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

Ladies and gentlemen, good day, and welcome to Q3 FY '24 Earnings Conference Call of Aditya Birla Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Vishakha Mulye, CEO, Aditya Birla Capital. Thank you, and over to you, ma'am.

Good evening, everyone, and welcome to the earnings call of Aditya Birla Capital for Q3 FY 2024. Joining me today are my senior members of my team, Bala, Rakesh, Tushar, Pankaj, Kamlesh, Pinky, Vijay, Ramesh, Sanchita, and Amit. I will cover our strategy and approach across businesses, and I will request Vijay to take us through the financial highlights, followed by discussion on the performance of our key businesses by our CEOs. Against the global economic backdrop, the momentum in the Indian economy continues very strong. The real GDP growth rate of 7.6% in Q2 '24 exceeded all forecast. GST collections continue to remain robust at more than INR 1.7 lakh crores in January. We expect positive macroeconomic trends to continue and Indian economy to perform well in FY '24 and FY '25. At Aditya Birla Capital, we follow One ABC, One P&L approach to focus on quality and profitable growth by leveraging data, digital, and technology. The 3 pillars of our approach that we have discussed is one customer, one experience, and one team. This approach has helped us to grow and build our scale across businesses. Our total lending portfolio across NBFC and HFC businesses grew by 34% year-on-year and 6% sequentially and crossed INR 1.15 lakh crores. The total consolidated revenue grew by 29% year-over-year to INR 9,997 crores in Q3 FY '24. I'm also happy to share that our consolidated profit after tax grew by 39% year-on-year and 4% sequentially to INR 736 crores. Digital first is at the core of our strategy for product innovation, direct acquisition, and seamless transaction experience. In our AMC business, about 80% of our customers were onboarded digitally. In Life Business, 80% of our renewables were done digitally. In our Health Insurance Business, 85% of the business is delivered by auto underwriting. Our comprehensive B2B platform for MSME ecosystem Udyog Plus continues -- has seen a very robust response from Udyog Plus with more than 4 lakh registrations as of December end. We continue to integrate Udyog Plus with ABG ecosystem to provide channel financing to our dealers. Udyog Plus has clocked disbursement of around INR 180 crores till date with ABG ecosystem contributed to more than 60% of the business. The total portfolio of Udyog Plus reached INR 100 crore as of December end. We will continue to scale up our business more in ABG ecosystem as we expand our market footprint in B2B segments. In June last year, we had launched Payment Lounge, which is an omnichannel collection platform for merchants with customization and smart routing capabilities for higher success rate and effective reconciliation. It can be integrated with e-commerce platforms and digital platforms of merchants, enabling to meet the collections seamlessly. Payment Lounge, I'm happy to say, has reached a run rate of -- monthly run rate of INR 500 crores. We follow a one customer approach, improve it with a deep understanding of our customer profile, provide them simplified and holistic financial solution. We had mentioned in our previous earnings call that mobile app, a B2C platform, is expected to go live in the next 90 days. We are happy to share that we will be launching this app in the closed user group, and it will go live in the next one month. Through this app, we will acquire new customers and provide holistic and simplified solutions to our customers to suit their financial needs. As we continue to strengthen our digital offerings, we are also focused on expanding our physical footprint. Our branch expansion is targeted at Tier 3 and Tier 4 towns. Our overall branch count has increased by 59 in Q3 FY '24. And we now have 1,462 branches across all our businesses as of December end. In line with our core ABC approach, we continue to expand our co-located branches, which increased by 69 during the quarter to 762 branches across 218 locations as of December end. While we are growing our businesses, we follow a prudent risk management practices with a strong emphasis on return on capital. We had mentioned in our previous quarter earnings call that we are tightening the underwriting in the smaller ticket size, personal and consumer loans for NBFC business by calibrating our credit resource and score cards. I'm happy to report that in line with this, the sequential growth in our personal and consumer Loan portfolio has reduced from 22% in Q4 FY '23, to 15% in Q1 '24, to 9% in Q2 '24, to 1% in Q3 '24. Within the personal and consumer loan portfolio, we brought down our consumer loan portfolio, which comprises of BNPL and check out financing sourced through partners from about INR 4,100 crores at the end of September to INR 2,700 crores at the end of December. While the personal and consumer loan portfolio has stayed flat sequentially, unsecured and secured business loans and corporate loans continue to grow well. The total NBFC portfolio has grew by 35% year-on-year and 5% sequentially. About 60% or 68% of our portfolio is secured at the end December. Going forward, we will leverage newly launched comprehensive platform of Udyog Plus, the extended ABG and ABC ecosystem and a pan-India branch network. We will also look to grow the corporate and mid-market portfolios based on the opportunity. We remain confident of doubling our NBFC portfolio in the next 3 years. Now coming to asset quality. I would like to highlight that asset quality trends in NBFC portfolio continues to improve. The gross Stage 2 and Stage 3 loans have declined by 39 basis points sequentially to 4.85% as on December end. Our total credit loss in NBFC portfolio was 1.5% in Q3 FY '24. We expect the credit cost to remain at a similar level as we go forward. I now request Vijay to briefly cover the financial performance of our key subsidiaries for the quarter. Over to you, Vijay.

