Aavas Financiers Limited (AAVAS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Aavas Financial's Limited Q2 FY '25 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance, involve risks and uncertainties that are difficult to predict. [Operator Instructions]. Please note that this conference call is being recorded. I now hand the conference over to Mr. Rakesh Shinde, Head of Investor Relations at Aavas Financial Limited. Thank you, and over to you, sir.

Thank you. Good evening, everyone. I extend a very warm welcome to all participants. Thank you for participating in the earnings call to discuss the performance of our company for Q2 and H1 FY '25. The results and the presentation are available on the stock exchanges as well as on our company website. And I hope everyone had a chance to look at it. With me today, I have an entire management team of Aavas, including Mr. Sachinder Bhinder, MD & CEO; Ghanshyam Rawat, CFO; Ashutosh Atre, CRO; Selvin Uthaman, Chief Business Officer; Surendra Sihag, Chief Collection Officer; Ripudaman, Chief Credit Officer; Jijy Oommen, Chief Technology Officer; Anshul Bhargava, Chief People Officer; Rajaram Balasubramaniam, Chief Strategy Officer and Head of Analytics. We will start this call with an opening remarks by our MD and CEO, Sachinder Bhinder; followed by CFO, Ghanshyam Rawat; and CRO, Ashutosh Atre. After that, we will start with the Q&A session. With this introduction, I hand over the call to Sachinder. Over to you, Sachinder.

Thank you, Rakesh, and good evening, everyone. I'm delighted to welcome you all to our Q2 FY '25 earnings call, and thank you for joining the call on the late evening. Hope everyone had a wonderful Diwali. Let me now take you through the key highlights of our performance in Q2 FY '25. We delivered a growth of 20% Y-o-Y in AUM reaching INR 184 billion along with the stated growth, we ensure best-in-class quality with 1+DPD below 4 percentage at 3.97% and GNPA of 1.08%. Our net profit for quarter 2 FY '25 stands at INR 1.48 billion, registering a growth of 22 percentage Y-o-Y. In terms of business update, in quarter 2 FY '25, we disbursed INR 12.94 billion, whereas in H1 FY '25, we have disbursed INR 25.05 billion, resulting a growth of around 8% Y-o-Y in H1 FY '25. In Q2 FY '25, we achieved another mile store in our tech upgradation journey by going live with the loan management system Oracle FLEXCUBE. The onetime elements shutdown, coupled with an extended monsoon in several parts of the country had affected building and construction activity, both of which resulted in lower fresh disbursement and part disbursement. This is one of the fundamental reasons for the muted disbursement in quarter 2 FY '25. However, we are confident of covering up on the disbursement in the second half of the financial year which is typically a strong period for us. We have already seen green shoots with September and October cumulative disbursement growth of 22 percentage Y-o-Y. Our focus is to underwrite quality business with risk-adjusted returns. Our incremental business yield has gone up by 25 bps across products. We've opened five new branches during H1 '25, four branches in our existing states to deepen our reach and one branch in new state of Tamil Nadu. We've seen a robust log-in led by a diversified omnichannel lead generation funnel, including digital, CSCs, common service centers, eMitra, RRO, Mitra resulting in a better disbursement growth and building a healthy business pipeline for the coming months. Let me tell you update on the terms of technology updates. We've implemented bank level system with robust regulatory compliance, our loan management system, Oracle FLEXCUBE has gone live across branches and is stabilized. Our new lead management system built in Salesforce has successfully gone live across branches. This will allow us to integrate seamlessly with the aggregated channels. Our fully integrated system, leading to a better visibility, inter-team collaboration and seamless customer service will also play out in the coming months. Technology is playing a key role in the transformation and TAT improvement. Our login to sanctioned TAT has improved to 8 days in quarter 2 FY '25. In terms of financial performance for the quarter and half year, our net profit in H1 FY '25 grew by 18% Y-o-Y to INR 2.74 billion, led by growth in net interest income, coupled with sharp improvement in operating leverage. Our consistent efforts to optimize costs has resulted in a remarkable improvement in OpEx-to-asset ratio by 40 bps from 3.65% in H1 FY '24 to 3.25% in H1 FY '25. We continue with our guidance of improving cost-to-asset ratio by 20 to 30 bps over the years. Our asset quality continues to be pristine with 1+DPD of less than 4 percentage at 3.97% as of September 2024. Our GNPA stood at 1.08 percentage in H1 FY '25. And our credit costs improved further to 11 bps in quarter 2 FY '25 from 20 bps in quarter 1 FY '25. We continue to guide 1+DPD of less than 5 percentage, our GNPA of less than 1.25 percentage and a credit cost of below 25 bps. We are committed to a strong growth trajectory and our focus on quality business growth and cost optimization will continue to drive our success. I'm confident that with our dedicated team and strategic initiatives, we will achieve our goals and deliver our value to our stakeholders. Thank you for your continued support and trust in Aavas. I now hand over the line to our CFO, Ghanshyam Rawat to discuss the financials in details. Over to you, Ghanshyamji.

