Aptus Value Housing Finance India Limited (APTUS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Aptus Value Housing Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mona Khetan. Thank you, and over to you.

Thank you, Eileen. Good evening, everyone, and welcome to the earnings conference call of Aptus Value Housing Finance Limited to discuss its Q3 FY '23 performance. We have with us the senior management from Aptus to share the industry and business updates. I would now like to hand over to Mr. Anandan for his opening comments, post which we can open the floor for Q&A. Thank you, and over to you, sir.

Thank you, Mona. Ladies and gentlemen, good afternoon to all of you. I am Anandan, CMD of the company. I welcome you all to this conference call to discuss the financial performance for the quarter ending -- ended 9 months, ended December '22. I have with me Mr. P. Balaji, ED and CFO, Finance; and Mr. C. T. Manoharan, our Executive Vice President, Business Development. The results and the investor presentations are already available on the stock exchange as well as on our website. I hope everyone had a chance to look at it. Aptus, as you know, had a healthy 9 months which reflected strong results, business outcomes. Disbursements growth has picked up momentum, and the collections are back to pre-COVID level. Total disbursements for the 9 months stood at INR 1,734 crores as compared to INR 1,120 crores in the previous year, up by 55%. Assets under management, December '22, about INR 6,307 crores, up by about 31%. With a focused collection efforts, our collection efficiency have stabilized at around 100%, resulting in a reduction in the soft bucked overdues. 30-plus DPD improved to about 6.27% from earlier 6.5% and prior to that 9.9%. So coupled with the improvement, the GNPA has also marginally improved to 1.44% from 1.47% as on September '22. During this quarter, we have increased our interest rate to borrowers by about 50 basis points for our home loan customers with effect from 1 November '22 to take into consideration the increase in the interest rate that happened in the immediate past. Full effect of this increase on the income will get reflected in Q4 '23. Spreads for the year at 14.45%, represent an improvement of 102 basis points as compared to 9 months of the previous year. We have registered a consistent ROA of about 8.5% and our ROE has improved to about 16.02%, up by about 190 basis points. These ROEs as you would have noticed is one of the best in the industry. As of December '22, our liquidity position is more than comfortable with a liquidity of about INR 1,060 crores, including undrawn sanction of about INR 400 crores from NHB. Further, we had also declared, as you are aware, a dividend of INR 2 per share in the month of December '22. Our [ net worth ] now stands at over INR 3,200 crores, which indicates robust capital adequacy in order to support future growth. Key highlights of 9 months '23 performance being: NII was at about INR 622 crores, up by 39% year-on-year; spread at 14.45%, up by 102 basis points Y-o-Y; net profit at INR 365 crores, 41% higher Y-o-Y and; AUM about INR 6,307 crores, a growth of 31% [ year-on-year ]. Disbursements from [indiscernible], as mentioned earlier, has grown by about 55% and our NPA stands at about 1.44% as on December. Capital adequacy is very comfortable at about 79% and ROA at 8.5% and ROE is [ attractive ] at about 16.02%. I would now hand over the line to Mr. P Balaji, ED and CFO, to present various other business parameters. Thank you.