Thank you, Vishakha. Coming to the financial performance. Consolidated profit after tax grew by 39% year-on-year and 4% sequentially to INR 736 crores. The total revenue grew by 29% year-on-year to INR 9,997 crores in quarter 3 of FY '24. In our NBFC business, we continued with a strong momentum of disbursement and granularization of our book. Disbursements for the quarter grew by 26% year-on-year to INR 16,548 crores in quarter 3 of FY '24. This helps our loan portfolio to grow 35% year-on-year and 5% sequentially to INR 98,603 crore as of December end. The NBFC business had a ROA of 2.41% and ROE of 16.95% (sic) [ 16.96% ] in quarter 3. During Q3, we also infused equity capital amounting to INR 850 crores in our NBFC subsidiary to support the growth momentum and maximize our share of opportunities. Our Housing Finance business continues to see healthy momentum with disbursement increasing by 45% year-on-year and 7% sequentially, crossing INR 2,000 crore during Q3 of FY '24. The loan portfolio grew by 27% year-on-year and 7% sequentially to INR 16,538 crores as of December end. ROA was 2.01% and ROE was 14.6% in Q3 FY '24. Coming to our AMC business, the average AUM increased by 11% year-on-year to INR 3,11,509 crore, of which equity AUM was approximately 44%. Our passive AUM also grew at a healthy rate of 36% year-on-year to about INR 29,300 crores at December end. In the Life Insurance business, our individual first year premium grew by 8% year-on-year, and our net VNB margin was at a healthy 15.6% in 9 months FY '24. In our Health Insurance business, our unique, differentiated Healthfirst model helped us to deliver a growth of 29% year-on-year in the 9 months of FY '24. The combined ratio stood at 121% in 9 months FY '24. With that, I will now hand over the call to Rakesh, the MD and CEO of our NBFC business, to take us through the NBFC business performance in detail. Over to you, Rakesh.

Thanks, Vijay, and good evening, everyone. In our NBFC business, we saw 5% quarter-on-quarter and 35% year-on-year growth in our AUM, taking it to INR 98,611 crores (sic) [ INR 98,601 crores ] in quarter 3. Our retail and SME segment AUM grew 39% year-on-year and now stands at INR 66,637 crores, contributing to 68% of the overall AUM mix. As Vishakha mentioned, we took several proactive intervention in this quarter by tightening our underwriting norm, ahead of any real signs of industry concerns, emerging in the small ticket Consumer Loan segment. As a result, this portfolio has regrown by 34% from INR 4,100 crores last quarter to INR 2,700 crores as of 31st December. And we will continue to dial down this portfolio in quarter 4 as well. Our Personal Loan segment, on the other hand, grew at a healthy 11% quarter-on-quarter. We have got a lot of queries about our exposure to loans sourced through Paytm. Paytm is one of our channel partners. We have an only channel architecture for distribution, and our underwriting for acquiring customers is identical across all our channels. The Consumer Loan portfolio sourced via Paytm is less than 1% of the total loan portfolio as of today. As part of our calibrated approach towards Consumer Loan portfolio, which I had discussed earlier, we have brought down this portfolio from about 2.5% as of end of June to less than 1% as of today. As I have always said, we observe the performance of customers with us. And based on their performance, we use our underwriting scorecards to create preapproved offers which are communicated to the customer. The underwriting is based on our rule engine and the disbursement happens directly in the customers' account. The collection is done via NACH which is in our favor. I would also like to emphasize here that all our digital sourcing journeys are designed for end-to-end control from underwriting to collections with minimal dependency on channel partners, giving us complete ownership of customers. We continue to focus on growing business loans to MSME customers and this segment has grown at a healthy rate of 9% quarter-on-quarter and 36% year-on-year and comprises of 50% of the overall AUM of ABFL. Large share of this growth has come from the secured products and primarily through a direct sourcing channel. Today, the total secured portfolio of ABFL is at 68.5% of the overall loan growth. New Business Sourcing was strong in quarter 3, and we disbursed INR 16,550 crores, which is 26% higher than last year. Our Business Loan segment was the biggest contributor in terms of disbursement mix at 45%, growing at 11% quarter-on-quarter and 49% year-on-year. Nearly 50% of the disbursements in overall Business Loan segment is done directly, and we expect this to continue to inch upwards with scale up of our B2B platform of MSME Udyog Plus. We launched Udyog Plus in the -- at the start of this year, and I'm happy to share very encouraging numbers in early days of scale-up. The platform has registered over 4 lakh MSMEs as of December '23, with nearly INR 100 crores of AUM on this platform. Our net interest margin was maintained at 6.9% in quarter 3 of this year. We have passed on 20 to 35 basis points in our new disbursement yield across all our product segments to accommodate increase in our cost of funds. Our OpEx to AUM ratio increased by 24 basis points on quarter-on-quarter to 2.24%. As I had mentioned in our earnings call, there was a onetime benefit due to actualization of provisions related to employee expenses in quarter 2. The 9 months of this financial year, OpEx to AUM is at a healthy 2.13%, despite our continued investment in branches to scale-up direct sourcing in emerging markets. We added 25 branches this quarter and 77 branches in this financial year, taking our branch count to 400 as of December end. Our profit after tax for quarter 3 was at INR 572 crores, growing at 41% year-on-year. The return on equity for the quarter expanded by 186 basis points year-on-year to 16.96%. The 9 months ROA for this financial year is at 2.48%, and ROE is at 17.6%. We had a capital infusion of INR 850 crores in this quarter, and our capital adequacy ratio increased from 16.27% in quarter 2 to 16.67% in quarter 3. And this is despite the increase in risk weights by RBI in Personal and Consumer Loan segment announced in November last year. Our asset quality has also showed consistent improvement with our Stage 2 plus Stage 3 book, reducing by 213 basis points year-on-year and 39 basis points quarter-on-quarter to 4.85%. The gross Stage 3 books stood at 2.59% in quarter 3 compared to 3.62% for the same period last year. We have also enhanced our Stage 3 provision coverage to 50%, which is higher by 7% over last quarter of last year and 1.7% over the last year of this financial year -- last quarter of this financial year. Going forward, we will continue to build a granular portfolio to enhance our retail and SME segment mix with scaling up of Udyog Plus, our B2B platform and investing in our distribution presence in emerging geographies to fuel growth. As we build scale, enhance capacity, and invest in technology, we remain committed to delivering sustainable returns for the forthcoming quarters. With this, I will now hand over to Pankaj Gadgil, MD and CEO of the Housing Finance business.

