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

Ladies and gentlemen, good day, and welcome to the Q3 FY '25 Earnings Conference Call of Aditya Birla Capital Limited. [Operator Instructions] 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 8of Aditya Birla Capital for Q3 of FY 2025. Joining me today are senior members of my team, Bala, Rakesh, Tushar, Pankaj, Kamlesh, Mayank, Pinky, Vijay, Ramesh and Sanchita. I will cover our strategy and business performance, and Vijay will cover key financial highlights, followed by the discussion on performance of our key businesses by our business CEOs. The Indian macroeconomic environment remains very challenging with moderating urban demand, tight liquidity conditions, high capital market volatility, slow CapEx offtake and depreciation in rupee. The GDP growth rate of the Indian economy declined sharply in Q2 FY 2025, while the CPI inflation cooled down marginally in December. Food inflationary pressures continue. RBI continues to maintain a neutral stance in monetary policy. In order to revive economic growth, boost consumption and demand, the government has announced various measures in the union budget such as income tax relief for salaried individual, increased credit guarantee limit for MSMEs, along with the various other measures aimed at rural and urban development, agriculture and infrastructure growth. At Aditya Birla Capital, we continue to focus on driving quality and profitable growth by leveraging data, digital and technology. We follow a customer-centric approach to build a deep understanding of the needs of our customers and provide them simple and holistic financial solutions in the seamless way. Prudent risk management practices form the bedrock of our approach, which has enabled us to protect capital and deliver risk-calibrated and sustainable returns across our businesses. We also continue to strengthen our omnichannel-based distribution network. Coming to the performance highlights for the quarter: one, growth and profitability, the consolidated profit after tax was INR 708 crore in the current quarter compared to INR 736 crores in Q3 last year. The total consolidated revenue grew by 10% year-on-year to INR 10,949 crores. We are focused on growing our portfolio with a strong emphasis on return of capital. Given the early warning signals and challenges in the operating and macro environment, we have had indicated earlier, we have been calibrating our NBFC portfolio by reducing our exposure to the smaller ticket size unsecured personal loan and increasing the proportion of secured business loans over the last few quarters. Further looking at the market opportunities, we have also accelerated the growth of our HFC portfolio. These steps have held us in a good stead over the past few quarters, where we have demonstrated strong asset quality trends with an improvement in Stage 2 and Stage 3 loans. Our NBFC portfolio grew by 21% year-on-year and 4% sequentially to about INR 1.19 trillion. The secured business loans to SMEs grew by 37% year-on-year and 4% sequentially. The corporate and mid-corporate portfolio grew by 31% year-on-year and 7% sequentially. The overall growth -- gross stage 2 and 3 loans in NBFC business declined by about 60 basis points year-on-year and remained flat sequentially at 4.25% as of December end. Our gross stage 3 PCR was 45.6% as of December end at a similar level compared to the previous quarter. Our credit cost was 1.36% in Q3, which is well within our normalized threshold of 1.5%. We will continue to calibrate our portfolio with a focus on return of capital. The profit after tax of the NBFC business grew by 5% year-on-year to INR 600 crores. The ROA and ROE were 2.1% and 13.87%, respectively, in Q3. Coming to our HFC business, we have built significant capacity over the past few quarters by making investments in digital properties, technology, people and distribution. I'm delighted to share that we have crossed a monthly disbursement run rate of INR 1,500 crores. This has resulted in our HFC portfolio growing by 62% year-on-year to INR 26,714 crores as of December end. The Indian housing sector continues to offer growth opportunities and is also aided by various government measures such as expansion of PMAY, an investment in affordable urban housing. We believe the investment which we have made will enable us to capture these opportunities and further accelerate our growth in the HFC portfolio. The credit quality and HFC portfolio remains robust with a gross stage 2 and stage 3 loans declining by 177 basis points year-on-year and 45 basis points sequentially to 1.77% as of December end. Moving to asset management business. Our mutual fund average AUM grew by 23% year-on-year to about INR 3.83 trillion in Q3 of FY '25. The profit after tax grew by 7% year-on-year to INR 224 crores. Moving on to the Insurance businesses. The growth in the Life Insurance business continues to remain strong. The individual first year premium grew by 31% year-on-year in 9 months of FY '25, and we are among the top 3 players in the private industry in terms of growth. We have commenced sourcing in Axis Bank counters and our mind share in the Bank of Maharashtra and IDFC First Bank encounters continue to grow. We continue to be in the top quartile in the industry in terms of 13th and 61st-month persistency. As we had mentioned in our previous quarter's earnings call, we have taken steps to realign our commission structure, made changes in the product pricing and increased rider attachment to mitigate the impact of the new surrender guidelines. These changes, along with the high persistency levels have helped us to attain a VNB margin of 10.8% in the 9 months of FY 2025. Our endeavor is to close FY '25 with the VNB margin of about 17% to 18%. In the health insurance business, we continue to be the fastest-growing stand-alone health insurer. Our gross written premium grew by 39% year-on-year in 9 months of FY '25 driven by a differentiated health-first model and data-enabled approach towards customer acquisition. Our market share among SAHIs has increased by about 140 basis points year-on-year to 12% in 9 months of FY 2025. Two, omnichannel architecture for distribution. Our omnichannel architecture allows customers to choose the channel of their choice and interact with us seamlessly across digital platforms, branches and VRMs fostering engagement and loyalty. Our D2C platform, ABCD, went live in April 2024. It offers a comprehensive portfolio of more than 24 products and services such as payments, loans, insurance, investments and help our customers to fulfill their financial needs. Our motto behind the design of UI/UX of the app has been Everything Finance As Simple As ABCD. ABCD has witnessed a robust response with more than 4.1 million customer acquisitions till date. We have seen a strong traction in payments with more than 2 million VPAs created till date. We had mentioned in our previous quarter's earnings call that we will be launching a revised servicing gap for our existing customers in the next 3 to 6 months. We are happy to share that this app has gone live in December. It has been built on a modular platform, offering a unified and common servicing infrastructure across all our businesses and has a single sign-on with ABCD. It allows us to leverage our existing customer base for cross-sell and upsell. Our comprehensive B2B platform for MSME ecosystem, Udyog Plus, continues to scale up quite well with more than 2.2 million registration. Udyog Plus have reached an AUM of INR 3,300 crores, and it has now contributed about 25% of the disbursement and total portfolio of unsecured business loans. We have further enhanced our integration with ABG ecosystem to provide credit and supply chain financing solutions to our dealers and vendors. ABG ecosystem now contributes about 50% of the disbursement on Udyog Plus. We have more than 2 lakh channel partners and we deeply value vital role that they have played in distributing our products. Our B2D digital integrated platform of our channel partner, Stellar, has gone live in January. It offers them a consolidated one-view dashboard of their businesses. It helps them to manage the leads and track them till convergent and enable them to grow their business volume. It will help us to increase our product penetration among the existing customers. We have 1,482 branches across all our businesses as of December end. We are focused on capturing white spaces and driving penetration into Tier 3 and Tier 4 towns and new customer segments. About 60% of our branches are colocated across more than One ABC 240 locations. Three, strategic initiatives. Our Board of Directors approved an amalgamation of Aditya Birla Finance with Aditya Birla Capital in March 2024, subject to regulatory and other approvals. We are happy to share that the proposed amalgamation has been approved by the shareholders in January. We have made an application before NCLT Ahmedabad and expect the amalgamation to be completed by March 31, 2025. Going forward, we will continue with our approach of driving quality and profitable growth. Now I request Vijay to briefly cover the financial performance of our key subsidiaries for the quarter.

