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

Ladies and gentlemen, good day, and welcome to Aptus Value Housing Q4 FY '24 Earnings Conference Call, hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Mona Khetan from Dolat Capital. Thank you, and over to you, ma'am.

Thank you, Manav. Good evening, everyone, and welcome to the earnings call of Aptus Value Housing to discuss its Q4 and FY '24 performance. We have with us the senior management from Aptus to share industry and business update. I would now like to hand over the call to Mr. Anandan, Executive Chairman, Aptus for his opening comments, after which we can open the floor for Q&A. Over to you, sir.

Thank you, Mona. Ladies and gentlemen, good afternoon. I am Anandan, Executive Chairman of the company. I welcome you all to the conference call to discuss the company's performance for the fourth quarter and for the year ended March '24. I have with me Mr. P. Balaji, Managing Director; Mr. C. T. Manoharan, CBO, Chief Business Officer; and Mr. John Vijayan, CFO. The financial results and the investor presentations are already available on the website of the stock exchange as well as the company. I hope you have a chance to look at it. Now all of you know, affordable housing finance as an industry has a good runway for growth, considering the low mortgage penetration, more particularly in Tier 3, Tier 4 cities where we operate. This, coupled with various initiatives of the government to support the sector makes us believe that we can grow comfortably at around 30% in the years to come. At Aptus, we believe in strong growth without losing focus on the quality of loan book, good financial metrics and good growth metrics. Very happy to report that Aptus had a very good fourth quarter and full year FY '24. Sharp business focus, good distribution network, deep penetration in served markets, customer centricity, along with appropriate tech support have enabled the company to achieve good business results. The company's performance for this period demonstrates a sustained trajectory of stability, growth and diversified income stream. Our net worth, as you know, stands above INR 3,700 crores, indicating robust capital adequacy. This, coupled with good support from National Housing Bank, other banks, DFI on the borrowing side and with strong ongoing demand for both home loans and small finance businesses -- small business loans gives us confidence to pursue strong growth of scalability in the coming years with sustained profitability. I would now hand over the line to Mr. P. Balaji, MD, to discuss business focus, operating and financial parameters.

Good afternoon, friends. As we have been explaining in the earlier call, we will continue to focus on key strategies, mainly growing disbursement on loan book, both in housing loans and small business loans considering the large headroom available in the lower middle-income segment in Tier 3 and Tier 4 cities, increasing penetration in existing geographies by opening new branches and expanding operations consequently in the state of Odisha and Maharashtra. Strengthen analytics and digital adoption about 18% of our business in Q4 FY '24 has come from customer as well as construction ecosystem app and social media channel. Our focus shall be to increase the lead through this channel in addition to the physical branch network. Continue to focus on productivity, collection efficiency, OpEx and cost of funds. Major performance highlights for the year are as follows: AUM grew by 29% year-on-year to INR 8,722 crores. Disbursements increased by 31% year-on-year to INR 3,127 crores. NIM was at 13.45%, OpEx to assets were at 2.7%. NPA was at 1.07%, down from 1.15% in March '23. PAT was at INR 612 crores, which is a growth of 22% year-on-year. ROA and ROE was at 8% and 17.25%, respectively. Total live customers were at 133,000 customers. This has grown by 25% as compared to the last year. During FY '24, 31 branches were opened, including our first branch in Maharashtra. Now coming to the asset quality, collection efficiencies improved during the quarter to 100.15%, resulting in 30 plus DPD improving to 5.41% from 6.04% in December '23. This will be focused on improve further in the ensuing quarter. Net NPA was at 0.8%. Provision coverage maintained consistently at 1.06% as of 31st March. We are carrying a total provision of INR 92 crores, and this when competed as a percentage of NPA to a total coverage of almost 99%. These are all well diversified borrowing. Of the total borrowings, 63% were from banks, 24% were from NHB, 13% from NCDs, which applics to the mutual funds and securitization. We have sufficient on balance sheet liquidity of INR 1,002 crores including undrawn sanctions from INR 620 crores from same bank. As you know, we have not done any direct assignment of loans and front-ending of income on account of this. Now with these remarks, I open the floor for the question-and-answer session. Thank you.

