Aditya Birla Capital Limited (ABCAPITAL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Aditya Birla Capital Limited Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ajay Srinivasan, Chief Executive, Aditya Birla Capital. Thank you, and over to you, sir.

Thank you. Good evening, and welcome, everyone, to this Q3 results call for Aditya Birla Capital. I'm joined, as always, by my senior colleagues, including the CEOs of our individual businesses, and we will together take you through this presentation and answer any questions that you might have. So let me straight away jump into the highlights of the quarter as set out in Slide 3, that hopefully you have a copy of the deck that we've put on the website. Slide 3 is the start. Slide 3 gives you the highlights for Q3 of FY '21. The first highlight is that we've had a very strong growth in business across all our businesses. Actually, we've seen very strong growth, leading to the highest ever quarterly profit at Aditya Birla Capital. Our consolidated ABCL revenue is up 16% year-on-year to INR 5,346 crores, and our PAT is up 15% year-on-year to our highest ever quarterly profit of INR 289 crores. We've seen a very strong growth in disbursements in our lending businesses, including housing, which at INR 5,100 crores is significantly ahead of pre-COVID levels, along with a significant focus on our target segments, which is largely the retail segment in both our businesses. Our NBFC NIM expanded by 18 basis points to 5.24% and PAT at INR 193 crores is close to the previous year level. In our housing finance company, our NIM expanded by 81 basis points year-on-year to 3.68%, and our PAT is up 38% year-on-year. Our AMC too had a strong performance with domestic AAUM up 7% quarter-on-quarter, driven by equity AAUM itself that has grown by 6% quarter-on-quarter. We continued our focus on retail, building our SIP book and growing in B-30 cities during this quarter as well. We've seen a strong improvement in our AMC profitability with the Q3 '21 PBT to domestic AAUM at 30 basis points, and the absolute profitability of the AMC again being the highest in the history of the AMC for a quarter. In the life insurance business, we've seen very strong performance relative to the industry. Our 9-month individual FYP is up 6% year-on-year, whereas the private players have actually decreased in this period by 6% year-on-year. In the group business, we are up 50% year-on-year, whereas the industry has grown by 15% year-on-year. So both these segments we've grown ahead of the market and clearly therefore added market share. We remain the fastest-growing health insurance player in the market with our 9-month GWP up 57% year-on-year with a very strong retail mix at almost 75%. This business has again been focusing on profitability as much on growth, and our combined ratio at 126% is significantly lower than the prior previous year number of 142%. Our other financial services businesses have contributed significantly to profitability as well with a 2.8x growth in profit before tax year-on-year to INR 36 crores. This growth has been driven by our general insurance broking business, our asset reconstruction company and our stock and security business. And finally, ABC was adjudged one of the top 25 innovative companies in India at the CII Industrial Innovation Awards 2020 where we have demonstrated some of our digital capabilities. So clearly, some of the things that we're doing is qualifying for getting us recognized as amongst the top innovative companies in India. I'd like to move now to Slide 4, which on the left, pictorially represents our growth in revenue and profits quarter-on-quarter, year-on-year and for the 9-month period. I really like to highlight a couple of points on the right-hand side of this table, which is the growth in our profitable businesses PAT year-on-year from INR 401 crores to INR 431 crores and the growth in consolidated PAT year-on-year from INR 250 crores in Q3 of FY '20 to as I said earlier, the highest ever profitability we've had in our history of INR 289 crores for this profit -- for this quarter. Moving on to Slide 5. This slide -- this slide shows our consolidated PAT over the last 8 quarters. So as you can see from the chart on the left, we were delivering between INR 250 crores and INR 270 crores a quarter till Q3 of FY '20 when COVID hit. As with everyone else, we had an impact due to COVID, and that resulted in a drop in profits in both Q4 of FY '20 and Q1 of FY '21. However, I think we've managed to bounce back very strongly from there, with growth last quarter as well. We grew last quarter 3% year-on-year. And now in Q3, growing 15% year-on-year and delivering our highest ever quarterly profit in this quarter. As the right-hand side chart shows, our growth rate in Q3 is now trending back to pre-COVID levels. In Q3 FY '20, which was pre-COVID, we grew 17% year-on-year. And this quarter, we've grown by 15% year-on-year. I want to now move on to Slide 6, which shows the diversification benefits that ABC enjoyed due to its wide range of businesses, and something that we've always said as one of the key differentiations of ABC as a platform. We have compared the performance of ABCL here to a cohort of 12 NBFCs, 7 HFCs, 3 AMCs and 8 life insurers. So we've really picked the largest players across different segments that we operate in. And we've taken their financial results. So if you look at the top half of the slide, what you would noticed is that while ABCL consolidated revenues have grown by 21% CAGR in the 2-year period FY '18 to FY '20, the average growth of the cohort I just mentioned was 9% for the same period. So clearly, ABCL's revenue growth was significantly ahead of the average of this cohort for the same period. Interestingly, ABCL revenue growth was also ahead of the median growth of each of the sectors represented here. So if you look at the top right, you will see that the NBFC segment, for instance, revenue growth CAGR was 17% and in the life insurance case, it was 18%, whereas in every ABCL's case, our CAGR revenue was 21%. Now if you look at the bottom half of the slide, you will see similar data for profit before tax. Here also you would notice that the 8% CAGR for ABCL is actually ahead of the average growth of the cohort, which, in fact, is down by 7%. So that's a 15% outperformance. And ahead of the median growth of each of the sector, which is captured on the bottom right part of this slide. So really what this tells you is that the diversification at ABCL is somehow delivering better results than individual sectors by themselves. And I want to spend a few minutes looking back and then looking forward. And Slide 7 is a snapshot of the performance of our businesses between FY '17 and the 9-month period ending December '20. As the data on this slide shows, we have a track record in building scale and building a very large retail franchise and then driving profitability. So let me start with the top left, which are our protection businesses of life and health insurance. You will see that our total gross premium here has grown sharply to INR 8,000 crores as of FY '20. For the 9 months of this fiscal year, we are already at close to INR 7,500 crores of premium. And you know, the biggest quarter for life insurance and health insurance is still to come. So this growth momentum should continue this year. We have over 11 million lives covered through our health insurance business and a significant amount covered through our life insurance business as well, making for us a very significant retail base in our insurance businesses. And you will notice the improvement in our profitability metrics with net VNB margin in life swinging from minus 5.5% in FY '17 to 5.9% in the 9-month period ending FY -- ending December '20, and with the significant drop in our combined ratio in health insurance and our continued guidance