CSL Finance Limited (530067) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to CSL Finance Limited Q2 FY 2022 Earnings Conference Call hosted by Kanav Capital Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rohit Gupta from CSL Finance. Thank you, and over to you, sir.

Thank you. CSL Finance welcomes you to the quarter 2 financial year '22 investor call. Thank you for taking out the time for attending the call. Now coming out to the financial performance. The total income increased by 13.49% to INR 17.16 crores in quarter 2 of this year as compared to INR 15.12 crores of quarter 2 of last year. Our pre-provisioning profit before tax was INR 10.6 crores in this quarter as compared to INR 10.61 crores of the previous quarter. PAT improved by 3.5% to INR 7.10 crores as compared to INR 6.86 crores for the previous quarter of the last financial year. For half yearly numbers, the total income grew by 9.6% from INR 29.89 crores this first half from INR 29.89 crores in the first half of the last financial year to INR 32.76 crores in this financial year. Our PAT has grown from 1.66% from INR 13.88 crores in this first half as compared to INR 14.11 crores in the first half of the last financial year. Operational update. Our AUM increased by 12.53% to INR 377 crores in quarter 2 of this financial year as compared to INR 335 crores in quarter 2 of the last financial year. Our disbursement has remained flat at INR 92.23 crores in quarter 2 of this financial year as compared to INR 90 crores of the last quarter of the last financial year. Disbursements have been muted largely on account of some wholesale accounts, which were due for disbursement in the month of September, but got postponed in the next quarter. Our collections declined by 14.78% from INR 87.29 crores in quarter 2 financial year 2021 to INR 74.38 crores in this financial year in this quarter, because earlier our wholesale accounts are getting repaid within 15 to 18 months, and we focused to increase the tenure to 24 to 30 months. So [indiscernible], which we are witnessing in our wholesale portfolio. So this was an intentional intent to increase our tenure, and that's why the collections are down. Otherwise, collections have been very good. AUM of Wholesale segment increased by 17.47% to INR 316 crores in quarter 2 financial year '22 as compared to INR 269 crores during quarter 2 financial year '21. AUM in SME segment decreased by 7.57% to INR 61 crores in quarter 2 financial year '22 as compared to INR 66 crores in our quarter 2 of last financial year. This was primarily due to the provision made during the last 12 months on account of our provisions largely on the school segment and the disbursements are muted because of the COVID period during the last 12 months. And we are entering our disbursement in the SME segment as we have rebuilt our team strength and increased sales people from 2, 3 persons to 5 people, and now after COVID period going forward, our disbursement in SME segment should increase substantially. The total employee count has increased to 168 from 117 of the last quarter of the last financial year. We have added Chief Operating Officer in our SME division, including Zonal Credit Head and operations Head using NNPA. Our GNPA has increased to 3.25% in quarter 2 of this financial year from 0.08% of the last quarter. Our net NPAs increased 1.79% in quarter 2 of this financial year from 0% in quarter 2 of the last financial year. The increase in NPA is largely on account of our school loan portfolio. We have adequately provisioned for the same, and we expect this segment to stabilize as schools have reopened up in the coming months. And our collections have also improved from 40%/50% to 70% in this quarter. As a prudent risk management sector, we have provided the ECL provision of INR 9.21 crores, an increase of INR 2.64 crores from INR 6.57 crores in quarter 2 of the last financial year. Treasury update. We have maintained comfortable level of liquidity and cash and cash equivalents were INR 22.56 crores as on September 30, 2021. Our net debt has increased from INR 86 crores as of 31 March 2021 to INR 109 crores as on 30 September 2021. We are now actively looking to raise more debt and to expand our balance sheet. Thanks, everyone, for participating on this con call. Your questions are important for us, and we strive to be transparent in our investor communication. The economic activities are now started picking up, especially in the real estate sector and demand from consumer has substantially increased. We expect good demand for loans in our wholesale segment. We aim to maintain right quality of our balance sheet while striving to grow our business in this financial year. Now I welcome questions from your side.

[Operator Instructions] The first question is from the line of Vishal Prasad from BP Capital.

Sir I have few questions. Given that we have been more than prudent in our operations, could you share the rationale behind us getting into loan against securities?