[Operator Instructions] We have a first question from the line of Rajiv Mehta from Yes Securities.

Congratulations on very strong results. So my first question is, can you share your thoughts on sustainability of this disbursement momentum while also throwing light on whether the issues faced in the state of Tamil Nadu have got resolved?

See, first of all, let me take this Tamil Nadu. I mean I think this might be the question of all the person. So what has happened with Tamil Nadu in the last quarter is, there has been a disbursement growth of almost 9% quarter-on-quarter. This means we have almost come back to normalcy in Tamil Nadu in terms of disbursements. During the quarter, there was a good record recovery. Basically, the NPA recovery was much more, because of that the loan book growth was slightly subdued. But in this quarter, FY '25, the first quarter, things will lead back to normalcy in Tamil Nadu, and we are expecting a good growth there. And as regards to the sustainability of growth, I think it is -- I mean, we have been guiding the market at 30% year-on-year. I think this is doable considering the expansion plans of new branches, plus the branches which were opened last year also will contribute for the full year. Over and above that, the productivity increase for -- of the sales officers and also the increase in average ticket size and the number of files logged in per sales officer per month will also contribute to the sustainability of the growth. So we are confident of pursuing this 30% growth year-on-year.

Got it. Got it. So would it be safe to assume that Tamil Nadu portfolio in FY '25 can grow much better than last year? So last year, it was 10% in FY '24. Can we expect 20%, 25% growth in the current rate in Tamil Nadu portfolio?

Definitely. We can do that.

Okay. Okay. And just last on portfolio spread. So portfolio spreads have improved by 5 basis points quarter-on-quarter after having declined in the preceding 5 quarters. What is the outlook on the spreads basis, your view on yield as well as cost of fund?

Going forward, I think the spreads are likely to be continued at these levels, considering the fact that the cost of funds might not go up and also additional funds will be raised at this rate and the rate at which we are borrowing now. And I mean, we don't have any plans to increase the rates to our customers further. So considering the fact that the cost of borrowings are going to be the same, the spreads are likely to be same. But if the interest rates come down, I think Aptus is in a better position so that the yield can be better because of the fixed-rate loan book.

We have our next question from the line of Kunal Shah from Citigroup.

So firstly, maybe with respect to the branch addition. Last time also, we indicated we would be adding on too few branches. But I think the number is almost steady at 262. So what would have led, I think last time presentation says we would have already opened it in 4Q. And despite that, when we look at OpEx, both in terms of the employee cost as well as the overhead cost, that has been higher. So what has led to the higher OpEx, yes?

Last time, we have guided for more branches in Maharashtra in Q4, but that has slightly got delayed. In April, we have already opened 3, 4 branches. So that was the only indication we gave. And every year, the plan is to open between 31 to 35 branches, and that will be pursued and continued year-on-year. Now just to add to it, as of 31st of March, we had 3 branches in Odisha and Maharashtra, we had 3. And then we're planning to have more -- increased about 10 branches in the first quarter. So 3 will go up to 10 in Odisha and Maharashtra. In fact, Maharashtra will add up 4, 5 branches target and 5 will get added in Maharashtra. And as you just have noticed, given last year, we have -- that is FY '24, we have added about 31 new branches. And current year also, we are really planning to have about 35 to 40 branches, actually 40 branches have been permitted for addition in the current year, particularly -- including not only the new markets like Maharashtra and Odisha, but also the existing states like Karnataka and Telangana, we are planning to further strengthen our branch network. So as far as OpEx is concerned, we, as a company, we've been very, very cautious more on productivity rather than the increase in our cost. In fact, the current year also, we had a very good -- while our -- actually the field level, not only the [ direct sales officer do well ], other support functions, namely credit, legal, technical, collections, these are very consciously building up a good productivity level. So the numbers have not really gone up much. Even in HO, we are only operating a Board panel of 190 to 193 staff, and we have not added much there. Other than strengthening the people like the senior level of the -- certain level in almost all the functions including IT, credit, collections kind of thing, but then basically, on the back-office side, we've already strengthened our IT system to handle the volumes rather than adding [ new staff ].

