Aadhar Housing Finance Limited (AADHARHFC.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Aadhar Housing Finance Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nidhesh Jain from Investec Capital. Thank you, and over to you, sir.

Thanks, Shruthi. Good evening, everyone. Welcome to the quarter 2 FY '26 Earnings Conference Call of Aadhar Housing Finance Limited, hosted by Investec Capital. We will start the call with the management commentary, followed by a Q&A session. To discuss the financial performance of Aadhar Housing Finance Limited and to address your queries, we have with us Mr. Deo Shankar Tripathi, Executive Vice Chairman; Mr. Rishi Anand, MD and CEO; Mr. Rajesh Viswanathan, CFO; and Mr. Sanjay Moolchandani, Head, Financial Planning. I would now like to hand over the call to Mr. Rishi Anand for his opening comments. Over to you, sir.

Thank you very much, Nidhesh, and a very good evening, everyone. On behalf of Aadhar Housing Finance, I would like to welcome all of you to the Q2 H1 FY '26 Earnings Conference Call. We would like to wish all of you belated Happy Diwali and a prosperous New Year. We are pleased to share that the first half of FY '26 has been marked by strong performance and continued progress on our strategic priorities. H1 FY '26 reflects another period of disciplined execution, operational efficiency and customer-focused growth. Our performance speaks for itself with our numbers showing the commitment of our teams and the strength of our business model. This milestone reinforces our leadership in the low-income housing finance segment, which continues to play a pivotal role in India's inclusive growth story. This quarter has witnessed positive developments in the economy with low-income housing sector poised for further expansion, supported by favorable policy reforms and continued government focus. The recent rationalization of GST rates under the GST 2.0 framework is expected to lower housing cost and provide a significant boost to the affordable housing segment, particularly in the EWS/LIG categories. We expect these measures to drive sustained growth in the sector in the coming quarters. Now coming to Aadhar's performance for the said period. During the half year, our AUM touched INR 27,554 crores as on 30th September, which is a 21% growth on a Y-o-Y basis. This is another significant milestone for the company. Disbursement stood at INR 4,089 crores, which is 16% Y-o-Y increase, reflecting consistent lending momentum. Asset quality remains well contained with gross NPAs at 1.42%, collection efficiency above 99% and more importantly, Stage 2 assets improving by 20 bps on a Y-o-Y H1 FY '26 basis, driven by robust risk management and disciplined underwriting. Our portfolio continues to be entirely retail and secured with home loans forming 73% of the AUM and loan against property remaining at 27%. The average ticket size of INR 10.5 lakhs and average loan-to-value ratio of 60% reflect prudence and stability of our portfolio. The salaried segment contributes 55% of the book, aligning with our focus on borrowers with steady income profile. Balance transfer out for H1 FY '26 stood at 5.4%, which is an improvement of 50 bps as compared to H1 FY '25. This is an outcome of our centralized retention team and data science team efforts. We continue to expand our presence in high potential underserved markets through a measured and efficient approach. During the quarter, we added 20 new branches, taking the total to 611 branches across 22 states and 549 districts, serving over 3.15 lakh live customers. Our portfolio remains well diversified with no single state accounting for more than 15% of our AUM, demonstrating the strength of our distribution reach and risk containment framework. Digital transformation remains integral to our operating model. The TCS-enabled core system has streamlined processes across loan life cycle, improving turnaround time and enhancing customer experience. We continue to strengthen our data and analytics framework, leveraging AI and machine learning for sharper insights, improved governance and scalable operations. These capabilities continue to enhance efficiency and prepare us for the next phase of growth. As mentioned earlier, we are very positive on the recent GST 2.0 reforms and are expected to significantly accelerate growth in the low- and middle-income housing segment. The reduction in GST on inputs such as cement, marble, granite and bricks is lowering the cost of construction for developers, improving project viability and supporting price affordability for homebuyers with lower EMIs. Moreover, low-income and affordable housing projects under the government schemes such as PMAY 2.0 and Angikaar 2025 stand to benefit the most with reduced construction costs, enabling faster execution and delivery in rural and semi-urban areas. Beyond cost optimization, the reforms are also expected to strengthen credit quality and financial inclusion by improving loan affordability and spurring incremental demand within formal housing finance channels. The affordable housing finance segment in the country is poised for significant growth in the coming quarters, and we continue to support the government in fulfilling the mission of housing for all. Looking ahead, Aadhar Housing Finance is well positioned to sustain its growth trajectory, supported by strong fundamentals and expanding distribution network and technology-led operating efficiency. With continued policy support and a favorable macro environment, we remain confident of strengthening our market leadership, creating long-term value and deepening financial inclusion. We remain steadfast in our mission to enable homeownership for low-income families, backed by strong balance sheet, enhanced credit profile and structural tailwinds, Aadhar is well placed to capture emerging opportunities and continue to drive inclusive and sustainable growth. We have a positive outlook for the next 2 quarters, and we are confident of meeting our growth guidance given for this financial year. With this, I now hand over to Rajesh, our CFO, to discuss the financial performance in detail. Over to you, Rajesh.

