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

Ladies and gentlemen, good day, and welcome to Aadhar Housing Finance Q1 FY '27 Earnings Conference Call hosted by DAM Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Sanket Chheda from DAM Capital. Thank you, and over to you, sir.

Yes. A very good to you. We have with us the management team of A to discuss Q1 -- from the management side, we have Mr. Anand, who is the MD; Mr. Rajesh Jonathan, who is the CFO; and Mr. Sanjay Moonchandani, who is the Head of FPA and Investor Relations. We also have D Shankaripati, who is the Executive Vice Chairman. Without further ado, I'll hand the call over to Rishuir for his opening remarks. We'll follow that up with question and answers. Over to you, sir.

Thank you so much, Saket, and a very good evening to all of you. Thank you for joining us today to discuss Aadhar Housing Finance performance for first quarter FY '27. We start the new financial year on a steady note, continuing the momentum we had built through FY '26. As you recall, we had closed the last year crossing a very important milestone of INR 30,000 crores in AUM. And in quarter 1 FY '27 has been all about carrying that execution rigor forward with disciplined growth, calibrated risk and continued investment in productivity across our branch network. Our AUM as of 30th June 2026 stood at INR 31,364 crores, a growth of 18% Y-o-Y. For Q1 FY '27, a disbursement of INR 2,036 crores is reported on check clearance basis. Disbursement on check handover stands at INR 2,359 crores, which is on a like-to-like basis growth of 19% Y-o-Y. Effective quarter 1, we have taken a step of transitioning our loan accounting to check clearance basis model of disbursement recognition, which is a forward-looking approach and a significant mile in our commitment to governance, transparency and putting customer at the forefront. Just reiterating, if we were to compare disbursement on check handover basis, then the disbursement in quarter 1 FY '21 is INR 2,359 crores, which is a growth of 19% on Y-o-Y basis. This transition needed not only systemic changes, but also an element of the entire operating model. Having taken this step as we move ahead, we are firm and stick with our medium-term guidance of 20% AUM growth, 20% profit growth, 17% to 18% disbursement growth for the full year. Next 3 quarters, we are targeting a disbursement growth of upward of 20% -- our portfolio continues to remain fully secured and retail in nature with a balanced mix of home loans, which is at 33% and non-home loan at 27%. We continue to maintain well-diversified book with an average ticket size of INR 11 lakhs, 60% loan-to-value ratio, which remains within our comfort levels. The salaried segment continues to be 55% of our AUM. Balance transfer out during the quarter end question stood at 5%, which is one of the lowest BT out rates in the last 8 to 10 quarters and improved by 20 bps as compared to Q1 FY '26. It was supported by a focused retention effort and data-driven customer engagement. On the operating environment, demand for low-income housing finance continues to remain healthy and structurally supported. It continues to be largely end user base and first-time homebuyer driven, particularly in the emerging markets, where we have deliberately built a strong franchise, which gives us comfort that this growth is not speculative in nature. Our approach, as always, has been to protect spreads rather than chase ease, which is -- which we are doing by tilting the mix towards emerging branches by staying disciplined on loan against property and by continuing to drive productivity per branch and per employee so that operating leverage does the work that pricing cannot. Even after a 15 bps reduction in our RPLR effective February 2026, our spreads have held at 5.8% as on June 26. On asset quality, our portfolio continues to perform well. Collection efficiency remained strong at 99%. Gross NPA stood at 1.31%, an improvement of 3 bps on Y-o-Y basis. Stage 2 comes in at 3.3%, continuing to show an improvement of 40 bps on a Y-o-Y basis. As we have said before, the first line of defense for us is always the bounce rate, and this has remained stable throughout the quarter. We remain watchful of 2 external factors that the broader industry has also flagged, the ongoing geopolitical uncertainty around the West Asia situation and its resulting impact on segments like fuel-dependent trade and travel and the monsoon outlook given its bearing on the rural and semi-urban cash flows. Our exposure to NRI-linked customer segment continues to be minimal, and our underwriting teams are tracking lead indicators closely at the branch level as they always do rather than making any broad-based tightening. On distribution, as on June '23, our network stands at 628 branches across 22 states and covering 550-plus districts, in line with our calibrated need-based expansion approach. We continue to see most of our new branches, particularly in the smaller de impact ones, reach productivity level within our expected 9 to 15 months window, and that discipline remains central to how we think our cost-to-income is controlled. Our geographic diversification remains strong with no single state contributing disproportionately to our AUM. Our approach of combining branch expansion with productivity improvement of existing branches continue to support our sustainable growth. Let me briefly touch upon our AI initiatives. We are institutionalizing AI as Aadhar's operating backbone, a 6-layer AI architecture embedded across origination, underwriting, surveillance, collection and retention with every engine tied to track outcome like NPA, turnaround time, cost to income, retention and yield. Further, we are building 5 proprietary reusable platforms spanning across document intelligence, voice intelligence, decisioning intelligence and enterprise assist layer and management intelligence. that we believe compound into a genuine competitive advantage over a period of time. Overall, Q1 FY '27 has been a quarter of steady, disciplined execution. We remain confident of delivering our medium-term guidance of 20% AUM, sustained profitability and industry-leading asset quality while staying alert to the environment around us. Aadhar remains committed to its mission of enabling homeownership for low-income families while delivering consistent and sustainable returns for stakeholders. With this, I would now hand over to Rajesh, our CFO, to take you through the financial performance in detail. Rajesh, over to you.