that we will break even in Q4 of FY '22. The same story plays out in our mutual fund business on the top right. Here, our overall AUM has grown to make us the largest nonbanking asset management company. We have 7.1 million portfolios in this business and INR 1.23 lakh crores of retail and HNI AUM, making it again a significant retail franchise operating in this sector. And our profitability has improved significantly here by almost 50% between '17 and 9 months of this fiscal to 28 basis points of AUM. And as I announced in the beginning, this quarter, actually our profitability is 30 basis points. Moving on to the lending businesses at the bottom left corner of your slide. We have grown our book to INR 57,500 crores, which is a significant amount in the market in which we operate. Our retail and SME mix here has increased significantly, again, from 40% of the book in '17 to 60% of the book as of December '20. In line with what happened in our other businesses, the profitability of both the NBFC and our HFC have improved significantly over this period. And finally, if I move to the bottom right part of the slide, you look at our other businesses, it is evident here too that these businesses have grown in scale and profitability. And as a result of optimizing our portfolio, we moved from a loss of INR 10 crores in FY '17 to a profit of INR 109 crores for the 9 months of this fiscal from these businesses. Having looked back 3 years, I would now like to look forward 3 years and set out our aspiration in each of our larger businesses. Slide 8 sets out our target metric for each business for the next 3 years. Starting with our NBFC, we expect the resumption of growth in the economy and with our NBFC, and therefore, the book to grow by about 15% to 17% per annum over the next 3 years. This growth would be driven by retail and SME, which are targeted to grow to 65% of the book by FY '24. This would be aided by an expansion in our branch footprint. As a result of this change in mix, we expect our NIMs to increase to about 6.25% and our cost income ratio to reduce. This, together with normalization of our credit costs should result in an expansion in our ROA to 2.5% to 2.7%, somewhere in that range, and our ROE to 16% and 17% from where we stand today. Similarly, in our housing finance business, we expect the loan growth -- loan book to grow with a focus on affordable housing, which should become a significant part of the portfolio by FY '24. We are looking at growing the informal segment and increasing our branch footprint to drive this. Again, the change in mix should also improve margins here by about 50 basis points, and the scale will reduce our cost income ratio to less than 30%. This should take us from the 1.12% ROA at present to ROAs in the range of 1.5% to 1.6%. We expect our asset management company to broadly grow in line with money supply as has happened in the past. Our focus here will be on increasing our equity mix and growing our alternate assets profitably. This combination, we think should result in being able to grow our PBT at about 15% per annum and improve our ROE from the already healthy levels that we are at today. In life insurance, we're looking at a 15% to 18% CAGR growth in individual business and good traction on renewals. A change in our protection mix and a reduction in our OpEx to premium ratio should help us expand our net VNB from our estimated 10% level for this fiscal to 16% to 17% by FY '24. And finally, in health insurance, we expect continued strong profitable growth. As has been mentioned before, we expect to exit this fiscal with a combined ratio of 110%. We expect to breakeven in Q4 of FY '22. And with continued growth, we expect our GWP to grow from the 9-month level of about INR 860 crores to about INR 3,200 crores to INR 3,500 crores by FY '24. I want to now move on to Slide 9 and conclude the first section by talking about 3 focus areas for the future. The first is regarding our structure. And I want to share with you that our Board is continuously looking at options to enhance shareholder value. Our Board believes that there is opportunity to unlock value given the scale of our businesses and is evaluating various alternatives in this regard. Our principle will be to look at those assets that have achieved the required scale to maximize the value unlocking for our company and its shareholders. The other 2 focus areas on this slide are around cross-sell and upsell and leveraging the power of digital, and I will talk to you about these in the next 2 slides. So moving on to Slide 10. I want to talk to you about our approach to upsell and cross-sell. So for a business like ours with 20 million active customers and a large retail footprint, we believe there is significant opportunity to enhance our revenues through both upsell and cross-sell. I'd like to break our approach to this into 3 buckets. The first is the opportunity to sell more products per customer within our existing businesses. So for instance, to sell a second fund or a second life insurance policy to an existing mutual fund customer or an existing life insurance customer. We have covered some good ground in this regard. And as you would see from the table here, our product per customer varies from about 1.37 in our newly started health insurance business to 2 in our NBFC, so quite a range, and I think there's been a movement -- a significant movement here over time. We will be consistently looking to find ways to increase this over time because each of these businesses has customers, and as we add our customers, there is opportunity to add products per customer. The second bucket on this slide refers to increasing products per customer by cross-selling across lines of businesses as against selling more within a line of business. So we are currently at a place where about 1.8 million customers have 2 or more products with us. And about 0.2 million have 2 or more products or more than 1 line of business with us. So clearly, there is a significant opportunity here to increase the cross business ownership of our customers. And finally, there is this massive opportunity to leverage analytics and digital journey to cross-sell to customers outside the 20 million active customers that I've spoke about. This, too, we think is a significant opportunity, and we are currently designing pilots to generate learnings for us so that we can scale this up during FY '22. And finally, talking about our focus on digital on Slide 11. Our approach here is to leverage tech to grow revenues, to improve customer and distributor experience, to optimize costs and to build scalable processes that support the growth that we're talking about. There are several use cases across our businesses of leveraging digital to create favorable outcomes for our customers and distributors, and the individual businesses will probably cover this in their segment. We're also currently partnering with more than 10 fintechs to leverage their expertise in specific areas, be it in risk management or in actually improving our analytics or our customer experience. And finally, we are partnering with fintechs at some scale now to drive customer acquisition across our lending, across our insurance businesses and our asset management businesses, and again, our individual businesses, we'll talk about this in their section. The right-hand side of this chart, actually, lists out examples of some of our innovative use of technology, but I'm not going to run through each of these. But I think there are a number of areas today where we're actually pioneering and creating some innovative options that are improving customer experience, reducing tax, reducing costs and altogether, making a big difference to the experience that our customers and distributors have with us. I'd now like to stop and hand over to Rakesh Singh, who will cover our 2 lending businesses.