Thank you, Rakesh, and good evening, everyone. I will discuss ABHFL performance in the third quarter of FY '24. We sustained a robust momentum in disbursals and book growth. The consistent improvement in return metrics can be attributed to our strong financial performance and dedicated focus on portfolio quality. Q3 key highlights are as follows... [Technical Difficulty]

Participants, please stay connected. The line for the management dropped. Ladies and gentlemen, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Sir, you may go ahead.

Yes. So Q3 key highlights are as follows: Disbursements of INR 2,016 crores, which is an increase of 45% Y-o-Y. AUM as of December '23 is INR 16,538 crores, an increase of 27% Y-o-Y, and a customer base now of 60,400. And PBT for the quarter is, for the first time INR 100 crores in the quarter with an increase of 28% Y-o-Y. Initially, refinance mix has improved from 17% in December '22 to 23% in December '23. Cost of borrowing has sustained at 7.65%. On asset quality, Stage 3 has reduced by 45 bps Q-o-Q and 148 bps Y-o-Y. The ROA for Q3 FY '24 is 2.01% and ROE is at 14.58%. You can refer to the detailed financials on Slide 24 of the presentation. Now I'd like to provide you with an update on the progress of the four pillars of our strategy. To begin with the first pillar. Growth and distribution network. We now operate 130 branches across 19 states, covering 80% to 85% of the total addressable market of the Housing Finance industry. We launched nationwide channel engagement program, extending our reach to 1,600 plus partners across 24 cities in this quarter. Now the contribution of ABG ecosystem to new disbursals has reached 9% for the quarter. These initiatives clearly have led to an increase of 45% disbursements year-on-year. Talking about the second pillar of digital reinvention of entire customers journey. I'm pleased to share that as of December '23, our newly implemented unified digital lending platform, Finverse, is now operational in all branches. Finverse currently hosts 35-plus micro services and 120-plus APIs, and incorporates AI driven algorithms for easy credit assessment. In just 5 months of the nationwide launch, the adoption of the Finverse has surpassed 90% as of December 2023. Moving to pillar number 3, which is data and analytics. We have made significant progress in the analytics domain evolving from the formation of our team in June '23 to having 8 live scorecards and 8 operational data marts as of December '23. Lastly, on portfolio quality. Our gross stage 3 has shown significant improvement decreasing from 3.66% in December '22 to 2.18% in December '23. They're maintaining a stage 3 PCR of 34%. The details of the same are provided on Slide #22. To further our connection efficiency, we recently launched a comprehensive end-to-end debt management platform in November. In the first phase, customer engagement module has gone live. In the subsequent phases, we plan to automate allocation and settlement modules as well with the aim of 100% adoption by June 2024. In summary, we continue to demonstrate consistency across all aspects of book growth, digital transformation, asset quality and core profitability for sixth quarter in a row. Throughout the journey our commitment to robust profitability and unwavering dedication to customer centricity remains integral to our core operations. With that, now I hand over to Bala, MD and CEO of the Asset Management Company.

Thank you, Pankaj, and good evening to everyone. I'd like to share some highlights of ABSL AMC performance for Q3 FY '24, as it was presented at the AMC analyst call. ABSL AMC overall average asset under management including alternate assets reached INR 3.25 lakh crores, growing by 11% on a year-on-year basis. The mutual fund quarterly average AUM stood at INR 3,12,000 crores, and equity quarterly average AUM was at INR 1,35,000 crores. SIP flows have increased from INR 942 crores in December 2022 to INR 1,005 in December 2023. On the retail side, our efforts have worked well to the contribution of retail franchises increasing to 52% of the overall asset management and contribution coming from B-30 cities have grown by -- have grown to 17% as on December 2023. Our sales ecosystem, which includes Virtual Relationship Manager, Sampark for onboarding of distributors, Service to Sales for improving the overall mindshare of the customers and digital distribution have been yielding favorable results and building our retail franchisees. On the alternate business side, our passive offering grew by 36% to around INR 29,300 crores and has a growing customer base of about 6,20,000. Our current product suite consists about 43 products in the passive investments. On the AIF front, fund raising is underway for ABSL India Special Opportunities Fund in the Category III AIF and have also offered -- and also opened the product for subscription in ABSL Structured Opportunities Fund in Category II AIF, both on the pipeline and the closing will happen in the next 6 months' time. Moving onto the financials for the quarter, our Q3 FY '24 revenue was at INR 421 crores, up 16% year-on-year. And profit after tax was at -- for the Q3 FY '24 was at INR 209 crores, up by 26% on year-on-year. For 9 months ending December 31, 2023, revenue was about INR 1,201 crores, up by 17% year-on-year and profit after tax was at INR 572 crores, up by 24% year-on-year. With this, I'll hand over to Kamlesh Rao, the MD and CEO of Aditya Birla Sun Life Insurance.

