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

Ladies and gentlemen, good day, and welcome to Aptus Value Housing Finance India Limited Q2 FY '25 Earnings Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mrs. Mona Khetan from Dolat Capital. Thank you, and over to you, ma'am. Please go ahead.

[Audio Gap] Earnings Conference Call of Aptus Value Housing Finance to discuss its Q2 and H1 FY '25 performance. We have with us the senior management from Aptus to share their industry and business insights. I would now like to hand over the call to Mr. Anandan, Executive Chairman, Aptus, for his opening comments. Over to you, sir.

Thank you, Mona. Ladies and gentlemen, good afternoon to all of you. I'm Anandan, Executive Chairman of the company. I welcome you all to the conference call to discuss the company's performance for the quarter and half year ended September ended 2024. I have with me Mr. P. Balaji, MD; Mr. C.P. Manoharan, ED and CBO; 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 our company. I hope you had a chance to look at it. With low mortgage penetration and significant housing shortage across regions, more particularly in Tier 2, Tier 3 and 4 cities, where we operate, and with government initiatives, including recent schemes for supporting the sector, we believe that we are having significant headroom for growth to serve the underserved/unserved customers largely in self-employed segments. And so at Aptus, we believe in strong growth without losing focus on the quality of loan book and good financial metrics. Very happy to record that Aptus had a very good first half year FY '25, supported by business growth, stable asset quality and continued focus on our productivity. Sharp focus -- business focus, good distribution network, deep penetration in served markets, customer centricity along with appropriate tech support and diversified income stream have enabled the company to achieve good business results. As you know, our net worth stands over at INR 4,000 crores, resulting in robust capital adequacy. This, coupled with good support from institutions like NHB, banks, mutual funds and [ BFI ] on the borrowing side, and with strong on-ground demand for both home loan and smart business loans gives us confidence to pursue strong growth in the coming years with sustained profitability. I would now hand over the line to Mr. P. Balaji, MD, to discuss the business focus, operating and financial parameters. Thank you.

Thank you, sir. Good afternoon, friends. As we have been explaining in the earlier call, we will continue to focus on key strategies namely growing disbursement and loan book, both in housing loans and small business loans, considering the large headroom available in the low and middle income segments in Tier 3 and 4 cities, expanding operations confidently in the states of Odisha and Maharashtra and increasing penetration in existing geographies by opening new branches. Strengthening the analytics and digital adoption, about 20% of our business in Q2 FY '25 has come from customer referral app, construction ecosystem app and through social media channels. Our focus shall be to increase the leads through these channels in addition to the physical branch network. Continue to focus on productivity, collection efficiencies, OpEx and cost of funds. During the quarter, the new Mobile First lead management software, which was launched in April '24, settled well and is bringing in good improvement in terms of streamlining our processes, service delivery, lesser [ bounce ], improved collection productivity, better regulatory compliance and improving overall efficiencies. We are continuously monitoring the functioning of this new system to bring in more improvements. Major performance highlights for this quarter, half year was as follows. AUM grew by 27% year-on-year to INR 9,679 crores. Disbursements during the quarter increased by 26% year-on-year to INR 935 crores. Sequential quarter-on-quarter growth was at 39%. We have 291 branches as on date. During the quarter, we opened 24 branches, and for the half year, we have opened a total of 29 branches. Plans for the year will be to add total of 40 branches. Total live customers were at 145,000 customers, a growth of 27% year-on-year. NPA was at 1.25%. In terms of asset quality, collection efficiencies were at 99.28% and our 30-plus DPD marginally improved to 6.24% as on 30th September as compared to 6.31% as on 30th June. Net NPA was at 0.94%. Provision coverage has been maintained consistently at 1.03% as on 30th September. We are carrying a total provision of around INR 100 crores including a management overlay of INR 45 crores. And this, when computed as a percentage of NPA, works out to a coverage of 82%. NIM was at 13.02%. OpEx to assets were at 2.65%. Profit after tax was at INR 354 crores, representing a growth of 22% year-on-year. ROA was at 7.77%, and ROE was at 18.3%, which is one of the best in the industry. In terms of funding, during the quarter, we diversified our borrowings further by issuing NCDs worth INR 400 crores to mutual funds. Of the total borrowing, 59% is from banks, 19% from NHB, 11% from NCDs, which will be mutual funds and IFC and the balance in the form of securitization. Sufficient on-balance sheet liquidity of INR 1,239 crores as on date, including an undrawn sanction of INR 550 crores from banks. As you are all aware, we have not done any direct assignment of loans, leading to front-ending of income on account of this. Now with these remarks, I open the floor for the question-and-answer session.