Thanks, Rishi. Good evening, everyone. I would like to take you all through the financial performance for H1 FY '26 and quarter 2 FY '26. In Q2 FY '26, our overall AUM has grown by 21% on a Y-o-Y basis. Our overall borrowings as on 30th September 2025 stood at INR 17,600 crores compared to INR 14,600 crores same time last year, which is a growth of 21% on a Y-on-Y basis. The borrowing mix at the end of 30th September is 50% from banks. NHB share is 21%, NCD is 22% and ECB and others make up the balance of 7%. Our incremental borrowings for quarter 2 FY '26 was around INR 1,800 crores, which came in at slightly lower than 8%. We have around 44 borrowing relationships. The exit cost of funds as at 30th September stood at 7.9%. In terms of fixed and floating nature of our book, 73% of our borrowing is floating and 75% of our assets are floating. So there's a great degree of matching in these. Undrawn sanctions as at 30th September 2025 is INR 2,381 crores, which includes INR 1,250 crores from National Housing Bank. In quarter 2, we have not drawn down anything from NHB in quarter 2 of the current financial year. Liquidity for FY '26 stood at INR 2,270 crores, which is around 10% of the loan book. Portfolio yield exit is 13.8% as at quarter 2 FY '26. Hence, the exit spread stood at 5.9% as compared to 5.8% as at Q1. So there has been a growth of 10 bps on a sequential basis in terms of spread. Our cost to income for H1 FY '26 stood at 36.1% as compared to 36.4% in H1 FY '25, which is an improvement of 30 bps on a Y-on-Y basis. As we had earlier conveyed, we would like to drop our cost of income by around 40 bps for the entire financial year, and we are well on track for that. GNPA as at 30th September is 1.4% as compared to 1.3% Q2 FY '25. And NNPA is 1% versus 0.9%. The Stage 3 provision coverage ratio currently stands at 34.3%. One more important metric which we would like to share is that our Stage 2 on a sequential basis has dropped by 10 bps. The capital adequacy ratio for quarter 2 FY '26 stood at 44.3% for Tier 1 and 0.5% for Tier 2. H1 FY '26, we delivered an overall PAT of INR 504 crores compared to INR 428 crores in H1 FY '25, which is a growth of 18%. And on a quarter basis, in quarter 2 FY '26, our PAT was INR 266 crores versus INR 228 crores quarter 2 FY '25, again, a growth of about 17%. As conveyed by Rishi, we are focusing on maintaining a very healthy book and delivering consistent performance on a quarterly basis. With that, we can open up for questions.

[Operator Instructions] The first question is from the line of Renish from ICICI.

Am I audible.

Yes, yes, yes, Renish.