Thank you, Bala, and I'll try and spend time on the Life Insurance business, both for the industry as well as Aditya Birla Sun Life Insurance. Over the last 3 years, we have built our franchise on consistent growth of greater than 20% in both our individual as well as Group Life Insurance business. We have also ensured that this growth is value accretive from our net VNB perspective, which expanded from 6.9% level 3 years back to a healthy 23% net VNB last year. In the 9 months of this financial year, the Individual Life Insurance industry has seen a rise in units, as seen in the reported numbers of companies, partly led by upside in the equity market and also due to change in taxation on traditional products last year. At ABSLI, we have been able to keep ULIP business at levels of 21%, which is same as last year, helping us maintain our net VNB margins in line with last year's same time. We will continue to focus on this strategy going forward while balancing our growth objective. During the quarter, we commenced business with our new bank tie-ups at IDFC First Bank and Bank of Maharashtra. We are pleased to share that we have signed up a corporate agency partnership with Axis Bank in December, and will commence business in the coming quarter. This will further strengthen our banca proposition to drive growth going forward. Our mindshare, the largest bank partner, that we have now has improved in Q3 compared to Q2, and we will continue on to work on expanding the same going forward. We have grown by 8% in the Individual Life Insurance business in the 9 months of this year, against growth by private players of 11% and overall industry at 7%. This has come on the back of 17% growth in the number of policies for the same period. Our net VNB margin for 9 months was at 15.6%, which is in line with what we achieved same time last year. Last year, we ended on 23% of net VNB margins for the entire year. Our innovation on the product side continues. In the 3 months of this year, we have launched two plans: Salary Term Plan, is an industry-first product specific for the salary segment in the area of protection. And Platinum Gain Plan and Fortune Wealth Plan, another industry-first product in ULIP, with the feature of trail commissions on AUM basis to distributors. The individual business had a healthy product mix with traditional business accounting for 77% of our overall business. The fact that 28% of our business came from upselling to existing customers, helped productivity growth in both our proprietary as well as partnership channels. In the Group Life Insurance segment, the private industry saw a growth of 12%, while the overall industry saw a degrowth of 14% and ABSLI registered a degrowth of 2%. The degrowth is on account of seasonal nature of the group business and growth momentum will increase in Q4. The business has grown by 17% in Q3 over Q2. We continue to remain the #1 in the ULIP AUM in the Group Life Insurance business. Our total premium of INR 11,101 crore has registered a growth of 10% over last year's same period with a 2-year CAGR of 17%, demonstrating our increasing business growth. This growth came from our new business growth as well as renewal premium growing at 20%, and our digital connections now account for 80% of our renewal premium. Persistency across all buckets did well with a 13th month now at 87% and the 61st month at 62%. We continue to maintain our upward bias in our forward guidance for these persistency numbers. Our assets under management now stand close to INR 82,043 crores with a Y-o-Y growth of 21%. 26% of this AUM is in equity and the balance 74% in debt. Our investment performance has been better than respective benchmarks across all three categories of equity, debt or even balanced funds, either from a 1-year or 5-year perspective. Our digital adoption across various areas is demonstrated in the Slide 43. 100% of the new business customers are onboarded digitally. 83% of all our services are now available digitally covering 65% of our customer transactions, and our customer self-service ratio now stands at 93%. Our approach going forward is to continue the growth trajectory of this business backed by both productivity and capacity. We expect continued improvement in the quality of our book. Growth will come from a diversified mix of both proprietary and partnership channels. We will continue to be best-in-class in our digital infrastructure across prospecting and onboarding in sales, underwriting and customer service as well as claims. With that, I hand over to Amit Jain to speak about the Health Insurance.