[Operator Instructions] The first question is from the line of Renish from ICICI.

Congrats on a good set of numbers. Sir, just 2 questions from my side. One, on the LAP book, right? So is it possible to share, let's say, what percentage of our LAP book customers might have MFI loans?

Actually, there is no overlap. We just did a scrub report for the live customers we have with us. Actually, there is no overlap of MFI customers with the kind of our customers.

Okay. And secondly, given there is a lot of talk around the growth for NBFC. Do you foresee any risk to our near-term growth targets because of the regulatory pressure?

I think this will be a question, which will be -- it will be in the minds of quite a few analysts and the persons who are in the call. I would like to explain this RBI stance, which we have understood in a certain way. I'll just clearly explain this. I think then we can take it forward. From what we understood, RBI seems to be more uncomfortable on the following things. One is unsecured loans, MFI, unsecured loans, personal loans and -- consisting of personal loans and consumer loans, including the loans given by fintech companies, and secured loans with very small ticket size around, say, INR 2 lakhs to INR 3 lakhs. They seem to be uncomfortable if these companies want to grow at 40% or so. And they also seem to be uncomfortable about this different interest rates charged by them at over 24%. And they are also not comfortable with netting up of loans leading to evergreening of loans, which is being practiced by some of the players in the industry. They are also insisting on the fact about the importance of being transparent with the customers in terms of pricing and fees that is being collected from the customers. All this, I would like to have -- we have already studied the impact of it. In terms of impact on ourselves, we are in fully secured loans, both in housing and nonhousing, and the security is mostly self-occupied residential properties. And we have given a guidance of 30% AUM growth at a lower base. And we are also charging interest rates, which are reasonable across products. Our [ APS ] is around INR 8 lakhs to INR 9 lakhs with an LTV of around 35% to 40%, which means the total value is around INR 30 lakhs or more. And we do not follow any netting of loans in Aptus. In terms of transparency with the customers, we have been transparent in terms of communicating the interest rates and other changes, both in the sanction letter, [ MITC ] and also in the [ digital ]. Further, we also communicate this in the vernacular language. Hence, we are not impacted by this RBI stance, which is being taken across companies.

Got it. This is very helpful, sir. And just last question. On the provisioning front, so if I remember correctly last quarter, our provisioning was lower because we have stopped creating management overlay. But then this quarter, there has been a significant jump in the provisioning. So is this due to the higher write-offs in this quarter?

No, no. It's not that. See if you look at the provisioning business, it grew very marginally from 1.15% to 1.13%. And regarding the write-off, what has happened is, if you look at the provision movement as per the provision coverage we see, there is a movement of almost INR 4.78 crores and the debit in the P&L is almost INR 9.51 crores. This is basically because of our conservative accounting policy of more than 24 months overdue account, which have been technically written off. But there is also what -- how we would need to look at this is, you also need to look at the other income where there is an increase of almost 46%, where the bad debt recovery also has been factored in. If you look at that for this quarter, we have got a recovery of almost INR 2.77 crores. So that's how you need to look at it. And the provision coverage as I told you earlier, we are having almost INR 100 crores of provision, of that INR 45 crores is the management overlay. And the actual provision required as per the ECL model is INR 65 crores.

And to add to what Mr. Balaji said, debit to the P&L account is slightly the provision -- ECL provision to the [ beneficial ] account is slightly higher than the first quarter, mainly because there is an increase in the loan book of about INR 650 crores between the first and second quarters. So that -- and that also carries a lot of provision.

The next question is from the line of Shubhranshu Mishra from PhillipCapital.

Two or 3 questions. The first one is around...

Sorry for interrupting you, sir. Your voice is not clear.

The first question is around yields, sir. When I look at the yield, the [Technical Difficulty]

Sorry for interrupting you, Shubhranshu sir, your voice is not clear.

Is this better?

Yes, now it is clear.

Sure. So the first part is, can you -- can the [ yield ] of each asset class that we have on book as well as on disbursement because when I look at the yield, it's roughly around 17.5% on the book versus blended? Any particular regulatory audit remarks that we have got because of this? Because the regulator has been speaking about high IRRs on various asset classes.