Thank you, Vishakha, and good evening to all of you. The total consol revenue grew by 10% year-on-year to INR 10,949 crores during the quarter. The consol profit after tax was INR 708 crore in the current quarter compared to INR 736 crores in Q3 of last year. In our NBFC business, the total loan portfolio grew by 21% year-on-year and 4% sequentially to about INR 1.19 trillion. NIM, including fee income, was 6% for the quarter. The credit quality of NBFC business continues to be healthy with a credit cost of 1.36% in Q3. Our housing finance business continues to see strong momentum. The loan portfolio grew by 62% year-on-year to INR 26,714 crores. During Q3 FY '25, we further infused equity capital amounting to INR 300 crores in our HFC subsidiary, taking the cumulative infusion during the year to INR 900 crores. This infusion was done to support the growth momentum and maximize our share of opportunity, which Vishakha mentioned earlier. Coming to our AMC business, the average AUM increased by 23% year-on-year to INR 3.8 trillion in the current quarter, of which equity AUM, which was approximately 47%. Alternate AUM also grew by 32% year-on-year to more than INR 16,500 crore in Q3 FY '25. In the life insurance business, our first year premium increased by 31% year-on-year and group new business grew by 32% year-on-year. Pleased to share that the VNB margin expanded sequentially to 10.8% in 9 months FY '25. In our health insurance business, our unique and differentiated health-first model helped us to deliver a growth of 39% year-on-year with gross underwritten premium during 9 months of FY '25. Our combined ratio has improved from 121% in 9 months FY '24 to 114% in 9 months FY '25. I now hand over to Rakesh to cover the NBFC business performance in detail.

Thanks, Vijay, and good evening, everyone. In our NBFC business, we saw a 21% year-on-year and 4% sequential growth in our AUM, taking it to INR 1,19,437 crores in quarter 3. We continue to focus on the MSME segment and the business loans to MSME grew at 32% year-on-year, which is better than the industry. This segment continues to comprise 55% of our overall portfolio and is a focus area of growth for us. In this segment, secured business loans grew 37% year-on-year. Our disbursement in quarter 3 was at INR 15,233 crores, of which, 36% was contributed by secured business loans to MSME. More than 53% of our sourcing in business loans is done via direct channels, and we foresee this to inch upward with continued scale-up of our B2B platform for MSMEs Udyog Plus. Number of MSME using Udyog Plus has been sequentially increasing as we now have more than 22 lakh MSMEs registered on the platform, up from 16 lakh registration as of last quarter. More than 20% of the disbursement in unsecured business loans segment in quarter 3 has been sourced through Udyog Plus platform. In personal and consumer loan segment, the industry continues to witness a slowdown in growth to 13.8% year-on-year in H1 of FY '25 compared to near 30% growth level for the same period last year. This drop is largely driven by caution on high-risk segments and given the tightening measures we have pursued earlier in the year. Our growth in this segment will continue to be calibrated. Given the changes in the macro environment, we took advantage of the market opportunity to tactically calibrate our portfolio mix by reducing our exposure to small-size unsecured personal and consumer loans and increasing the proportion of secured business loans over the last few quarters. In fact, 80% of our disbursement to MSMEs in quarter 3 has come from the secured business loan segment, which has grown by 37% year-on-year, and the segment mix has improved to 83% compared to 80% last year. As a result, the overall secured portfolio at our entity level has improved from 69% last year to 74% in quarter 4, quarter 3 this year. During the last 1 year, our portfolio mix has undergone a change, where share of loans to MSME has increased to 55% in quarter 3 from 50% a year earlier. Share of personal and consumer loans to overall AUM now stands at 13% compared to 20% last year. We continue to operate at a very efficient cost-income ratio level of 31%. Our OpEx to AUM ratio improved to 1.9% in quarter 3 from 2.24% last year. And this has largely been driven by operating leverage as we continue to sweat the new branches opened in last 12 to 18 months to scale distribution. The credit cost has increased by 11 basis points quarter-on-quarter to 1.36%, which is well within our stated guidance of 1.5%. Profit after tax for the quarter grew by 5% year-on-year and stood at INR 600 crores. We continue to closely monitor our portfolio and asset quality continues to remain strong. The gross stage 3 loans are at 2.27%, which has declined 32 basis points year-on-year. Our Stage 3 is well provided all with a PCR of 46% with an overall 74% of our overall loan growth being secured. Moving forward, we remain focused on developing a granular portfolio and increasing the mix of business loans to MSME. This will be supported by the scale-up of our platform with new product offerings and increased investment in distribution across emerging regions aimed at driving growth in the personal and consumer segment, we continue pursuing the strategy of acquiring customers through platform-based approaches via our branches, ABG ecosystem and ABCD app. All digital customer acquisition process on the app and Udyog Plus are designed for end-to-end control covering everything from underwriting to collections, ensuring complete customer ownership. As we scale up, strengthen our capabilities and invest in technology, our primary commitment remains to deliver sustainable returns in the upcoming quarters. With that, I will now hand over to Pankaj Gadgil, MD and CEO of Housing Finance business.