Yes. Sure. So -- and this employee cost rise, this would be more to do with the incentives during the quarter?

Because of the higher volume, the volume-related incentives across the employees.

Okay. Okay. So volume-related incentives to the employees is getting reflected.

Yes.

Yes. And if you look at in terms of the overall business origination and the credit team. In fact, it's sequentially down. So is it again to do with more in terms of moving from the field level to the head office level, is that leading to sequential decline in this staff? Or this is the attrition which is happening, which is more than the recruitments during the quarter?

See, the reduction has happened only in the business organization because of some people at the lower level, which is at the sales officer level leaving. But at the [ current level ], it has remained constant.

Okay. There was marginal decline, but -- so that's largely to do with attrition and -- yes, yes. So that's largely to do with the attrition and not getting replaced with the newer staff.

Yes, maybe. Yes. Not only attrition, we're also very conscious at every stage periodically to optimize the number of staff of the branches into whether it is sales and other support staff, particularly the large numbers, as you know, in the field staff and in the collection level. And particularly field staff also, we would want to encourage them to earn more through incentives rather than adding more people. So constantly, there is a rigorous follow-up system in terms of the optimizing the numbers, staff numbers all the time on an ongoing basis.

Okay. And one last question was NHB drawdown there during the quarter. So this INR 610-odd crores that includes NHB as well last time we used to do it separately. So this INR 300 crores of NHB, which was there last time has been drawn...

It is drawn back in the last quarter. This is [ pre-sanctioned ] from the bank basically which is not...

[Operator Instructions] We have our next question from the line of Mr. Anand Doshi from Family Office.

Congratulations on a very steady state of results. Sir, very quickly, sorry, the -- my question may sound partially repetitive, the line was not very clear at my end. In terms of special distribution in terms of branches, I think you added 31 for the year. And that is actually in line with the guidance of 30 -- around 30 branches. So that's very heartening to hear. The only question I had a little bit within that, is that you have said it would be about 3 to 4 branches in Odisha and 2 to 3 branches in Maharashtra. This was at the start of the year. So roughly around 6 to 7 branches. However, the addition has just been 1 branch. I think you mentioned that you are adding more branches in these 2 new states in this year, but I couldn't hear it well. So could you be kind enough to repeat that, please?

Yes. What we told was that is currently in Odisha and Maharashtra, we have 3 branches. This will be taken up to 10, which means 5 more will come in -- or 4 more will come in Maharashtra, the balance will come in Odisha in the first quarter itself. That's what they do.

Okay, sir. And sir, any -- any -- if you can outline any particular reasons -- any specific reasons, I mean to say, as to why this expansion has not happened in FY '24. Obviously, business is dynamic. But I just want to get a sense from you if there is any specific reason why we have gone slow for Odisha and Maharashtra for FY '24 as well?

It is not that we went slow on Odisha and Maharashtra, yet a lag of 1 month. I mean, as of now, we have already identified 3, 4 locations in Maharashtra. So it is a lag of 1 month. It's not a question of delay. And also, I mean, if you look at the year-end pressures of other areas because of the disbursements and recovery. So that is the reason actually. It is not that we are delaying things, things are happening that way.

Sure, sir. And as I said, the branch traction growth has really picked up. So heartiest congratulations for the execution on that part. Sir, secondly, I had a small housekeeping question, which I had raised offline. In your presentation on Slide 9, with the title that said income stream with niche customer focus. I think what we are doing is we are mentioning the AUM, which is, of course, of the book, but the breakup is of the revenue or the income stream part of the AUM, Am I correct?