Thanks, Ajay. We have a detailed presentation on Aditya Birla Finance, but I'll take you to Slide 13, which really highlights the performance of NBFC. Quarter 3 was a crucial quarter as this was the first full quarter where loans came out of the moratorium and also the economy started opening up. We saw strong disbursements coming back in quarter 3, and we disbursed close to INR 4,300 crores, which was 20% higher than the previous year. So we are back to the pre-COVID numbers, better than that. Also what is important to note is that majority of this disbursement was to our targeted segments, which is retail and SME. To further aid our SME and retail business, we have opened 34 branches in the quarter. Our large and mid corporate business is now down to 43% of our overall book. We have been rightsizing this business, which has come down 2% year-on-year. As a result of this change in the mix, our incremental yield is coming at 12.63% versus the portfolio yield of 11.45%. This increase in yield and reduction in cost of borrowing has led to an improvement in margins to 5.24%. If we normalize this margin as one-off for NPA reversal, our margin has actually grown to 5.6%. Talking about our cost, we have managed our costs quite optimally, and OpEx has only marginally gone up in spite of increase in our branches and focus on retail and SME. We always have a focus on quality of book, and we have reduced our stage 3 assets quarter-on-quarter. If we take the Supreme court dispensation, then our stage 3 is at 1.78%. And if we exclude that, then our stage 3 is at 3.08%. But this has come down from 3.5% in quarter 2. So there has been a reduction in our stage 3 assets. The reduction in stage 3 assets this quarter was aided by a resolution of INR 550 crores and was offset to some extent by some slippages from the moratorium book. We have restructured only 1.5% of our book under the onetime restructuring provision of RBI, most of which were in stage 1 assets. As a result of all this, our credit cost for the quarter came down to 1.38% from 1.67% in quarter 2. Depending on the economic environment and how the conditions pan out, we are expecting credit cost to be in the range of 1.25% in H2. Our collection efficiency has again come back quite strongly and is at a pre-COVID level of 96.4%. Our PAT for the quarter, if we look at, has grown to INR 193 crores, up from INR 181 crores in quarter 2. And important to note that it is only INR 10 crores less than the same period last year. On the funding side, we are very comfortable with our ALM, and we continue to have amongst one of the lowest cost of borrowings in the industry. We have leveraged the digital platforms and assets quite well, and we have onboarded 84% of our customers digitally. So clearly using digital in terms of onboarding, servicing and collections to do our business. I will quickly take you to Slide #17, which talks about the peer comparison. We [Technical Difficulty] peer group slide, and the thought is to show how do we fare. If you look at our yield, reported yield is 11.45%. And if we normalize it for one-offs, it's at 11.73%, resulting into a margin of 5.6% of normalized margins. And if we compare it to the peer group, our margin is at -- has been improving quite steadily from 4.5% in FY '18 to 5.6%. Also important to note that we have -- majority of our portfolio is secured in nature. So our margins are slightly lower compared to the industry. But as we build our retail and SME portfolio, this margin is expanding and will expand further. The cost income ratio is very efficient at around 30%, 31%. And as we scale up, that should come down further, as was shown by Ajay in his opening slide. So very efficient cost income ratio. If you look at the ROA, our ROA is -- 1.7% is the reported ROA, but if we normalize it for one-offs in quarter 3, it's at 1.9%. And we really improve our margins through our retail and SME mix once our credit cost subsides because of the resolution in the corporate book. And we have shown -- if you look at in quarter 3, we resolved INR 550 crores in quarter 3. So clearly, if these things play out, we will improve our ROAs to around 2.5% to 2.7%. That's what we have been really targeting. I will take you to the housing finance business, and this is Slide 24. Similar to NBFC, we have seen a strong rebound in gross disbursement. We did INR 815 crores, which is 19% growth quarter-on-quarter and 5% growth year-on-year. So clearly exceeding what we were doing pre-COVID. So it's better than the pre-COVID numbers. Out of this, 48% of the disbursement is happening in our targeted segment, which is the affordable. Our affordable mix book has gone up from 17% last year to 24%. So clearly demonstrating, in terms of the segment, where we want to grow. In order to aid and enable growth in affordable segment, we are looking at adding 30 more locations in quarter 4. We are also doing pilots in different states to get into informal affordable segment, which is an assessed income category, and we really look at growing that segment to improve our margins. Our margins have improved to 3.68%, which is 81 basis points improvement year-on-year. Our cost income ratio has come down quite nicely to 35.7%, which is 12% improvement year-on-year and 6% improvement quarter-on-quarter. Our PAT has grown to INR 38 crores, which has grown 40% year-on-year. Talking about quality of book and collections. Our collections efficiency again has come back quite nicely at 96.3% in December, which is similar to what we were experiencing prior to COVID. Our gross NPA, taking into account the Supreme Court dispensation, was 1.14%, and if we exclude that, then it was at 1.89%. We have improved our provision cover across and our stage 3 provision is close to 34%. Talking about the liquidity and the ALM, we have a very comfortable liquidity and ALM for housing business as well. We have a comfortable capital adequacy ratio of 19.4%. Again, similar to other businesses of ABC, we have used the digital platform quite efficiently. 86% of all our files were sourced on a digital platform in quarter 3. Again, we thought that we should compare ourselves with the peer group, and I will take you to Slide 28. And if you look at -- we have compared to the large housing finance companies and the names are given below. And if you look at our yield for quarter 3, it is at around 10.47%, and NIM -- reported NIM is 3.68%, and if I normalize it, it's closer to 3.85%. So on NIM, on the net interest margin, we compare quite well to the industry peers, and our margins have improved quite well to 3.7% in quarter 3. Our cost income ratio, ours is a 5-year old housing finance business, and we are comparing it with very large housing finance companies. But still, if you see, our cost income ratio has been coming down very nicely from 71% in FY '18 to 36%. And once we get a scale in this business, we are looking at bringing down this 36% to below 30% cost income ratio. Our ROA, which is in line with the industry, is slightly below the industry number of 1.5%. We are clearly with the focus on affordable housing and informal affordable housing, that 3.7% will expand further. Our cost income ratio will come down below 30%. And also the credit cost, which has been there, one-off credit cost this year in the COVID year, that subside we will really -- that will help us to improve our ROA to 1.5% to 1.6%, as was mentioned by Ajay in the earlier slide. So I will stop here, and I will pass it on to Bala for the AMC business.