Thank you, Sachinderji. Good evening, everyone, and have a warm welcome to our earnings call. First, to update on borrowing side. In terms of liability, we have one of best well-diversified liability franchise. We have always been innovative in exploring new avenue for sourcing. And I'm happy to share that we have successfully raised NCDs amounting to INR 6.3 billion from IFC in October month. This is the largest debt fund raised by the company till date. This achievement will enable us to channel these funds towards affordable housing and green individual homes, reinforcing our unwavering commitment to sustainable and inclusive development. We are unique HFC where our tenure of liability is higher than the tenure of assets. We continue to borrow judiciously and raising around INR 25.7 billion at 8.42% in H1 FY '25. Total outstanding borrowing as of 30 September 2024 stood at INR 161 billion. Overall borrowing mix as of 30 September 2024 is 50% from term loan, 25% from assignment and co-lending, 18% from National Housing Bank and 6% from debt capital market. Lender support continued to remain extremely strong as Aavas evolves. There is access to diversified and cost-effective long-term financing from various lenders. We maintain a strong relationship with development financial institutions. To meet long-term business growth, we have progressed on co-lending tie-up with the PSU bank. As of 30 September 2024, we maintained sufficient liquidity in the form of cash and cash equivalents and unavailed CC limit of INR 15.1 billion and documented unavailed sanction limit of INR 4.65 billion. In terms of spread, as of 30 September 2024, an average borrowing cost of 8.15% against an average portfolio yield of 13.04% resulted in a spread of 4.89%. This is a sequential drop in the spread by 11 basis points on account of increase in cost of funds by 7 basis points quarter-over-quarter, coupled with the yield compression of 4 basis points quarter-over-quarter. However, we are passing on the cost of fund increase by raising our BPLR by 25 basis points with effect from October month. This will result in improvement in the yield and recouping spread in coming months. We have 30% of our liability linked to external benchmark, which will allow us faster repricing of liability in case of rate cut scenario. Our margin, NIM as a percentage of total assets during Q2 FY '25 stood at 7.78%. Our NIM in absolute terms has increased by 8% year-on-year in quarter 2 FY '25. In terms of cost, our OpEx-to-asset ratio has improved by 29 basis points to 3.18% in Q2 FY '25 versus 3.47% in Q2 FY '24. However, adjusted to some one-off items post reversal, there is a 10 basis points year-on- improvement in Q2 FY '25. We are committed to gradually bringing down OpEx ratio by below 3%. Credit cost during the quarter stood at 11 basis points in Q2 FY '25 versus 18 basis points in Q2 FY '24 and 20 basis points in Q1 FY '25. In terms of other parameters, ROA has been -- has seen improvement of 18 basis points year-on-year to 3.49% and ROE improvement by 77 basis points year-on-year to 14.87% in Q2 FY '25. We are well capitalized with a net worth of INR 40.48 billion and CRAR at 46.48%. Total number of live accounts stood at 2,29,000, translating into 15% year-on-year growth. Employee count remained flat year-on-year at 5,761 as of 30 September 2024. Now I would like to hand over the line to our CRO, Mr. Ashutosh Atre, to discuss the asset quality.

Thank you, Ghanshyamji. Good evening, everyone. I'm pleased to share the key portfolio risk parameters with you. Asset quality and provisioning. Aavas is strongly positioned to continue delivering industry-leading asset quality. Our asset quality remains within the guided range with 1 day past due below 5% at 3.97% in Q2 FY '25, and gross Stage 3 and net Stage 3 under 1.5% stood at 1.08% and 0.78%, respectively. In terms of geography, average 1+DPD and GNPA in our vintage states remained well below 4% and 1.1%, respectively, whereas other emerging states, 1+DPD and GNPA remained well below 3.3% and 1%, respectively. Similarly, in terms of ticket size of more than INR 15 lakhs, 1+DPD and GNPA remained well below 4% and 0.8%, whereas in case of ticket size less than INR 15 lakhs, 1+DPD and GNPA remains below 4.5% and 1.25%, respectively. Our total ECL provisioning, including that for COVID-19 impact as well as Resolution Framework 2.0 stood at INR 946.1 million as of 30th of September 2024. With this, I open the floor for Q&A. Thank you.