It's Chandan this side. And I would like to take up this question. Look, Vishal, you would like to simply like first demonstrate the number on the part were WS LAS part -- that's roughly around a minimal of around INR 11 core portfolio. So for LAP and LAS portfolio, the wholesale segment majorly consists of the 3 kind of products, that is a wholesale large, wholesale small, and third one is the wholesale LAP or LAS kind of product. LAS is only really much selective to those customers against the securities, which are very much referential based or which were very much known to us. Either, we have a very strong command over that kind of customer growth or that kind of business entity itself. That's why a very minimal portfolio has been kept for the LAS portion. And that's totally an opportunity-based lending. Otherwise, we don't have that much interest into this kind of portfolio itself, building up this kind of portfolio. That is our WS plan.

So I understand, I mean, I mean, probably 10 years back, we as a company were investing in companies. And we have good experience in stock markets. But let's say, a hypothetical situation where suddenly the stock market goes down, so how do you think about risk in such a situation in our LAS portfolio?

Vishal, we have taken adequate margin in this -- apart from that, as Chandan as already told, we know the borrowers, we have worked with them in other aspects. So we are very cautious of that and we don't work with -- even the RBI has prescribed a 50% margin. And we are not working with less than that margin and that margin is maintained on a weekly basis and monitored out.

Okay. Okay. So if we are not able to meet then you will liquidate?

Yes, yes, it's the only opportunity based, that means, sometimes, we have surplus of funds, and we come across a good opportunity. And this is not our focus area neither we market ourselves on the LAS portfolio. So we have -- sometimes the opportunity-based lending, and when we are surplus and sitting on funds, and then we sometimes look at this kind of opportunity also.

Okay. If I come to our loan against properties, I mean demand and supply in real estate, in function -- I mean, it's a function of the economy, so when the economy goes down probably the demand and the price of the real estate will also go down. So let's say, you faced a challenge that your customer is not able to pay. So in that case, how difficult or easy is to liquidate that property?

Vishal, I would like to answer this question, too. The first question is, I would like to understand that you are mentioning or discussing this about the WS LAP portfolio only, that is related to the wholesale segment, right?

Right, right.

Look, the LAP portfolio, that's also very much in kind of opportunity-based lending. The promoter profile is very much strong. Apart from that, we only do LAP on a very much selective basis where the property value is very much high, properties marquee and easily and readily salable into the market. Otherwise, we don't want to make it as a separate product, I don't want to grow it into like a kind of a major product. it's just a kind of an opportunity-based lending where we find that the property is very much good and there is a kind of gap or kind of a cash flow requirement on the customer part. The profile as well as the property part is very much strong here. For the LTV part, we are very much comfortable. Generally, we do LTV in LAP cases at LTV below the 50%, or it would be around 40% to 30% only.

Right. Okay. So in our affordable housing portfolio, typically, what's the size of the project to which we fund to? And what's the collateral we take apart from the receivables?

Okay. So the wholesale large part, that's a portfolio of around INR 160 crores. Actually, we divide this part into the 2 kind of segments. That is a mid-housing segment. And second one is affordable or a kind of DD. So affordable housing portion, we need to understand that's a special scheme approved by Haryana government that's under -- in year 2016 itself. That's the ASP policy 2016. So here, the demand and supply -- nor the payment plan is very much predictive -- that what happens -- that's the customer used to book -- or the developer used to publish a lottery kind of system from what the customer used to -- like a request for the allotment part, right? And in the first phase itself, the most of the affordable housing, if the location is good and developer is good, then the most of the affordable housing is sold at the first go itself. So the collateral in this part would be the hypothecation of the receivable, that is very much predictive, and that comes into the interval of around 6 months in a period of 3 years.

And we have a lease on the complete project. So we have a complete charge on their cash flows, we have -- the whole cash -- the cash flow comes into the escrow account where we have complete control, and the complete project is mortgaged with us. And if you see most of our affordable housing projects have been sold on day 1. So -- and their collections come after every 6 months. So it is a very predictable kind of a cash flow structure. And we just have to monitor that the cash flows are being used for the construction. And after RERA and after IBC, now even the builders are very, very cautious and very, you can say, they know their obligation. And we have not seen that any of our affordable housing is being getting delayed, and all are been getting delivered on their due dates or before the due date. And the ticket size of the apartment is around INR 25 lacks, which is very, very affordable. And if the location is good and the builders enjoys a good reputation, the sales happen on the very first day, which happens through a lottery system and which is being monitored by HDFC Bank. And that -- local state government -- so it's a very unique and a very comfortable segment for us, and we have not seen challenges in any of the account at any moment of time in the affordable housing project.