Good afternoon, friends. As of 31 December, total live customers have crossed 1 lakh, it is a growth of 29% year-on-year. Total number of branches were at 215. We have added 9 branches in the first 9 months, 4 more branches, including 1 more in Orissa has got opened in the month of January. Employee count was at 2,349. Major performance highlights. AUM grew by 31% to INR 6,307 crores. Disbursement increased by 55% year-on-year to INR 1,734 crores. Spread was at 14.45%, increased by [ 1.02% ] year-on-year. And OpEx to assets were at 2.75%. PAT was at INR 368 crores at 41% growth year-on-year. ROA and ROE was at 8.53% and 16.02%, respectively. With regard to the asset quality, with focused collection efforts, 30-plus DPD improved to 6.27% in September '22, which was around 6.5% in -- sorry, 6.27% in December '22, 6.5% in September and 9.91% in March. Coupled with this, there is also a marginal improvement in our NPA from 1.47% in September to 1.44%. Net NPA is at 1.08%. Provision coverage ratio has been increased to 1.06x -- 1.06% as on 31 December from 0.8% in March '22. As of December, we are carrying a total provision of INR 67 crores and this -- when compared to as a percentage of NPA versus the provision coverage of 73%. Outstanding recapturing books were at a nominal 0.8% and the behavior of this book is on par with our normal book. In regard to borrowings, we have well-diversified borrowing. Of the total borrowings, 62% are from banks, 23% from NHB, 11% from DFIs like IFC and large financial institutions and the balance in the form of securitization. We enjoy a rating of AA minus both from ICRA and CARE. We have sufficient on-balance sheet liquidity of INR 1,064 crores, including undrawn section of INR 400 crores from NHB. As on 31 December, our [ net worth ] was over INR 3,200 crores. Now, with these remarks, I open the floor to the question-and-answer session. Thank you.

[Operator Instructions] Our first question is from [ Amit Bhatt of MIT Engineers. ]

Sir, disbursement increased by 55 percentage and there is a 41% rise in profit after tax is really very good growth. The question is, in the coming year, what will be the reasonable expectation of this disbursement growth? And what is the strategy to achieve that growth of more than 35 percentage to 40 percentage in disbursement?

As you are aware, we've been having a consistent growth in the last 4, 5 years. And we expect the growth to continue in the future also. We are working with a growth rate of around 25% to 30% in our loan book going forward. Given the large size of the market, which is somewhat underserved, unserved, underpenetrated, we do see there is an opportunity for us to maintain this growth rate for long periods to come. As far as the strategy and the action plan to achieve this growth going forward is that what is that on the geography side, we are looking at -- we have got a very good leadership position in all the Southern states. So we will look for more branches in our existing states. And we will also look at one of the new states -- adjacent states going forward. And within the existing branches, we will look for higher level of productivity. We will increase the productivity of the existing staff. We will add more staff at the field level to get the additional business. So in other words, the strategy is largely in terms of we will continue to grow both in the home loan as well as in our SME dividends. And we will continue to be a very strong player in Southern India as we keep expanding into the other parts. And we believe in a very strong productivity. So we will look for our productivity from the existing staff. We will add more staff. We will have more branches, particularly of the 4 southern states, our branch network has been very good in Tamil Nadu, and Andhra, and it is somewhat less in Telangana and Karnataka. So going forward, we need to add branches in some of these places. So -- and our ATS, which is around -- about INR 8 lakhs. Now there is a scope to really look at up to INR 9 lakhs, INR 10 lakhs. It won't substantially go up. We are quite happy to operate within this category of INR 6 lakhs to INR 15 lakhs broadly. And -- but there is a scope in terms of our average ticket size also to move up. Even if it moves up to INR 9 lakhs from INR 8 lakhs, it is about 10% improvement in disbursements. So in other words, going forward, we are really looking at all these key elements, keeping our strength in terms of productivity, cost of operations, including lower funding costs. Same time, we would really go for work which we are able to obtain in the recent past. And that will also help us to further increase our ROE going forward.

The next question is from Ashok Kumar of [ I&D ].

Sir, first of all, congratulations on good set of numbers. I just have -- I just need one clarification regarding the current quarter numbers. On Y-o-Y basis, the numbers looks pretty strong. But on a sequential basis, we don't see the strong momentum in terms of sequential comparison with the previous quarters. Can you please throw some light, is there any slowdown in the business momentum in terms of the growth? And a little bit color on the guidance for the next year [ as well ].