Thanks, Kamlesh, and I would like to now share an overview of the performance of our Health Insurance business. In the first 9 months of FY '24, we achieved a gross written premium of INR 2,399 crores, experiencing a strong 29% Y-o-Y growth. The third quarter stood out with an impressive 43% Y-o-Y growth, solidifying our position as the fastest-growing SAHI player during the quarter. Our market share in SAHI rose from 10.4% to 10.7% in the first 9 months of FY '24, driven by a strong growth of 34% in the retail business in Q3. The strong growth in retail business was driven by our larger retail channels, specifically the proprietary channel we saw a 40% Y-o-Y increase. Our proprietary channel share also increased to nearly 30% compared to 26% in 9 months of FY '23. All our large bancassurance partnerships have experienced good growth, and we also activated Yes Bank relationship in the last quarter. Our focus on diversifying our product portfolio saw a very successful launch of Activ One. This is the most comprehensive indemnity product in the industry with 7 variants targeting various customer segments. Positioned on a theme of 100% health, 100% insurance, it further strengthens our Health First approach with a very strong insurance component responding to all the customer feedbacks on reasons they don't buy health insurance. It's very strong early success gives us confidence for a very strong Q4. Emphasizing on a superior product mix, our fixed benefit product portfolio has risen from 13% in the 9 month FY '23 to 18% in the first 9 months of this financial year, which promises a positive impact on our profitability in the upcoming quarters. Our Group business witnessed 43% Y-o-Y growth, driven by a sharp focus on profitability through careful customer segmentation, cross-sell, upsell strategies, and corporate wellness initiatives. We are strategically concentrating on mid-corporate and SME segment to build a sustainable and a profitable corporate and affinity business. Moving to profitability, we balance our growth and profitability well. Our net loss stood at INR 270 crores compared to INR 217 crores in the same period last year. The higher absolute loss is primarily on account of business seasonality. Our experience has been that our losses peak out in Q3, which was also the case in FY '23. We are expecting a profit in Q4 and our overall full year FY '24 loss will be lower than the last year. Claims and expense ratios at the company level are trending well, and we anticipate the core to also exhibit a similar trend in the coming quarters. As a tech-driven digitally enabled, data-centric health first business, we are committed to continuous investment in our tech and digital capabilities. Our app downloads have increased by 36% Y-o-Y and MAU have also grown by 30% Y-o-Y. Our self-service transactions stands at an all-time high of 82% compared to 79% in Q2. Leveraging high-end analytical tools, we make informed decisions that positively impact our customer lives through personalized product offerings, targeted health and wellness interventions and a personalized service approach, resulting in a better customer experience. Investments in data augmentation and analytics are enhancing cross-sell retention and fraud management. Our digital health and wellness ecosystem now features over 60 partners. This is continuously being expanded through collaborations with insure tech and health tech partners. First of its kind, digital face scan-based health assessment feature was launched in this fiscal year, and it has been very well-received with over 43,000 assessments completed contributing to more than 20% of our total health assessments. Our differentiated Health First model is now showing signs of maturity. This is driven by sharp analytics, customer insights and personalized communications. The improved outcomes for some of the intervene cohorts are now visible. Customers participating in Activ Dayz exhibit lower loss ratios ranging from 10% to 30% or more. Likewise, customers earning health returns, experienced loss ratios up to 50% lower than the base line. More details are given in Slide 6 (sic) [ 51 ]. Overall, this has kept our retail loss ratio in control. And our endeavor is now how do we demonstrate this at scale. Looking forward, given the compelling opportunity, our differentiated business model and a supportive regulatory environment, we maintain an optimistic outlook on the growth potential of the Health Insurance industry. Our vision is to aggressively expand our franchise while upholding best-in-class unit economics and our steadfast focus on profitability. Thank you. And I now hand it over back to Vishakha for her closing remarks.

Thank you, Amit. This concludes our comments on our performance this quarter. We'll be very happy to take if there are any questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Abhijit Tibrewal from Motilal Oswal.

Congratulations to the ABCL team for good set of results. So quite clearly, you pre-empted some of our questions in terms of Personal and Consumer Loans and what is the contribution that is coming from Paytm. I just wanted to dwell a little bit on Personal and Consumer loans. I think in your opening remarks, you shared that Paytm is less than 1% of your sourcing in Consumer loans. So is it just incremental sourcing that's come down to less than 1% or even at your portfolio or the book level, Paytm is contributing less than 1% of your Consumer Loans?

So if you look at the slide on the segment-wise, the AUM breakup, we have given, that the Consumer Loan, the BNPL is now 4% of our overall Consumer Loan business, so that's around INR 700-odd crores as of end of 31st December, which have further come down.

Okay. But my question was more around the dependence that we have on Paytm. So I can see and sir, so what you're trying to suggest is this entire BNPL book was coming from Paytm and which has kind of continued to decline, like you said, less than 4% versus December level.

Yes. So if you look at before, close to around INR 2,200 crores by end of quarter 2, which has come down to INR 700 crores as of today, it further come down.

Okay. That is one. And then, I mean, this is like last time around in the last earnings call, you had shared a couple of interesting details around what is the average ticket size in your Personal and Consumer Loans. And I think, you had also shared that you are tracking the leverage of your customers, and I think 12%, 13% of your customers had showed a significant increase in leverage over the last 9 to 12 months. So if you could just share if you've done that analysis this time now.

Yes. So that is an ongoing process. We track the leverage, and this 11%, 12% of the customers have not against our assumption the leverage was 1.5x. So what we also realized that earlier, these Consumer Loans, let's say, people used to pay INR 50,000 loan or INR 1 lakh loan. That was broken down into multiple loans. And that's a trend which we saw in the last 6 to 9 months. So you will find -- because it's the end use, which is getting embedded finance, which is getting -- so that's the reason you would see a INR 15,000 loan and a INR 40,000 loan. But overall, we have not seen too much of leverage. It remains the same at around 12.7% of the customers have a leverage, which I had mentioned last time of more than 1.5x than what they had taken when we had given the loan.

Got it. So, I mean just a follow-up on that. I mean, is it fair to assume that given that we have calibrated our underwriting in personal and consumer loans, the kind of deceleration in Q-o-Q growth that as Vishakha was explaining in her opening remarks, we'll continue to see that kind of a deceleration in the near term?

Yes. And I had mentioned it, and Vishakha mentioned in her opening remarks and I also mentioned that we will dial this down further because the kind of concern with the regulator had on small ticket consumer loans and consumer credits. So before we could see any trend in our portfolio, we have dialed it down, and you could see that the consumer loan has come down by 34% quarter-on-quarter and we are looking at further bringing this down.

And then maybe one last question. Just one last question that I had on the housing side. So if you could just briefly explain how is the demand kind of holding up today in mortgages? I ask this because, I mean, there are a lot of mixed views particularly in terms of urban affordable segment, which a lot of people ascribe is not doing too well. But if I kind of look at our disbursements, our growth continues to do very well, so congratulations to you for that. So if you could just dwell on the demand that you're seeing in mortgages in various customer segments or ticket sizes, whichever way you want to look at it. And this is a related question here, I mean what's our sourcing mix in the HFC or the housing business?