Your voice is totally breaking, and not clear, Shubhranshu.

Maybe I'll come back in the queue as my voice is breaking.

If there is anything, you can give me call also, I can explain, yes.

Yes, I'll do that sir. Sure.

The next question is from the line of [ Abhishek Agarwal ], an individual investor.

Yes. Congratulations on great set of numbers. So what I've noticed that in the few quarters that have gone by, on the borrowing side, the floating percentage of our borrowings is going up. So could you share your strategy on what number ultimately you are looking at on the floating versus fixed side? And the other question that I would like to understand on is that the asset book, the 80% of it is fixed. So going forward, when we presumably would see a rate cut, are we confident of not losing customers who might want to refinance these loans with banks who would pay on floating interest? So those are my 2 questions.

First, if you look at the borrowings, if you look at our leverage, it is around 1.5x now. And we would like to -- since -- and if you look at our capital adequacy ratio, it is around 70%, which means the future growth, which we are projecting for next 5, 6 years is going to come out of borrowings. So with the result, the leverage, it is currently -- the debt to equity, which is at around 1.5 is likely to go up between 4 to 5x, and we are comfortable with that. And that will be the growth path and that will be the way in which the growth in business will be funded. So it will be totally out of borrowing. That is the first thing. Next thing is on the yield which you're talking about 80% is fixed, yes, I mean, I don't think we have been following this practice, right, for the last 15 years. We have not lost any customers because of the rates we are charging. And if you look at our interests rate, we are charging around 15% to 15.5% on the housing loan. On the quasi home loan, we are charging around 17% to 18%. And the non-housing loan, we are charging around 21%, which is comparable with the people -- with the [ income source of self-employed ] people. And also in the case of small business loans, it is still 3% less than the market range. So we don't see that kind of a -- that there will be a pressure on us to reduce the interest rate or we'll be losing customers because of this.

Just to add to what Mr. Balaji said, on the liability side, on the funding side of about INR 6,000-and-odd crores, this is about 56% is only from the bank. Outside the banking system, about 45% largely coming from the NHB, the securitization. And the other NCDs that are raised with the fixed tenor and the costs. So there is no variability in that. Within the banking -- bank borrowing also, when the tenor is long-term, we've always gone for the long-term tenor of 4 to 5 years minimum. But in some cases, there is a variability coming on the interest reset linked to the either the REPO rate or the MCLR. So when we show the variable loans, it is not really the entire loan is variable, only that part of the loan which is taken from the bank. And within that also, partly it is fixed and partly it is variable either linked to REPO or into the MCLR. In fact, last 3, 4 months back or 6 months back, we decided not to really take any loans or to take loans only mainly linked to the external benchmark like REPO rather than the internal benchmark like MCLR. So to that extent, the variable component is somewhat manageable and required purely to support the growth in funding. On the asset side, you are right, 80% is a fixed rate, where in case of interest situation, reduction in interest rates as and when it happens, you may stand to get benefit, because of the fixed nature of the loans. At the same time, going by our past experience, the pre-closure rate, in our case, is much, much lower. It is not more than 2%, 3%. The overall pre-closure rate is around 7%. Of that, about 4% to 5% is either money coming from the customer their own source. It is not really coming out of a loan transfer really. So our experience in pre-closure is very limited, and to that extent, customers are -- we anticipate that annual fees change in terms of when the interest rate if at all comes down a bit. And while we tend to benefit that the risk of pre-closure is much lesser, of course, variable is about 20% that you have with such things.

The next question is from the line of [ Shivam ] from Abu Dhabi Investment.

Sir, can we start giving the private versus PSU bank breakup in our borrowing? Is it possible?

You're not clear. Voice is not clear, [ Shivam ].

I'm saying can we start giving the private versus PSU bank breakup in our borrowing?

Sorry for interrupting you, sir. Your voice is not clear.

Can you hear me now? Is it better now?

Yes.

Is it better now? Sir, can you start giving the private versus PSU bank breakup in our borrowing?

What is that?

Breakup in borrowing, PSU vs private?

See, if you look at my total borrowing, bank borrowings is 59%. Of that, around 25% will be from PSU bank or maybe 30% will be from PSU bank and the balance will be from private sector banks. And as I said, NHB is almost 19%, NHB borrowings, and NCDs around 11%. The balance is in the form of securitization.

Okay. Sir, can we start giving this number directly in our investor presentation? It will be helpful from the next quarter.

