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

Ladies and gentlemen, good day, and welcome to the Aditya Birla Capital Limited Q1 FY '22 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Ajay Srinivasan, Chief Executive, Aditya Birla Capital. Thank you, and over to you, sir.

Good evening, and welcome to this Q1 FY '22 results call for Aditya Birla Capital. I am, as always, joined by the CEOs of our businesses, and together, we'll take you through this presentation that I hope you have a copy of. I'll start with Slide 3, which provides the highlights for Q1 of FY '22. Actually, Slide 3 provides the key highlights for the quarter. In spite of what is clearly a devastating second wave of COVID with significant disruptions, we delivered a strong set of results across our businesses. On a consolidated basis, our PAT for Q1 at INR 302 crores grew 52% year-on-year. While our overall lending book growth was impacted due to the lockdowns, our retail plus SME plus HNI book, which, as you know, is our target segment, grew 15% year-on-year, leading to the retail plus SME plus HNI mix getting to 58%, the highest level we have seen in our NBFC. Consequently, our NBFC's NIM grew to 6.14%, again, the highest level we have recorded. Our NBFC PAT for the quarter at INR 235 crores was 1.7x higher year-on-year with the ROA crossing 2%. Our HFC's focus on affordable housing continued with the affordable book accounting for 29% of the total book, up from 19% last year. This led to the NIM increasing to. 4.24%, again, the highest level recorded by our housing finance company. PAT for our housing finance company grew 39% year-on-year, and the business delivered an ROA of 1.3%. Our AMC saw strong growth in its total AUM, particularly at equity level. Consequently, PBT grew by 58% year-on-year, and the margin, defined as the PBT by average AUM, grew to 30 basis points. Our Life Insurance business continued to build on the momentum it has with individual FYP growing by 5% on top of a very good growth last year. Our renewal premium grew strongly, and we increased our protection mix by 100 basis points year-on-year. As a result of deal outcomes, our net VNB margin increased by 300 basis points year-on-year. In spite of the surge in COVID claims, our Life Insurance business has delivered 8% year-on-year growth in profits. Our Health Insurance business, too, continued its growth momentum with a 50% increase in GWP year-on-year. The combined ratio normalizing for corporate claims was around 110%, trending as per plan. We now cover 14 million lives in this business. Our other financial services businesses, namely our General Insurance Broking, our Stockbroking and our ARC, delivered a 31% growth in profits, mainly driven by the strong performance in our Insurance Broking business. Our retailization focus has led to a continued growth in our active customer base, which now stands at 25 million, up 30% year-on-year. Slide 4 shows the trajectory of growth of our revenue and PAT on the left and the breakdown of profits by business on the right. I would like to call your attention to the bottom left chart, which shows that our Q1 PAT is not just significantly ahead of last Q1, which was COVID impacted, but is also higher than the pre-COVID quarters, making it our best quarter 1. You will also note from this slide on the right that the PBT of our profitable businesses grew by 54% year-on-year to INR 656 crores, while our consolidated PAT grew by 52% year-on-year. All our businesses have contributed to this profit growth. Slide 5 is our report card against the targets we have set for ourselves for FY '24 and which we have shared with the market earlier. In our lending businesses, we had indicated we would alter our mix, which, in turn, will drive NIM higher, thus boosting ROAs to our target levels. As you will note from the slide, our NBFC mix of Retail plus SME has increased from 50% in Q1 last year to 58% this quarter, and we went down the path to achieve our targeted mix. Our NIMs have grown strongly at over 6% and not far from the levels we have set as our target. Consequently, our ROA has grown strongly from 1.2% last quarter to over 2% and is trending towards our goal. The same story of mix change driving NIM higher and ROAs higher has played out so far in our HFC as well. In our AMC, we had wanted to expand our equity mix, and you can see that happening between Q1 of last year and Q1 of this year. Our profit figure here has been strong, which has delivered our target ROE. In our Life Insurance business, we have grown our protection mix as we intended and expect our scale, our mix change and cost focus to deliver our target net VNB. Our net VNB for Q1, as I just mentioned, is 300 basis points better than Q1 of last year. And finally, in our Health Insurance business, we continue to build scale in operating leverage as we had targeted. The business is still poised to breakeven in Q4 of this year, unless we have another big surge in COVID claims to a third or fourth wave. Moving on to Slide 7. I just want to talk about what we've done in digital technology. Over the last few quarters, we have been covering the work done by our two major digitalization, and we continue to make significant progress on this account. I will cover a few areas in greater detail in the next few slides, including the impact that we've seen from our digital initiatives, but before that I'd like to just briefly mention a few initiatives on this slide, which are marked with a star. First, we've built digital capabilities to integrate digital and ecosystem partners, which is helping us drive customer acquisition at scale. I will cover this in a slide very shortly. Second, our investments in voice and video technologies is helping us deliver a far better customer experience. We have, for instance, gone live with machine learning A/V bots, which we think will redefine the way customers will get serviced. Further, our digital sales tools are helping our distributors and sales teams alike in driving productivity, in improving engagement and, of course, improving revenues. And fourth, we're not just focusing on the front end, we are ensuring our digital journeys are automated end-to-end, leveraging technology. That's resulting in straight-through processing with its subsequent benefits. Slide 8 covers some of the work we've done at a platform level to enable customers to access all our products seamlessly, thus driving multiple product ownership. We recently launched our ABC mobile app, for instance, which allows our customers to seamlessly purchase any one of our products and get access to over 250 services across our businesses. Our robo advisory tool called the Money Planner helps people draw personalized financial plans and leverage ABC products to meet these goals. We have enabled customers to use our digital assets to look at an adviser near them and then to be able to co-browse for live assistance, thus accessing all our products with advice from a adviser. And finally, we're leveraging analytics to create personalized preapproved offers for our direct customers on their ABC dashboard itself. All of these initiatives have made good momentum, and we expect these to scale up as we go forward. Through Slide 9, I will cover how we're leveraging digitally integrated partner ecosystems to acquire customers at scale. You'll recall I started by saying we now have 25 million active customers, and that's grown. This is a large driver of that growth in customers. We today have over 150 ecosystem partners, including banks who are digitally enabled and integrated with all our businesses. Over 50% of our purchase transactions have come through these partners. Each of our businesses has leveraged this to drive their growth. Our mutual fund business, for instance, saw almost 60% of their customer acquisition through such partners. Our lending business saw 50% of personal loan acquisitions through this channel. Our Life Insurance business saw over half of its new business premium coming through its digital partner ecosystem. And in our Health Insurance business, we have covered 10 million lives with the digital issuance of rightsized products. Overall, this capability allows us to acquire customer acquisitions at scale through both existing partnerships and the new ones that we are currently building. In Slide 10, I'd like to cover the significant impact we have felt from our various digital initiatives across our platform. Our ability to replicate tech solutions from one business to another at a rapid pace with cost synergies gives us a big advantage. We have leveraged over 20 new tech solutions to digitize our customer onboarding and acquisition. As a result, almost 90% of our customers are onboarded digitally. 90% of our payments and collections are put on electronic channels, and almost 90% of our purchase transaction is our mutual funds, for instance, are digital. As far as customer experience is concerned, we have leveraged several technologies to drive seamless and convenient service. Close to 90% of our services are available digitally. The majority of our life and health policies are renewed digitally, and over 86% of our overall customer interactions today are through digital channels. There is clearly no point in having great content journeys but manual processing at the mid and back office. We have, therefore, been investing in automating our mid and back offices, leveraging various technologies. Over 50% of our service journeys are now end-to-end automated with no human intervention. With 400-plus robots, we are automating our mid- and back-office processes quite actively. And with our cloud-first approach, we now have 87% of our applications hosted on our hybrid private and public cloud. Digital, we believe, is no longer something separate to a business but now an integral part of every business, and we will, therefore, continue to invest in this to drive our businesses forward. As you can see from the metrics, we are already making a significant impact across our businesses. My final slide in this opening section, Slide 11, covers another aspect that we believe we see an advantage, namely the synergies we have across our platform. I think we will only cover 4 such areas as there are mainly other examples we could talk about as well. One big opportunity to drive synergies across our platform is with respect to our real estate presence through branches across India. We have begun colocating businesses, which drives cost efficiencies in real estate space utilization, but also provide a low-cost opportunity for our businesses to expand their revenues to new locations. We expect to have 1,000 branches across ABC by the end of FY '22. The second area of synergies through distribution. Through our unique Select program, we have 6,500 advisers who are multiproduct solution providers to their customers. This drives our distributor earnings and their stickiness and, of course, builds multiproduct customers for us. We have several examples of product synergies as well. We had a combination of a live policy with a mutual fund, a life and health combo or a loan with a life cover or indeed a health cover. And finally, we continue to leverage the broader ABC and Aditya Birla Group ecosystems, whether it be in terms of centralizing IT infra and app development or in terms of providing a life cover to all our ABC employees or in working with the ABC businesses on market access or supply chain financing. Let me now stop at this point and move on to our businesses and hand you over first to Rakesh Singh, who will walk you through our lending businesses.