Thank you. Pankaj here. I think on the demand side, while we look at the numbers internally, monthly we also check what is overall demand that is coming up also on the bureau. The number of hits on the bureau also we keep tracking. We track this every month. We have seen that those numbers are actually stagnating. They're not moving up that dramatically, but they are also not coming down. So that's the good news that is there. The other question that you asked is all about what is in it? How are the segmental shifts that are happening? First, the good news is that from a market share perspective, I think there is a huge opportunity that we have at ABHFL compared to the overall market size itself of the housing finance companies. Housing finance companies all put together our estimates are that the industry is about INR 8.5 lakh crores and we are currently at INR 16,500 crores kind of a book. So I think we accelerating is coming definitely at the cost of some other competition, hopefully, because the demand is not moving that much up. So certainly, we are taking up share. As far as how the segments are moving for us, the overall affordable segment and that also I'm talking from a bureau perspective, I think that number is consistently for the industry is trending between [ INR 9 lakhs to INR l0 lakhs ] is not moving up that significantly. For us, the segmental mix is what we are also talking and if you see our slides, which mentions our segmental mix broadly today, we are 51% of our overall mix is coming in from the value segment and 49% is coming in from the growth segment. And if you kind of further drill down within that percentage, all inclusive, 41% is coming in the affordable HL plus LAP, 10% is CF. So that is where our segmental numbers are coming in. So we are looking at and we've spoken about it also, like we are looking at the opportunities across all these segments because we feel that opportunities exist right from the prime to the informal segment and capitalize them with the right product market and rate mix. That's where we are focusing in our standpoint.

[indiscernible]. Just one last thing. I mean you have carved out a subsidiary, Aditya Birla Capital Digital to kind of come up with your own super apps to associates. So are there any projects in progress there? Are there any time lines that you're working at for the launch of your apps which will I think will come across all the product offerings across the Aditya Birla Capital group?

Just to reiterate, I think this entire platform that we're talking is our omni-channel platform, which has all the four form factors, which is sourcing from the branches, virtual engagement, app and the [ refresh ] website. The app of the omni-channel platform, ABCD, like Vishakha mentioned in the opening comments is right now in CUG, as we speak. And what we are also saying -- what she also mentioned is that we are going to launch this in the next month. So that is where we are on the launch of the app.

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

Yes. Good evening, everyone. Thank you very much for the opportunity. So the first question is on the sourcing mix of the personal and consumer loan business. Given the -- what has happened at the Paytm side and the risk weight increase on the other fintech partnership? Can you guide us how the sourcing mix has changed in this business on a Q-o-Q basis?

In terms of sourcing mix, if you look at and we track it in terms of our direct sourcing through the DSAs and through the digital. If you look at our direct has gone up, direct is around 45% of the sourcing happens through direct. 22% happens through the DSAs and 32% through the digital. But if I -- this is at the company level. But if I just give you personal and consumer, this is 84% of our personal and consumer are through their digital journeys. That's what we do and 5-odd-percent is direct sourcing, which we have.

And how much would be the fintech partners out of this digital journey? Do they form a part of that?

So if you look at -- and I mentioned this earlier, our -- most of our partnership is as -- if you look at the consumer side, the BNPL and consumer loans, which is there, which is almost 14% of our loan book in the personal and consumer. And that's how these partners -- and once we onboard these customers, based their performance on our portfolio over a couple of cycles, we see the performance through our underwriting score cards, then we offer them an upsell or a cross-sell products. So that's how this entire journey. So if you want to see in terms of the fintech contribution to this, you will have to see in the consumer side, primarily the contribution which is coming new to ABFL as a customer.

So Anuj, as you said -- as Rakesh said most of the digital partnerships and the acquisition is in our consumer side, which is the portfolio that we are actively trying to reduce and which has come down from 4,200 to around 2,600 now. And as Rakesh said, that we will continue to reduce that. So if your question is that whatever is happening, will that have an impact on our growth in the future? The answer is no, because we are actively reducing, one. Second, we believe there are alternative channels that we have already built. We spoke about -- we have increased our branch network, our Udyog Plus has been launched, which is gaining traction. Pankaj spoke about D2C app, which we're launching next month. They've already released it in the closer user group. So all these channels and our direct channel is also kicking in. So we don't see any impact on our growth in the future, and I did cover in my opening remarks that we still have a visibility as we have given you a guidance in the past, that our NBFC book, we believe that we will be able to double in the next 3 years.

If I can just add, if you see, we put a lot of focus on our secured business. And our secured SME business has grown quite strongly at 9% quarter-on-quarter and 26% year-on-year. So a lot of focus. It's not about -- yes, we are dialing down one segment, but we are growing the other segment and all the enablers which Vishakha mentioned, which will help us in terms of delivering that growth.

Got it, Rakesh. No, this is very commendable actually. There is no impact on disbursement despite the restrictions coming. But I think another thing there is, so the fintech partners have talked about moving from small-ticket size personal loans to big-ticket size. Are we also partnering with them in this initiative? And is there a meaningful portion of that in our sourcing for PL, which is now 86% of the business? Just to get some thoughts here in the personal and consumer loan segment again. [Technical Difficulty]

Please stay connected the line of the management dropped. Participants, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected.

Rakesh, should I repeat the question?