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

Congrats on a good set of numbers. Sir, just two things from my side. One, on the spread. For the first time, spread fell below 5%, and it is due to the combination while asset yield continue to moderate and cost of funds continue to rise. And this is despite our range-bound disbursement of around INR 1,200 crores to INR 1,300 crores from past 4, 5 quarter, except Q4. So sir, what is happening on the asset yield side? Okay. On cost of borrowing, we all can understand the systemic rates are still elevated and banks are looking to pass on. But we just need to understand what is happening on the asset yield side, specifically because disbursement is also range bound.

Yes. Thanks, Renish. From a perspective, as you rightly articulated on the cost of funds, I think there is an increase. I think if you look at the last 2 years, our disbursement yields compared on -- compared to the AUM yield has been lower than the overall AUM yield. So in order to cover up that, we are trying to push that, but it is taking a lag time. But our endeavor compared to the last H1 to the current H1, we've increased the disbursement yield by 25 percentage. But since I have an AUM lag of the last couple of years, which was lower than my -- disbursement yield lower than my AUM yield, it is taking time to really cover up. However, as I said, our endeavor continues to increase the disbursement yield. And that typical focus, as we've been speaking across, is the focus on the lower ticket size where we have risk-adjusted returns and self-construction individual houses. So that's where we have guided. Our endeavor with that will continue to be in the range bound of around 4.8 percentage if the rate cuts don't happen, 4.8% to 5% is in that range bound at this point of time as we speak.

Okay. So 4.8% to 5%, let's say, it would be in FY '25 or slightly near term?

Yes, FY '25 for the current one. And as we see the states picking up, the cost of funds actually coming down, we'll see the trajectory actually moving up actually. So there's a conscious effort, as I've been talking about on every call that efforts to really increase the disbursement yields on a quarter-on-quarter basis, and we've seen the green shoots. It is taking time for us to really cover up, but our endeavor is to see that over quarters.

Got it. Would you like to share the disbursement yield number? I mean, given the blended yield at 13% and that to despite 30% LAP book. So just wanted to get a sense whether internally how you guys think about it with 30% LAP book, blended yield at 13%.

So Renish, from that perspective, currently, it is lower by around 30 bps as we speak. And as you would really look at it, the previous year, it was 55 bps lower than the AUM yield.

No worry. I didn't understand this, sir. Can you please repeat?

The current AUM yield stands at 13.04%. The current disbursement yield of the H1 is 30 bps lower than the AUM yield. The previous year, it was 50 bps lower.

Got it. Got it. Sir, secondly, again, now on the growth side, right, let's say, in Q1, we were sort of guiding at 21% to 23% kind of a growth rate. Given the muted first half and if I calculate the disbursement run rate to achieve the, let's say, the desired growth, this number works out to be some INR 4,000-odd crores in second half. So naturally, which means we'll miss the guidance. So keeping in mind that scenario, what you guys think the exit AUM growth for FY '25 and maybe in '26?

So see, Renish, as I've guided that September and October put together, we had a 22% Y-o-Y growth. H2 conventional remains strong for us. So we continue our guidance of -- for the current year of AUM about 20% plus.

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

Congratulations on a good quarter. So I have a couple of questions. One is on the product category. So if I look year-on-year basis, LAP has declined steeply and so has MSME grown sharply. So is this by demand design or increase to regulatory oversight on LAP plus top-up loans? My second question is our foray in Tamil Nadu. So if you look at Tamil Nadu geography, so there is pretty intense competition out there. You have Aptus and Chola and many players, especially on the LAP front. So how distinctly Aavas will be positioning itself versus the intense competitive -- competitive intensity there? And just one data keeping question. What is the rate differential between LAP, MSME versus home loan and your BT out?