Thanks, Ajay. Good evening, everyone. I'm on Slide 13, which highlights the performance of NBFC for quarter 1. Quarter 1 was a very difficult quarter as April and May was under complete lockdown. But if you look at our performance, our retailization and digitization investments over the past couple of years are starting to play out and is reflected in our quarter 1 number. So quarter 1 NBFC performance has been driven clearly by retail and digital outputs. The retail segment comprising retail, SME and HNI now contributes to 58% of the portfolio. This segment has grown 15% year-on-year. Of this, talking about retail alone, that has grown 30% year-on-year. We have added 0.5 million customers already in FY '22, that is the first 4 months of this financial year, including July, and have doubled our customer base from March '21, so clearly demonstrating our ability to acquire customers at a large scale. Over 90% of our customer acquisition is digital, and most of it is coming from partnerships in digital ecosystem. This has helped us to achieve a net interest margin of 6.14% in quarter 1, our highest ever. We have also focused on making our collections retail-ready and invested in digitization of critical collection processes. Our collection efficiency stands at 97.1% in June, back with near pre-COVID levels after it was impacted in April and May. With retailization and digitization, we have optimized our costs and have brought down our cost/income ratio to 29.5%. This is 212 basis points lower than quarter 4. Hence, this has enabled our PAT to grow to INR 235 crores compared to -- this is a 67% growth year-on-year, and if we compare it to quarter 4, it's in line with quarter 4 in spite of a severe lockdown and the business impact, which we saw in April and May of this year. Now let me just walk you through some of the other key metrics and activities for the business, and let me call out a few important metrics from box #1. Overall, lending activity picked up in June after COVID 2 lockdowns. Gross disbursals were INR 1,276 crores in June, which was clearly near pre-COVID levels, and again, the growth has been coming from Retail and SME mix. To drive further penetration in retail segments, we are expanding to 150 branches by March '22. We want to leverage the ABC and ABG ecosystem in terms of expanding our branches. These branches will be lean branches and leverage the ecosystem, also the work site which the ABG manufacturing plants provide. This should help us to grow our retail and SME book by 20% to 25% by this year and assuming no further lockdowns. Moving to box #2, and I want to call out, our NII has grown quite impressively by 28% year-on-year, driving growth in risk-adjusted returns by 140 basis points and pre-provision operating profit by 100 basis points. This has resulted in an ROA, which is upwards of 2% and in line with quarter 4. This is in line with the guidance which we had provided last year of 2.5% to 2.7% ROA over a period of time, and we are on track to achieve that. Moving to quality of assets. The Phase 2 book reduced by INR 100 crores, and we have held on 60 DPD at a very stable level of 3.27%. Yes, Phase 3 went up quarter-on-quarter. Year-on-year, if we compare, it's quite in line, but quarter-on-quarter because of the lockdown in April and May, it has gone up. Our Stage 3 TCR is at a healthy 43%, and also we have to remember that more than 80% of our portfolio is secured by collateral or listed securities. And we have continued to maintain the floating provision of INR 129 crores, which we had created. We continue to focus on the granularity of the business, and the average ticket size has come down across our line of businesses, and at a company level, the average ticket size has come down to 15 lakh from earlier 26 lakhs. Finally, our capital adequacy, our AAUM and funding is quite comfortable. Our capital adequacy is at 25%, almost 25%, and which will really help us to drive the targeted growth for the year. Also, our digital readiness and our investment in partner ecosystem will help us to acquire large scale customers. We are building a large retail franchise and which we have been investing for the last couple of years, and the results have started showing. We want to continue to build this large-scale retail franchise in terms of acquiring large number of customers from within the ABC ecosystem, ABG ecosystem and from external partners and external marketplace and clearly focus on upsell and cross-sell. So I will stop here for the NBFC business and take you to Slide 25, which provides a highlight for housing business. Again, if we look at in June, the activities started coming back post. The lockdown in April and May, the activities started coming back. Our log-ins for July grew by 53% year-on-year, clearly signaling that activity is strong, and we need to really convert these customers and start building business. We have been investing in the affordable segment and early indicators demonstrating that the outcomes are quite impressive. Affordable is now 29% of our portfolio mix. In fact, 58% of the new disbursals are coming from the affordable segment. Given the focus and investment in affordable, 49% of the new disbursals are coming from the non-metro ones. We are looking to expand to 120 locations in housing finance at end of this year, primarily non-metro, Tier 3, Tier 4 markets as the new locations for housing. Again, we want to leverage the ABC, ABG ecosystem and build our distribution because we want to build a lean distribution model for our businesses. And this will -- this should help us to improve our affordable mix to 35% to 40% of the overall portfolio by end of March. Currently, by end of quarter 1, this is at 29%. With focus on affordable, the yields have improved. Our new sourcing yield is at 11.53% in quarter 1, and this really helps us to improve our margins to best-ever margin of 4.24%. The improvement in margin has helped us to grow NII by 28% year-on-year. Continuous cross-sell and cost optimization has helped to bring down our cost-to-income ratio to 35.3%. And if you look at -- this has come down by almost 10% year-on-year. This has also helped to grow our preprovision operating profit and PAT by 59% and 39%, respectively. Our ROA in quarter 1 is at 1.34%, which is in line with the guidance which we had provided to achieve a 1.6% to 1.7%, and we continue to progress well on that front. Talking about -- housing portfolio is completely retail in nature. 95% of our business is retail, and the product mix comes from home loans and loan against property. The remaining 5% of developer loan is also quite retail in nature because we focus on the affordable segment, and our average ticket price for our developer loans is also 6.5%. With focus on affordable segment, our new sourcing yield has improved by 128 basis points year-on-year. Talking about the quality of the portfolio and the -- again post April and May where the collections were impacted, collection efficiency came back quite strongly in June and reached a pre-COVID levels of 96.4% in June. This has further improved in the month of July. Our Phase 3 TCR is at 33.5% with floating provision. We have maintained the floating provision and which is at 37 basis points of the overall book. The Stage 3 has gone up in line with the market because the April and month -- May were under lockdown. Clearly, our digital adaptation is underway across sourcing, collection and customer service. This should help us to optimize our cost-to-income ratio and also improve the customer experience. And finally, our cost -- our capital adequacy ratio even in housing finance is very comfortable at 23.5%, and this will enable us to achieve our targeted book growth for the year. So I'll stop here, and I will hand it over to Bala to talk about the asset management business.