I heard your question. I was answering. I don't know where you lost me. But let me just start. I was saying that we have -- we look at multiple channels in terms of sourcing, and that's our strategy. We are omni-channel as a platform. We look at all ecosystem, partners and all. At this point in time, we are not looking at any fintech for large ticket sourcing because large ticket sourcing needs touch and feel and visiting the shop floor, accessing the cash flows, looking at the security and then giving the loan. So at this point in time, we are not looking at a large-ticket tie-up. Yes, if any fintech gives any model where the leads comes in which can be fulfilled, which can be underwritten by us, we will evaluate those models, but large ticket on digital platform because the idea was that small-ticket digital journeys is where fintech's play a role. But if the leads, if they can provide leads for secured products, we can evaluate that. At this point in time, we haven't gone into any partnership on a large-ticket loan, Anuj.

Got it. That's very clear. The second question is on the cost of borrowing. So we have seen -- and you did talk about that, the cost of borrowings are rising for you because of the higher risk weight from the bank side on NBFCs. So can you talk about what kind of hike we are talking about on bank lending? And given the liquidity is very tight on the money market side as well, what kind of cost of impact should we be building in the coming quarters?

Anuj, if you look at last quarter, our cost of funds went up by 7 basis points, and our yields went up by 8 basis points. And I also mentioned that we have increased our lending rate by 20, 25 basis points across all customer segments, all customer and product segments. So we have -- so we will try and pass on this for increase in cost of funds. In terms of looking at the liquidity situation and where do we see the cost of funds, our cost of funds might grow marginally up in quarter 4. But we don't see -- we are -- and related to the risk weights, I think few banks have reached out to us in terms of negotiating for the rate. We have not finalized anything. We are in discussion with them. We will evaluate, but we don't see any material increase in cost of funds. Yes, there will be marginal because I think -- but we should be able to manage that with the increase in the yields, which I just mentioned, we have increased our lending rates across our customer segments.

Got it. And lastly, because of the higher risk weight from the banking side on unsecured lending, are we witnessing higher bank competition on the secured lending, and this will be maybe more relevant for mortgages? Is there some evidence of that visible on The Street or it's business as usual there?

Anuj, we work in a very competitive environment. We compete with the large NBFCs, we compete with private banks and -- so it is a competitive environment. I completely agree. And especially the Jan, Feb, March quarter, again, is an important quarter for the banking industry. So there will be competition. We have to operate in this competitive environment, and we have our differentiation, and we have our -- the way we manage this business, we have done it over the last several years, and we will continue to do that. Yes, there will be shift towards secured, which we are also focusing on. But we really look at the entire -- we cut through the entire customer segment from a retail LAP to small ticket secured loans to micro LAP. So we really -- and we have built these capabilities, the SME loans, which is all secured. So clearly, we have built these capabilities and also the underwriting capabilities over a period of time, that has helped us in terms of managing this competition.

Got it. And can Kamlesh talk about on the mortgage side? Is there something incremental? It's the same thing there as well.

So Pankaj here, I think if I have to reference the question back to the cost of borrowings, I think, for us as well, the cost of borrowings have gone up by about 5 bps, but we also observed in our commentary as well, and I think the NHB contribution in our loan mix of liability, I think, is improving. We are right now at about 23%, and NHB as a component is just like CASA. Technically, that is what it is. So that really helps us in optimizing the borrowings. To your question on competition intensity, of course, everybody wants to also build their books and especially the last quarter. So there will be competition intensity. But I think the part of the proposition that I spoke about a couple of things, we also launched a host of product propositions where a lot of customers insights especially in the last quarter. We built certain propositions which have really taken off well in the marketplace. Finverse unified digital lending partner that I kind of mentioned. Also, is really helping our teams to get better face time with customers. So that is also helping in reduced turnaround times, we're becoming more and more predictable. And that is also resulting in one more aspect, which is gaining contribution of disbursements from our own ecosystem. I think that is where we've also, I think, done very well in this quarter, 9% of our disbursement actually is coming in from our own ecosystem, which is the distributors of ABCL and other companies, it's our own employees within the ABG ecosystem. And since I spoke about the ABCD of the omnichannel platform in the beginning when we started getting initial branches that also is starting to gain traction there. So that also is helping us to get to 9%. So I think competition intensity will be there, but I think we will have to power up propositions, work on making it more and more frictionless at the same time, make sure that the quality is paramount.

Next question is from the line of Avinash Singh from Emkay Global.

A couple of questions. The first one would be regarding unsecured business. First one would be regarding unsecured business, where you have highlighted the timing, large part of your unsecured business is covered by guarantee -- credit guarantee schemes. Now if you can help us understand the efficacy of the guarantee schemes because I mean the guarantee schemes provide cover. But just in terms of the time taken to receive the money from the time you're sort of NPA starts. Generally, it has been a kind of a mix experience. And I mean the commentary has been mixed around sort of our ability to receive money from this guarantee scheme in time. You can just help us understand the efficacy of this guarantee scheme in your context of business loans -- business unsecured loans, then I'll come with the next question.

So I just -- at the start, I want to say it has worked out very well for us. We pay a certain guaranteed premium to SIDBI, which guarantees 75% of our capital, our other principal outstanding. And if there is a default, 75% of the principal, we get it back from SIDBI. In terms of process, how much time it takes, it takes anywhere around 12 months or so, 12 to 15 months or so in terms of refunds coming in from SIDBI, at times it works even faster. At times, it will grow slightly over 12 months, but has worked out very well for us, and it mitigates our risk in this customer segment, especially when the exposure is unsecured.