Thank you. Actually, as far as the market is concerned, demand from the customer is concerned, there is absolutely no issue. The demand continues to be very strong for the home loan segments that we service. So it is not a question of lack of demand or lower demand or increased competition, at least at this point in time, is not the issue. The issue that we have is really, as you must have observed, you said rightly, in the second Q, we had a 15% growth in disbursement over the Q1. So we have Q1 -- Q2 was 15% higher, which has been annualized to almost [ 60% ]. So in other words, our Q2 was a very strong base and foundation. And on top of that, also what has really happened, we are able to grow in -- of the 4 states, we are able to grow in Andhra, Telangana and Karnataka in Q3. But in the state of Tamil Nadu, because of certain staff changes, a couple of -- or the cluster manager levels, some of couple of branch level, there is slight dislocation in Tamil Nadu, which has been corrected. And so it's an internal staff-related issue that we have acted upon. And to that extent, there was slightly lower growth in Tamil Nadu alone, not in the other states. And going forward, in fact, though the -- as you must have also observed, those disbursements are really [ static ] compared to Q2. But as far as the loan book is concerned, you must have [ observed ] about 5% or 6%, which annualized, it comes to about around 25% growth rate and things like that. So in other words, our loan book has grown, our income has grown, our PAT has grown. But then on the disbursement -- of a particular issue that we have resolved and that was also in a particular market only. But otherwise, we don't really see any hindrance for our growth going forward.

Even for Q4, I think we are looking at a better growth.

Exactly, our projections for Q4 will -- actually will be better and we'll get back our growth and maybe more than our growth that we have achieved so far, yes.

Yes. That helps. Just a follow-up on that. So since we are saying that the internally -- the internal staff issue which are there at some branches in Tamil Nadu, so do we see this is going to be or going to cover up in the Q4, given the fact that the second half of the -- every financial year, we show pretty strong performance? That is one. And other portion of my question was, still waiting for an answer, any guidance on the next year growth? I mean, is the growth momentum going to suspend for the next couple of years in the long term prospect?

No, we are planning and we are confident of pursuing a growth rate of around 25%, 30% in the loan book going forward in the next 3 to 5 years because we believe the market in affordable housing finance is large and the share of our -- not only shares, all these players put together also, the share -- the penetration is low. So to that extent, there's a long runway to go. Now, obviously, there will be some internal issues in terms of branches, in terms of staff and productivity, that kind of issues. But that we are very confident of facing and resolving as we have done in the past. And even in the current year, that's why we have grown -- in the 9 months, we have grown by 50% disbursements higher than the previous year, and our loan book has grown by about 31% higher than the previous year.

That helps. Just a follow-up which I have asked before. So in the Q4, do we expect whatever the growth, what will happen in the future because of the internal issue, is it going to cover up? Or do you see it'll happen...

Our Q4 will -- it'll be good. And we will get -- we have already started getting the normal growth even in the month of January -- starting with January. So we don't really see any issue. The internal problem that happened in the Q3 has got sorted out fully. So that's what I just -- we just wanted to highlight that. So the growth should come back. Yes.

The next question is from [ Ankit Bansauli ] of [ IV ] Investment.

Sir. my question is, like you said, you give loans mostly to home loans, mostly the loans are in the home loans. Sir, on what basis you calculate GNPAs and net NPAs?

No. This is -- the GNPA is calculated as per the RBI norms which has been suggested for the HFCs, and which is the daily DPD business has been implemented right from last December onwards for us. We didn't wait till the grace time that has been given by the RBI. And in fact, from December '21 onwards, we have implemented this daily DPD and daily stamping system. So it is based on the RBI norms, the GNPA is getting calculated.

Okay. Sir, according to your balance sheet, sir, your -- these net NPAs and GNPAs are very fluctuating. Like in this quarter, it has come down from previous quarter 1.44% to -- 1.47% to 1.44%, only 0.03% marginally. And like I have seen in like in 31 March 2022, it was 1.19%. From there, it has been increased -- like it's very fluctuating. It's not a consistent graph. So what is the reason, sir? Are the home loans -- is there any problem in that?

It's actually not fluctuating. As of 31 March, it was around 1.19%, okay? The full effect of this daily DPD campaign came into effect in December, but it took time for us to -- I mean, the RBI circular impact was there. And because of that, in June, it became 1.75%. And after that, it has been only reduction. So from 1.75% in June, in September, it has come down to 1.47%. And in December, it has become 1.44%. And we are confident of bringing it down further.