Thanks, Rishi. Good evening, everyone. I would like to take you all through the financial performance of Q1 FY '27. In Q1 FY '27, our AUM has grown by 18% on a Y-o-Y basis. Our overall borrowings as on 30th June '20 stood at INR 20,000 crores compared to INR 16,876 crores a year before this. The growth of borrowings is 19%. The borrowings mix as at 30th June '26 is 49% from banks. NHB share is 24%, NCD share is 17%, ECB share is 7% and others is 3%. Our incremental borrowings for quarter 1 FY '27 was INR 2,238 crores, which came in at 7.3%. In Q1, fresh NHB borrowings were INR 746 crores at 6.9%, which included AHF borrowing of INR 149 crores at 4.3% -- the exit cost of funds as at 30th June 2026 stood at 7.7% as on versus 8% a year before. In terms of fixed and floating nature of our book, 78% of our borrowings and 73% of our assets are on a floating basis. Undrawn sanctions on 30th June '26 is INR 991 crores. Liquidity as we ended quarter 1 FY '27 stood at INR 2,371 crores. Portfolio yield exit is 13.5% in quarter 1 FY '27. Hence, the exit spread stood at 5.8% as at 30th June 2026. Our cost-to-income ratio for quarter 1 FY '27 stood at 36.3% -- included in total expenses is INR 14 crores related to fresh ESOPs, which was entered in Jan '26. So there's a P&L charge of about INR 14 crores in quarter 1 FY '27, which was not there in quarter 1 FY '26. GNPA as at 30th June 2026 is 1.31% as compared to 1.34% in Q1 FY '26. As at 30th June '26, our Stage 3 provision coverage ratio stands at 34%. Capital adequacy ratio for Q1 FY '27 stood at 42.9% for Tier 1 and 0.5% for Tier 2. Our Q1 FY '27 PAT stood at INR 282 crores compared to INR 237 crores in Q1 FY '26, resulting in a growth of 19%. Q1 FY '27 ROA and ROE is 4% and 14.7%, respectively. The number of employees at 31st -- as at 30th June was 5,671 employees. With this, we open up for questions. The...

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

Congrats on a steady despite quarter. Sir, my first question is on the asset yield, right? So just wanted to understand how we are managing asset yield so well that despite 50 bps pillar cutting and intense competition, we have been able to sustain yields on a sequential basis. So what are the things we are doing it differently sort of which is helping us sustaining the yields during such a tough environment? I mean is it driven by some changes in pricing policy or maybe AUM mix change, different customer segment or the different ticket size. So just wanted to understand from you, sir, how we are able to manage yields even in such a tough environment?