The second one is regarding the capital allocation. So if I recall out of INR 30 billion that AB Capital raised last year, I believe, close to INR 13 billion, INR 14 billion has been infused into Aditya Birla finance now. So that means that, okay, additional INR 15 billion odd capital should be with the holding company. So over the next 12 months, what is the plan out of -- I mean how do you see that this capital is being infused across your two lending subsidiaries primary or even health insurance will require some capital infusion? So what is, again, your plans with this capital currently or anything else or any other capital you will need over the next 12 months?

Avinash, as we had mentioned at the time of capital raise that we did for INR 3,000 crores, we had said majority of the allocation will be happening towards the lending businesses. And so far, we have infused about INR 1,600 crores into our ABFL. We still have INR 1,400 crores from that. Over the next 1 year, we don't see or envisage any capital requirement from our health insurance because if you recollect last year itself, we had raised primary capital of INR 700 crores from ADIA which will take care of the needs of the business for the near future. However, for our lending businesses, we may require -- we will be requiring capital, which we'll be providing over the next 1 year and the amount that we have should suffice us till the closure of FY '25. So that's our plan. And after that, we'll evaluate how the things go forward and how much of capital we'll be deploying for the next 2, 3 years.

And as of now, this -- the RBI sort of requirement being Aditya Birla Housing Finance being in the, let's say, upper layers, you will have -- I mean as of today, the requirement is to list it by September '25. Sorry, Aditya Birla Finance, my bad.

Yes.

Next question is from the line of Nidhesh from Investec.

Firstly, on the NBFC, as a secured business is expected to grow faster, corporate business has also seen a revival in growth, how should we think about profitability, ROA, ROE going forward?

So our ROA is in the range of 2.5%. If you look at the first 9 months, our ROA is 2.48%. We are committed to improving the ROEs in the coming years. And clearly, the product mix will drive that. So today, if you look at retail and SME contributes close to 67%. We are looking at that mix going up to 75% of the overall loan book in the next 2, 3 years. And that should help us improve our margins from hereon. We are almost close to 7%. And with the change in this product mix, we should be able to grow closer to 7.5%. That's what we have been working on, and that should help us improve our ROAs.

Okay. Sure. So corporate business is unlikely to grow at -- corporate business actually grow at a lower rate than the overall balance sheet growth?

Yes.

Okay. Secondly, in the secured business, what is the sourcing mix that we have secured business and unsecured business? What is the sourcing mix that we have?

Secured, you mean sourcing the channel mix?

Yes.

Yes, the 60% is direct. For secured business 61% is direct and 39% is through DSAs.

And in the unsecured business, please?

Unsecured businesses 53% is DSAs, 41% is digital and 6% is direct.

And by digital, you mean fintech partners or customers are coming directly to us?

We also mentioned about the ecosystem, which we have within the Birla group, which we have the Udyog Plus we mentioned, we have integrated Udyog Plus to our Ultratech app. So -- but those are in the initial stages at this point in time, but the supply chain business which we do within the group and outside, I think that's done digitally, and that's our digital journey.

Sure. And secondly, on the Life Insurance business, how are the trends in terms of product level margins on a Y-o-Y basis. Have you seen any changes to the product level margins on a Y-to-Y basis?

So product level -- hi, this is Kamlesh here. On product level margins across various products, of course, there is no change. Like I mentioned, what changes at the net margin level, obviously, is the composition of the business. And we've been able to maintain our ULIP contribution, like I said at 21%, which is similar to what it was last year. So that hasn't gone up as compared to what has happened in the industry. And therefore, we've been able to maintain slightly better than last year. We were at 15.5% last year, we had 15.6% net margins in the 9 months of this year.

Sure, sure. And tie-up that we have done in with Axis Bank, when we should expect that to start having benefit to our growth?

So like I said, IDFC First Bank started in quarter 3, latter half of quarter 3. Normally, banks start with a smaller portion of their business, which is typically nonbranch banking. So you will see the real benefit because in cases like IDFC will get into the full spectrum in April of next year. Bank of Maharashtra will start earlier than that in the whole spectrum. And Axis Bank, like I said, we just signed the corporate agency agreement. We will start with few zones somewhere in the end of February, beginning of March. And so next year, we will expand our presence in the Axis Bank counter too.

And coming to health insurance, there -- historically, our combined ratio has been improving. But last 2 years, we have seen the combined ratio have started to deteriorate. So what is driving that? Are we seeing higher loss ratio or it is the OpEx ratio, which is impacting our combined ratio? And what is the strategy to improve combined ratio? What is the time frame that we should think about?

So Nidhesh, Amit here. So as I said, our losses and combined ratio pick up in Q3. So we expect combined ratio will go down in Q4, both on a quarter-on-quarter and also Y-o-Y, which show a combined ratio compared to what we have shown both last year compared to last year, also quarter-on-quarter. But our combined ratios are going down year-on-year, they have not gone up. Yes, that's the -- actually, that is the position here.

And if you can also, what is the loss ratio for 9 months?

Loss ratio for 9 months, I think they are trending well, both for retail and group. Though group, I must say, there is some pricing pressure because group business has become more competitive, with changes in the AUM, but they are trending well compared to the last financial year.

Thank you very much. Ladies and gentlemen, due to time constraint, we will take that as the last question. For unanswered questions, the team will get in touch with you. I would like to hand the conference over to Ms. Vishakha Mulye for closing comments.

Thank you so much. I really appreciate all of you joining the call and look forward to keeping in touch. Thank you.

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