Yes. Thanks, Rakesh. Good evening to everyone. Just jump to Slide #35, view -- a broad overview of achievements on the AMC business. We maintained the momentum for the quarter ending December 2020, with assets under management moving to about INR 2,55,000 crores, a growth of about 7% on a quarter-on-quarter basis. Domestic equity average assets under management also grew by about 6% on a quarter-on-quarter basis to INR 87,516 crores, with -- representing about 34% of the overall asset mix. Retail and HNI average assets under management at about INR 1,22,000 crores as of December '20, grew by over 10% on a quarter-on-quarter basis. In fact, this piece of our assets grew by 18% on a 5-year CAGR basis. With respect to the leadership position and the market share, and overall we maintained the leadership position, being the #4 player, at the same time maintaining our market share ex ETFs at 9.35% on overall assets under management basis. We maintained our leadership position in fixed income ex ETF with average assets under management market share of about 10.86%. In fact, our fixed income assets under management reached our pre-COVID level during this period. Our strong retail franchise with investor folio count of 7.1 million customers. We have been one of the fastest growing AMC in the last 5 years if you're going to take the CAGR at the rate of 21% versus 16% as of December 2020. With respect to the retail franchise, we have built actually a solid retail franchise in the last 5 years -- last 7, 8 years. Our retail average assets under management grew by about 13% to about INR 55,635 crores. And B-30 average assets under management crossed INR 40,000 crores, grew by about 9% with an average of 21% for the last 5 years average. And having seen -- having -- we have a high focus in terms of building our geographic contribution. That's what something has resulted in a better AAUM coming from B-30 market. Our high focus on new SIP registration. While it has seen some kind of slowdown in the last -- first 6 months of period of COVID time, we have again bounced back in the month of December. We have registered about 28% growth over the previous year level, reaching about 98% of the pre-COVID level. The SIP AUM as a percentage of equity AUM increased about 43% from 37%, which again goes to prove that how we are building our SIP book in order to build sustainable equity AUM growth. With respect to the strong profitability, our PBT to AUM improved about 30 basis points, mainly from 28 basis points for the last quarter. From the -- even from the fact that one, equity markets have done well and overall profitability as the result of high-margin asset improvement as well as other income has improved our overall profitability of these funds. Highest ever profit we have reported of INR 194 crores, which is a growth of 12% on a year-on-year basis and 18% on a quarter-on-quarter basis. And a high focus that we set aside in the beginning of the financial year, focused on OpEx and cost reduction also resulted in improvement in overall OpEx reduction of about 11% compared to the -- during the 9 months period compared to last year. As Ajay mentioned, our leverage on technology continues to show good progress. The digital transactions account about 85% of overall transaction. In fact, 75% of folios during this period got added to the digital platform. Also we have seen Net Promoter Scores improving quite substantially, which is nothing but the voice of distributor, the voice of customer on the base of our service quality improvement as well as improvement overall in the performance. And both put together, our NPS score also improved during the quarter. And improved engagement with digital distributors for customer interactions continued to remain the big focus area. Our focus on having our investor education, distributor engagement program on the ground level, reaching over to a pan India location presence that we have across the country. Also we have been pioneer in actually conducting digital investor education program. During the COVID period, we would have done the maximum number of digital investor education program, signing about 710 numbers as well as distribution engagement program of close to about 400 numbers. Very quickly talk about, as Rakesh mentioned about the peer group performance, Slide #39, in fact, among the listed peers, which is compared, our AUM growth for the last 5 years in terms of performance. And overall assets under management basis, on a 5-year, we are the second highest growth that we have witnessed with 13.3% growth in terms of overall assets under management, from 11.7%, second highest among the peers. In terms of equity assets under management, we were the highest growing AMC with about 21.8% growth versus 13.9% for the competition. And in terms of folio growth, we again have the highest customer retention in the last 5 years, to about 24.3% growth versus 7.4%. With respect to retail and HNI penetration, we have the second highest growth with 17.8% growth versus the average of 13.6%. In the same way our penetration in terms of geographical footprint increased the market penetration, which is referred as to the B-30 markets, our asset grew by about 20.7% compared to the 9.7% for the competition. Again, we were one of the highest among the peer group. With respect to the profit after tax. Again, we have the highest growth among the competition, about 32% growth versus the [ 14.2%. ] Overall, our focus in terms of building our retail business, high-margin business as Ajay has projected, that continues to remain a focused area for the AMC business. With this, I'll hand it over to Kamlesh Rao, who is heading the BSLI -- Birla Sun Life Insurance.