Thank you, Renish. And maybe on a lighter note, one correction that it was not a challenging quarter. The quarter was good. While we took a conscious call of looking at disbursement on clearance, I think it was a well-informed call. And I would say it was slightly delayed because of the systemic changes that we were wanting to do. So not a challenging quarter. Yes, the Middle East issue, et cetera, has been playing around. But...

Sir, I was referring to that only.

So see, there are 2, 3 things to it, and I referred in my opening speech as well. As an organization, we are -- one is we are not overexposed -- rather, I would not say substantially exposed to NRI loans because of the segment that we deal with. Second is the pockets which -- where there are certain challenges where NRI exposure is large. Our exposure in those states are very low. If we follow that thumb rule of no state contributing on AUM incremental disbursement and distribution greater than 15%. That we've been following for the last, I would say, 5 to 7 years. And that has -- and today, on hands side, if I look at the strategy that we had adopted about 5 years back, it is playing out very well. Then our second strategy on urban emerging, Renesh is helping us maintain the yields. And if you recall, a couple of quarters back on the same call, I had -- we had called out urban emerging strategy and how this would eventually start balancing out our -- not only the yields, but also the ticket size. And while in the market, we see the ticket size has substantially jumped for a lot of players, our ticket size still remains -- has moved from INR 10.4 lakh to only INR 11 lakhs because the emerging has started to play out. Similarly, even on yields, that was your question, even on yields, while urban sees a little bit of more competition, the emerging locations help us manage the yields. So from a -- I think that strategy of our distribution being large enough, we being in Tier 3, Tier 4 locations substantially and the urban emerging is playing out for us. Okay.

Or is this something to do with, let us say, the higher-yielding state contribution increasing versus is still the mature market contribution remaining static?

No, I would not say that because our contribution from all the major states have been stable state. In fact, if you look at this particular quarter, our -- and I'll give you an example, our contribution from Delhi has increased slightly, which is a state which is lower yield. In spite of that, we've been able to maintain the yield. So there is no substantial change in the contribution from any particular states, Ramesh.

Okay. Okay. Great, sir. Sir, my second question is more on a steady front for medium term. So obviously, we keep on hearing from various industry participants about increasing competition in this space and its corresponding impact on the yields. So sir, what is your assessment? I mean, if one is to assume that given the strong historical performance of the space, it will keep on attracting many new entrants, which might be leading to aggressive loan pricing. So from others' perspective, how are we positioned to sustain this 20% growth in medium term and more importantly, within our spread guidance range of 5.5%?

So Renish, even as we speak today, June quarter, we've ended the book yield at books at about 5.8%. We have always guided the market that at any given point in time, we will be a company which will be a company with a spread of 5.5% upward. And that is where, again, I will come back to my urban emerging strategy today, out of the 628 branches, approximately 30-odd 350 branches plus happen to be in the emerging locations. Emerging gives me substantially high yields compared to urban locations. So -- and you talk about new entrants coming, then we will have to start looking at which segment they are coming. They are primarily -- as we read the industry, they're coming in the affordable segment. We are 1 notch below in the low-income segment. Will there be an overlap between what others do and what we do? Yes, there will be definitely a 5%, 5%, 7% overlap. But if our emerging strategy plays out well, which we are seeing early green shoots, it is playing out very well. We are confident that we will always be a company upward of 5.5%, and that we have maintained over a period of time.

Okay. Got it, sir. And just last thing on the disbursement side. Sir, what is the July disbursement number? I mean, just wanted to get a sense despite this recognition policy change, how are we placed to compensate or maybe the offset which we had to take in Q1...

So Renish, as I told you, as I told on being statement that we have given were a like-to-like disbursement, which means check handover to check handover. Our growth is 19%. But since we moved to check realization, obviously, the growth numbers are slightly lower. By strategy, the numbers that I have not done check realization moves to quarter 2. So quarter 2 numbers should be -- and there is no reason why I should have a disblief around it, should be close to 25% or upward of 23%, 24%. And as I look at June, we are already at the last day of -- sorry, as I look at July, we are already at the last day, and we should be hitting a number very close to INR 900 crores.

Okay. Okay. Okay. So I think Q2 itself you will compensate the loss which we have saw in Q1... I will not say the entire -- I will not term it as loss, but the entire business that is getting carry forward, it generally happens over a couple of quarters. But yes, it will substantially -- quarter 2 will substantially cover up for the shortfall of quarter 1.