Thanks, Rakesh. Good evening to everyone. On the AMC business point of view, one, we continue to maintain our relative position with a market share of 9.20% amongst the largest AMCs. However, the fixed income component continued to have a dominant position of about 10.98% market share. Our overall asset mix, the individual asset mix contribution, which grew by 30% on a year-on-year basis to INR 1.3 crores, which is a mix of 47% with 7.3% market share. Again, bear in mind that it is very strong for the current quarter. While doing that in SMEs for customers, who are busy and we have built our momentum in the current quarter with overall assets under management crossing 3 lakh crore milestone as of July 25, backed by a strong investment performance, both in fixed income and equity or with that by strong equity net sales in the current quarter. After a very long time, we have seen net inflows beginning positive. As a result of that, the domestic average asset under management grew by 28% to INR 2 lakh 100 crores. And equity assets under management grew by 42%, as Ajay mentioned, higher ever area we are reaching is INR 1 lakh 2000 crores and fixed income assets excluding liquid part also grew significantly by 38% on a year-on-year basis, INR 1 lakh 31 crores. During the quarter, I'm also happy to inform you that we collected close to about INR 2,000 crores, about INR 1,922 crores through our NFO offering as a multi-cap NFO. As a result of that, the overall equity mix, lower assets under management compared to the last year, it moved from 31% to 37%. By doing that, our focus on building solid and retail franchise continues to remain as a big area of focus. In fact, during the current quarter, after seeing either static or marginal downtick that we saw in the last quarter of last year, we have seen an improvement in overall customer mix of about 1,20,000 customers were added, folios we added to 7.2 million customer base. Our focus on building B-30 AUM have continued to have a good mix of 15.8% overall asset mix and growing about 30% on a year-on-year basis. Our focus on building SIP again continued to maintain a good mix in overall equity contribution, about 42%, with a growth of about 43% year-on-year basis compared to last year. After a very long time, after seeing a dull period of SIP registration last year during the pandemic time, we have seen a little uptick in the SIP registration. In fact, in the current quarter, our SIP registrations grew by 91% to 2 lakh for the current quarter. And that something is, I see, as a reversal of trend for the SIP subscription. On the -- based on improvement in the performance as well as an improvement of the SIP's forecast, clearly, we are seeing visibly quota of SIP counts consequently coming from MFs, which is more than 5 years, 86%. And tenor is more than 10 years and it rose 77%, again it's an improvement compared to what we have already had about 3 years back. On the basis of significant improvement both in assets in the equity and fixed income, we have delivered a strong financial performance. With PBT/AUM of 30 basis points in the current quarter as against last year for the similar quarter, 24 basis points. And our PAT also grew by 59%, about INR 155 crores. Of this backed by -- the OpEx cost is coming down by 9%, excluding ESOP cost compared to the last year. As a result of the improvement in the profitability and overall ROE, again, improved -- maintained about 35%. As you may know, that is again from the top 3 listed AMCs among the -- best amongst the top 3 listed AMCs. The focus on building the future business as we have guided in the past that again remains on our big area of focus in terms of building our future business model, especially in offering products in the alternate development business. We have not only set up a dedicated team to drive this businesses, including our fancy product. In fact, in the current -- the last quarter, we launched 3 ETFs, including one investment, which is called Nifty 50 Equal Weight Index Fund. And also we have filed that 8 to 10 new products, which are a combination of smart beta ETF or product as well as [indiscernible]. While doing that, in terms of building our massive business at where we obtained a size now crossing almost [ INR 4,000 crores ] and we are seeing some significant focus also being back in -- brought in as a team. We also signed up with BentallGreenOak. We did Sun Life owned subsidy company based on [indiscernible] who manages worth $62 billion asset under management globally in the investing real estate sector. We are not tied up with them in order to write money in both India and globally to raise real estate fund where the intent to collect was $200 million, a combination of money being raised domestically as well as oversee them. Lastly, as Ajay mentioned in his presentation, increasing the presence of digital technology as well as using data analytics billing business continues to remain as a big focus area. While doing that, continuous improvement in our assets also remains a big area of focus in order to provide a direct self-servicing platform to our customers as well as hyper personalization to customers. In fact, the launch of our new app for the current quarter have added more than 2 lakh active devices using data. As a result of that, 89% of the transactions actually is onboarded digitally, and most of the folios are getting created digitally. In the sense, 90% of the services available in platform are all being utilized by our customers and for the purpose of building do-it-yourself kind of model. While doing that, improving the productivity of our sales force across the country remains one of the big area of focus as part of our expansion drive. In fact, we have introduced a productivity app, which is called [indiscernible], where -- which provides greater details to our RMs across the country, across the location to know their market much better than what we had in the past and do a deeper analysis to where we should be, and that tracking system definitely is helping us in order to build up a further improvement in the overall expansion in every market. With this, I'll now hand it over to Kamlesh Rao, the MD and CEO of the Life Insurance.