While the life insurance industry is doing better every quarter through this financial year, the overall industry still is degrowing at 8% compared to last year, and the private players are degrowing at 6%. If you look at the box #1, ABSLI individual premium is growing at 6%, and we've gained a market share of 49 bps this year. And the group business premium, our growth rate is at about 50% and gaining 180 bps market share. The renewal premium has grown 20% as compared to last year and also the how part of the renewal premium, our digital renewal collection is up at about 68%, the size of which is about INR 829 crores. If you look at box #2 on Slide 44, we've shown an improvement on all our quality vectors, 13-month persistency is now at 83.6%, which is 200 basis points higher year-on-year. Our OpEx to premium ratio is now down to 14% as compared to last year of 17.6%. And our surrender ratio is at 5.1% as compared to the previous year of 9.7%. In spite of the interest rates moving downwards through the year, we continue doing well, both on our gross margins and net margins. So box #3, our Q3 gross VNB margins are 38.7%. We maintained gross margins through the year at about 36.4% despite falling interest rates. Our VNB -- net VNB margins are up 80 basis points to 5.9% and we expect that we'll end the net VNB margins at 10% as per the trend that we have felt. If you look at box #4, in spite of lockdown and COVID, we actually launched 3 new products. And all these products have been successful. They contributed roughly 25% of our new business that we've done through this year. And as I speak to you, we've launched our new protection plan, one of the industry first features. And as Ajay spoke, it's part of our plan to take our protection business up from where we are to at least 2x more in the next 12 to 18 months' time. We have -- continue having a balance sourcing mix, 42% coming from our proprietary business and 58% coming from our banca partners with control on ULIPs in both the areas of our business. If you look at the box #5, on risk management, we continue managing our interest rate risk on our non-par products, 100% of expected maturity and survival benefits are hedged using instruments like FRA. And as far as COVID claims are concerned, we are actively monitoring them. They are well within plan, but we have an eye on that and will be reviewed subsequently every quarter. All this growth in business has come on account of leveraging digital and data and analytics reflected in 94% of our business actually sourced digitally in the 9-month plan. We also make sure in our new business, we get 80% Auto Pay, which will ensure persistency being high in subsequent years too. Amongst the first that we started on preapproved business, we started at 2% of our business in April, it's now at about 20% in our Q3 of financial year '21, size of which is about INR 100 crores. Another part of our digital, we launched a bot, which actually -- has actually connected more than INR 150 crores since the first 3 months of launch. So while not increasing premiums, keeping an eye on OpEx-to- premium coming down, managing our margins through our product mix and renewed focus on taking protection to significantly higher levels than where we are today. I give you a comparison of how we fare with our peers on Slide #50. So the first one is on premium. And like I've already mentioned, we are doing better than the industry for the last 2 years or the current 9 months of this year. Our renewal premium, which was growing a little shade lower than the peers is now at comparable. And for this, we are ranked 7. We compared the top 6 and the next 2 players, so about 8 players in the top apart from us. If you look at persistency, whilst the top peer is at 84%, we've actually moved our 13-month persistency from 75% to 84% as we speak this year and our 25th month from 64% to 71%. Our OpEx ratios are already in range. If you look at the last 2 years, but what's interesting is in the COVID year while for industry players as well as non bank-backed players, the OpEx-to-premium has gone up. We've been able to bring our OpEx-to-premium down to about 14.5%. And on EV, whilst the last 2 years, we've been shade lower than what the peers have done, in the first half of this year, we are at 14% as compared to the peers at 13%. So with this, I stop. I'm happy to take questions at the end. And I'll hand over to Mayank who manages the health insurance business.

Thank you, Kamlesh. Talking about our health insurance business, we had another good quarter ahead of industry performance. Overall, we have grown at 57% vis-à-vis 12% industry and SAHI 26%. I must say that Q3 was a bit slower than what we saw in the first half of the year, primarily because a lot of consumer spends move towards discretionary part of their spending pattern, especially in the first 2 festival months of October and November, though we have seen a good pickup coming back in December. And I'll talk about the claims pattern and -- later on in my presentation. So overall, GWP is now standing at INR 859 crores with retail mix of about 74%. And more importantly, our coverage of about 11.2 million lives, which means that we are covering customers across geographies, across income segment and from rural to urban and from the smallest ticket sized product to the most comprehensive international product. One reason of our growth ahead of industry has been, as I've mentioned in the past, our differentiated health first business model, which not only helps us in acquiring the younger and the healthier customer pool, which typically used to stay away from insurance because of our wellness model, but also our ability to work with our existing risk pool to work on their current health conditions and over a period of time improve that, vis-à-vis what typically our peers would be able to because of our health management capability that we have put in place. We have taken that investment ahead in this quarter by further augmenting our capabilities around the whole hyper-personalized health risk management score, which we call wellbeing score, which has now gone live to about 5 lakh customers of ours and with very positive addition feedback from customers with -- along with the whole digital health ecosystem that we have built on our app where customers have access to whole range of digital health capabilities from physical to nutritional to mental to the regular medical capabilities. We do feel that this will create much higher engagement with our customers. A proof of that is already that customers where we were engaged are giving us 20% higher retention and 6% lower claims. That backed by a very strong digital distribution, which is very high in scale and also diversity gives us an edge because we are now working with some of the largest banks in India, which is about -- giving about 65% of our retail mix. Our agency is also growing at 56% in the first 9 months, and we'll continue to invest in that as well. One big feature of the last quarter was that we leveraging the current opportunity of working with large digital platforms who have access to customer base who were looking at contextual health insurance products. We have started work with multiple new players with very large customer access. One of them, we are writing about 125,000 to 150,000 coverages per day of ride insurance, which is in contextual COVID and coverage for every ride that they take. This is just giving you a sense of the kind of capabilities we have built to acquire customers at scale on these large digital platforms, both on the product and our ability to serve through our very robust technology platform. And we have continued to invest in other areas of our customer life cycle on the digital assets where across the life cycle of both customers and distribution, we have very strong assets and giving us about 98% digital issuances and renewals are about 92% through our digital platforms. And we continue to leverage our data analytics capability to now launch amongst the first as pre-approved sum assured campaign for a very large customer base with our banks, both to acquire fresh customers as well as to process the very large customer base that we already have. All of this has resulted in very strong financial management with our combined ratio coming down to 126% for the first 9 months with a 124% exit in quarter 3. And we are well on track for the previously guided 110% and below combined ratio in the last quarter of this financial year. And of course, on track for breakeven in the last quarter of next financial year with a combined ratio of below 100%. I just want to take a slide to present to you our performance against peers, where I've attempted to share with you the journey that we've had over the 4 years of our operation and how does that compare to our peers over similar period of their operation. So if you see, if I look at retail revenue growth where bulk of the -- Slide #60. I'm talking of Slide #60. So if you see the left hand side of the slide, it talks about how we have done on retail revenue franchise creation, where we've got consistently close to 2x and above of what our competitors did in the same period of operation. And not only have we grown very fast, much faster, in fact, but we've also kept a very close eye on the way we have looked at our profitability. So if you see, we have got some -- virtually the best combined ratio at the end of 4 years of operations amongst all players that we have looked at. So what this means to my mind is that not only are we creating a very fast-growing franchise, but also something that will create value because of the quality of franchise that we are creating. Happy to take any questions at the end if there may be any. Passing it back to Ajay.