That is not an issue, yes.

Okay. And the second question is, sir, bifurcation of the variable rate borrowing between the REPO rate and the MCLR?

I'll tell you. See, of the total borrowings, we believe the borrowing linked to the external benchmarks rate is around 20%. The amount borrowing linked to MCLR is around 32%, fixed is around 48%.

Okay. And sir, right now, as the regulators are very hard on high interest rates, so what is the interest we are charging on the small business loans?

We are charging 21%. This is reasonable according to us.

Sir, actually there is...

Actually, a large part of our portfolio being a home loan company, the large part of portfolio is really the home loan, where we carry an interest rate of around 15% to 15.5%. The second large component is the quasi home loans where we charge about 17.5%. Now then there is a smaller part in terms of the SME loans, where the interest rate is around 21%, 22%. But the reason because the RBI regulatory concern is really more in terms of the unsecured loans, small loans flowing out of microfinance, flowing out of fintech companies, and the term that they use is usurious interest rates. So we don't really come under that category.

So we are not thinking of reducing the interest rate from 21% to something like 20%, right?

Our rates are comparable with other few companies operating in this segment, in that particular segment. And our rates are quite comparable. And we don't see this as, you mentioned usurious interest rate.

Okay. Understood. It's been 13 quarters since we are giving the quarter-on-quarter growth. So congratulation on a good set of numbers, and hope to see the good numbers in the future quarter also. And by the way, sir, 30% growth rate for the next 5 years is comfortable, right?

Yes, yes. Five years, we'll see. At least for the next 3 years, it is there, 30% will be there, because part of it is bigger.

The next question is from the line of Yash from Citigroup.

Couple of questions. First is on the ECL provisioning, where ECL provision to total AUM in this quarter has slightly gone down to 1.03% where as we have been guiding of comfortable range of 1.05% to 1.1%. So how do we see it moving? And I mean would this inch up in the 2H of this year?

See, it depends. If you look at the -- I mean, obviously, the provisioning depends on the quality of book and quality of collection, okay? So if the collections are happening very much on time and if the collection efficiencies are good, I don't think we should increase the provision. So we'll be maintaining around to 1% to 1.03% as the provision coverage ratio. So it will be ranging between 1% to 1.03% and this will be continued because as I said earlier, if you look at the total provision which we are carrying, almost INR 45 crores, we are having as management overlay. The provision required as per the ECL model, which has been tested by 3 auditors. One was the -- first, the model was tested by E&Y. Then the next, it was done was TR Chadha, then new auditors, Sundaram & Srinivasan. So they are all okay with that model. And the requirement is only INR 55 crores. So I'm having additional INR 45 crores as management overlay. So I don't think I'll be increasing the overlay from now on.

Got it, sir. And sir, any incremental color on the 30-plus DPD book, which is still at the elevated level in October and first week of November?

No, the collection efficiencies are improving. I mean, as we have been saying, the third and the fourth quarter, definitely, the collections will start improving, and 30-plus DPD will come down because that's what is the focus from our point of view as well. So it'll eventually come down.

Got it. And sir, last question on the borrowings. Even in this quarter, we saw a good growth in borrowing. So were they more front-ended for the 1H? Or we'll see the similar traction in 2H as well?

I didn't get your question.

Sir, on the borrowings, so there was a good growth -- sequential growth in borrowings in this quarter as well. So was it more front ended for the year? Or we'll see the similar traction in 2H of this year as well?

See, normally we maintain 3 months or 2 months disbursements on balance sheet liquidity, and another 1 or 2 months disbursement requirement has been undrawn sanction. So it is just that change of month. And also, we received this proposal from Aditya Mutual Fund for INR 300 crores, which was at a very good growth. So we thought we should take that opportunity and draw that fund. So that is why our balance sheet -- on-balance sheet liquidity has gone up slightly.

Actually, seeing the presentation, in a total liquidity in our system is about INR 1,200 crores. Of that, was about INR 689 crores is really the unencumbered, we have the funds with us. That includes the money that was drawn in the last sweep from the mutual fund issue from Aditya. Apart from this INR 689 crores, our cash on the balance sheet, we have the unavailed sanction of INR 550 crores. These funds are not drawn yet. But then, in fact, this INR 1,239 crores, is compulsorily drawn in terms of our business growth, almost given the collections and things like that, almost up to February, March kind of date.