Actually, just to add to what Mr. Balaji said, our 30-plus outstanding -- 30-days plus overdues, as on December, it was 6.27% as on December '22, which was 6.5% earlier, September. And it was 9.9% in June -- in June '22, and it was 12.98% in March '22. So in other words, it has been -- after the COVID impact, our collections in the last 6 months, it's almost a little over 100%, resulting in, there's a continuous and constant improvement in our outstanding positions. As far as the -- all the dues are concerned, there is significant reduction happening in place. It's not fluctuation. Actually, it's a one-way reduction that's been happening. Now when it comes to the DP -- NPA that you had mentioned, that alone -- because the RBI -- new RBI guidelines came in effective December, the new RBI guidelines resulted in NPA going up to, almost all financial players, anything between 0.5% to 1%, almost every one. Now that blip has happened. And after that, again, it started really coming down. For us also, it has really started coming down. And our NPA today at 1.44%, first, it has not really gone up over September or June or kind of thing. And second thing is that, we are also trying to work on that and further reduce it going forward. And irrespective of that, we've also provided adequately to take care of the NPA [indiscernible].

Okay. Sir, my next is, sir, with the kind of all the growth story of India, so what next leg of growth are you seeing in the company from which sector? Is it home loan is -- yes, next, you are being translating into another or you are seeing for next 10 years, home loan is the main growth for the company?

Yes. Home loan will continue to be our main focus area. But in addition to that, we are also into what we call the financing for the small businesses, SME business financing. We currently have a loan book of around INR 700 crores in the SME business, which is good in terms of -- and we have got a good growth opportunity also. And the customer profile, customer location -- and this loan also we give only fully secured one, based on their residential property as a security. So in other words, our 2 engines of growth will be, one is a home low and second is the SME business loans. Both will grow. But we will not -- at this point in time, we don't have any plans to diversify into any other retail products secured or unsecured.

Our next question is from Bhuvnesh Garg of Investec Capital.

Three questions from my side. Firstly, what was our BT out rate for the quarter and staff accretion rate for 9 months?

Our BT out -- see, let me first talk about preclosures and then I'll talk about the BT out. For the 9 months, the preclosure rates were around 7.9%. Of that, almost 5% to 5.5% is on account of own source that got preclosed. That means the customer had money, he didn't go to -- he didn't borrow from any other bank or any lending institutions to repay our loan. So that is almost 5% to 5.5%. So the balance 2% is the BT out. So which has gone to other financing companies.

Okay. So that is on 9 months YTD basis.

Yes, very minimal, yes, yes.

Okay. And staff attrition?

As far as the staff attrition is concerned, our -- we -- our staff of about 2,400, we have our, what we call the Band 1 at the senior management level, the attrition is only -- not more than 2%, 3%, near about nil, I should say. And in Band 2, where we've got all the managers, middle managers, senior managers, our -- Band 2, our attrition rate, again is low at around 4% to 5% only. Now it is really the Band 3, what we call our field officers, which is really comprising of the sales officers, collection officers, legal, technical team at the branch level, our attrition is slightly higher. Though it compares well between the competition, still, the attrition is around 18% to 20%. That is what we are working to reduce it further. Of course, it compares based on our intercom comparison and available data comparison, it compares reasonably well with our competitors, but still we know we look at it something high and we are working towards reducing that.

18% to 20%.

Sorry?

18% to 20%.

Yes. Yes.

At the sales officer level.

Yes.

Right. And sir, currently, what percentage of our book is at fixed rate? And what is the structure of that fixed rate? Is it fixed rate for the whole life of a loan or for some period of the time?

No. Actually, our fixed loans are almost about 78% and our variable rates are the balance 22%. And these fixed rates are -- it is fixed for the entire tenor of the agreement, right from the day they commence -- the agreement commences. There is -- we have not really gone for, first 2 years it will be fixed, after that variable, that kind of issues. So it is really fixed for the -- because, given the nature of our customers and which are largely rural base, typically district headquarters, taluk headquarters, and given our loan size, which is around INR 8 lakhs to INR 9 lakhs and in fact, our outstanding loans per customer today is only about INR 6 lakhs, and given our EMI, which is about INR 12,000 -- as an average about INR 12,250 to INR 12,500, now these customers, they find it complex to understand the variation in the rate situation. And on the other side, we are willing to pay for the risk associated with the interest rate. For that, we are willing to pay but the basic management of ALM and liquidity is something which we are taking care of. And we are pricing our products also in line with that.