Thank you, Bala. I'm referring to Slide #50, which gives a performance summary of the Life Insurance business. Box #1 is about business. The life insurance industry grew 16% this quarter, but this growth of 16% has come on the backdrop of a -- degrowth of 18% at the same time last year, during which time ABSLI was among the few companies that actually grew by 5%. In Q1 of this year, the additional growth of 5% Y-o-Y on the back of 5% growth of Q1 of financial year '21. Very important is our renewal premium. The renewal premium growth is 41% Y-o-Y, not just the growth in the value. The fact that the digital renewal collection is now at 69% is also an important factor in the renewal collection that we have done in the first quarter of this year. Box #2 is focused on improvement in all the quality vectors. So there's a continuous improvement in persistency across all the cohorts, and I must mention that we're seeing this improvement over the last 4 or 5 quarters consistently. The 13-month is now at 83%, which is up by 2% as compared to last quarter, and through the 61st month at 50% is up by 2% as compared to last quarter. Our OpEx to premium ratio at 16.4 for fourth quarter is better than same time last year, and we continue to maintain our target to reach 13.5% by the end of the financial year '22. Similarly, we've seen sustained reduction in our surrender ratio, significantly lower as compared to the same time of last year. Box #3 is on the margins. On the margin front, our net margins continue to be better than same time last quarter by 300 basis points, and this year, for the first quarter is at minus 1.9%. If you look at the same time last year, what we started at minus 4.9% in the first quarter, for the year, we reached a net VNB margin of 10.6%. So our guidance on that continues that we are on track for the 12% plus net VNB margin for financial year '22. Protection mix, another thing which we set our guidance on for the next 2 or 3 years, moved from 7.4% to 8.4% in this quarter, which is about 19% growth Y-o-Y. And in spite of COVID claims, Q1 financial '22 PBT is at INR 31 crores, which is a growth of 8% compared to the same time last year. Box #4 is on our new products. So our new product strategy continues showing us results in terms of significant share of the FYP that we do during the period. So whatever we launched in Q1 of this year is a attributable to 8% of our individual FYP. And through the last 18 months, whatever products we have launched, they have contributed about 35% of the individual FYPs. PASA, which is the pre-approve sum assured, our key analytical and digital-led acquisition program continues to do well in both our proprietary as well as banker relationship, contributed to 13% of our individual business for the first quarter, up from 8% same time last year. And we continue having a healthy mix, both through our proprietary and partnership channels is at about 41:59 with controlled units contribution through the first quarter of this year. Box #5 is on COVID updates. So the country witnessed in Q1 death count of close to 1.5x of the entire financial year '21. ABSLI has witnessed similar trends, and our share of COVID claims is in line with the market share that we have in the life insurance business. Net of reinsurance, our Q1 COVID claims amounted to INR 108 crores, and keeping the second wave in mind, the company is carrying additional results of INR 100 crores for claims in quarter 2 for financial year '22. Box #6 is on our digital infrastructure for digital and analytics infrastructure continues to yield great returns in all our key areas. So 91% of our business is sourced digitally. All this business comes with 91% AutoPay, which will render well for renewal premiums going forward. Even the tool for PIDC to make sure that the customer buys the right product, we have digitized that, and we already have an adoption of 47%. And we launched the first-of-its-kind prospecting tool, we call it the Sales Buddy. We already are seeing conversions at a very decent rate of 4.5% in terms of what we did in Q1 of financial year '22. These are the broad highlights. With this, I stop, and I hand over to Mayank to talk about the health insurance.