Okay. And sir, lastly, on the attrition rate, how are we moving? Have the trends improved and any new initiatives have taken on that front?

See, if you look at the attrition rate, I would like to divide this between across level. Of course, at the top management level, the attrition is 0. At the middle management level, considering the area manager, AVPs and cluster managers, it is between 5% and 10%. And of course, at the branch manager level, it is between 15% to 20%. And at the sales officer level, it is between 25% to 30%, which is less than the industry, but still it is a challenge to be in it.

The next question is from the line of Shubhranshu Mishra from PhillipCapital.

Am I audible now?

Yes.

The first question is around the yields, sir. The blended yield is at around 17.5%. Can you tell about the yield asset has [Technical Difficulty]?

Only the first 10 seconds, you were audible. After that, you are not. Shubhranshu, what I will do, I have your number. I'll give you a call maybe after this call is over.

Sure, sir. I'll probably do that. I'll get off the queue.

The next question is from the line of Nischint from Kotak Institutional Equities.

Just 2 questions. One was on the LAP side, our growth is sort of a little lower at I think around 12% year-on-year. And I think even in case of state of Tamil Nadu, our growth sort of still lag the -- significantly lags the overall company level growth. So I mean, just what are the thoughts here?

Nischint, not clear on the question, Nischint.

The LAP growth, see, if I look at your overall AUM growth, which is at around 27%, growth in LAP is around 12%, so which is significantly lower than the company level average. Is there any specific reason why growth is lower over year? Is there any asset quality stress, any execution stress, anything that you have seen because of...

No, no, no, it is nothing related to the asset quality. If you look at now the collection efficiency or if you look at the 30-plus DPD, it is all in line across products. It is -- it maybe 0.2% here and there, but it is line -- it is in line, whether it is 30-plus DPD or whether it is NPA or Stage 1 assets. So there is no worry on the asset quality because our credit norms, whether it is a housing loan or a LAP, it is the same. See the LTV norms are same, the installment to income ratio is same, the way in which we do the credit appraisal is the same. So there is no difference there. So it's basically because we have to do more housing loans because we need to do -- take care of the compliance fund factor, it is because of that, that has happened. However, if you look at the total composition of the book, in terms of the consolidated basis, it is around 61% on the housing loan and 15% on the quasi home loan and 20% on the small business loans. So that will be continued. So that is the way in which we need to look at the mix rather than quarter-on-quarter disbursements moving slightly here and there.

Yes, got it. So basically, it is just because you wanted to comply with the 60-40 ratio and that is the simple reason why you lagged. Got it, got it. And the other thing is in the state of Tamil Nadu, I know we've sort of ramped up in the last 2 quarters. But when do you think we go back to Tamil Nadu to company level average growth?

Sure. See, what is happening. First of all, let us understand this fact, in Tamil Nadu first of all, there is no market-related issues. Market potential is good. We need to do the -- so the market -- the ability of us to grow in the market is very well there. But as you know, we have been -- we have been facing this attrition issue in last September and we have been slowly making changes and then bringing about the improvement in the way the Tamil Nadu is performing. If you look at the half yearly growth, it is around 8% to 9% is the growth in disbursement. And the AUM growth half year, I mean September '24 as compared to September '23 is also 8%. We have made some structural changes in the team, and that is actually paying off well. And in the third quarter, you can see much more improvement in the Tamil Nadu performance.

So is it something to do with internal to the team -- change in team? Or is it something because of the market is...

It's basically our internal issue, which is getting sorted out. It is not relating to any market-related thing.

Got it. And just since there are a lot of questions related to the regulator that are coming up in this call, is there anything that the regulator has sort of in your discussions commented on growth or margins or asset quality? I mean, if you could clarify that could just help us.

Let me clarify here very clearly. NHB inspection has been completed for us for the year ended March '23. They have given their comments, and we have already submitted our response. There is nothing alarming there. And they have suggested some process improvement which we have committed that we will also do that and we will do that as well. That is on the NHB. If you look at the RBI for the NBFC, RBI inspection took place 5 years back, and there were no major observations at that point in time. And of course, they have just completed the instruction now and they've gone back. They are yet to come back with their comments. They told they will have a call with us before finalizing on the comments. And as of -- from what we got to know the final discussion I had with the person who conducted the inspection, he was quite comfortable with the way we are doing the business, and there were no inputs from the RBI on either the growth or the interest rates or the yield which we are charging. So this is the status as of now.

