,000 Crores to ₹ 5,000 Crores on net basis is something that we will look forward to doing through the course of this year but at the same point in time that kind of disbursal we would like to see happening from the AIF and through the second half or the Q2 and the Q3 itself should materially produce some of these numbers.
So I think as I mentioned a short while back there is no gross reduction in anything which is happening.
We have to just make sure that the correct pool of capital is backing the right asset and what is very clear for me is that debt capital cannot back wholesale lending done by the company.
It has to be done in a more specific and dedicated vehicle which we have created, we scaled up, we have generated returns there and so on so we are confident that that track record is getting us partners and will continue to get us partners We have also done transactions of over ₹ 15,000 Crores to ₹ 16,000 Crores with various global funds over the last three years and they have seen the success of those portfolios so that additional bit of traction which comes by people lending out money and receiving their monies back.
So my sense is the numbers are not going to be very significant going forward.
There could be one or two chunky loan repayments which come back but aside of that it is more or less normalized now and which should allow as soon as our retail disbursements scale up by another ₹ 300 Crores to ₹ 400 Crores net growth is to start happening.
Kayur Asher
Thank you.
Moderator · Conference Operator
Thank you.
We will take the last question from the line of Ca Kanwaljit Singh from Balaji Infin Investment.
Please go ahead.
Ca Kanwaljit Singh
Good evening.
My question is regarding how many recoveries that you have made on the wholesale book in the current quarter and is there anything to be recovered from the previous promoter?
Indiabulls Housing Finance May 22, 2023
Gagan Banga
We have never lent to the previous promoter, we have no debt issuances to the promoter or any of his companies in which he is a promoter.
The erstwhile promoter incidentally till the time that he was a promoter to the best of my knowledge anyways did not have any debt.
As far as recoveries are concerned, I think last year we recovered about ₹ 600 Crores.
In the three years prior to that we recovered about ₹ 2,000 Crores and as I mentioned in the next six quarters, we expect to recover another ₹ 2,500 Crores fairly steadily over each quarter so about ₹ 400 Crores to ₹ 500 Crores per quarter including Q1 is the expected recovery that we hope to see.
Yes, thank you everyone for attending this call and thank you for your support.
As is evident we are doing fairly well and now step-by-step we are also moving in a direction where we can start to materially enhance on our franchise so as we do that we will be in touch and look forward to seeing you next quarter.
Thank you.
Moderator · Conference Operator
Thank you very much.
Ladies and gentlemen, on behalf of Indiabulls Housing Finance that concludes this conference.
Thank you all for joining us.
You may now disconnect your lines.