I didn't get your question totally.

Yes. No, sir, what I'm saying is, if we are looking at a consolidated AUM of INR 8,722 crores, of which, home loans is constituting 60%, but this is not the home loans AUM, it is the income stream from the home loans AUM.

No, we have -- yes, 60% is the AUM actually. It's not the income stream. What we are planning to sell by way of the title in that slide is, Aptus is having 2 or 3 products because of the NBFC, we have got one more product, which is the small business loan. And that is where the income of the company is as in the diversified stream. We have got 2 or 3 sources in which we are earning the income. And the 60% is the AUM, so of the INR 8,722 crores, 60% is the housing loan book.

Sir, but that amount is not matching.

Just to explain, in Slide #9, HFC, what has been given as AUM of INR 6,759 crores, that is not the housing loan alone. In the parent company, main company, the AUM is INR 6,759 crores, that includes home loans, part home loans, insurance top-up loans. Okay. And a subsidiary company, [ wholly owned ] subsidiary, vis-à-vis the AUM of INR 1,963 crores adding up to INR 8,722. So the other numbers have been given here is the AUM, are not the revenue, A. B is that if we take INR 6,759 crores, parent company, given the total loan book of 87, it work out to much more than 60, but it's not just home loan alone, it also includes the part of the quasi home loans [ at the bank ]. On a consolidation, we have been very clear, INR 8,722 crores is AUM. Of that, home loan is 60%, and then there will be a breakup given by the other products.

No, sir. That is fine. So I have a follow-up question. if you look at the first pie chart, it is HFC INR 6,759 crores of which home loans is 69...

Anand, what I suggest is this is a data-keeping question. I think I'll give you a call and explain them slightly differently. Okay?

Sure, sir.

[Operator Instructions] We have a next question from the line of Raghav Garg from AMBIT Capital.

I just have one question. So when I look at on balance sheet liquidity, specifically cash and investments as a percentage of borrowings, for the peers, it seems to be around 15%, 16%. And for you, it's been coming down quite sharply. It's now around 7%, 8%, what would be your comfort level in terms of where would you like to see this ratio? Because I believe that since it has come down, that has given some bit of support to your NIM. Had it not been the case, the margin compression would have been higher. So ideally, where would you like to see this ratio?

See, as a company, we would like to be prudent in how much cash balance we keep because what happens, you all know. If you have higher cash balances, there is always a negative carry. So normally, we would like to have at least 1 to 1.5 months disbursements as cash and cash equivalents in the balance sheet. And the balance will be in the form of undrawn sanction, which is a committed sanction. We have executed the documents and kept it ready. So that is how we would like to maintain because we don't believe in keeping INR 2,000 crores, INR 3,000 crores at balance sheet liquidity and then having a negative drag on that. And also maintaining on housing loan asset for that. So that is the reason why -- this is our [ general ] policy is of 1 to 1.5 months disbursement will be carried as cash and cash equivalents in the balance sheet, and the balance will be in the form of executed sanctions.

Actually, in addition to that, also, in a way, while we are wanting to be very prudent to carry our required liquidity to take care of the disbursement, we also want to keep in mind the overall interest rate environment. At this point in time, carrying at a higher -- borrowing at a higher cost, while it may not be a prudent thing, particularly if there could be an interest reduction, if not in the next 3 months, at least in the next 6 months or next 9 months, should there be an interest rate reduction, we should not end up borrowing unnecessarily at a very high cost at this point in time.

Sure. So is it fair to assume that this number is going to remain at this current level when I look at it as a percentage of the assets or as percentage of the total borrowings?

Yes. Broadly, actually, we -- we don't believe in the philosophy. In fact, some of the companies even on the same industry segment carry -- you're right, they carry huge liquidity in their balance sheet, which we don't want to pursue, not only in terms of negative carrying cost in the interest environment, but also after the revised NHB guidelines, RBI guidelines, you also carry 60% home loan in that as well. Because 60% of criteria is applicable are the total balance sheet size, including the cash that you carry. So we also kept that in mind.