Just to add to what Balaji said. So basically our portfolio of about INR 9,900 crores, INR 7,300 crores, which is a parent company, housing company, which is really secured loan for home or for the quasi which is also secured loan. And the interest rate that we charge is like any other housing company. The housing company's interest rates never been seen as usurious by the regulator. So the housing loan, quasi loan, which almost contributes about 70% of our balance sheet, which is the parent company, housing company, regulated NHB, supervised by RBI -- there is no issue. From the point you have small, unsecured loan and not clear about the terms and conditions, those are issues. Now the RBI -- if you read the RBI, the [ comptroller ], largely, as you know is from the unsecured loan owned by -- given to small customers by certain legal entities like microfinance companies or few fintech companies. We are not really present in any of the unsecured loan. We are not presenting the small loans, the loans which we are talking about is, we're talking about [ something that is, ] we are not present in that segment. And our interest rates are fairly well communicated to the customer in English and in vernacular language. All the terms are fully disclosed. And we have also made an interbank comparison with our terms and conditions of the loan that we do versus 8 other companies. We found it our -- where the service charges are charged are fully resulting in finance services for example penal/precharges, we are really quite comparable. And so that's why we don't really see any concern of -- and we don't have any loan in terms of the other uses in terms of the loan being netting off. We don't have -- we don't do any netting off loans. And we don't do any -- all other regulatory things are fully and totally compliant, and it is transparent to our customers and to the regulator and to us. So we don't really see anything, any concern on that for us.

The next question is from the line of Kartikeya Kumar Pandey from Ashika Broking.

[Technical Difficulty]

Sorry for interrupting you sir. Your voice is not clear. Could you speak a little loud?

Yes, sir. You were talking about the effect of cut rates on your fixed asset -- fixed portfolio -- fixed asset portfolio. So can you please explain that once again? And just -- I missed out at the beginning...

I'm not able to hear you properly. Sorry about this.

Please use handset while asking a question.

Yes, I'm using handset. I was just trying to understand the sir was explaining regarding the effect of rate cuts on fixed rate portfolio. So can you please just explain it once again?

Okay, just note down my number, you call me a little later. I'll explain you everything. It's 9791007160, just give me a call after this briefing.

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

Can you share the disbursement number for Tamil Nadu for the quarter Q1 and Q2?

Please don't ask for Tamil Nadu individual because we can't. So as a company as a whole, we have grown certain percentage in terms of our loan book has grown 27%, our disbursement has grown 16%. And we have given a guidance of 30%, which we will do. And given the 16% disbursement growth, we'll move into 20% -- we expect to move into 20% by third quarter, we'll be moving to 25% in the third quarter -- fourth quarter, and our loan book will grow 30%. We are growing our assets in Andhra. We are growing in Telangana, we are going in Karnataka, we growing in -- and then as far the Tamil Nadu, we have explained in terms of we had certain issues in terms of attrition, which we have corrected. Beyond that, we don't want to -- ability to improve in terms of Tamil Nadu, which director, which branch, which estate starts. I think we need to stop it somewhere.

Sure, sir, sure. But sir in Tamil Nadu, the issue is that 2 years back, I think that issue has happened. And for the last 2 years, the growth is still...

Otherwise, we won't confidently say that we will grow 30%.

No, no. Basically what is happening -- see it's not that easy -- it's a business, okay? So I mean there is a problem that needs some time to get sorted out. See, the thing is, we don't get fully experienced and good people immediately. So even if they come, they might not get adapted to the work environment. So there are issues. It's not that -- it's not a plug-and-play model there. You just hire some people and then ask them to perform and then start doing things. So it is taking time. We have been saying it is taking some time, but we are hiring, we are on the right path in correcting the Tamil Nadu team, and we are correcting it also. And there has been a growth of disbursements of 8% over the last half year. So I think we should respect that and then take it forward because it is taking some time. And we all accept that, but we are on the right track on that. So that is how we need to look at things. But that doesn't -- as I said, again, there is no market-related issues in Tamil Nadu. It is basically our own internal issues, which we are sorting it out.

Okay. Okay. And secondly, in terms of sourcing, there is a significant -- I think the sharp increase in the share of construction ecosystem. And over a period of time, customer referral share has also gone up. So what we have done there to show strong growth in these two channels?