Thank you, Kamlesh. Referring to company slide for health insurance, 59. We had another good quarter in the Health Insurance business. We grew 50% over last year in spite of a very high base effect when we grew at 72% vis-a-vis SAHI at 21%. This quarter, the overall industry growth was 14%, 15%, so a much higher growth rate for us. Both our retail and group businesses continue to do well. Our retail mix is at about 70% plus. But we cover customer segments across different both the age profiles kind of customers, and therefore, we covered 14.4 million lives at the end of the first quarter, which grew 1.6x year-on-year. Last quarter was, of course, very, very tough for the industry overall because of COVID claims from a profitability perspective because COVID claims was much larger in the second wave than what we saw the entire first wave in just about 3 months' time. We had our whole share of claims at INR 120 crores, but our overall share vis-a-vis the market share in premium was about 15% lower at 1.7% versus market share of 2%, which reflects the quality of our franchise in terms of the kind of lines we are bringing into the insurance pool, which is much younger and much more healthier. Our combined ratio, normalized for COVID claims, stood at 110%, which means that we're consistently bringing benefits of larger scale of operations, whether it's expense, our overall claims ratio excluding COVID, or the business mix that we're writing in terms of product and channel. And therefore, we are well onboard for our breakeven in quarter 4 that we had guided from last few quarters, subject to any material third or fourth wave impact. The growth rate that we have seen continues to be high because of the very differentiated model. We continue to offer products to get in a much larger pool of health-conscious consumers into insurance, and there, we launched another product, which offers a 200% health return in the last 4, 5 months. And then we've seen our core retail indemnity portfolio, in fact having more than 50% of sales, just the initial attraction of this offering both for consumers and intermediaries gives us that confidence that we are bringing newer customers to insurance. Because our model does a lot of data, we have now moved to data-driven health engagement to actually drive -- after acquiring health conscious customers drive better health for the existing tool. And then, we use personalized and data to give specific recommendations for each risk pool, which helps us in bringing down the potential claims, which we have seen in terms of 6% lower claims for engaged customers. From a distribution perspective, we continue to be then diversified with our banca mix at about 61%. Within banks, we have got 9 banks working for us, including the 2 largest pools, the largest pool HDFC and Access. We are also onboarding 3 new bank partners in this quarter, which we will announce shortly along with our partners. Agency, which is also very important for health insurance because of it's tenor, we've added 35 new locations, and we are leveraging the One ABC synergy in real estate, which Ajay earlier mentioned. So that gives us an opportunity to open new branches in new locations at a much lower fixed cost than what traditionally opening an agency branch looks like. In addition, we are also leveraging our digital capabilities to open branches at agency locations, which gives us opportunity for us to scale agency even faster. And we've already reached about 45,000 advisers at the end of quarter 1. We continue to grow our franchise with digital players because of our ability to create digital products and journeys, and we have got more than 10 million lives through partnerships across Ola's, MyTrip, Vodafone Idea, and players like couple of them. Because our model is highly digital and invent driven, so our digital capabilities have been at the forefront from the very beginning of our operations. We continue to enhance our consumer app, which actually gives customers the ability to not just [ complete ] their presence requirements but also engage for health requirements, and that continues to give us much higher engagement. We also brought in multilingual capabilities across all our franchise [indiscernible] to make our assets more relevant. And lastly, because we are gathering a lot of data, we are now using data and analytics to make very contextual interactions with consumers across health risk management, fraud risk management and also from our customer acquisition retention and engagement timeline. And some of the capabilities that we're bringing are a combination of both in-house and partner capability. So we feel that at the core business is fundamentally very strong and well due for growth on a sustainable basis. With that, I pass it back to Ajay to take it ahead.

Thank you, Mayank. I'll just talk about Slide 68, which is a slide of our other financial services businesses, which have had another solid quarter with an aggregate PBT increasing by 31% year-on-year and over 2x since Q1 of FY '20. This growth was driven by our Insurance Broking business, which saw its PBT increase by 29% year-on-year to achieve its best-ever Q1 results. Our Stockbroking business grew strongly by 57% on the back of good volumes, and our ARC grew by 15% year-on-year. I'd just like to conclude and reiterate our focus and track record in building a quality franchise with a large retail base that has been delivering consistent and attractive returns through cycles. We derive our strength from our people, our diversified platform, our tech and digital mind-setting capabilities, our distribution sales, our products and, of course, from our strong parentage. We have demonstrated the resilience of our model over the challenging period we all have faced in the last 18 months and believe that we are well placed to grow even faster as things get back to normal. With that, I will close our presentation and open up the floor for any questions that you might have. Thank you.

[Operator Instructions] We have the first question from the line of Prashanth Sridhar from SBI Mutual Funds.

Yes. If I just add up some sort of stress pool, which is gross stage 2 plus 3 plus restructuring and the target of double counting, it's around 14.5% or roughly INR 6,500 crores. How would that be split across the corporate SME and retail? And if you could give us some qualitative feedback on collection efficiencies and bounce rates on the SME and retail portfolio, that will be helpful.