Yes. So I think -- thanks, Shweta. You've three questions. The first question is about the MSME. I think we are a unique HFC, which does -- because we have been conventionally underwriting self-employed nonprofessionals, we were able to write MSME. These are micro-MSME, which are backed by self-occupied residential properties. The best part about that is that this is -- actually helps us to do a value addition to the working capital requirements or the self-employed nonprofessional. So it is going to finally an economic benefit use for that, and we do it with an Udyam Aadhar, which is helpful for us. And this portfolio really helps us for the securitization piece because it's qualified as the priority sector lending for the banks. And this has been in the last 4 to 5 years kind of our focus area for the franchise. That's one. Secondly, your question on Tamil Nadu. If you look at the state, we've opened at Hosur. So in line with our contiguous geographic expansion strategy, we look at immediate ones near the geographies which we are operating. Karnataka, we've been operating for last 4 years. Hosur happens to be one of the influx for us to understand Karnataka, Tamil Nadu and Telangana, AP side. So I think from that perspective, it's just a starting point for understanding and going into those regions. Again, on the kind of competition there, I think we are uniquely poised in the segments which we serve, in unserved, underserved and partially banked. The classic case is Karnataka, where we do continue to see a good amount of growth, and that gives us a good amount of confidence to really steer across in the southern states because of the kind of availability of the unique SENP base and self-construction in individual houses. So that is where our focus is. So this is in line with our contiguous geographic expansion strategy, and this helps us to navigate in the southern region, which is there. And if you look at it at 372 branches across 14 states, 14th state is Tamil Nadu, we've not been present in South. So that will help us in the coming months to grow. So that is the second part of the question. On the yield side, the differential between HL and the non-HL portion is around 200 to 250 bps. That's the differential between the housing loan and nonhousing loan portfolio. I hope that answers.

Again the -- BT number?

Yes, the -- sorry the fourth question of the BT out. BT out we are on a range point of 5.2 percentage. And I think the BT out retention model with us really works across analytics and integrated model, which Aavas has developed over a period of time on predicting the BT out really helps us to hold the customers as a part of retention. And since it is a -- what I would really say is direct source business. It also really helps us to hold the customers back into our foray. So there's a transitioning of movement of customers is restricted. So we currently are at 5.2 percentage annualized.

Our next question is from the line of Abhijit Tibrewal from Motilal Oswal.

Sir, again, kind of laboring on the spreads compression that we've seen that you partly explained in the prior question. But just trying to understand our earlier long-term guidance used to be spreads of 5%. For this year, we guided for 4.8% to 5%. Now, I mean, with a declining interest rate cycle ahead, I mean, although transitory, but I mean, the spread could be in further pressure going ahead. Plus if we recall, sometime in March, we had taken a retail PLR increase of 25 basis points. So if you look at our yields, that has not really kind of translated into AUM or portfolio yields. From that level, our yields are actually down. So now if we are going to take another 25 basis points increase in retail PLR, I mean, what is the confidence that we have with regards to this kind of translating into improvement in portfolio yields is something I wanted to understand.

I think, Abhijit, I'll answer the first question and I'll have GHR really talk about the cost of funds perspective. I think as we -- as I told earlier, if you look at our disbursement yields versus the AUM yields, it was a last couple of years drag. Even with the increased our PLR, we've not been able to cover up that. There's a conscious effort to really put that across by increasing the disbursement yield. But as you would rightly appreciate, it takes its own time. Secondly, on the -- our PLR increase, 35 percentage of our book continues to be on the fixed rate. So that translation is only impacted by a little bit of that. And again, as I said, that last 2 years has been more on the lower disbursement yield, that is impacting. The second part is which is very important, if you look at the trajectory of Aavas over the last couple of years, the cost of funds in last 2 years, and I'll have Ghanshyam really talk about the cost of fund trajectory and why that impacted from a level of 4.59% or 4.610% to 5.86%, that is where our Aavas range. I think the cost of fund is one factor, which is one of the factors which has led to the spread compression. But as I said that even at 4.89%, we continue to guide on 5 percentage plus/minus 20% for the current year. On the cost of funds, I'll have Ghanshyamji really talk about the one. And in case the rate cut impact happens, we have 30 percentage of the liabilities, which are on repo base, we'll see a cost of fund decrease and resulting in the increase in the spread. Over to you, Ghanshyam.