Congrats on a good set of number. Sir, my first question is on asset quality. So right -- so when we look at the key asset quality metrics, whether it is credit cost, Stage 2 asset, et cetera, improved sequentially. But when we look at the other mortgage players have witnessed marginal deterioration on a sequential basis. So just wanted to understand what is this driving better asset quality performance than the industry? And also, if you can share your exposure in, let's say, some of the stressed market like Tirupur, Coimbatore, Surat? And also, if you can share 1 plus DPD movement sequentially would be helpful, sir.

So there are 3 questions in one, Renish, but I'll try to answer the first, second will be Rishi. I think to be very honest, the benefit of a more stable credit cost and credit behavior must be because the way we are spread out right through India. If you look at us, one of our main strategy is not more than 15% in any major market or major state. And probably that is helping us quite well. So even if there are other stress states which some of the other peer players may be seeing stress on, probably for us, it's a percentage of that stress. So to that extent, we have not seen any specific new spurts in any state, which is out of the ordinary. And as would -- as the first trigger, as all of you -- us will know, is the bounce rate. We have not seen any inordinate movement in bounce rate. And as I've explained, the Stage 2 has also dropped by 10 bps. So to that extent, there is a slight degree of comfort that we are probably going in the right direction. And in terms of other micro markets, I think I will ask Rishi to just take that one on Tirupur and Ludhiana and other locations.

Yes. So Renish, thanks for coming on the call. See, the way we look at our business, while I'll give you those numbers, the sequential numbers that you asked for. But the way we look at our business is when it comes to specifically tariffs, is there any particular city, et cetera, which gets impacted? No, because, for example, textile, pharma, gems jewelry, they are spread across India. But since you asked a specific question regarding some specific call-outs of cities that have happened in various calls, for example, Tirupur, Surat Coimbatore all put together close to about 1.6%, 1.7% of our AUM, so not a very large exposure. But even in these markets, our sequential 1 plus has dipped. For example, Tirupur from a 9.2%, 9.1%, it has dropped to about 7.1% sequential quarter-on-quarter. Surat has dropped from 8.8% to about 8%. Coimbatore has dropped from a 9.2%, 9.3% to 8.2%, 8.3%. So in all the 3 markets, which we -- market has been talking about, we've seen a drop in 1 plus. So our worries, obviously, the worries around these specific cities is not prevalent in Aadhar.

And I just stand corrected, our Stage 2 improvement is actually 20 bps.

It's not 10 bps, 20 bps.

Okay. Got it. And overall 1 plus DPD, how it has moved sequentially?

1 plus sequentially was 7.18%, it is 7.17%.

So it is flat basically.

That's right.

Okay. Okay. And my second question on the disbursement, right? So the first half even looks better at 16% Y-o-Y. But when we look at the sequential disbursement, it is actually noted at 4%. So can you throw some light on this disbursement run rate being lower in Q2? And are we still confident about delivering 18%, 20% disbursement growth in '26?

So Renish, it might not be okay to look at -- take a view -- isolated view on this particular quarter, and I'll give you the reason why. This particular quarter on a quarter-on-quarter basis will definitely give you a distorted view. If you recall, last year -- in quarter 1 of last financial year, there was a regulatory circular which had come with respect to interest recognition, which was supposed to move from a disbursement to check handover. And because of which there was a substantial business which got carried forward to quarter 2 of last year. Hence, if you observe, in quarter 1 of this financial year, our disbursement growth was 32% on a quarter 1 Y-o-Y basis. Hence -- and because of the bulge in quarter 2, you look at the numbers at 4%. The better way of definitely looking at it is the overall YTD H1, which is a 16% growth, which you rightly mentioned. As regards H2, we are very confident of market dynamics. We are looking at market very closely. We are looking at our log-in parameters very, very closely. And we are very confident of the guidance numbers that we had given. Another important aspect of our business is the way H1 versus H2 is stacked. Generally, it is 40-60. This year already 42% has been delivered of whatever we planned and the balance should be coming in with a lot of comfort.