Thank you, Rakesh, and good evening, everyone. I'll now present ABHFL's performance for Q3 FY '25. I'm very happy to share that we have achieved an all-time high disbursement for the sixth consecutive quarter, reaching INR 4,750 crores. Business from ABG ecosystem has contributed 13% of retail disbursements, up from 9% to 10% in the recent quarters. GNPA has now reduced to below 1%, marking a consistent decline in absolute GNPA and reaching its lowest level in the past 15 quarters. Key highlights for Q3 FY '25 are as follows. We recorded highest-ever quarterly disbursements of INR 4,750 crores, which is an increase of 136% Y-o-Y and 18% Q-o-Q. Our AUM now stands as of December '24, at INR 26,714 crores, an increase of 62% Y-o-Y and 15% Q-o-Q. Our customer base is now at 82,300 and has grown by 36% Y-o-Y, with the average ticket size of the retail segment at INR 28 lakhs. We also recorded the highest-ever PBT of INR 110 crores, which is an increase of 10% Y-o-Y. Stage 2 and 3 has reduced to 1.77%, which is a reduction of 177 basis points Y-o-Y and 45 basis points Q-o-Q. ROA for the quarter is 1.42% and ROE is at 10.66%. For more detailed financial information, please refer to Slide 28 of the presentation. I would now like to provide a brief update on a few pillars of our growth. First, on portfolio quality, as mentioned earlier, gross NPA has reduced both in absolute and in percentage terms, which is now at 0.99% in Q3 FY '25, a reduction of 109 basis points Y-o-Y and 30 basis points Q-o-Q. For more details on portfolio quality, please refer to Slide 26 of the presentation. Focusing on digital reinvention, data and analytics, which is a core for our strategy, we leverage technology and data remaining central to our strategy as reflected in the growing platform adoption and initiatives like account aggregator, which now stands at 35% plus. We have successfully implemented several models across the customer journey from demand generation to collection. Application scorecard and collection scorecard have already started delivering yields reflected in the portfolio quality. Lastly, in terms of our liability management strategy with a competitive cost of borrowing of 7.77%, the company's borrowing profile continues to be well diversified and cost-effective. I'm happy to share that we have successfully raised NCDs amounting to INR 830 crores from IFC in December '24. These funds will be utilized towards providing housing loans to low-income and middle-income groups with a particular focus on encouraging homeownership amongst women. A portion will also be allocated to supporting MSMEs, especially women at enterprises to drive growth and economic progress. In essence, we continue to demonstrate strong performance across all areas, including book growth, digital transformation, asset quality and liability management. Thank you all for your attention. And with this, I now hand over to Bala, MD and CEO of our Asset Management Company.

Thank you, Pankaj. To give a brief highlight on our AMC performance for Q3 FY '25. The overall assets under management, including alternate assets stood at INR 4 lakh crores, reflecting a 23% year-on-year growth. Our mutual fund quarterly average AUM reached INR 3,84,000 crores, growing by 23% year-on-year and quarterly equity average assets stood at INR 1,79,000 crores, growing by 32% year-on-year. Our SIP book grew by 38% to some INR 1,005 crores in December 2023 to INR 1,382 crores in December 2024. We also added about 6,70,000 new SIPs every time increase compared to the previous year. Our total investors folio stood at 1.5 lakhs with around like 24 lakhs new folios added during the 9-month period of FY 2025. The uptick in equity investment performance driven by improved [ transactions ] and stronger narrative has helped us gain traction in equity net sales during the quarter. During the quarter, we launched the ABSL/AMC conglomerate fund which garnered about INR 1,373 crores. We also conceptualized and launch the industry part to see the fixed month index fund which has garnered close about INR 800 crores and growing further this current month. On the alternate business front, to meet the growing needs of recognized and family offices, we continue to strengthen our team and enhance our PMS and AIF offering, both in equity and fixed income. Our PMS and AIF assets grew by 44% year-on-year to INR 3,853 crores from INR 2,671 crores. Our offshore business grew by 28% from INR 9,894 crores to INR 12,686 crores which includes close about INR 400 crores of net inflows we have witnessed from India dedicated funds to [ region ] platform. In line with our [ region ] to scale the passive business, we continue to offer a diverse product portfolio to our investors, delivering strong returns. As of December 2024, our passive assets totaled INR 31,600 crores with the customer base of over 10.68 lakh folios. With 22 product currently available, we plan to expand further the new fund launches in the coming quarters. Moving on to the financials for quarter. The Quarterly revenue from operating revenue was about INR 445 crores versus INR 342 crores in Q3 FY '24, up by 30% year-on-year. Our quarterly operating profit was at INR 262 crores versus INR 184 crores in Q3 FY '24, up 42% year-on-year. With this, then I hand over to Kamlesh Rao, MD and CEO of Birla Sun Life Insurance.