Thank you, Mayank. I'll just end with a couple of slides, starting with our other financial services businesses, which have seen significant improvement in profit, both quarter-on-quarter as well as for the 9-month period. Really driven by our general insurance broking business where PBT grew 2.6x year-on-year to INR 18 crores. Stock and securities business, where profit before tax grew 64% year-on-year, and our newly formed asset reconstruction company where profit before taxes doubled year-on-year to INR 11.5 crores. So I wanted to just end with concluding -- some concluding comments to say that Q3 has basically marked a quarter of very good growth across everyone of our businesses. In fact, every one of our businesses have seen a significant return to normalcy in spite of the fact that we are not very -- still back in normal time, resulting in our highest ever quarterly profit with a 15% year-over-year growth. We have shared with you today our clear track record of delivering scale, retailization and profitability over the last 3 years. And I've also shared with you a clear plan in terms of metrics for the next 3 years. We've also clearly demonstrated, I think, where we stand against our peers in each one of our businesses and as a conglomerate as a whole. We believe our focus on cross-selling and digital will be additional levers that will drive attractive and profitable growth going forward. So I'd now like to open up the discussion to any questions that you might have.

[Operator Instructions] The first question is from the line of Radhika Lohia from Mirae Asset.

So just 2 questions from my end. So firstly, I just wanted to clarify that you have given stage 1 and 2 at 96% for Aditya Birla Finance and for housing at 98%. And stage 2, you've given 75% and 85%. So is that how I'm reading it correctly?

Radhika, which slide are you referring to?

One moment. I don't know of the slide number, but in the quality of the book that you have given. Yes. So in that in the restructuring and resolution chart, you have given 75% in stage 1, Slide #29. So that 75% is the overall book, which is in stage 1, right?

No, no. This is -- 75% of the loans that were restructured, were in stage 1.

Out of 3.2%, which was restructured under onetime restructuring policy provided by RBI, 75% of the loans were in stage 1.

Okay. So in that case, can you give me the split of stage 1, like of 98% stage 1 and 2 for both housing and finance? Hello?

So our stage 2 is quite stable. It's gone up marginally compared to the pre-COVID. And it's -- our collection efficiency has gone back to pre-COVID levels as I -- as we have presented that 96.4% in NBFC and 96.3% in HFC, our collections efficiency have gone up to. So stage 2, it's gone up marginally, which we are working on and quarter 4, it should come back to the pre-COVID level.

Okay. All right. And is there any write-off in these 2 segments that you have done for this quarter?

So we have mentioned the resolution of accounts, INR 550-odd crores. Yes, so we have recovered money, so it's not all written off. We have recovered money of INR 550 crores, and we were already provided on these accounts to an extent.

The next question is from the line of Prashanth Sridhar from SBI Mutual Fund.

In one of the slides, you've said 76% of incremental GS3 is from the morat book. If you can give us some color on how the balance morat book is performing for the NBFC and HFC, something on their collection efficiencies and how would their stage-wise breakup be?

So Prashanth, our moratorium book in both HFC and NBFC. In NBFC, 2.3% has flown to stage 3, and in housing, 2%, around 2%. So very -- I think the performance has been quite decent. As I mentioned, collections efficiency has come back across all our buckets, and we are seeing that all these accounts which were under moratorium, they are under control at this point in time.

Okay. Secondly, would there be any ECLGS disbursements you've done so far on the NBFC and HFC? And would there be any projects where you've taken the DCCO extension on the construction and finance side?

So in quarter 3, we did INR 331 crores of emergency credit. In terms of housing, the amount will be even lower. I don't have the exact numbers, I can share that with you later. And in terms of DCCO, there are few accounts where under the provisions of RBI, there would be few accounts. We have sought extension under DCCO, but not material at all.

[Operator Instructions] The next question is from the line of Aswin Kumar Balasubramanian from HSBC Asset Management.

I just wanted to understand you've mentioned 96% collection efficiency. Can you give some more color in terms of how various segments within the same are behaving like on the retail side, on the secured versus unsecured side and also on the corporate side? And secondly, also, I mean, if I look at the provisioning -- or the ECL provision for this quarter, it's actually, I think, reduced a little bit, yes, NPAs have also come down. So I mean, just some color on where this improvement is coming from?

So -- what was the first question? Segment-wise collection efficiency, sorry. So we had 95% collections efficiency in retail and 95% in SME and 98% in the corporate and institutional segment.

Okay. And how this has moved over the past quarter?

What was it?

How this has moved over the past quarter?

October, it was about 92.5%, yes, and which has moved to 96% now.

September, it was 90%, then in October 92%, now it's 96.4% in December.

And to your question on PCR [Technical Difficulty] So do you have another question?

Hello?

Yes?

Hello?

Yes. We can hear you. Did you have another question?

No, the question was on [ PCS which we are at ]. Sorry, I wasn't able to hear you properly.

Yes. So if you look at our net, Stage 3 is at INR 863 crores. And against that, we have a security of INR 1,322 crores. So we are quite well covered on the net Stage 3 assets. And that's given in Slide 19. So we are quite well covered for these net Stage 3.

The next question is from the line of Nidhesh Jain from Investec.

Congratulations for a good set of numbers. So firstly, we had talked about the INR 550 crores of resolution in Q3. Is it mostly coming from corporate account? Or do you spread out around the entire portfolio in retail, in SME and corporate?

So out of INR 550 crores, INR 510 crores has come from the corporate segment, Nidhesh.

Sure, sure. And sir, we have guided -- we are guiding for 1.25% credit cost for H2. So are we building in further resolutions in coming quarters?

Yes. So Nidhesh, we've said last time that we were expecting half of our GS3 at that stage to be resolved in H2. INR 550 crores that we resolved in Q3 is very much on that track. So we are expecting some more resolutions. The only variable here is the operation of the courts and that process. But subject to that, yes, we are expecting to resolve some more in Q4.

Sure, sure, sure. And the INR 550 crores that you have resolved, so what is the haircut that we have taken? Any color on that?

We actually had a write-back on this, Nidhesh.

Okay, sir, okay. And sir, on the NBFC business, we are saying that over the next 3 to 4 -- the next 3 years, so the ROE should trend towards 16%, 17%. So what is the mix of retail and SME in the book that we are targeting? Did you declare that as maybe as [ guiding perhaps ] 65%? But is there any specific number of retail and SME within that book individually that we are targeting to achieve 16% to 17% ROE?