Got it. And just last thing, would you like to share the October disbursement number?

October disbursement number has been in line with our estimates. In fact, on the budget numbers, we are right on track on 100% achievement.

The next question is from the line of Sonal Gandhi from AM Securities.

Congrats on the quarter. So just going ahead with the question which was asked earlier on the disbursements. So disbursements limits, if you look at home loan segment, particularly, there has been some degrowth over there. So if you could just throw some light if anything that we are doing in terms of tightening the credit policies or if there is any other change that has happened in the system because of which the disbursements are down?

I would not give any particular reason of why disbursement on home loan, it is actually flattish. Primary reason is extended monsoons. When there are extended monsoons and good chunk of our AUM and incremental portfolio happens to be self-construction. For example, in the entire Uttarakhand belt, in fact, the entire North belt saw a heavy impact on login when it comes to self-construction. And to add to it, we had slightly issued a caution to our underwriting teams with respect to whatever was going around with the tariff situation across gems and jewelry, pharma to some extent and primarily textile. I think both of them have contributed a little bit on the login side. But having said that, everything is now behind us and the coming quarters look very, very positive.

Sure. And sir, anything on the PLR hike? How do you plan -- I mean, what is the guidance for spreads now? Earlier, we were thinking that it might go down a bit, but it's clearly improving. So how do we see spreads moving in Q3, Q4 or maybe 2H of this year?

See, we believe that there may be a further 10 bps sort of improvement in our overall cost of funds as we exit the current financial year. Having said that, you are right, we have not passed on anything on the RPLR bid. We are actually -- the 10 bps drop will be majorly benefited by the MCLR pass on, which will happen to us from the banks, which we believe should happen somewhere from December to February, March. And probably that is a period where we will probably take it to the ALCO. And if at any point of time, we will calculate and then pass it on to the customer. Our current spreads, as you have correctly said, is actually coming in at about 5.93% on single digit looks at 5.9%. And the way we look at it is that probably we may end up around 5.8% as we exit the year, 5.78% to 5.8% is something that we would look at. This is after the pass on, we should be around 5.8%.

Sure. And sir, just one clarification. In your opening remarks, you said that 40 bps reduction in cost of borrowing. So we are talking about exit quarter, right? I mean we should be closer to about 7.8%, 7.7%...

This is all exit. When I'm saying that when we are exiting the year, we will be exiting in the range of 775 to 780.

The next question is from the line of Kunal Shah from Citigroup.

So firstly, with respect to recoveries, overall, I think ECL provisions are still up like INR 20-odd crores, but in P&L, it's like almost INR 13-odd crores. So has there been any recovery during the quarter? And what is the nature of that, yes?

So we recovered somewhere in the range of about INR 6 crores to INR 8 crores from our old project finance portfolio mainly. If you remember, our project finance portfolio were written off. So there were some old recoveries to the range of about INR 8 crores that we had in the current year -- current quarter.

Okay. That's almost INR 8 crores?

That's right.

Okay. Okay. And this would have been entirely written off. So this would have been 100% provided or only a part of that is?

No, no, it was 100% written-off asset. So technically, it's a P&L pass-through. So it becomes a P&L benefit.

Okay. Okay. And is there a more pool to be recovered or this is more kind of a one-off?

So we have a INR 25 crore pool, which is left on project finance, which we believe will come over -- after this recovery, which probably will take another 2 to 3 years depending on how these stack up because these are really long tail sort of recoveries. So whatever comes. So for example, this recovery of INR 7 crores to INR 8 crores has come in after a long time. I think the first thing after about 7, 8 quarters. So in that sense, it is a good thing to come. We have INR 25 crores. We are not sure how much we'll recover from that, but it's a good positive to keep with us.

And to add to it, this INR 25 crores that we're talking about is 100% written off...

Right, right. Any benefit will directly come into the P&L.