Yes. Abhijit. More or less now cost of borrowing is stabilizing at this level basically. Like recently, we raised IFC money, which came at 6-month OIS plus 148 basis points, which is a sub-8% in our cost of borrowing. So it's more or less cost of borrowing getting stabilized. And yield side, as Sachinderji mentioned, we have -- in last 2 quarters, we have seen a continuous basis, 25 basis point improvement versus the last year basically. Another 25% -- 25 basis points, we are making efforts in the coming quarters. So that will lead to almost new business yield versus my AUM yield basically. So whatever drag we have seen in the last couple of quarters, that will get minimized in the coming quarters basically. So both these two items, we will have -- we will reach recoup closer to back to 5% spread. And obviously, we are expecting now maybe it's difficult to predict anything, but whenever rate downward start, so it will have a positive impact on the spread side, which we have seen in an earlier phase also.

Got it. Ghanshyamji, just one follow-up question to that. Sir, I'm just thinking about, please correct me if I'm wrong. While our BT out is at 5.2% annualized is indeed very good. I mean in the last 1 year or so, given that our disbursement engine has not fired as what we would have liked, given that we are retaining customers and which is why BT out is also reflecting in lower BT outs, is that also one of the reasons why, I mean, our yields have been under pressure? I'm just kind of trying to understand when we look at you at your size and scale and compare it with a whole host of smaller HFCs today, we have not seen that yield pressure for them. Is it about your size and scale, which is a little bit of a problem? Or how should we interpret that?

So I'll address the question in two parts. First part on the [indiscernible] and second part on Ghanshyamji to the model, which is there. I think from a perspective of the total at 5.2% there is definitely a yield compression, which comes to at around 15 bps on an annualized basis. As we speak on H1, we had about INR 400 crores worth of retention to the entire staff actually. So I think there is a yield compression in order to hold that. On the second part of it, how Aavas has really navigated that at that stage and how do we maintain that? I'll have Rawatji really talk about our -- the tech piece on which we -- actually helped us to retain the customer, predicting the part where our AI really model plays an important role.

Thank you, Sachinder. Abhijit, it is always very important to retain your performing customers basically. And we always made long back our predictive model. That has helped us in our journey despite an affordable housing piece where a lot of customers come first time to us basically, and we -- BT out is always maintained less than 6% in last, I think, so many years basically. And I want to add only one more thing about what Sachinder said, if we retain the customers, obviously, we retain only performing customers basically. And even we reduce some rate on those customers. But in the year 1 itself, we record the fee amount, which is equivalent to take care of a 1-year loss basically. So it's a win-win situation for us because we also brought down the cost of borrowing. When we lend it to those customers, cost of borrowing used to be in double digit basically. Now we have -- cost of borrowing has came down to 8% basically. So it always retain to that customer good strategy for us basically. And we are not losing much out of those retaining those customers. And one more data point, I think whosoever customer goes out, we also do assessment on those customers, basically how they are performing in the market. You will surprise to see -- those performance -- those customers are much poorer than what we have inside our company basically. So that shows that our model is performing very well for us.

[Operator Instructions] Our next question is from the line of Kushan Parikh from Morgan Stanley.

I actually have two questions. One is around the operating cost. Basically, we've seen a considerable improvement in this quarter. And obviously, we guide for 20 to 30 bps improvement in OpEx to asset. Just wanted to -- I mean, if you could elaborate how have we driven this improvement on a quarter-on-quarter basis, especially on the employee expense side, which has had -- I mean, had a sequential drop as well in employee? And how should we think about OpEx going forward in context of the -- in the 2Q improvement that we have seen? Should I also put forward my second question?

Sorry? Yes, yes, yes.

Sure. So the second question is around the credit cost. So we guide for less than 25 bps credit cost over a longer period of time. Last 2, 3 quarters, we've had a couple of quarters with lower credit cost around 11-odd bps. Just wanted to understand, obviously, this would be the outcome of the ECL model. Are we seeing better asset quality outcomes than what we had modeled in the ECL and hence, the provisioning requirement is reducing? Or is there an overlay component that was present earlier and which is not there now? I mean I wanted to understand the reasons for the dip in credit cost as well.

So on the OpEx...

So I mean how sustainable that is going forward?