Sure. That's all understood. And another question, outside of South India, in Odisha and Maharashtra, what would be the total number of employees that you have across, I think, 3 branches?

25 people, Yes.

25 people. That's all from my side.

We have our next question from the line of Renish from ICICI.

Congrats on a good set of numbers. Sir, just one question from my side on the geographical diversification. So what could be the next 2 to 3 states wherein we will be growing our book in an accelerated manner? So that is something what had happened in Q2, Q3 in Tamil Nadu, that should not cover the AUM growth going ahead?

Actually, just to add, I saw in one of the newspapers today, of the lending and credit exposure to different sectors. Agri sector carried percentage, the agri and related segment, in that the highest lending was done to southern states. And you must assume that data followed by us, and the least percentage was done for the northeastern and eastern. That will be the price of the total lending by the bank in near term, over 50% I think was done in the southern states. And northern states, I think, around 18%, 20%. We just have some percentage and least percentage is eastern. So in other words, we do believe that, particularly where we operate Tier 3, Tier 4 cities, since we're [ concerned about it ], there is a good demand that's available in the southern part of India with good credit culture, income levels and serviceability and things like that. So we still think that we are not fully -- well, we are really geographically covered every part of southern states. Possibly, we would have covered in Tamil Nadu and Andhra, but we will see a gap to be covered in Telangana and Karnataka. So that's where we are going to be adding, as Balaji said, of 40 branches. A significant part of the branches will get added in Telangana and Karnataka. And we're also planning to add more branches in the 2 identified states, namely Maharashtra and Odisha. So in terms of that, not all that even of the total branches of 262, they are in different stages of loan book. So in other words, the branches that are added in the last 1 year, the average loan book is only INR 5 crores, so that is, of course, to move it up. Again, branches where they are 1 to 3 years, there is INR 17 crores to move up further. So these are our priorities. Adding more states just for the topic is not our priority.

Okay. Okay. So basically, incremental growth will be largely driven from, let's say, Karnataka and Telangana, at least in near term?

Manually we will keep expanding on a contiguous business, as we've been saying right from the beginning, yes.

I would hope that the growth in Tamil Nadu and Andhra Pradesh will also be there. It's not that it is not going to be there.

Yes. No. But on a related basis, I think these 2 states will grow at a faster pace than...

Faster more. Yes.

We have our next question from the line of Nidhesh from Investec.

Firstly, on the small business loans, now that the share of housing loans have increased 60%, how do we see -- how do we plan to improve the growth in the small business loans sector?

See, broadly, this ratio will be maintained with 60% housing loan on a consolidated book will be maintaining it. And the balance, 20% or 21%, will be in the small business loans and 15% to 17% will be in the quasi home loans. And the top-up on the insurance will almost be the same because that's the resultant of good paying customers and also insurance in credit [ sector ]. So to give you some color. So this is basically the -- so broadly, this ratio will be maintained because we also need to take care of the compliance. So this will be the ratio at which the loan book will be progressed.

Sure. So if you look at last 2, 3 years, the small business loans growth has been lower than the balance sheet growth. So are we taking any steps to further improve that growth? That was -- so we -- I think in the past, you were thinking of building a dedicated team for small business loans, et cetera. So where are we on that part?

No, we are in the process of identifying the dedicated team further. We are in the process of identifying of that vertical, so may be recruiting and then taking it forward.

Sure. Secondly in terms of -- in the Tamil Nadu state, if you can share the absolute disbursement for Q4? And what was the Y-o-Y growth in disbursement in Q4? Q-on-Q, you mentioned this around 10%, but what was the Y-o-Y growth trend in Tamil Nadu in this percent?