The next question is from the line of Kunal Shah, please proceed.

So firstly, with respect to this check realization, the impact was only on disbursements or even on the interest income, there was a circular which was issued. So was there any impact in terms of the interest income recognition as well in any of the line items in this particular quarter? Any which ways like yields are quite flat, so it doesn't appear to be there, but I just wanted to clarify that, yes.

Not major, Kunal. I think we will also start recognizing interest only when the check gets cleared. So to that extent, there will be a 2-, 3-day impact, it will not be material.

So hardly a 2 to 3 days of interest income.

Correct, okay.

And secondly, in terms of the employee cost, so not looking at year-on-year, but sequentially, if they look at -- so stop cost was there last time as well and it continues this quarter. what could have been the reason for the sequential please? Because last time also, the overall employee cost was higher because of the incentives, volume-linked incentives which would have been paid. So we have not seen any improvement on the employee cost front. So besides that, what has led to the higher employee cost and secondly, on the overhead with peers, it's managed very well. It's hardly up like 5-odd percent year-on-year and also down like more than 25% quarter-on-quarter. So was it like more like a structural one? Or again, it has a one-off and maybe the employee cost getting offset by the overhead cost?

Yes. So basically, on operating cost, typically in the fourth quarter, you'll have some contests and competition expenses, et cetera, would get built over there. So that is more of a quarter 4 sort of an event that will not apply typically in quarter 1. Having said that, DP managed to do anything like 10%, 11% growth in the full year on nonemployee costs, I think we would have done a very good job. In terms of increase between sequential quarter on employee cost, that is mainly because of the annual increment, which is typically in the range of approximately 10% to 12%, which would have come in the quarter 1 of the current year. Otherwise, then there is no chunky item, which is basically sitting in the Q1 FY '27 cost. And Q1 FY '27 versus Q1 FY '26. Reason for the 27% increase in a Y-on-Y basis is predominantly because INR 14 crores to INR 15 crores which is not there in the last year. If you adjust for that, I think the growth would be approximately 14%, 15% on employee cost, which more or less is about 11% increment which you would have given out.

Sure. And in terms of this rise in GS II, GS III would we still say it's more of a seasonal and we will be able to pull it back through the fiscal because which has indicated that bounce rates have been stable, so was like collection efficiency strong enough and we will be able to pull it back and even like 40 basis points of credit cost will eventually come down and the full year credit cost would settle much lower.

Yes. I think if you look at it historically, Kunal, for all of your wood tractors, if you look at it, say, this is more of a seasonal quarter. And for the last 2, 3 years, this has been a phenomenon that first quarter credit cost remains between 40 to 45 bps. And as we end the year, the credit cost comes and settle down in about 23 to 24 bps, I think we are fairly confident before we look at last year, 1.34% was headline NPA, and we ended the year at 1.08% to 1.1%. I think we are quite confident of holding the 1.1% level as we end the year. And I think that would be in the credit cost will be again settled down anywhere between 23 to 25 bps.

The reason the past was a couple of players, they have shown very limited increase. They have been able to manage it quite well despite the seasonality. So that's the reason for the question yes.

No, I think -- yes, I mean in our case, we normally see quarter 1 because of seasonality going up anywhere between 30 to 35 bps. In our case, now it has gone up by 25 bps and 22 bps. And we are quite confident of pulling it back to 1.1% level as we end the fiscal and with the credit cost charge to about 23 bps to 25 bps of the which you were.

Yes, I was just adding SP1 What gives us more confidence is that on a Y-o-Y basis, a 3 bps reduction in NPA of 40 bps on Stage 2, that gives us more comfort on how we are going to be ending the year.

The next question is from the line of Sea from Nomura.

My question is on your liquidity that you mentioned -- so in terms of how many months' worth of liquidity you're holding, what would that be? What was it in June? Where did you keep it in March? Is there a pileup of liquidity that you did? And any color on how you think the cost of fund would move through the remaining 3 quarters? That's my only question.