So basically, we have formed a team at the head office. See what happens is we have got this customer app. So where, the existing customers can refer their leads. Similarly, we have got the construction ecosystem partners who are basically construction shop owners like paint shop owners or cement shop owners. So when somebody comes and buy something from them, they ask them whether they need a housing loan and then they refer the same to us. And once the leads come in, what we do at the head office is, we go through the lead, we talk to the customer, we do bureau check, and make this cold lead into a warm lead and then take it forward. So that is what -- and that is being done on a focused manner. If you look at it, 18% of our disbursement last quarter came through these channels, now it has become 20%. And we find that this channel is really good because the conversion ratios are also high. And the average ticket size is also high at around INR 99.5 lakhs. So we would like to focus on this channel and develop this channel, and that's what we are doing.

And then lastly, how is the experience in the state of Odisha and Maharashtra, I know it is slightly -- they're still the new states? But in terms of disbursement ramp-up, how -- if you can share some data out there.

Sure. It is very encouraging. We have got -- I mean, if our experience was not good, we wouldn't have opened more branches there. So our experience in Odisha and Maharashtra has been good. And we have formed a team now. It is headed by cluster managers there who are decent enough and experienced enough, who can take this to the next level.

The next question is from the line of Jigar from B&K Securities.

Congratulations, sir, on a good set of numbers. Two questions. The yields that you mentioned on HL, quasi-HL and SBL of 15%, 17% and then 21% to 22%. These are disbursement needs or these are bookings? And do they differ materially -- just trying to understand whether we have reduced rates?

Basically these are disbursement rates. We charge 15% to 15.5% on the housing loan. It is 17% to 17.5% or 18% on the quasi home loans and 21% on the small business loans.

Right. And we have not reduced rates recently on SBL per se, right?

We have not increased, yes.

No, no, we have not reduced...

As far as the interest REPO, increase in the REPO rate of about 2.5%, we -- our increase in interest rate is much, much less than that, something around 0.5% to 0.75% overall. So we have really consciously gone for a lower increase in the interest rates in that way.

That too, we did it sometime in September '23 or October '23, after that we have not done anything.

Understood. Understood. And sir, on this interest rate cut and 52% of your borrowing either linked to EBLR or MCLR. So if and when the system wide rate cuts happen and it may flow through in EBLR and MCLR, our spreads definitely been increased because a large part of our book is fixed rate. So do we intend to kind of like pass it on to our customers or we will kind of maintain it the yields at the current level?

In the last 2 years, we observed the interest rate [Technical Difficulty].

Okay. Okay. And sir, any clauses you have on this fixed rate book that is -- this remain fixed throughout the tenor of the loan? Or does it get repriced, say 1 year, 2 years, is there a review clause in the agreement?

It is a fixed rate contract, while the loan agreement does have a clause, so in exceptional situations, the company can raise the interest rates to recover part of the increase in interest rates in exceptional situations. So the loan agreement, it is not -- it is just for a couple purposes. But in case of exceptional situation, the company does have the right to go for an appropriate increase to recover the cost.

The next question is from the line of Rajiv Mehta from Yes Securities.

Congrats on strong performance. So many of my questions are already answered, only a few left. Sir, firstly, on the employee cost, it was flat on a Q-on-Q basis despite a very sharp jump in disbursements. So can you share the employee count change on Q-on-Q basis? And how are the incentives structured for employees?

Incentive structures, I don't want to tell it in the con call because it is, I mean, it's a company specific. Basically, incentives are being paid based on the performance. And it will enhance productivity. So we insist we are a productivity-driven organization. So anybody who performs well will earn good amount of incentives and maybe a fixed salary will be 60% to 65% and 35% will be incentives.

Actually, just to add on the outstanding numbers are concerned, spot numbers are concerned, we have closed September with about 3,000. And in March, we possibly around 2,700 to 2,800. So we had increased about 200. And in this time, we have also added about 32 branches. So this increase also scale largely, and mainly in the branches and at the skilled level functions like sales and collections, and we also -- well, we largely do it that way. As far as incentive is concerned, we do recognize the performance. Performance Both in terms of quantity and quality and quality in terms of the proposal, the current level proposals we have generated, the track record of yearly default, track record of installment payments and the quality of documents that have been completed. Actually, it s just not the disbursement number alone. It does take into consideration other qualitative aspects as well. Even in the collection also, is not does it have receipt alone, there is a weighted given for the EMIs. We recognize the quantum of EMI, and we recognize the number of receipts. And more importantly we also recognize the level of the EMI for the current month of this year In a collection of old EMI if any. So the incentive structure is largely for our sales and collection, recognize these aspects of productivity and quality.