No one -- how we have calculated with Phase 2 includes the restructured portfolio. So you should not double count it. So 7.7% also includes the restructured portfolio. So that's point number one. So it's not 14.5%. It should be around 9%, 9.5% because 3.64% plus 7.7% is around 10%. So that should be the number. In terms of the collection efficiency for different segments, the large mid-cost per HNI is at 100% collection efficiency. SME is at 98.5%. And retail is 93.5%. So these are the collection efficiency for different customer segments.

Sure. And then just lastly, the restructuring is included even for the HFC?

Yes. Yes. Same definition.

And if I were to sort of arrive the total provisions outstanding on the NBFC and HFC, that would be what we call as floating on, say, stage 1 and 2 plus the Stage 3 in the area of provisions, is that right?

Yes. So it's Stage 3 plus the floating. Yes, you're right.

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

A pretty good set of numbers. So firstly, sir, you mentioned that in 4 months of this financial year, we have doubled our customer base in the NBFC segment. Is that correct? Is that correct, whatever they are?

Yes, it is. Yes.

How were we able to acquire so many customers in these 4 months? And what are the channels? If you can give some more color of how we acquired this product we are selling to them, that would be...

So majority of this is done through digital customer acquisition. We have partnerships and direct customer acquisition models. And if you look at our partnerships in the consumer segment in the MSME segment and also in education and health care. So we are from the ecosystem is what we are acquiring these customers.

And these customers are taking personal loans from...

Yes. So we have 10 partnerships on the consumer side. There are 7, 8 partnerships on the education side. So quite a few partnerships which we have at this point in time.

And sir, what is the count of customer that we acquired in these segments?

As I said, 0.5 million, 5 lakh customers.

5 lakh. Sure. Sure. And if I look at the consolidated profitability for this quarter, is it correct to understand that at least in Life Insurance and the Health Insurance post-minority interest, there is INR 100 crores of one-offs. And if you adjust for that one-off, probably our profit would have been closer to INR 375 crores or INR 380-odd crores on a consolidated basis. There would be some extra provisions in NBFC and housing also, but I'm not making changes there. But there's the COVID provisions in life Insurance and health insurance, if I remove them the consol profit should look around INR 380 crores. Is that the right understanding?

Yes. I think broadly right.

[Operator Instructions] The next question is from the line of Anuj Singla from Bank of America.

So first question is on the Life Insurance side. We are still targeting a significant increase in protection, But some of the competitors, they are scaling back on protection, given the higher-risk incidents and also the higher tail risk. So how should we look at this portfolio shaping up? Would you also be taking a step back in this portfolio given the rise in cases or this is something we will continue on that trajectory during this year as well?

So in the protection business, the composition is extremely important in terms of where you get it from. And I think the importance of how much of this is medically underwritten. A large part of our portfolio in excess of about 95% is medically underwritten. So we haven't seen any variance on account which came specifically from our protection business per se. So whilst we take new care, we're wanting to grow this business to the desired levels that we've set out as guidance will continue.

Okay. And the second part of that, our 61st month persistency looks a bit low versus peers, again, at 50%. Is it primely because of the unit portfolio that is impacting this number?

Particularly if you look at the growth in persistency for various portfolios over the last 2 years, you'll see about 7% to 8% jump in the 13th month, and similar jump was about 8% in the second year 25th month. So as a block for it to move into the 50th month will take some time. But over the next 1 or 2 years, you will see that number significantly go up to the 55%, 56% kind of number. So that's the trend, does not take separate amount of time to move. But if you look at the trend over the last 5 or 6 quarters, and all these numbers have moved. I mean even the 61st month is to be in the 40s, and we now touch the 50%. But as the block gets better, starting from 13 to 25th month, you will see the consistency in the growth across all the persistency markets.

Understood. And one data question on Slide #13 on the NBFC side. So you mentioned that the total customer count for us is 5.4 lakh as of July, whereas, if I recall, Rakesh had mentioned that we have added 5 customers in the first 4 months. So how should I reconcile these 2 numbers?

So I think the way to reconcile is that the onboarding has happened, and these customers, we are giving them -- they're in the process of taking loans. And so the acquisition has happened of 0.5 customers. So in the month of July sales is upwards of 4 lakhs is what we have acquired.

So the way -- just to clarify again. Sorry on this. So these customers we have acquired, but they -- we haven't disbursed and paid for them. They are still work in progress. Is that the correct understanding?

Yes. And also, these are very small ticket size customers and a small-term loans. So if there are loans which are taken in the, let's say, for 30 days, so in the quarter, it can be shown as well. So we are looking at those kind of terms as well in terms of the tenor. So from a customer acquisition point of view, that's the number.

The next question is from the line of Aswin Balasubramanian from HSBC EMC.

Yes. I have one question each on the asset quality, both in the Housing Finance and on the NBFCs. So the HFC side, the 30-plus [ stage 2 ] have gone up from about 2.5% to, if I'm not wrong, about 7%. So I just wanted to get some color on such a sharp increase there. And on the NBFC side, if you could provide some color in terms of the sectors that you're seeing some sort of stress and so on. If I look at the annual report of your subsidiary, there's an industry-wide exposure right now. You have about 3%, 4% to hotels, about 3% to education and so on. So any of those sectors where you are seeing some stress there? So if you can give some color on each of these 2 aspect.

Your voice is not very clear. We could not understand your question. Can you just repeat that?

8 Yes. Sure. So I had a question on the asset quality, both in the Housing Finance and the NBFC side. So the Housing Finance, if I see your gross stage 2 30-plus numbers that have gone up from about 2.5%, 3% to around 7%, if I'm not wrong. So if you can give some color on why that increase has been there? And secondly, on the NBFC side, if you can shed some color in terms of sectors that you are seeing some strength and so on. And if I look at the industry-wide staff exposures, which you disclosed in your annual report of ABFL is about 3%, 4% of hotels, about 3% to education and 3% to transportation and so on. So I mean are these sectors where you're seeing some stress? And how are you seeing the outlook overall on the asset quality on the NBFC side?