So you could make sure it is because, I mean, even the SME has segments that give higher yields. So it's really a mix that we are looking at which will give 65%. We haven't really profiled that up between how much impact [ it will be ] for retail and [ SME ].

And the smaller end of MSME is retail-only, Nidhesh. So that's how we look at it.

Sure. But the ROA profile of these 2 segments will be relatively different, right, retail versus SME?

No, so again, the MSME business, the business loans, which we do, I think that's quite at an attractive yield, which we do. And similarly, on the personal loan side, if your question is on the consume -- the difference between consumer and the business loans. So our business loans also, we do at a very attractive rate and personal loans as well in the same range, Nidhesh. So not too much difference between the 2 because at the lower end at the MSME, I think the sole proprietor and individual is not too much of a difference, and that's how we look at this as a retail segment.

Sure, sure, sure. Next question, sir, is on product per customer. When we are saying 1.57 products per customer in asset management, so do we mean that from asset management, the entire customer base of customer of asset management has 1.56 -- probably 1.57 [ rights ] from asset management or from ABC Group?

No, no. Your first [ commission ]. So every customer of asset management, if you look at them, we have on an average 1.57 products of asset management products. We're looking at it as the way, I will explain one variation in this table, which is we're looking at the entity that's actually selling. So when you look at NBFC at 1.98, we do retail life insurance along with some of our loans as we do on the housing finance side. That insurance cover is counted in the NBFC on the housing finance in this case. So it will be the base product, it will be top up, and it will be the insurance cover. And like [ every other ] business, it will basically just 2 products of the same model -- more products in the same business.

So sir, have you planned to cross-sell for life insurance product to asset management customer or asset management product to a life insurance NBFC customer? If you can give some more color on that, what is your strategy of cross selling? And have we started doing that? Is there any data that -- which you can share in terms of that progress?

No. I think, as I said in the presentation as well, I think there's a number of initiatives, a number of pilots that we are running, Nidhesh. So we will come back with more details of this at a later time. We just -- we wanted to set out where we are today and the fact that this is a big opportunity for us, and we're looking to drive it. And we'll come back with more details and more updates as we go forward. But when looking at this slide, we clearly see large opportunities in all 3 buckets. There's an opportunity in the first market to sell more to our existing customers; there's clearly an opportunity to sell more across our existing businesses in the 20 million active customers; and the last base is just leveraging analytics and using different databases to sell any one of our products to those bases. So I think each 1 of these 3 has a different approach, and each 1 we think has reasonable opportunity.

And the last question on health insurance. There are distribution strategy is a bit different from other standalone and insurance company, 66% of our business is coming from banks. So sir, if you can share the loss ratio, is there a wide difference between loss ratio from banks and the other channels? Or it is now -- if you can give some color on the loss ratio across channels, that would be helpful. I think this will be probably the highest contribution of banks for any stand-alone health insurance company in terms of business.

Yes. So Nidhesh, normally, there's 8% to 10% loss ratio -- banks have lower loss ratio than the regular agency and broking channel. So for a period of time, the cost -- the combined ratio kind of starts to get -- come together for a 5-, 6-year journey because of differentiated [indiscernible] the expense pattern.

[Operator Instructions] The next question is from Naishi Shah from Acko General Insurance.

Sir, I have 2 major questions. The first one is that I believe that a lot of banks and NBFCs have business views regarding the ECGLS 2. So I just wanted to know like a lot of banks are saying that they're proud about the fact that they have a good enough disbursement, whereas some have been a little conservative about it. So I just wanted to know what is your understanding about it. What could be the possible risk attached to it or just your view on it.

So yes, the [ credit ] provision provided by the Finance Ministry so customers have reached out to us and we assess the cash flows and the viability, whether they can sustain this debt or not. So we look at like any new top up, which is coming from the customers. And if it's viable, we definitely look at giving them that cash flows. But as I mentioned earlier, our amount is INR 331-odd crores in this quarter.

All right. And possible risks attached to it because it's 100% guaranteed, the extension?

Yes. No. It's like if the loan goes bad, yes, 20% will be is guaranteed by the government, and that will come back. We don't need to provide capital on that. So it's quite efficient. And it really helps customers, if there is a short-term cash flow issue, they can -- but it's not that you can segregate between the existing loan and this loan because if the loan has to go back then, both the loans will go back. So from a risk point of view, we don't see a very differentiated risk coming from emergency credit.

All right. And sir, my second question, could you just give a brief about the rating profile of the corporate customers that you'll have?

So not all our customers are externally rated, but we have an internal model to rate our customers. And the portfolio, I think the large corporate portfolio, which we are doing the internal rating on, is about A- in terms of rating.

So the last corporate profile was A-?

That's right.

All right. And could -- would you be able to give a breakup of probably the internal or external rating that you all have, like of the entire portfolio?

So the external rating will be a subset of this because, as I said, all of it is not rated externally. We have an internal process that makes it. So it will be a subset of that, and that would also be in the same range because our rating typically would be not very different from the external rating [indiscernible] model.

All right. Okay. And so just to clarify, how much percent of the portfolio would be A-?

So our large corporate [indiscernible] yes. What percentage [ of the portfolio ] large corporate will be about 20%. About 20% of the [ portfolio is large corporate ], yes.

The next question is from the line of Abhishek Murarka from IIFL Capital.

I just have 1 question. It pertains this product per customer disclosure. So in the housing finance business, when you say 1.93, and as you have explained, it's all for kind of products within the business. What is the second product that you are cross selling? Is this your top up, or what is it?

It could be a top-up, or it could be an insurance product.

Okay. So insurance is also added onto this for each of the businesses?

Yes. That's what I said. Here, we're doing it by the product. This is upselling it in this case. That's why I clarified that earlier, that both the NBFC and housing finance include that.

The next question is from the line of Subramanian Iyer from Morgan Stanley.

Just a follow-up question. It would be very useful if you could share the Stage 2 ratio for the housing finance business and the NBFC business. And the other question I have is, what's your credit cost guidance for FY '20 -- FY '22?