We told you earlier, the disbursement growth quarter-on-quarter, the Q4 disbursement is almost the growth is 9% in Tamil Nadu. See, the growth -- the loan book growth was subdued because of the NPA recovery that has happened, which is good for the state. And the things have already come back to normalcy in terms of disbursement in Tamil Nadu. In this quarter, you can see a good traction on this loan book growth as well.

So if you can also share the absolute number of disbursement for Q4 NPA?

I'll call you later, offline. Yes.

Sure. And sir, what was the BT out rate for FY '24?

BT out rate is around 2.5%.

And what would be the dividend payout, what do see going forward?

So as a policy of the company, we will -- it's not the dividend declared is not really onetime. And there will be a dividend pay outage. The Board has considered that and we have put out -- we have discussed and put out a broad policy in terms of the -- the company will continue to pay their dividend on a continuous basis and other payouts at reasonable and sustainable payout ratio. And that's what has resulted in even now we are declaring a dividend of INR 2.50 and the area we declared INR 2, totally about INR 4.50 per share of INR 2 on face value, we have declared it. So otherwise, our dividend policy will take into consideration our past payout ratio, and it will be our endeavor to continuously maintain, improve, if not the payout ratio, the quantum of the dividend going forward.

Sure. And lastly, in terms of disbursement mix, we have seen very strong growth in the customer referral channel. So what exactly have we done to drive that growth?

We will take it offline because I don't want to discuss with the public forum because you have got some certain things, which we have done.

We have our next question from the line of Sanket Chheda from DAM Capital.

Congrats on a good set of numbers, sir. I just wanted to check in this quarter as far as provisioning and other income goes, there has been some restatements for prior periods that Q3 and for 9 months FY '24, what has been the change in terms of accounting?

So basically, what has happened, we have netted of the recovery will be positioned at 9 months. Now we have graphed it up and the provision has been stated as the provision and then the bad debt recovery has been added to the other income.

Okay. So the credit cost has gone high, provisions have gone high and the other income has also gone high.

There was also an equal amount that has been required out of bad debt. Our total write-off additional provision, all put together only 0.29%. And, in fact, there is a substantial reduction given in the previous year number, if you can see from 0.57%. So in other words, our provision write-off, whatever we really hear, it's not really gone up. It has actually come down. This is actually despite the fact we really carry a reasonable amount of management overlay. And as Balaji said, the overall provision is we are now carrying at about 1.06% of the total assets which compares much, much higher, better than comparable companies.

The provision Y-o-Y would have come down. I'm saying the amounts which were reported earlier versus that the numbers have gone up in terms of provisions.

Yes. But there is an equal amount of recovery that's got added to the other income, that's what I wanted to say.

Yes. Okay. Okay. And just on the question that the earlier participant alluded on the slide, which we gave on say NBFC and HFC AUM. And NBFC AUM would have just small business loans and non-HL, is that correct?

Yes.

So when we add up the 2 separate pie charts to arrive at consolidated, then the share for HL comes to about 53, 54, just there was some problem in reconciliation of that if you can...

Numbers -- earlier, I think Anand was there, and I'll also take you on a call and then explain how those numbers add up.

We have a next question from the line of [ Arul Selvan ] from Independent Advisors.

Am I audible?

Yes.

First of all, congratulations on a good set of numbers this quarter. I just had a couple of questions. The first one is more on a qualitative level. How has been your credit underwriting experience so far in the non-Southern states, Odisha and Maharashtra. And I understand that it's probably very new, and it's too early to tell, but still, I was just wondering if you could shed some light on how the experience has been so far.

Experience has been good. So we have got -- it's a question of you've got around 60, 70 profiles of the customers whom we normally fund. And we have got the -- we've got around 60, 70 profiles of the customers who we normally fund. And the same kind of profile are being somewhere in the new states as well, whether it is in Maharashtra or Odisha. So with the results, we are not finding any retail, but the experience has been good. And the NPAs are not there at all. And I think 96% is a 30 -- sorry, only [indiscernible]. So things are good. And we have been experiencing good amount of -- good experience in the credit in these 2 states.