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

DIRECTOR, · AND

AND

CHIEF · OPERATING OFFICER, INDIABULLS HOUSING

EXECUTIVE OFFICER, INDIABULLS HOUSING

FINANCE · MR. MUKESH GARG – CHIEF FINANCIAL

MR. RAJIV GANDHI – MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER, ICCL MR. RAMNATH SHENOY – HEAD IR AND

ANALYTICS, INDIABULLS HOUSING FINANCE · MR. ASHWIN MALLICK – HEAD, TREASURY,

MR. ASHWIN MALLICK – HEAD, TREASURY,

INDIABULLS HOUSING FINANCE · MR.

MR.

SACHIN · CHAUDHARY

CHAUDHARY –

CHIEF · OPERATING OFFICER, INDIABULLS HOUSING

OPERATING OFFICER, INDIABULLS HOUSING

FINANCE · MR. MUKESH GARG – CHIEF FINANCIAL

MR. MUKESH GARG – CHIEF FINANCIAL

OFFICER, INDIABULLS HOUSING FINANCE · Management

Indiabulls Housing August 14, 2023

Questions and answers

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.

Our first question is from the line of Riddhesh Gandhi from Discovery Capital.

Please go ahead.

Riddhesh Gandhi

An apology for sounding actually blunt here.

Just had a question, we have been sort of highlighting the companies distancing from the erstwhile promoters, but the leadership team has obviously been with the erstwhile promoter and a loyal to him for a long period of time and also in the case recently where the erstwhile promoter had actually existed in real estate business.

There were some illegal lawsuits, which have come up with the embassy with regards to some loan repayments and stuff like that.

Just want to understand how should we be thinking about going forward and how independent really is it and are there any potential in liabilities, which I think could arise that which we are not aware of it?

Gagan Banga

Sure, that is a very relevant question and I would like to put it on record that Indiabulls Housing and its erstwhile promoters have no financial entanglements.

He owes us nothing; we owe him nothing.

There is no recourse that either party has on each other for any open transaction of even a single rupee.

I hope this is as transparent as one can get on this right.

On your other question about the leadership team being loyal, the leadership team is loyal to the company, which is why through a period of extreme stress where all of us as management are fiddly little shareholders.

We have decided to stick together as a group and manage this crisis.

While if you look at practically all the NBFCs and HFCs of similar size, smaller or larger through this period of crisis on the NBFCs.

Practically each of them whichever survives has seen a change in leadership, so that just indicates that this period of turmoil has taken a toll on professional managers such as myself and my colleagues, but because we are more loyal to the company than to any individual while we individual has Indiabulls Housing August 14, 2023 exited, we have not.

It is a situation which is not witnessed in any other NBFC.

In other NBFC typically the owners continue to remain the same.

The managers have changed and gone.

In our case it is the opposite, so the way I think of it is I have given personally my best to make sure that the company in the first place survives, then transforms and hopefully we are now at the cusp of growth.

This is the best that we as a management team could do.

My appointment is decided practically every other year by shareholders.

If they feel that I am doing a good job, they will allow me to continue otherwise in a company which is as diversified owned as Indiabulls Housing is shareholders have ultimate power, right and and there is no one group, which can block anything that shareholders do not want to happen.

I do not want to be negative about this.

This is a time of perhaps not celebration, but time where one can at least take a step back once this quarter is through and say okay five tough years, now let us get started with something else.

That is what I am focused on that and that is what the team is focused on.

We keep our heads down, work every day to make sure that we continue to repay our lenders and continue to take care of our employees and of our customers and frankly that is the best that we can do.

Riddhesh Gandhi

Got you and we appreciate all the efforts and we are reasonably confident that like how the issues came up in that case of Indiabulls Real Estate we have sort of scrapped through each of our accounts to ensure that there are not any potential skeletons, which will has come out of the closet?

Gagan Banga

I am putting it on record here in this call is recorded and is up there for the rest of my life that between Indiabulls Housing and the erstwhile promoter group, there is no financial entanglement.

There is not one rupee that either he owes us or we owe him.

It has been a smooth transition.

As a matter of fact, he has been fairly graceful in his entire exit and has been supportive of the company, so I doubt that there could have been a more graceful exit in this.

With that said, there is also a lot made about this whole de-promoterization, etc. The quality of the portfolio is if one takes a minute to reflect on it, one could not have paid ₹ 1,50,000 Crores on gross basis and ₹ 75,000 Crores on next bases.

That ₹ 75,000 Crores has come from the portfolio.

It has not come from heaven.

I am not the central bank.

I cannot print money.

It has come from the portfolio, so that is best reflection of the portfolio quality, which has been built, which should hopefully put any such concern at rest and as a financial entity, we have also gone through a fair degree of rigorous inspections and audit.

Just the other day I was taking stock with my risk and compliance team.

In the last four years, we have gone through 32 regulatory audits and inspections and compared to what was being alluded to at times, I think we have pulled through with practically no issue at all.

Another thing, which may not be of knowledge to the wider audience is that since October of 2019, the lenders of the company have started a process of a concurrent audit where Indiabulls Housing August 14, 2023 every rupee in and out of the company is compiled and reported back to the lenders.