Thank you, Bala, and good evening to all of you. The overall life insurance industry saw a robust growth in the 9-month financial year '25 period. Individual first year premium grew for the overall industry by 14% and for the private players by 19%. For ABSLI during the same period, the growth was at 31% with healthy growth across proprietary and partnership channels. Our new business policies have grown by 28% by December '24. For ABSLI, the proprietary channel saw a robust growth of 34%, fueled by both improved productivity as well as the capacity that we added over the last year. Our new tie-ups in Bank of Maharashtra and IDFC Bank continue to have positive traction every quarter. And Axis Bank is expected to touch close to INR 100 crores by the year-end. These combined with our existing 8 bank partners for growth of 30% in YTD December '25 for ABSLI. In the Group Life Insurance segment, the private industry grew by 9%. Overall, industry grew by 7% and ABSLI registered a growth rate of 32%. Better growth was contributed by superior performance, both in the fund as well as in the credit life business. Our group business AUM is around INR 25,880 crores and contributes to 27% of ABSLI's overall AUM. Our total premium for the year is INR 13,605 crores has registered a growth of 23% over last year with a 2-year CAGR of 16%. This growth came from new business as well as renewal premium growing at 13%. Our digital collections will now account for 82% of our renewal premium. We continue to work on customer lifetime value, which is reflected in our upsell ratio which reached 28% in health, productivity growth in both our proprietary as well as partnership channels. In the product mix of the individual business, traditional business including protection contributed 65% and ULIP was 35%. On the group insurance business side, in the credit line space, we have slowed down our microfinance business counters, while growth is being observed in all the other retail counters. Our capital business attachments have grown significantly in the last 9 months of this year. Quality parameters continue to trend better across all areas, persistency across all buckets did well with 13 months at 87% and 61st at 67%, which will make us top quartile in the industry. Our consistent efforts on bringing cost efficiency along with optimal investments into the business has resulted in an OpEx-to-premium ratio at 20.8% versus 19.8% last year same time. Our total assets under management now stands at INR 97,286 crores with a Y-o-Y growth of 19%. 25% of this AUM is in equity and the balance, 75% in debt. We continue to outperform in our investment performance in respect to benchmark across all 3 categories of equity debt or balance front either from a 1-year or a 5-year perspective. Our digital adoption across various areas as demonstrated on Slide 44. 100% of new business customers are now onboarded recently, 83% of our services are now available digitally, covering 67% of our customer transactions and our customer self-service ratio now stands at 93%. We went live with a new service CRM powered by Salesforce from mid-November. As we move ahead, 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. I'm happy to share that we've been awarded the Best Life Insurer by Fortune India in their Jan '25 edition for our last year's performance, in terms of both business growth as well as quality parameters like persistency and claim settlement ratio. We also raised capital via rights issue in December '24 to the tune of INR 311 crores both existing shareholders have subscribed to this issue. Our solvency continues to remain at a healthy rate of 194%. As we said last quarter, our focus has been on basic distribution by increasing capacity in our proprietary channels, covering both agency as well as our direct business and investment in capacity in our newly acquired bank partner, which help us garner incremental mind share. Our net margin, which for the first 6 months were at 7.4% has now expanded to a 9-month financial year '25 period to 10.8% versus 15.6% last year same time. We saw significant expansion of margins in Q3. With Q4 being the largest quarter of the year, we see even more expansion of margins in this quarter and continuing to maintain our earlier guidance of 17% to 18% net margins for the year. On regulation, we have relaunched major top-selling products in compliance with the new surrender regulations in October as directed by the regulator. We have also realigned commission structure with the distributors that mentioned last quarter. We do not foresee any adverse impact on new business margins on account of the same. With this, I hand over to Mayank for details of the Health Insurance.

Thank you, Kamlesh, and let me now share an overview of the performance of our Health Insurance business. With a strong quarter 3, we continue to build on the first half FY '25 growth momentum. In the first 9 months of FY '25, without the multi-year accounting norms, we achieved a gross premium of INR 3,505 crores, experiencing a strong 46% Y-o-Y growth. Our Q3 growth accelerated to 59% versus 43% growth experienced in Q2, further strengthening our position as the fastest-growing size player during the quarter and any previous quarter as well. The performance is further amplified given the new long-term accounting regulations introduced by the regulator in quarter 3. The long-term accounting norms, 9 months GWP with a Y-o-Y growth of 29% is at INR 1,337 crores vis-à-vis in our Q3 is at INR 1,167 crores with a Y-o-Y growth of 29%. Our market share, thus in SAHI has increased from 10.7% to 12%, a Y-o-Y increase of 138 basis points. Growth continues to be driven by our retail franchise diversified across all major distribution channels and the strength of our unique and differentiated business model. The proprietary channel with an adviser count of over 1.34 lakh agents experienced a 26% Y-o-Y growth. All our major bank and digital alliance partnerships have also experienced impressive growth leading to our retail franchise growing at 46% in 9 months. Our flagship product Activ One has now completed 1 year since its launch in November 2023, and the product with 7 variants continues to be one of the most comprehensive indemnity product in the industry and is enabling the organization to penetrate newer underpenetrated customer segments, like the HNI customer base and people living with lifestyle conditions. The product continues to inspire other competition industry products as well. The corporate business experienced a strategically controlled 47% Y-o-Y growth, driven by a sharp focus and profitability through careful customer segmentation and leading -- industry-leading outpatient business. We are strategically concentrating on mid-corporate and SME segment to continue to build a sustainable and profitable corporate business. The recent IRA guidelines on revenue recognition for long-term policies represent an important regulatory shift. The unit economics of the business remains unchanged. However, the new accounting regulations do impact accounting financials in the short to medium term until we migrate to IFRS. Despite these regulatory adjustments, we are pleased to report our net loss for the 9-month period moving to INR 195 crores compared to INR 270 crores in the same period last year. The reported core at 114% is a significant improvement over last year's number at 121%. But for the change in accounting norms, our 9-month COR would have ended at 110%. Our health-first model continues to scale and mature. The outcomes of some of the intervene cohorts are now visible and presented in Slide 55. The percent of customers influenced by participating in healthy behavior has now reached close to 25% on an enlarged customer base, and they continue to exhibit lower loss ratios up to 40% at various cohort level. Similarly customers experiencing positive and behavioral based incentives also experienced loss ratio of 43% lower than the baseline. We've invested in building the capabilities and managing customer with high health risk through a combination of product offerings and human digital capabilities to manage the disease burden of these set of customers, which does help in managing the long-term health risk of our aging portfolio. Through a combination of in-house coaches and partners, we have now intervened in more than 120,000 high-risk lives to improve their health vital leading to lower claim ratios. Our promise of insurance is centered on providing industry-leading experience and our investments in AI and ML-driven CA auto adjudication engine continues to witness encouraging results. We continue to invest in our industry-leading Activ Health app and the app now provides an opportunity for non-policyholders also to experience our comprehensive app ecosystem. Our Y-o-Y app downloads have increased by 183% with the Y-o-Y MAU increased by 157%. Looking ahead, we remain optimistic about the long-term growth prospects of the health insurance sector, and also given our differentiated and equivalent business model. Our vision will be to objectively expand our franchise with maintaining best-in-class unit economics and a clear focus on profitability. I now hand it back to Vishakha for her closing remarks.