So I'll answer the first question. Second question, I'll have Rawatji really take up. On the operating leverage really pumping in on OpEx-to-asset ratio, you've seen a sequential reduction on H1 by 40 bps. That's around 3.25 percentage, compared to the previous year, it was 3.65 percentage. If you look at last 3 years, the employee strength has been constant actually at the same level. So I think that is where the one which really kicks in. Secondly, having invested in the technology, we are seeing now the green shoot as earlier guided in our conference calls and quarterly calls. We said that we'll start seeing the green shoots really coming across from the tech implementation. So the operating leverage has started really kicking in. And as we go in the quarters ahead, we expect really to what I guided range bound of coming to below 3 percentage. Now again, on this, we really look at it very granularly on the cost reduction. If you adjust by the ESOP cost, there was a reversal, we continue to stand at 3.37% even with that. So one is you remove the ESOP cost reversal because which is onetime kind of thing. But the rest of them has really kicked in because of the operating leverage really coming across from the way we actually manage our stuff and wherein tech has really played an important role. And we will continue to do that in the coming months. As we guided that I think a couple of quarters, we will be sure about that this is sustainable, this is consistent, and we continue our endeavor as a team to really build on our digital initiatives, our initiatives on digital collections, our initiative on digital sourcing, and after the systems going live, we'll have reduced cost of acquisition, reduced cost of collections, which really would really kick in, in the coming times. On the second part of the credit cost being lower, I'll have Rawatji really talk about in detail.

Before we move to that, just one question. If you could quantify the ESOP cost reversal that we had this quarter?

Yes. So as I said, the normal case scenario, we were at 3.25%. If the ESOP cost, if I don't include that, I would have been -- we would have been at 3.37%.

As you know, Aavas is always is a credit conscious company since beginning. So we have invested in underwriting, technical, legal, RCU. And that -- on that -- On top of that, we have one of the best collection team in the company basically. So top of that, we always believe that our cost of -- credit cost will not be more than 20 basis points. If you see then from COVID, from [ demon time ], from RERA, all -- across the time, we are not more than 20 basis points. Yes, after the COVID, everything, I think portfolio quality got improved quarter-over-quarter by consistently maintaining 1-day past due less than 5% and NPA is around 1%. All this goes into model. And as per the ECL model, our cost is where we are today basically. It is continuously will be maintained less than 20 basis points. Right now, we are just between 11 to 12 basis points.

And just to add on to what Rawatji said, I think the fundamental principle and the DNA of the company is a sound risk management principle, which is risk-adjusted returns. The sound underwriting principles laid across on the framework of putting across self-constructed individual house to be funded where it is occupied, where the LTVs are there. So the end usage is also there. So I think a couple of factors which have been there, which become the bedrock of really building a strong fundamental franchise, which works on sound risk management principles, a sound understanding of risk-adjusted returns. Now coupled with the digital initiatives and the tech initiatives, which will really help to tread a path as we've crossed the 2.5 lakh plus of customer base. And secondly, having a repository and understanding of having underwritten over the last 12, 14 years as we speak, about 4 lakh plus of customers, I think we've found the cross based on very well diversified understanding at a macro and a micro level of what to underwrite and what to let it go. So I think as we traverse the journey, the guardrails are very clear. The guardrails are good enough that we don't slip, but not strict enough that we don't traverse the journey. So I think from the perspective, we would continue to traverse a path, which is risk-adjusted return, risk managed control and sound underwriting practices, this is coupled with the digital and our new age AI-based thing, which will help on our kind of stock, which we've been traversing.

Our next question is from the line of Raghav Garg from AMBIT Capital.

Sir, you mentioned about 22% disbursement growth for September and October. Is that right? And is that the number that you expect to sort of achieve or deliver in second half? Or will it be higher?

So thanks, Raghav. Raghav, as I spoke that September and October cumulative -- am I audible -- September and October, cumulative, we are at 22 percentage of disbursement growth as we speak. We've guided that for the current year on an AUM basis, we would be 20 percentage plus. Conventionally, H2 has been stronger for Aavas. And as we laid out, I think two principal factors for an elongated long monsoons in the regions which we work in the western and the northern parts of India because we are a self-construction final company, which fund its self-constructed homes. That's one. Secondly, a part of regulatory change of the way you treat the disbursements. I think both cumulative put together. And the third is an LMS shutdown because of the -- in the month of October when we went, I think resulted in that. But we are confident with what we've seen in September and October to continue. And we continue to guide with a 20 percentage plus for the current year, the AUM growth. And we are confident of traversing that journey for the current year.

And sir, how many employees did you have in this quarter? I heard you said that your employee count has been flat.

So, 5,761 is exact employee count. And Raghav, this has been there across for the last 3 years, if I were to really put across. So there's no -- hardly a growth of about 30 to 40 absolute employees over a period of last 1 year. I think this is aided by -- you see operating leverage really coming across. So I'll give you an example of saying with this kind of increase in the AUM, increase in the number of accounts, we hardly had any addition in the collections where the digital initiatives or digital collections, no touch collections, which are there, which really helped us to really be doing a touch-free kind of stuff, which is there. I think the second leverage, which we'd really like to kick in after the SFDC, the loan origination system, the lead management system really going live, we'll start seeing that really fructifying into the finding operational efficiencies really kicking in.