I think restructured pool in March, it was 4%. It's now gone up to 7% plus. So that's around 3%. But this is on account of the lockdown. So April and May was completely under lockdown, and the customers, their businesses have been impacted. So they have reached out, and they have availed RBI onetime restructuring. But we don't see too much of a risk in this because these are all secured home loans where property is a collateral, and the LTV, if you look at is -- at our overall level is 53%. So customer has a lot of equity in the collateral. So we don't see those -- that kind of a risk. And talking about the NBFC also. If you see, yes, it's gone up, but 60 DPD is we look at. For NBFC, 60 DPD is 3.27%, so it's quite stable at those levels. But yes, it has -- collections got impacted in the month of April and May because of the severe lockdown.

Got it. I had one more question in terms of your yield that has remained quite steady at 11.8%. So if you can give some color in terms of how this would look at in terms of corporate SME retail overall.

So I can tell you, indicatively, the 17.5% would be retail. Corporate will be around 10%. So we can give you the specific -- we can come back to you on that. But 17.5% is retail. 10-odd-percent would be corporate, and SME would be anywhere around 11.5% or so.

Okay. So the rise in retail is the main reason why the yields have sort of -- the spread has gone up.

Yes. Yes.

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

Sir, on the ABC app, if you can share some statistics in terms of acquisition rate or what is multi-active user or any statistics that would be useful. And we are having multiple apps for different businesses at one time. And at the same time, we also have this ABC app. So how do we are thinking about -- are you thinking about merging all that into one app or we will have -- continue to have different apps for different businesses going forward?

The ABC app has actually been launched very recently. So in that sense, the numbers are still building up. But what we did is if you look at our ABC.com, a lot of these features are available on our website, and we've had about 1.5 million customers who've been accessing that and using the transaction servicing on the app -- on the web. I think we are expecting a lot those has been moved on to the mobile app plus more. As far as the business apps and the general app is concerned, I think people who want a single -- who probably have a single product and who want to use a single app, will use a single business app. But this app really facilitates both purchase transactions as well as service across the entire platform. And therefore, as I said, we hope that this drives multiproduct provision because it's a very seamless way in which you can get service and transact across multiple products. So I think the aim is slightly different than this compared to a single business app.

Sure. Sure. And sir, if you can also shed some more color on the 25 million customer that we have. A customer base of 25 million in terms of income distribution. Just to understand the cross-sell potential that we can have from this 25 million customers?

So it's a fairly wide range in it. It's difficult to give you a single answer to that because it includes some customers who are buy-side customers, for instance, in our health insurance business. There will be customers who would take time to sell a second product to. But they would include a large number of mass affluent customers as well who are more natural customers for us to upsell or cross-sell to. So I think it's a pretty broad range. But because the customer base is increasing so quickly, I think the base for us to be able to work on is obviously increasing improving quickly.

Sure. And lastly, in the insurance business, you can share what is the IBNR number both in trade of Life Insurance and Health Insurance as of June '21. Just to understand how much providence we have created for the future claims or the provision that we have created in just for the domain plans to put in.

So on Life Insurance side, like I said, we had a net claims of INR 108 crores in the first quarter, and we are carrying, like I said, a provision of additional INR 100 crores for Q2 for it. So we are carrying sufficient results for the IBNR for Q2, keeping in mind the impact that we had in Q1 of INR 108 crores.

So that includes the future claims which may come because of the -- that's in Q2 as is just the IBNR at the end of Q1.

That is INR 100 crores number.

Yes. The IBNR is kept for the future that can come apart from the plan that you have for normal. So additional for COVID, which is exceptional item, which has happened in Q1, I told you the value of which was INR 108 crores, we carry equal to that like INR 100 crores for Q2.

Sir, are you done with your questions?

Yes. I'm done. I'm done. I think on the Health Insurance also, you can share the IBNR number and the provisioning for the future if we have made any.

It's difficult to give a number because the portfolio is too broad to give one number like what -- so what we do is that we consistently for whatever we track our actual incidence rate of claims that would have been incurred but not reported. So we ensure that we continue to tighten that. And from whatever experience regarding in terms of flow of reimburse lag, and so we have adequate reserves for all claims that could have happened in Q1 but not reported to us, and we have strengthened that further. We don't expect any impact of that to happen in Q2 because of already incurred claims.

The next question is from the line of Ritesh Bhagwati from Rockstud Capital.

Congrats on a good set of operational performance. So my question is in regards to the listing of our EMC business. So can I have some update on that?

The process is moving back and [indiscernible]. We should expect the final comments and the [indiscernible] very soon. And probably depending upon the market condition, we should be able to go ahead with the original time.

Okay. Any time line as to when can we go ahead with it? Like any specific timeline, sir?

Once we receive the direct clearance, and then we should probably plan it then.

Okay. And secondly, just an update on NBFC business. Like basically on the recovery side, how do we see like what is the outlook like for this year, basically, probably in terms of growth as well?

Growth, we have mentioned that for retail and SME, we are looking at 20% to 25% kind of growth rate. We'll have to wait and see how the rest of the year goes in terms of if there are no further lockdowns and all we should be able to achieve the growth rate, which we have mentioned, especially for our retail and SME portfolio. What was the -- collection. Yes. Yes. So recovery, as I mentioned, June was fairly good. July was even better. So we are looking at improvement every month. And again -- so if you look at the June numbers of 97.1%, which is a collection efficiency it is as good as what it was pre-COVID and 1%, 1.5% lower than March. So if you have 3 full months of normalcy, I think we should be able to achieve those kind of collections efficiency, which we achieved in March.

The next question is from the line of Naishi from Acko General Insurance.

Yes. So I have a couple of questions. The first one is in which -- so there has been a reduction in the average ticket size from 26 lakhs to 15 lakhs. So in which segments have you actually made the reduction? And is there a particular reason as to why we have done that?