Sir, on this OpEx to asset ratio, I mean, we are at 2.65%, and we are talking about being the lowest cost-to-asset and cost-to-income ratios in the sector. So what is the juice left? And what will be the key drivers here? What can drive it further down and to up to what level do you see it going?

There is no juice left, Rajiv. I mean, each and every expense is just monitored very closely. We negotiate better and also the productivity. That's what the secret sauce is. And I don't think we can improve further on this.

Yes. As a culture, Aptus culture, we follow the frugal culture. That does not mean that we pay the lowest salaries. Our salaries are possibly one of the best in the industry comparable here. And our terms of employment are following our deals. Then we have our investment in IT and in our branches. Even this year we are planning to balance it. We will be adding about 15% of our branches to our [ resume ]. So, despite these investments, we have also invested in the new software that has been mentioned earlier. So we do make the investments in terms of easy distribution in the IT. At the same time, we are very conscious that significant part of our growth has to come from the productivity of our -- from the existing branches, from the existing staff and the new staff after we release turnaround time. So in other words, more -- of course, as an organization, we do believe in approval of culture, way of operation.

Just checking and clarifying these 291 branches that we report. Is there bifurcation -- are there separate branches for the NBFC and the HFC and how does the sourcing happen across branches for all products? Can you just throw some light on that?

There is no separate branches for NBFC. Since NBFC is the wholly-owned subsidiary, the cost that's shared between the company is based on the assets under management. And as far as the sourcing is concerned, people are free to log in either the housing loan or a non-housing loan. Of course, there will be some push from the head office side on how much small business loans are being done at each branch and of course, on the housing loans.

The next question is from the line of Kushan from Morgan Stanley.

I had two questions. One was around the loan growth. So we have guided for 30% loan growth. In the near term, if I look at that F '25, that broadly looks at an ask rate of about INR 2,400 crores, INR 2,500 crores disbursement in the second half of F '25. Is that something that we are targeting? Secondly -- my second question was around the loan spreads. So over the last 2, 3 quarters, we've broadly maintained a loan spread of about 8.7%. Is that something that we would like to maintain going forward as well? And in that context, I mean, how do you think cost of funds will play out from here on? And also the higher liquidity on the balance sheet that you alluded to, over what time frame would that come back to a more normalized level? Those are the questions.

Currently, we have disbursed around INR 1,600 crores in this last 6 months and another INR 2,000 crores to INR 2,100 crores is a possibility. Okay. So which means another -- we will try to assume -- do more, but this is definitely will be -- the INR 3,700 crores. But definitely, we'll try to touch INR 4,000 crores this year. So that is the guidance which we want to give. And -- what is your next question, on the spread, right?

It was on the loan spread, yes.

Yes see, spreads is a resultant of what, yields and the cost of borrowing. Our spreads are likely to be maintained at around 17.3% to 17.5%, and cost of funds, our current rate is at 8.5% or 8.7%. Of course, if the rate cuts happen, then this interest costs will come down, at least on the variable rate borrowing. So to that extent, there can be a NIM expansion, but I'm not referring on that as of now because the rate cut has to happen. So with the result, the spread is likely to be maintained at 8.7%.

Understood. And on the -- lastly, just on the liquidity part.

What was the question on the liquidity?

So liquidity has increased Q-on-Q this quarter. Just wanted to understand in what time frame will that normalize to earlier levels?

It is basically 3 months disbursement we would like to draw disbursement which we would like to maintain as the liquidity, whether on balance sheet or off balance sheet, it will be determined based on the market -- based on the availability of funds and also the market dynamics. So for example, last quarter, we had to draw that money because the rate was good and the terms were good, and they result from mutual funds. So we had to draw the money and keep it on the balance sheet. But normal plan is to have 3 months gross disbursement as the liquidity available.

As that was the last question, I would now like to hand the conference over to management for closing comment. Please go ahead, sir.

Yes. Thank you. Thank you for organizing this conference call. I would like to pay my sincere gratitude to all analyst investor friends who have taken time to listen to us today. Please feel free to contact Mr. Balaji or any of us in case if you have any further queries. Thank you.

Thank you. Thank you all.

On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.