Very important point on liquidity is that if you take the liquidity and you compare it to our overall borrowings, our overall borrowings was INR 20,000 crores. So if you look at [indiscernible] about INR 20,000 crores, the percentage will be higher than 10%, but throughout the quarter, we tried to keep a liquidity of anywhere between 7% to 8%. This typically goes up towards the end of the quarter because there are drawdowns at the end of the quarter. So to that extent, you will see a higher liquidity, which happens at of the quarter. But throughout the quarter, we try to maintain a 7% to 8% of borrowings as a liquidity buffer. Coming back to the cost of funds. First quarter has been where we have seen very limited movement in cost of funds. But if you look at the way the market public information is there, there is this general view that the interest rates may go up. We have not seen it happening until the month of July, for example, for us. But having said that, one good thing that we have in our company is that 75% of our assets can be repriced. So typically, if we have any pain on our existing borrowings getting repriced by banks, on the floating rate book, we will also, as per our RPL model and after taking necessary approvals of our ALCO and Board, be able to pass it on to our customers the need if they need be. And we believe that at least we don't see that happening definitely in a quarter or maybe 2 quarters. And that is the way we are reading it currently, but things may change. But as we read currently, we don't see any eminent impact happening in the current quarter and probably even the next quarter.

Right. And sir, what would be your view on, say, if these interest cost of fund rates remain very volatile, you would want to keep your customers protected and not pass on volatility, what would be your view on this.

Yes. See, typically, what would happen is scenario, what will happen is a bank will also not adjusted MCLR, so proactively. For example, they will also want to rate it out to see whether it is a permanent impact or a temporary impact. If they feel there's some sort of permanency to the impact, then they will obviously impact the MCLR of that. Incremental cost of funds do keep changing, especially in the capital markets. And that is where we are very specific. Wherever the interest rate, there is an opportunity we go and raise funds in the capital markets. Otherwise, we step away from capital markets. So having said that, asset said volatility, we do not generally pass it on to customers. we also wait for it to be permanent, and it should hit our balance sheet. Once the higher interest rates hits our numbers, then only we will pass it on to the customers because we have a very robust RPLR model and it has to pass the test of the RPLR model before we can start passing on to customers. Any 1-month or 2-month impacts, which we see in the model, we generally do not pass it on to the customer. We wait it out and then only pass it on to customers.

Got it. Sir, 1 follow-up question. What you shared about your of expanding into the emerging markets. But say, in the more the markets away from [indiscernible] markets, is there any demand side challenges that you're facing in those segments? I'm not talking about competition. But is there any demand challenges in Tier 1, 2 cities that you might be facing in terms of lower number of files coming to the branches, et cetera?

You are talking about Tier 1, Tier 2 cities? Or are you talking about the emerging locations...

Non-emerging in your portfolio Tier 1 and 2.

Locations are growing at a larger speed. And that's how I said, we'll have to do the balancing with emerging also start to grow at a larger speed. So the urban demand is slightly more than what we had expected at least in the last 2 quarters that have passed by.

Okay. So there's no demand side issues that you are...

No, not at all. Not that we are seeing any.

The next question is from the line of from Investec.

My first question is on the disbursement action. I think in Q1 FY '25, also, we have made some changes with respect to the disbursement relation to eat the not -- so can you help us to understand what are the different time and what end disperse.

Yes. Ritesh. Nidhesh, you're referring to the Habarcular, which we had implemented in quarter 1 of last financial year. There if I can take a minute here to explain the process is sanctioned, disbursement, check and over and realization. These are the 4 major steps in the journey of how disbursements, how other process happens. Earlier, we used to recognize disbursements as disbursements. The moment it would get disbursed in the system, we would start recognizing the interest. From there, with respect to the RBI circular, we moved to something called check handover, check being handed over the consumer. That actually happened in quarter 1 of FY '26. And now from the Czech handover, to realization, we realized that there is a gap of anybody between 5 to 7 days. And we have eliminated this gap of 5 to 7 days and move to real-time realization. So when the check gets realized is to either the seller account or the customer account as the case may be. From there on, we start recognizing the interest. So that is the change that has happened this quarter.

And the second question is how newt-to-brand.