Sir, what's the off-roll count as of September?

The total count is 5,761, Raghav.

Sir, that's on-roll, right? I'm asking off-roll because that's something that...

It's around 1,800 employees.

Okay. 1,800 off-roll. And another question. See, when I look at your intangibles, right, they are at about INR 47 crores, INR 48 crores. That has increased by about INR 5.5 crores in the last 6 months. I just wanted to understand this number is up 13% YTD. What is the nature of this expense?

Raghav, can you come back again? I think we lost your connection. We heard INR 47. What was that? Can you rephrase the question?

The total intangibles on your balance sheet, they are up about 13% YTD. They stand at about INR 47 crores, INR 48 crores. None of the other affordable HFCs have such a number. I just wanted to understand what kind of expense is this, which is being capitalized? Where exactly are you spending -- or where exactly have you spent this money to the extent of INR 48 crores?

Yes. Raghav, in last few quarters, including this quarter, we mentioned that we are doing a tech transformations, LOS, LMS, EGL and data warehouse, technology transformations along with the lead management solution basically. Some of them has gone live, which got capitalized. Some of them have just gone live, but the hypercare period is their own. So that majorly is towards IT spend, which we have invested for IT capitalization basically. Yes, please.

Sir, what I understand from the all the tech investments that the affordable HFCs do, what I understand is that it is mostly subscription based, right? I mean you pay a subscription fee to your technology partner, which is Salesforce or someone other. And therefore, given that, shouldn't it be expensed through the P&L?

No, no, no. It is -- when projects get implemented, till the projects go live, implementation partner expenses, project, they always do -- sit with you, plan and develop your model for you and then implement. It takes almost 12 months' time basically to make program or develop then allow them. Yes, once it has gone live, then it become a subscription model basically. Like Salesforce is now a subscription model because it has gone live and we have capitalized the INR 12 crores, which we invested in the Salesforce loan origination system basically. Similarly, LMS now is going live. The fees are to be capitalized, then it will go on a subscription model from January onward basically. And for CapEx, we are doing around -- put together what we already capitalized and which is in the pipeline will be around INR 60 crores, total amount we capitalize in the IT projects, which will be amortized in the next 7 years.

Understood. Sir, I have one more question. Can I ask?

Yes, please.

Sir, your repayment rates have increased in this quarter, but I heard you saying that the BT rate is still at 5.2%, which is same as Q1. So why is it that the repayment rates have increased in this quarter?

No, I think it is a steady state. We don't see any spike, any change in overall rate. BT out is in the range of 1.2%, 1.25% salary every quarter. So in first half, we have seen already 5%. And put together, full year basis, it will be around 17% to 18% which will have three components. One component will be the 5% to 6% BT out and around 6% customer pay out of its own pocket as a monthly EMI, 6% generally customer pay out of whenever they have surplus money, they can pay back to me, part payment also. Until now, we are around 16%, which is almost 2% better than what we forecast in our annual assumptions basically. My annual assumption in budget is we take 18% in overall basis.

So we are at around 16%, as we speak.

Our next question is from the line of Yash from Citigroup.

Just wanted to get your thoughts on incremental asset quality in the month of October. How is the collection moved? And also, sir, while the 1+DPD continues to be below the guided range, it has seen some increase of 30 bps. And so any thoughts there?

So I think if you look at -- as we spoke, I think you had an extended rainfall, you had an extended [indiscernible], you had Diwali, which just came after the festival season. I think there was some part of which was there. But as we speak, on the month of October, we were -- from 3.97%, we were at around 3.84% -- so there is a sequential decline on month-on basis. So we have recouped what was being left out. And this was like an elongated period of time, which is there. So we continue our guidance of less than 5 percentage. But as we speak, from a 3.97%, we are already at an October of 3.84 percentage.

Got it. And just to follow up on that. Was there any like discriminately increase in the less than 1.5 million segment or it was broadly stable increase across the board?

It was broadly stable. There's nothing -- anything which is incrementally or differential, which would really give any difference as far as our understanding and our numbers really show. I think we track -- I think as you will really appreciate, we track it on a sequential absolute basis, actually, so to say, and across the product segment. So we've not seen anything. I think we've been cautiously optimistic in the approach of our underwriting perspective really to build on the quality which we deliver. And as earlier said, we continue to guide at a 5 percentage plus 1+DPD.