So Subbu, as we said earlier, we don't disclose the breakup between Stage 1 and Stage 2 every quarter. We do that at the year-end. Rakesh already mentioned, there is a bit of an increase in Stage 2 in the NBFC group partly because you're coming through moratorium and everything getting bunched up. But we're very confident we'll be able to bring that down back again in Q4 as things normalize and our collection efficiency improves. On your second question, we've guided for second half of this year credit cost being about 1.25%. Assuming that, that is what's normal here, then that's where, therefore, where things should be going forward, and our credit cost should be broadly in that range itself.

The next question is from the line of Abhijeet Sakhare from Kotak Securities.

First question is on yields. Can you tell us the incremental yields on retail and SME [ per group ]?

So we have shown that the incremental business is coming at 12.63%. So -- and that's primarily driven by the retail business.

Actually, the reason for asking is, you've also said that nearly half the disbursements are coming from retail and SMEs.

Yes.

And the overall yield is about 12.5%. So I'm just wondering how does retail and SME skew the overall numbers.

So, retail can be maybe from a 12% to 22%, 23%, that's the range of retail business. And what was the other question which you had on the SME?

SME [indiscernible].

Yes, SME, again, depending on whether it's a secured exposure or unsecured exposure, that then can also promote anywhere between 11.5% to 18%, 19%. That should be the range.

Okay. And secondly, when I look at the retail mix on LAP and PL, what would be the average duration of the loan that we are disbursing in the recent quarters?

On LAP and?

PL.

LAP and [ sector and personal ] loans.

Yes. So our actuarial life for -- of PL is around 2 years. And for our LAP, it's anywhere around 3, 3.5 years.

2 years from PL and about 3 years for LAP. Okay.

3.5 years. Contraction can be higher, but the actuarial -- I'm talking about the actuarial life of LAP.

Okay. Actuarial life is about 3 years?

3.5 years. Yes.

Yes. Understood. And then on Slide 25, on the housing book, so in the third quarter, there's a very strong shift towards affordable but the disbursement yields has moved up only marginally. So if you can sort of give us some idea as to what's happening there?

So, again, if you see from a portfolio point of view, there is a clear 30 basis points incremental business, which is coming in. So -- and 48% of our business is coming from affordable and remaining and still coming from -- there is a LAP and there is other businesses. So that's the reason that you see 10.83%, clearly a 30 basis points beta. As we keep improving our affordable and increase our affordable business, at a portfolio level, this is still very small and in terms of moving the needle. But as we grow and as we are seeing the -- from 17%, which was previous year, now affordable basis 24%. So as we keep improving that, we are seeing that deals are improving and the margins are improving.

There will be some contraction on the prime segment, probably, given the rate that's [indiscernible].

Yes, yes.

The next question is from the line of Alpesh from Motilal Oswal.

Congrats on the good set of numbers. Just one question on this reduction of around INR 550 crores from the NPL. Are the resolved cases completely out of the balance sheet? Or is it just a onetime loss that you guys have taken, and the life moves on?

These are all out of the balance sheet.

Now they are out of the balance sheet. Okay. And on that slide, you have mentioned that around 76% of incremental GS3 has come from the morat account. So is this the light increase that we are talking about or the gross increase? Because INR 550 crores moved out. That is -- the gross addition would have been at least almost INR 700 crores [ in the ] quarter.

As Ajay mentioned, 2.3% has moved from the moratorium book to Stage 3.

No, but we had a reduction of INR 176 crores in Stage 3 assets, right? And we think INR 550 crores -- so I'm talking about INR 300 crores has [indiscernible].

Yes. So that 76% is out of the gross book, not the -- okay. Okay. I got it.

The next question is from the line of [ Bhavesh Patel ] from [ Patel Investments ].

First of all, many congratulations on great set of numbers and brilliant performance all around. Very, very happy to be part of this -- owning these shares as well. My question, sir, is, number one, do you see your impact in terms of the rising interest rate that we foresee in maybe 2 to 3 years against the wonderful vision that you have given?

So if I can answer that, we have seen interest rate cycles going up and coming down. And in every cycle, we are able to pass on the increase or decrease in interest rates to our customers. So almost the entire portfolio, both on NBFC and housing, is a floating rate portfolio, and we have the ability to pass on the entire increase or decrease to our customers.

Okay. Fair enough. And once again, I mean, I really like the way you put the past in perspective as well as future road map. So against that, I just want to also know, do you have plans on optimizing the large equity base that we have? And how would some of the benefits -- and you mentioned about Board vision in terms of unlocking, which will get passed on to existing shareholders.

I think that's a very specific question. I was saying that the Board is really looking at different opportunities to unlock value. And I guess the Board will deliberate and come to the best decision for all shareholders. I mean that's all I can say at this point in time because it's a Board decision and that [indiscernible] deliberation.

[Operator Instructions] The next question is from the line of Rikin Shah from Crédit Suisse.

I'm not sure whether I missed this part earlier, but I just wanted to understand the thought process of conversion to a bank, if that is being thought internally and what are your initial thoughts currently?

So we haven't answered this question earlier, but the answer is really it depends on the way the regulatory process unfolds. We don't have the guidelines yet, we have a discussion paper. But I think guidelines will be expected once people have given their feedback to the RBI, which was done by the middle of January. So I guess we should expect guidelines by April and May. That will then give us a sense of the landscape and therefore, what it looks like. So I think it's a little premature to talk about that at this point in time.

[Operator Instructions] The next question is from Naishi Shah from Acko General Insurance.

So out of the restructuring book, would it be possible for you to give me a breakup of how much is corporate? How much is SME?

So the corporate and SME is very small number. Some bit of the restructuring is in the retail segment, where salaried -- and salaried segment, which has got impacted because of the COVID and the lockdown and people who have moved or there is some impact on the cash flow. They have sought this restructuring option, which has been provided by RBI.

Thank you very much. Due to the paucity of time, we'll take that as the last question. I would now like to hand the conference back to Mr. Ajay Srinivasan for closing comments.

Yes, thank you very much for joining this call on a Friday evening. I hope you had all the information you needed. If not, please feel free to reach out to us. We'd be happy to provide any questions that we haven't been able to take today. Meanwhile, enjoy the weekend, and have a wonderful time. Thank you.

Thank you very much. On behalf of Aditya Birla Capital Limited, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.