There are only one or two collection and disbursal accounts that we have, which the banks have complete control over, so all of these plus the fact the fact that now we are an upper layer NBFC and therefore there is tremendous regulatory oversight, which is all extremely good for the long term.

That is how the sector and all of you will get greater confidence and hopefully these questions will never be asked again, but this is all that we have to to let us say actions speaking louder than whatever I can assure you why.

Riddhesh Gandhi

Sure and last question I had was is there any indication as to it given the valuations we are trading at and given effectively the growth in front of us that, with the promoter, I can understand that if he is not going to be operationally involved, any sort of indication as to the reason you will be sort of existing at these prices and an as opposed to potentially exiting the private equity?

You could sort of come in and bring some instability just sort of exiting in the public market and sort of thoughts around that and I understand obviously you guys are not the promoter, but I am sure there will be?

Gagan Banga

I am not the promoter.

I cannot speak for him.

I can just speak common sensically.

As I said, this is a company that he started.

He took it to a large size and he continues to remain fond of the company and in a situation where you are not a promoter, but you are still the largest shareholder, it becomes very difficult for the management to go out there and propose any sort of a strategic transaction.

With such a large shareholding still vested in someone, who is not involved in day-to-day management and therefore will not be in a position to give any sort of commitment to the wider market or the strategic partner or anything of that sort.

I think we understood that this situation was neither here nor there and if the company had to move forward, the situation had to get resolved and he voluntarily chose to help the company resolve the situation and today put us in a position where we can have more meaningful and consequential discussions with only institutional investors having any sort of meaningful shareholding, otherwise the shareholding is extremely widely spread out so.

He has only facilitated the progress that the company needed to show on multiple number of fronts including being well diversified in terms of its ownership and I appreciate his gesture.

Riddhesh Gandhi

Thank you and appreciate all of your responses here.

Thank you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Craig Elliot from NWI Management.

Please go ahead.

Craig Elliot

Good evening and congratulations on great results and taking a step back on these, as you said, several years of transformation, we have always believed in you and you have always Indiabulls Housing August 14, 2023 delivered so thank you.

We look forward to the next five to 10 years On that note, there is spectacular promise in the macro and in the housing up, what do you think is the smart and target range for you to grow book just very broadly let us say over the next few years or beyond?

Gagan Banga

Thank you Craig.

You have been amazing supporters through this transformation and both as financial investors as well as giving both moral support and advice, so I really appreciate NWI’s help through this entire period.

On the growth path, I believe that through the next five years, which should have a reasonably buoyant residential real estate cycle and therefore the underlying business will have momentum in home sales and stability in home values, etc., to be able from where we start FY2025 in terms of monthly disbursals, which should be in the ballpark of $200 million a month.

We should we be able to grow that at a steady rate of around 18% to 20% every year for the next five years, so by the Q1 of FY2025, which is April to June 2025 is to be considered the base.

Wherever we are at that time and the estimation is $200 odd million a month we should be able to grow that disbursal base at about 18% steadily for the next many, many years, so that is the broad guidance.

Obviously, it needs to be caveated for interest rate movements.

Real estate historically has been a step inflation asset class.

Home should not become unaffordable, etc. If things are to move more in a logical manner both on interest rates as well as home prices, this is the kind of growth one can expect.

Craig Elliot

Thank you.

Have a nice evening.

Moderator · Conference Operator

Thank you.

The next question is from the line of Kenny Lee with Vontobel.

Please go ahead.

Kenny Lee

Congratulations with the good results.

I just have quick question for me.

I see we have built out $270 million in the escrow to repay the ECB and also 50% of the FFCB, can I get the sense in terms of the social funding?

How do we do that?

Do we use raise more debt to replace those then?

Gagan Banga

No. The leverage and the reduction in debt indicate that all of this is happening through collections.

There would be some debt, which we have raised and some securitization that we have done and money is fungible, so I cannot say that every dollar in a practical way comes, but a large portion of these repayments or the repayments which have been happening over the course of the last five years have all been happening through our customer collections.

Kenny Lee

Excellent and can I ask if we are going do similar structure where we try to do the escrow for the September 2026 FFCB as well?

Indiabulls Housing August 14, 2023

Gagan Banga

That is something, which I first want to get this quarter done and then basis how is the engagement with rating agencies and other stakeholders.

The ALM now is extremely smooth.

This was all done in order to give confidence to stakeholders that they were chunky periods in some months and quarters and therefore we prepare well in time for those chunky periods in order to not have any last-minute pressure on ourselves and that if you go through our ALM, I mentioned this in quite a bit of detail.

The monthly run rate, even if you were to assume that the put gets done, is only about ₹ 675 Crs, which is roughly $80 million a month, which is insignificant and therefore these kinds of steps may not be required, but I do not wish to rule it out.

It was well-thought-out plan along with the board.

Let this quarter end and then we will certainly group back with our board as well as our domestic lenders, since most of the money is only of domestic lenders and reconfirm this back to you.