Our next question is from the line of Shreepal Doshi from Equirus.

Sir, my question was on -- was on liability side. Any fresh sanctions from the NHB front incrementally?

Yes, we already applied to National Housing Bank for this year limit, because generally, NHB accepts the limit once we publish our results and upload to stock exchange and MCA website. So it's in their process basically.

Okay. So for this year, we are yet to receive any update currently.

Yes. Current year refinance limit yet to be sanctioned by them.

Okay. Okay. Got it. And then just on the asset quality front, I mean, if you look at the mortgage segment, there the NPA increase has been pretty sharp in the last, say, 4, 5 quarters. So anything that you could sort of explain why is it so?

You see, we -- non-home loan majorly goes towards a self-employed. And secondly, we see that this adjusted return basically how we make out of that book basically. This book is already -- we have given a loan almost 250 to 300 basis points at a higher rate of interest. But ultimate loss, we are not seeing in last couple of years basically. Recovery pattern is the same, whether it is a home loan or a non-home loan basically. In both the cases, security is residential self-occupied housing property basically. So yes, NPA is more, but ultimately, loss is similar, similar in both class, in both the assets basically. Second thing, these assets is also now reached a maturity because non-home loan this is we started and sold 4, 4.5, 5 years back basically. Now this asset has reached the maturity level now basically. Home loan is a last 10-yearbook, we have basically on the maturity term basically. So -- but we are confident. We don't see any sort of risk around the NPA numbers on both the products, whether it's home loan or non-home loan.

Got it, sir. Sir, just last question to squeeze in here. In terms of product mix, will the loan book mix remain at -- where it is? Or will there be some change in the mix with respect to...

It is almost at optimal level. It will remain in the same range, maybe 3% to 5% here and there, but it will be more or less in the same range.

Given the RBI norms for NBFC, HFC, I think the 75%, we are already there, right, in terms of housing loans. So...

We -- I think we are fully compliant as per NHB and regulatory norms on the home loan and non-home loan component. And we don't see any change -- we don't see any change to be done at our end.

Our next question is from the line of Mona Khetan from Dolat Capital.

I have a question on the OpEx front. So you mentioned about the ESOP cost reversal, which has helped lower the cost to assets over the last 2 quarters. So is this one-off fully accounted for? Or we will see some more benefits from ESOP cost reversal coming in, in the subsequent quarters as well?

No. ESOP cost reversal happened in the -- only in quarter 2. Overall saving we see on H1 to H1 level is 40 basis points. Even if we exclude this ESOP also, then we will have a 30 basis point better OpEx improvement on H1 to H1. It is not accounting of what has been left out or what has been provided. It remains accounting of point of time basically. Every quarter, reassessment of a long-term incentive plan happens. And on that basis, whatever is available benefit has been taken in the books of accounts, because ultimately, it's a noncash item. We'll appreciate.

Okay. So for this fiscal, is it fair to say that the improvement in OpEx to assets will be higher than what we are sort of guiding for of 20 to 25 bps given this 30 bps improvement even ex of the ESOP impact?

We -- I think in the beginning of the year, we guided 25 to 30 basis point annual saving after the transformation for a couple of years till we reach a 3% OpEx level. Full year guidance, almost we have achieved in the H1 and our -- as a management efforts are there to maintain this 30 basis points by the year end.

Ladies and gentlemen, that was our last question for today. I would now like to hand the conference over to Mr. Sachinder Bhinder, MD and CEO of Aavas Financials Limited, for closing comments.

Thanks. As we conclude today's earnings call, I want to express my heartfelt gratitude to each one of you for your participation and engagement. The dedication of our team, the trust of our shareholders and the loyalty of customers has been instrumental in our growth. We aspire to reach a milestone of INR 1 trillion in assets under management by 2033 and broaden our horizon as a pan-India player. I express my deepest gratitude to all our regulators and stakeholders whose constant faith and support have been the beneath our wings. We remain optimistic about the future and are confident that our strategic initiatives will continue to drive sustainable growth and create shareholder value. If you have any further questions or require additional information, please feel free to reach out to Mr. Rakesh Shinde, our Head of Investor Relations. Thank you, and have a wonderful year ahead. God bless.

Thank you, everyone.

Thank you. On behalf of our Aavas Financials Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.