Thank you, Mayank. This concludes our remarks from our side. We are very happy to open the floor for any questions.

[Operator Instructions] First question is from Chintan Shah from ICICI Securities.

A couple of questions. Firstly, ma'am, on the HFC growth, a question to Pankaj, sir, we have seen a robust growth of 62% probably Y-o-Y basis. So what are the potential drivers and so where we should see the growth over the medium term? What could be the sustainable growth? And what are the key drivers for such a robust growth? Firstly, on that, so I'll ask together or separately?

You may please go ahead, Chintan, you can give all your questions, and we'll answer them one by one.

Sure, sir. Yes. Secondly, on the PCR in the NBFC segment on Stage 3, it is around 46.5%. So probably it has -- it is stable Q-o-Q, but seems to be declining. So now I think we are moving to the secured segment, so how should we see this PCR going ahead? So any -- what could be the stable number there? And also the Stage 2 has seen some inch up. So any thoughts there? And then it is on the ROA front for the NBFC piece. So it is 2.1% ROA. So if you look at the margins, over the last 1 year margins have compressed around 90 bps Y-o-Y since probably we are moving to a secured mix versus the unsecured portfolio and running down the secured piece. But then the credit cost has not -- has declined only like around 10 bps Y-o-Y. So the ROA has seen a massive hit. So what are the levers probably to expand? And so apart from starting the growth in the personal consumer segment, any other newer -- how should we see the ROA over the medium term? Yes, that's it from my side.

Chintan, Pankaj here. I'm taking the question on housing finance and then I will leave Rakesh to handle the next question. I think if you see that disbursement. So this is a culmination of several consistent quarters on growth that we've seen in disbursement. So this quarter, we saw 18% Q-o-Q disbursement. But if you see the last 6 to 7 quarters, you will see a similar trajectory. Now of course, the trajectory is even more accelerated. So it's a pretty consistent approach in growing the disbursements. It is coming on the back of 3 or 4 important things. I think over the last calls that we've had for the quarters, I've been speaking about it, but I just reemphasize those. I think over the last 18 to 24 months, we have made investments in widening our distribution. So the number of people that are there in sales operations and the entire governance structure, I think that has been strengthened quite meaningfully. That, of course, by creating capacity is leading to higher disbursements. Second is we have invested quite significantly in digital platforms, both in terms of our sales processes. And we have the best-in-class customer relationship management that we're using for ensuring that our sales processes are best in class. The second is we were also speaking about Finverse which is an end-to-end platform that we have launched from prospecting to disbursements. And I'm very happy to share that not only is Finverse being used by our teams for sourcing applications, even our channel partners are also directly logging in our business on Finverse. That is clearly helping in decongesting the entire file flow and is giving face time for our teams to focus on meeting customers and also channel partners. So productivity is also one thing that we have seen significant growth, that's both on capacity and also productivity. The last thing that I want to share is that we've been also speaking about the contribution of our disbursements coming in from the ABC and ABG ecosystem. And in this quarter, you would have noticed that 13% of the disbursements actually are coming in from the ABC and ABG ecosystem. So there are a huge set of opportunities which are coming into through ABCD, through also our ABC Select partners and also in ABG group ecosystem. I think with a combination of the digital platforms, and also the capacity that we've been able to bring. I think we are also accelerating disbursement of that thing. I think all this put together is resulting in growth across the affordable, prime and also developer finance business for us. When it comes to the guidance, I think we've been speaking that we will be seeing similar trajectories of growth in the next few quarters, and that is where we are. I'll leave it to Rakesh for the next question.