With that said, it is managements endeavor to make sure that we keep doing proactive ALM management, so if it is required we will certainly walk that path, but I do not want to put myself on record here and then later not do it because what you will appreciate is that all of this has a tremendous negative carrying cost on the company and as with granularize our asset book and as we retailize it more, the earning power of the company will obviously continue to take a hit.

We cannot keep putting more and more pressure on the earning power of the company and still expect the same kind of profitability return on asset, etc, so it is a measured call to be taken.

It is also as the situation to transforms both at the macro and micro, different times required and different actions.

I will be able to confirm this to you by next quarter.

Kenny Lee

Okay.

Thank you so much.

That is it from me.

Moderator · Conference Operator

The next question is from the line of Shaurya Chaplet with MUFG Bank.

Please go ahead.

Shaurya Chaplet

My question is related to the voluntary reserve fund for the $270 million so as per March 2023 results you had created 50% of the fund, so I just wanted to know that as on date have you created 100% of voluntary FDs, which following the liquidation has been initiated or is it like 50% of the voluntary FDs that were created with this plus 50% volumes will be balance sheet cash and also the balance sheet cash which is around ₹ 5300 Crores does that include the voluntary reserve funds as well?

Gagan Banga

Yes, it does include the voluntary reserve fund and since then all the FD's have been liquidated.

We are something like six working days from transferring the money and it requires that much time and we have two holidays in India, so as it requires that much time to move the money, convert it, move it to the trustee and so on and we usually if you have been an ECB holder for a while, you would realize that we usually try our level best Indiabulls Housing August 14, 2023 depending on working day, etc., to try and credit the money one day in advance, so given that as we speak, the money movement is in motion.

Shaurya Chaplet

Thank you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Nischint Chawathe from with Kotak Institutional Equities.

Please go ahead.

Nischint Chawathe

Thanks for taking my question, but just not small point if you could sort of remind us of what is the max proportion of CLM or sell downs that we can have in our AUM.

Gagan Banga

The max proportion is 100%.

All the disbursal that we do, we do with an intention of co- lending.

A couple of quarters ago I had shared this statistic that almost 98% of what we had disbursed in the past 12 months, we were able to successfully co-lend so that is the kind of a track record we are trying to maintain and as we speak we are at similar numbers and our goal is to just lend in the background or being able to co-lend it quickly with the bank within 45 days or so and there is no limit so if we see like I indicate to Craig that we should be touching a $200 million of run rate on disbursals that $200 million by April of 2024 and that $200 million would all be with an intention of being co-lending.

Eventually we will end up holding $40 million on our balance sheet and the balance $160 million would be going onto our bank balance sheet.

Nischint Chawathe

Got it.

When you are saying 35% of the AUMs are funded by CLM and sell down then what we are trying to say that these 35% is the gross amount of 100, right and 20% is what we have in the balance sheet.

Gagan Banga

Yes.

Nischint Chawathe

Okay, got it.

Thanks a lot.

Gagan Banga

We will take the last question now, please.

Moderator · Conference Operator

We will take the last question from the line of Rishikesh from Robocop.

Please go ahead.

We seem to have lost the line for Rishikesh.

We will take the next question from Nitin Garg from Aviva Life.

Please go ahead.

Nitin Garg

Thank you very much for taking my question.

I have two small questions.

First of all, did you have any discussion with the rating agencies on this change of this status from HFC to NBFC?

Indiabulls Housing August 14, 2023

Gagan Banga

Yes.

We have kept our rating agencies and all stakeholders updated and there is no consequential change in anything as a result of the company’s ability to lend or borrow or service its debt or grow its book, does not in any way get either hindered or improved by this.

This is more technical and this basically enables us to do as much co-lending as we would like to do rather than holding assets onto our balance sheet, which is what a classic HFC would require to do.

The rating agencies have been assured that the business model of the company is not going to change.

We are not going to become a NBFC, which is going to be doing personal loans or gold loans or commercial vehicle loans.

Mortgages are our area of focus and whatever we have been doing for the last 16 to 17 years is what we would continue to do and I believe therefore there should be no concern out of this transition.

Nitin Garg

Okay and secondly, can you throw some light about that recoveries out of those impaired or written off assets?

Anything happened in the last quarter?

Gagan Banga

We had meaningful recoveries of almost like ₹ 400 odd Crores and as I said we will try and write back this amount significantly.

We will continue to carry higher provisions, so that is what we have done.

We have written back an insignificant amount and we have just used other loans to continue to carry those provisions, but as the recovery is a track record.

If not every quarter every other quarter you can expect ₹ 500 Crores to ₹ 1000 recovery.

Nitin Garg

Yes, sure.

Thank you very much for taking my question.

Gagan Banga

Thank you everyone for joining in and I hope that by the end of the current quarter, this entire period of struggle and trouble ends and from H2 FY2024 we can be back to reporting to you steady growth.

Thanks for your support through this period and thanks once again to all the foreign debt investors who supported the company over the past 10 years

Moderator · Conference Operator

Thank you very much.

On behalf of Indiabulls Housing that concludes the conference.

Thank you for joining us ladies and gentlemen.

You may now disconnect your lines.