No. So we have been building granularity, and we have been building a retail business over a period of time. And as I mentioned in my presentation that the investment which we have done in the last couple of years has started reflecting in our performance. And that's the reason why the average ticket size has come down, and we are driving a reduction in our average ticket size across all line of business. And that you can see if -- there is a slide on that. Yes, across all customer segments, we are driving a reduction.

All right. And my second question is that you said that in the retail book, the yield on advances is 17.5%, if I'm not wrong.

Yes.

So which sector within retail is contributing to this largely? I mean what sort of loans are contributing to such a high yield on advances?

These are the normal. Like if you look at business, the MSME segment is there. So business loans are there. There is a consumer loans or personal loans, which is there. So that's how it gets priced.

And what would be the tenor of these loans?

The tenor will differ from 12 months to 2, 3 years.

The next question is from the line of Anuj Singla from Bank of America.

Yes. So 2 questions, one follow-up on the insurance side. So there is also a concern about reinsurance price hike in the industry. Do you see that? Has any kind of conversation started yet? Or like you mentioned, given your claim experience, it's not at -- you're not worried about that at this point?

On the [ life ] businesses, individual and group, oN. the group side, we have a business for group [ term life ] where I think the reinsurance rates have already started going up. The discussion is happening, and some of it is getting implemented in the next 1 month as I speak to you. I think on the individual life, discussions are happening. There's no greater increase because remember that pre-COVID was when the first tranche of increase was done by individual reinsurance business companies. So that has happened about 12 months back. On the group side, it is happening as I speak to you.

Okay. Understood. And secondly, on the cross-sell between the ABG, the biggest businesses we have, so when I break down the 25 million customer base that we have, and correct me if I'm wrong, 14 million belongs to Health Insurance where there is a lot of focus on buy-side products. So is there some kind of metric we have, how easy or difficult it is to sell your other products to these customers? And is there a metric on the product-per-customer basis? I think you had shared that a couple of quarters back. Is there an update there how that metric has moved? If you can give some color there, that will be great.

So I don't have that number for this quarter, but I'm sure we'll bring it down. I think, see, product per customer is driven by 2 things, right? It's driven by how much you sell of the existing business as well, and some of the people in the market who give this data actually are selling more to the same -- within the same business. We call it upsell. We don't call it cross-sell. But in effect, it still drives customer revenue per -- it drives up revenue per customer, and that is also not insignificant. So if you look at our life business, for instance, and just take their PASA program, almost 20% of last year's sales came from PASA, which is really an upsell to an existing customer. Similarly, our Health Insurance business is also doing the same thing. Mutual Fund business does a very good job of upsell as well because you see their product per customer almost like 1.6 per customer. And if you look at our lending businesses, they have a very high attachment of home loan -- of life and health with home loans and regular loans. There's almost a product per customer, too, in that regard as well. So I think you have to look at it very differently because we have multiple businesses. It's not a simple answer like it is for many people who stick within a single entity.

Okay. And the customer breakdown is correct, so 25 million, maybe kind of 14 million of that will be with health, and 0.5 million is with your NBFC and maybe rest will be with the life and others? That's the breakdown, right?

Yes.

The next question is from the line of Nilesh Jethani from Envision Capital Services Private Limited.

Sir, my first question was on the growth side of the NBFC. So when we say retail and SME to grow by 25%, we include HFC also or it is only NBFC where retail is supposed to grow by 25%?

We are talking about the NBFC growth.

Okay. Okay. And sir, what will drive the 25% growth? Can you throw some color on that? What are we doing basically to get that kind of growth of 25%?

So we have given a range of 20% to 25%. And what will drive it, we have been investing in the physical distribution. So we have opened up new branches. So we have doubled our branches in the last 1 year. We are looking at taking our distribution to 150 branches. So that's one piece which will drive the growth, and also, the partnerships and the ecosystem partnerships, which I spoke about earlier. So these are the 2 main drivers of our business. And as we go into Tier 2, 3, 4 markets, I think the retail and MSME business should grow, and that's the background of the growth.

Understood. And the second question was on the ROA part where we are aspiring to reach a 2.5% ROA from 2% currently. So just wanted to understand what would be the major drivers for this because I believe credit provisioning mostly would come down by, say, 20, 30 basis points lower after the Q1 sharp rise. But besides that, what will drive the ROA? Are the NIMs we are expecting to go up? What was the thought process?

So if you look at in the normal environment and where you don't have the COVID provision and economy comes back to normal, 25, 30 basis points can get added immediately on that front and maybe slightly higher. Also, on the margins, as we mentioned, as we drive our retail SME, our margins are getting -- and you can see that over the last couple of years how our margins have improved. Going forward, as this portfolio mix and the product mix improves, that will improve our margins as well. So that will drive our ROA.

So any sense of cost of funding? So we expect cost of funding to have bottomed out and yields to probably rise from this level. So is that understanding right?

Yes. So I think, yes, cost of funding is -- the cost of borrowing is bottomed out. But I think we expect it to remain in the same range for some time because enough liquidity is there in the system. But almost 100% of our business is floating rate loans. So if their interest rate goes up, we are able to pass the interest rate. If it comes down, we try and pass it on to our customers. So that's how the model works. So whether the interest rate goes up, I don't think it will compress our margins.

So let me ask in this way. So what were the incremental yields for Q1, if I want to ask this way?

What are the incremental?

Yield.

Yes. So I -- in the housing, I remember 11.53%. For NBFC, I'll have it get pulled out. I'll pull out and share with you.

Ladies and gentlemen, due to the time constraints, that would be the last question. I would now like to hand the conference over to Mr. Srinivasan for his closing comments.

Thank you very much for joining this call. I hope you got answers to your questions. If there have been any questions that you have -- that you'd like answered, please write them to Pramod Bohra, we'll be very happy to answer any questions that you may have. Thank you, and good evening to everyone.

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