Sure, sure. Got it. And secondly, in terms of the OpEx, which is up like, say, almost 34-odd percent both year-on-year and quarter-on-quarter. So any one-off element in that?

No, one-offs on OpEx.

Overhead cost, yes.

Yes, the OpEx is typically the typical management expenses that we generally have as well as the site because we have set up approximately 20 branches in the current financial year. The impact of setting up those 20 branches are there. And if you look at OpEx, quarter 2 FY '26 was in the range of INR 201 crores. We were INR 173 crores last year same time and INR 187 crores in the quarter 1. So from INR 187 crores on a sequential basis, we have grown to INR 201 crores, which is typically not a growth of 16% is a Y-on-Y growth, Q2 versus Q2. And sequential quarter, we have grown from INR 187 crores to INR 201 crores, which is a quite organic growth. There's nothing special on that.

Sure. And lastly...

Sorry, just one point. As we alluded, our cost to income that we look at very closely, that is where we would like to -- and we would like to see -- we are seeing it happen and probably year-end also, we will see a 40, 50 bps that we'll be able to target.

Sure. And lastly, if you can comment with respect to your entire strategy on the urban and emerging, how it's panning out, maybe Q1 was the full quarter, but how things have been. And over a period, when we look at it in terms of the proportion of the branches, how much do we think like, say, A, B, C branches would respectively, maybe what proportion would those numbers be, say, over the medium term?

So Kunal, with respect to our strategy, I would say the current quarter end question was a first full quarter because we implemented towards mid of April in quarter 1. So we obviously did not get the first quarter in full. Whatever we had planned and the time line that we have planned and the momentum we had planned, we are completely on track. If you recall, we mentioned at some stage that today, 45% of the business comes from the emerging markets and eventually, we want to get into a 50-50 model. Are we on track? I would say we are on track. The emerging C branches obviously need a little more efforts for them to establish because it's a small setup. It's 1 kind of manpower -- 1 or 2 manpower kind of branches. Broadly, if I were to break down urban and emerging today, urban is about 470 -- sorry, 137 branches, emerging A, B, C and total will be about 475 branches, out of which 400 branches will be in the B and C categories. Broadly, if I were to indicate, are we on track in terms of our commitments and guidance, we are completely on track. And I don't see anything disturbing that 50-50 balance figure that we had indicated.

The next question is from the line of Shweta from Elara.

Sir, a couple of questions. While you alluded to the fact that bulkier disbursements in Q1 led to slightly lower momentum in Q2. But then if you -- if we were to maintain 18% to 20% full year target, then the ask rate for the second half is going to be pretty much higher, right? I mean, as high as 23%, 24% kind of growth. So are we on track to achieve that kind of robustness in disbursements every quarter, like in second half?

Shweta, thank you for the question. Yes, as I indicated already, the way to look at it is 42% typically 40%, 60% is what H1 to H2 happens across the industry. So for us, we have already delivered 42% against what we plan to do this year, and the balance should be coming in easy. Are we on track? If I want to answer that question? Yes, we are completely on track the way October has panned out and the way we look at our current month, we are completely on track. And you're right to -- if we were to look at our guidance numbers, we will have to look -- in terms of growth, we will have to look at a 22% kind of growth in the coming quarters, and we are completely on track.

And Shweta, just to add, if you look at historically, the performance of Aadhar over the last 3, 4 financial years, typically, you will see this ratio of 42%, 43% in H1 and then quarter 3 and quarter 4 actually moving in that direction of 47%. So I think that's why the full marketing team, the sales team as well as the business teams are quite well guided. Plus, we believe that our entire strategy of emerging, which Rishi just spoke on, will get more activated plus GST, good harvest, good rains, the festival season behind us, PMAY, all these tailwinds will really help to really push demand and disbursements in the second half of the year, not only for us, but also for the entire industry.

Understood, sir. Sir, second question is, was there movement from Stage 2 to Stage 3 because Stage 3 climbed 13 to 14 bps sequential basis?