So Chintan, your first question was on PCR that year-on-year, the PCR has come down by 3%, 4%. That's primarily on the backdrop of change in the product mix. If you see secured book has gone up from 67% to 74%, and that is the result that PCR is at 46%. So the PCR is quite stable. We have of 74%, 3/4 of our loan book is secured by collateral, real estate collateral, securities and all and that's the reason even in the unsecured business, we have CGTSME (sic) [ CGTMSE ] guarantee as well. So that's the reason our PCR looks very, very comfortable. Your second question was on Stage 2, that Stage 2 has gone up marginally. If you look at year-on-year, it has come down. But yes, compared to the last quarter, it's gone up marginally. But by end of Jan, we have been able to pull back all these loans which have moved on, as you know, the definition of stage 2 is 30 plus. So even a customer goes up to 31, 32 days, it moves into Stage 2, it all has been pulled back. The third question was on margin in terms of that we have seen 28 basis points lower margin compared to the last quarter and 90-odd basis points compared to last year. This is, Chintan, again on the backdrop of change in the product mix. Our yield and NIM are a function of product mix. And even, as I mentioned earlier, secured business has gone up from 67% to 74% and that's the reason why you see -- also, if you see our personal and consumer business, which we had started in terms of tightening and dialing down post the RBI intervention on small-ticket unsecured loans and some bit of partnership, that's now started stabilizing, and we would expect that to grow in the next couple of quarters. So that should help us. Also on the unsecured business, which has similar yields and margin, that piece also, if you see, has gone up, it's grown 12% year-on-year and 2% quarter-on-quarter. That should also start scaling up in the next couple of quarters. So that should help to improve and stabilize our margins. And that should really result in the ROE. Your question on credit costs. Credit cost is in the range as we had always guided that it will be below 1.5%. It's at 1.36%, so it's in the range. And yes, over a period of time, we will like to see that trade costs remain stable, margin expanding. That should help us improve our ROE.

Sure. Thank you for a very detailed one. So probably, but any sense on the product mix, if I may ask, what would be the product mix from 67% to 74%, we have moved to secured. So any ballpark number which we are looking beyond which we won't move the secured mix? Or it could -- there is no such number in mind, yes?

So if you look at today, our personal and consumer has come down from 19-odd-percent, 19%, 20% to 13%, we would like to grow it back to 18%, 20%, not immediately, but in the medium term. And also on the business -- unsecured business segment, if you look at, that's grown 12% year-on-year. We would like to grow that further. And so that's how we are really looking at managing the margins, Chintan.

And so any ballpark number on the margin? So could it decline further from here on? Or should we expect some stability around current levels of 6%? Yes, that's the last one.

I think we should see stability around this number before it improves.

Next question is from Anuj Singla from Bank of America.

So I'll start with the housing finance business. So a question for Pankaj, please. Firstly, if I look at the Y-o-Y growth, a lot of that has been driven by the nonhousing segment LAP and construction finance, housing is down by around 850 basis points as per my calculations to 57%. Can you give us some sense of where this can settle down and you also have that criteria for the principal business. Where are we in that? And how much scope we have for reducing the housing proportion in the overall mix?

Anuj, Pankaj here. At the end of Q3 FY '24, if you look at what we have also listed in the slide, we had a 65%, which is showing on the housing in the bar graph that is there on the slide. It is now showing at around 58%. So the observation is -- you're right on that side. Having said that, I think like we also maintained -- we are a full stack player, who is operating in the housing, HL and also developer finance portfolio, all the 3. So I think opportunities existing in all the 3, and we've been able to successfully ensure that we filled a presence across all the 3 segments. Having said that, there are 2 things that we'll have to keep them in mind is, first, the quality mix across segments, which is appropriate. I think the numbers speak for themselves on the portfolio quality that we have been able to get to. So we are very, very conscious and while the earlier question was being asked, our disbursements have grown. But I think we are very focused that we use analytics right across the team, right from onboarding, we look at the onboarding labor force and also because it was [indiscernible], which gives us a very good indication of no-go, go criteria. Also, we use data analytics also on [ pre delinquency ] management and also on flows, which is keeping us in the right set now to manage the tab of the -- I think your question on regulatory, what are the percentages for housing loans, the minimum threshold is 50%. Overall, housing, the 60% criteria is the criteria. On both the criteria, I think we are comfortable right now. In housing loans, we are in that range of about 53% to 54% kind of range and well above the 60% mark. So I think the opportunities are still there. But at the same time, we have to keep looking at both HL and LAP and across all the segments to see the growth trajectory.

So will some mix change materially from here? Or it can settle down in the same level which we have seen for third quarter?

Because 50% is anyways the threshold. So we would want to remain in that 53% to 55 percentage kind of a revenue.

And secondly, can -- sorry. Secondly, can you give us some sense of the margin risk from the rate cut, if it comes through on the liability side, what kind of flexibility you have on the variable costing and on the asset side as well?

So overall, if you see on the side of the asset side, 95% is variable, 5% is fixed. On the side of liability side, 39% is fixed and 61% is variable. 9% -- broadly 6% in NHB and 33% in NCD. That is the broad breakup of the liability. But currently, if you see and you are there in the market, you will know that there is a wide spread between the term loans and the NCDs. So there is clearly a factoring rates at which we are borrowing on NCD versus the term loans, a significant difference. That's not with us but with the market. So I think we are fully placed on that side, and we've been able to factor that when we are managing our assets.

Okay. Second question is on the Life Insurance business, to Kamlesh. So you did talk about changes on the distribution commission side as well as product structure because of the surrender value regulations. Can you give us an idea if there is some impact of that surrender value regulation in this quarter margins as well? Or were you able to recoup everything out of that? And when we look at the product-level margins because of the new products, which you have launched, have you changed the IRR? Or is there a significant change in the product-level margins, which have happened after the surrender value regulations are put in play?

I'll answer the question in 2 parts. So obviously, when the new surrender regulations came in, all products had to be refiled and relaunched on 1st of October. So there would have been some timing mismatch between, first ensuring all the products are on the table. And then, of course, whatever we have to do with the surrender regulation incorporation. So some loss of time would have got incorporated in that, which is why I said that quarter 4 will look better because some bit of that we would have lost in quarter 3 from a timing point of view. So it will only get better. I must say that margins have gone down on account of both impact would be on surrender regulation is changing. We also on guarantee products, the G-Sec is lower than what it used to be, that impact also comes in. But for the second one, appropriate reduction in customer IRRs have been passed on again during the quarter. And again, there would have been some timing loss in that process in the quarter, which is like fully established right now for the quarter that we speak about, which should be in Q4. So broadly on surrender, fully taken care of on account of G-Sec incorporated through the quarter, and you will see the expansion of margin story that I would saying will fully reflect in Q4 of this year, apart from the size of the volume that we have.