Our next question is a follow-up from [ Amit Bhatt of MIT Engineers.]

Sir, management regularly interacting with lots of institutional investors, what is the concern that with such a clear growth, there is no incremental demand from the institutional investors? And even the price is -- [indiscernible], but there is no demand. So price is the God. So what is that we don't know, and they know, so that's why they are not investing in our company?

See, actually, when we speak to the analysts and the institutional investors, I mean both Mr. Anandan and myself meet them, but they are not expressing any concerns over the -- over investing in stock or the business model, basically. But I mean, beyond that, I don't think I can actually answer that.

Just to add -- it's a tricky question, but nevertheless, I'll try to answer. Basically, we are really focusing on the performance of the company. And our company has been performing well and consistently. And so either in terms of growth, in terms of quality of our sales, in terms of profitability, in terms of any parameter, we continuously will add value and continues to add value to all stakeholders, including shareholders. So our -- that's one of the reason why we have really declared our dividend also. Apart from increasing the overall shareholder value, we definitely want to increase overall shareholder value. And that we believe we can achieve largely through focus to performance and good performance on a continuous basis on a long-time basis, that we are doing it. But then as far as the share prices are concerned, you know better than us that there are several headwinds and both macro and micro and caused by different developments and for different sectors and things like that. So those -- we believe, even in this situation, what we have -- apart from performance, we have now taken the other obligation task of continuously interact and share our performance and what we are doing with the analysts and investors more and more and then leave the marketplace basically left to them, really.

The next question is from Mona Khetan.

Sir, a few clarifications from my side. So firstly, where would be the incremental cost of funds and incremental yields for us?

Incremental yields, it will be at base rate. The yields will be -- if we are increasing the interest rates, it can go up by 0.5% or so. And if there is a need, we'll do that. And on the cost of funds, as we guided in the last quarter -- Mona, you're able to hear me? There's some disturbance.

Yes, I'm able to hear you. Please go ahead.

So as regards the cost of funds is concerned, as we guided in the last quarter, some of the variable rate loans are getting repriced in Q3 and Q4. This is -- this will be partly adjusted when we draw NHB borrowings. But we didn't draw much of NHB borrowings in the third quarter because we have adequate liquidity. And because of that, if we draw the funds, it will only result in negative carry. So we will be drawing that balance INR 400 crores in this quarter, which will aid in balancing of the interest cost and then take it forward.

Basically, our incremental interest cost now accounts around 7.8% -- yes, around 7.8% to 7.9% is coming incremental interest costs. But as far as our yield is concerned, our yield is around 15% on home loans and about 21% on the business loans and quasi home loans around 17.5%. Our weighted average yield is over 17.5%. So and that's where we are having good interest spread, good NIM and good ROE.

Sure. So when you say 50 bps rise in yields that you've done, this is across the 3 products you have, HL, quasi HL as well as the SBL loans.

No, we did it only for the housing loan customers.

Okay. Okay. Okay. And secondly, so you had guided for Stage 3 assets to decline to 1.3% by March. And so that target is still workable?

Yes, yes. We are at 1.44%. We just have to reduce by 0.14%. We are on the job to get that done.

Sure. And this quarter, the tax rates were a little higher at 25%. So how do we read that? Could we expect...

That is, what happened -- see, there is a benefit which is available to us under 80JJAA. See, that is linked to the actuarial valuation. So that we do every half year. So that benefit under 80JJAA is taken every half year. So because of that, there is an increase in the tax rate. But on the overall basis, I think it is still at 22%-or-so.

Okay. Okay. And where would the 1-plus DPD stand as on December end?