So is it possible to quantify the independent impacts like for the surrender value, if it were not to be there, what could be margins for 3Q would have been higher by, let's say, 15, 20 basis points or whatever the number is. And similarly, for the repricing impact on the non-par side, is it possible to quantify, these 2 in independent buckets?

Possible. But like I said, we'll have to get through every period of 1 month because, like I said, when 23 products get launched, you have to launch that first before deciding the drop in the rate. But I can reach out to you separately for details on that separate.

Next question is from Abhijit Tibrewal from Motilal Oswal.

First question is on NBFCs. 2 sub-questions there. First one is, if I look at our presentation, there has been a deceleration in the disbursements in this quarter. So I remember hearing in the opening remarks, we've been talking about calibration in our unsecured business areas and growing our secured business. So -- but if I look at the segments and presentation, I see there is really broad-based deceleration in this quarter. So how should we read that? And the related question here on NBFCs again is that there have been NBFCs who reported earlier during the quarter, and we've been talking about completely dialing down their partnership businesses. So I mean, I just wanted to understand how are we thinking about our basically consumer loan business that we do through partnerships. That is on NBFCs. I have one more question. The second one is on the ABCD app. Again, I see on your slides, you've talked about introducing credit line and UPI from the next quarter. So I just wanted to understand if you can give some color of how we are thinking about that product? And lastly, out of our disbursements in the HFC in the third quarter and 9 months, what proportion of disbursements came from BTs? Those are my questions.

From where? Sorry?

Can you repeat the third part? Third question, can you repeat?

The balance transfer, BTs, what proportion of disbursements came from BT?

So Abhijit, the first question on disbursement coming down in quarter 3. As you know, there are different cycles in terms of the business through the year. So yes, quarter 2 was stronger, but if you compare year-on-year. I think primarily BT growth is coming from personal and consumer segment, which is 47% down year-on-year. Again, quarter 4 will be better. So we should be able to catch up on disbursements. So that's your first answer. On consumer loans through partnerships, as I mentioned in my opening remarks, we have built capability in terms of sourcing through branches. So now we have almost 450 branches through which we sold consumer and MSME business. Also, we have built our own digital journeys for consumer loans, which is our direct consumer journey. So that's another piece which we are really building up and we have ABG ecosystem is another one through which we are trying to build scale. And third -- fourth is the ABCD app. So that's another platform through which we are sourcing and on the MSME side, Udyog Plus. So all of these 4, 5 things is what will help us in terms of driving our consumer and small-ticket MSME loans. So clearly, that's how. So strategy is clearly to own the customer, own the journey and clearly end-to-end ownership of the customer and the journey.

I'll take the second and third questions, Pankaj here. So the first question answers a bit nuanced. So credit line on UPI, I'll just explain that you. So when the customer opens an ABCD app and he's creating a handle, his handle is your mobile number@ABCDICICI. Currently, there are 2 options which come in for the customer. One is that you link your bank account. So you link your existing bank accounts which are there. That's one payment mode. The second is, of course, if you have got a RuPay credit card, then you are able to connect the RuPay card. What credit line UPI means is that, currently, credit line on UPI is live with all the issuing banks. So if you are a customer and for your respective account, if a bank has given you a credit line on UPI, then when you are creating the UPI handle, the third option also which will come is that first option is bank account, second option could be RuPay credit card if you have it. Third option will be the credit line, which has been given to you by your issuing bank which you can link. Once you link it on the ABCD app, then you can make payments from all the 3. So that's the first part of the story. So we'll be going live with that functionality. So if, let's say, a customer is an ICICI Bank customer, example, and he's already got a credit line for ICICI Bank and it's also having the credit line facility with UPI. When he opens up the ABCD app, he will be able to -- he or she will be able to link up the credit line. That's one. Second is we are also going one step further. There could be some customers who may not have the credit line from the bank. It's not preauthorized. So working with the banks to ensure that this link, credit line can actually go that of the bank, and they can provide a credit line. And then instantly, we should be able to move it up on credit line on UPI facility. Right now credit line on UPI is not there open for NBFC. So in times to come, we've also put in our request to BCI to make sure that, that also gets done. When that happens, then that line could also be an ABFL line, which could make this completely in-house. Coming to your third question, which is BT in. So like you're rightly asking, we also track disbursements which come to us, which is the first time and also the BT. So probably a BT disbursements, that number between 8% to 10% of the total disbursement from the BT in that we do.

Can you repeat that, please? What was UPI?

The credit disbursement that we do, that proportion is between 8% to 10% of BT in that we do.

Got it. And just one clarification. On the NBFC, when we asked that the deceleration is coming primarily from the personal and consumer loan segment. I'm just trying to understand, there's nothing in the macro today that is worrying you because I see that even secured segments Q-o-Q, there has been some deceleration. So nothing in the macro today, right, which is worrying is what I'm trying to understand.

As I mentioned, there are cycles throughout the year. If you look at, there are 4 quarters and there are some quarters which are stronger and some quarters, which is slightly muted. So that's the reason, yes, if you look at our portfolio performance over and through the cycle has been very, very strong on the MSME side, and the secured portfolio side. So we don't have any concerns there. We don't see that as a derailer. We want to continue with the growth opportunity. And I think if you look at the project, the recent budget also from the consumer side, the income tax benefit, which has come below INR 12 lakhs and also the MSME guarantees and enablers which have come for the MSME. I think these are strong opportunities for player like us.

Next question is from Avinash Singh from Emkay Global Financial Services.

A couple of questions. The first one on your lending businesses against what I want to understand, I mean if I look from the profitability perspective and go back, say, 4 quarters. In the NBFC, you were kind of delivering nearly 2.4-odd percent kind of ROA. Now at this juncture, of course, that unsecured business winding down, that had an impact. But today, kind of you are at a 2.1-odd percent ROA. Now from here to, say, 2.5% because I recall even at 2.4-odd percent, the ambition was to further improve eventually, I mean, more towards 3%. But now from this 2.1%, if you are aiming for, say, 2.5-odd percent, I mean, how this road is going to be because if I look at from interest rate perspective, by and large, I mean, on the asset and liability side, fixed and floating are matched. So I mean, the rate cut cycle is also, if at all, not going to help there. So rather improvement has to come from, I mean, largely, I would expect from the margins because on the OpEx side, you are already reasonably good. So how is this journey and how long will this take again, say, maybe 2.1% to 2.5% journey. That's on the NBFC side. On HFC side now, of course, I mean you have been investing a lot in capacity building, and that is delivering growth, but that is also leading to sort of a currently OpEx ratio being elevated. So at what scale, what time line, I mean, you would expect and what is that optimal your OpEx to AUM or cost to income? I mean, currently, you are running more closer 2.9% kind of OpEx to AUM, and for HFC to be kind of a reasonably, I would say, respectable profitable or you need to significantly lower it down. So what could be the time line, at what scale probably you would be hitting that and what is that desire sort of OpEx to AUM? These are sort of a question for lending. And just one data-keeping kind of a question, if you can just provide some color on the ARC transactions that you have done in this quarter in NBFC. I mean what was the underlying asset, what sort of recoveries, cash or like what the structure with ARC?

First question was on ROA, which is from 2.4%, it has come down to 2.1%, and that's primarily a result of the margin compression, which we spoke earlier. As we change the product mix and improve our disbursement and growth in personal and consumer and also the MSME unsecured, I think that margin expansion should happen. Also, if you look at the overall product mix at this point in time, is almost 74%, 75% is secured. That should also help us at least in the near future in terms of bringing down the credit cost. So I think these are the 2 levers, which should help us to go from 2.1% to 2.4% to 2.5%. So that's a question you had on NBFC.

Yes. I'll go next. So I think the question that you had raised was what is the long-term -- how do we see the ROAs going up? So if you see the numbers, I think currently, the NII for us is 4.94%. And as you had mentioned, the OpEx to average loan book is credit cost 19 basis points. I think we've been speaking about this, that as the book will grow and to your question at what capacities the operating leverage will come in, disbursements to book as the proportion of new disbursements to the overall book keeps reducing because the book becomes larger. The current OpEx to average loan book, which is 2.8% is bound to get to in the range of somewhere between 1.6% to 1.7% in the next 18 to 24 months, which is 110 basis points -- 110 to 120 basis points reduction. We also expect that the NII is now 4.94% both in competitive intensity, cost of borrowing also changing a bit to be in the range of between 4.6% to 4.7%. So if that is the number, 4.7% is the NIM, 4.65% the NII and 165 to 170 basis points is the OpEx with a similar kind of a credit cost. The ROA post tax will be in the range of between 2% to 2.1%. That is the guidance, probably that we are working towards. And those numbers should get achieved between the next 18 to 24 months. That is where we are on this. I think the books I already spoke about the consumer trajectory of growth. So the next 18 to 24 months where the book size will be. So that is where we are on that.

On the ARC front, there's no new transaction we have done. It's -- the profitability is due to the increase in the net asset value of the assets we are holding. So that's the reason for the profitability. Otherwise, we have not done any new transaction in Q2.

Next question is from Punit Bahlani from Macquarie Capital.

Mainly on the PCR bit, you said that because you are going to -- sorry, since you're going to secured mode, the PCR is low. But as we plan to expand our personal loan business, is it fair to assume we'll be adding back towards the 50% PCR level? Or what's the plan there? And accordingly, should we bake in maybe some 10 to 12 bps at our credit cost? Also on -- when I look at the unsecured business, the Stage 2 and Stage 3 has increased by around 30, 20 bps. So what's -- like are there any forward flows? Is there any cause of concern here in this business? And thirdly, on the overall Stage 2, like Stage 2 has increased, but the Stage 3 has declined. So while you clarified that then Stage 2, you have managed to pull it off in January. But is the Stage 3 decline because of higher write-offs? Or is it any other reason? Yes, those are my 3 questions.

So first question on PCR, when we grow consumer and personal loans, whether the PCR will go back to 50%, see, the PCR is an outcome of the ECL model. And in unsecured business growth, yes, the PCR will grow. So to answer your question is that if the personal and consumer and unsecured business grows, PCR will grow. The second question which you had on the forward flow of the unsecured business, so if you look at the personal and consumer, that has been quite stable in spite of book not growing and de-growing I think that is quite stable, both Stage 2 and Stage 3. On unsecured business, there has been a marginal increase in stage 2 and stage 3, but that's on account of -- if you look at -- see, the forward flow in that segment is anywhere between INR 40 crores to INR 60 crores on a quarterly basis. And last quarter also, the forward flow is INR 50 crores, so there is nothing new or nothing worrying which we are seeing. It's because of the denominator effect, you are seeing the percentages looking slightly higher.

And since this is credit guaranteed, like what is the timeline? I think last quarter, we had highlighted that 12 to 15 months, we get the recoveries and all. Is that also may be a reason that the recoveries once they come in, then you account and the number swings down, something like that?

Yes. So this is a question about cash flow of SIDBI and when and how this -- and once the new financial year, I think there will be release of funds and also should be a yes, but to answer your question, there can be a question on the cash flow. It's only a timing issue.

Due to time constraints, we'll have to take that as the last question. I would now like to hand the conference over Ms. Vishakha Mulye for closing comments.

Thank you, everybody, for joining us. If there are any more questions, please feel free to reach out to any of us, and we look forward to answering all your questions. Thank you so much.

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