So typically, this is only Haryana?

Yes, it's a typical policy only for Haryana, Deen Dayal scheme and affordable housing scheme, which is typically for Haryana based in Faridabad, Gurgaon, and Sonipat and Sohna and these are the areas where we look at mostly.

And we are the only lenders to the project. I mean there's no joint...

We are the only lender in the wholesale portfolio, whether it's small or large, we are the single lender. And we have done some transactions as a co-lender also, where another NBFC is a part of -- under the whole lending, but the whole on boarding, monitoring and day-to-day monitoring of the accounts and taking any decision and control of Escrow and the operations are being looked by us only. So are co-lender sometimes because of the size. And so otherwise, the complete control rests with us.

Okay. And 1 last question, Rohit. So in the past, you have spoken about some of the challenges we faced with some of the hirings we have done, probably 5, 6 years back. And so is there any learning that you had from that experience? And when we hire the new guys that you are doing now, what are the qualities you look for in the new senior level hirings?

Yes. We definitely faced few challenges that as always this is a learning curve. We started our retail in 2016, '17. And as you started even the other circumstances after ILFS and DHFL and now COVID had all those also changed the whole paradigm. And we learned from that hiring. Now we are very cautious. And earlier, we learned certain mistakes. And the hiring which we have done with a long-term perspective and ready with much more clarity, both from the company side and the person who is joining us, and he knows the challenges and what the company aspires from those people. And definitely, we have learned a lot and we have much more caution, and our quality of hiring has improved, and we face certain challenges in our sales -- junior sales people at the branches. And now we have tightened that area also. And sometimes when you want to hire and want to get people at a shorter notice period, certain, you can say, there were certain deficiencies prior to that. Now we have totally overhauled our HR policy around hiring. And the -- most of the challenges were in our retail segment. And now we have learned a lot and learning is a continuous process. But now definitely the things which we have witnessed earlier will be much lesser going forward.

The next question is from the line of Rupesh Jain from Intelsense Capital.

My question to you is what I have seen is roughly we'll do INR 90 crores to INR 100 crores disbursement every quarter and roughly INR 70 crores, INR 75 crores gets repaid back every quarter. That's the rough run rate, if I see some fluctuation here and there, of course. So -- and then we have this aspiration to get to a INR 500 crore kind of AUM in next, let's say, 12 to 18 months. So, let's say, if we want to add INR 50 crores of net AUM every quarter, this disbursement run rate has to go about to 75, plus 50 plus maybe some more rundown on the new books. So roughly INR 140 crores, INR 150 crores kind of quarterly run rate. So how -- I mean, do you have that kind of inquiry pipeline, project due diligence team, where are we on that? Because we -- otherwise -- I mean how do we go from here to there? I would like some clarity on that, sir.

First few things, the like the little wholesale business is not the same as which is the retail one. In some quarters, our collection have been much higher. In certain quarters, it's a little lesser. So disbursement depends to some extent on our collections also. And for last -- coming to your second part of the question, in terms of pipeline, we have built a very strong presence in our NCR, and we always had a very strong pipeline and the only limiting factor last 18 months have been COVID where 6, 9 months were disrupted and we were not able to meet customers physically and see their projects. And our collections have been very strong. And as I told in my opening remarks, we are now focusing more on a larger tenure projects as compared to earlier projects -- our accounts used to get totally repaid in 18 months. Now we are focusing that the accounts should get repaid between 24 to 30 months. Very frankly, the only limiting factor is to build our -- leverage ourselves and to raise debt and which we are working on. And hopefully, we should be seeing good debt raising in this quarter, and we have aspirations to reach the target which we have mentioned in the next 12 months. And we definitely think that we will be able to do it. The only limiting sector has been the raising of the debt. And in the last 18 months, we were more focused on maintaining our balance sheet strength and maintaining the quality. And now as we have passed that period. And as you can see that in the last 4 years, we faced a lot of unforeseen circumstances starting from demonetization, RERA, GST and COVID phase, and we have been able to see that phase reasonably well, and our confidence has increased, and now our focus is on the growth side.

So can you give some numbers, sir, like, let's say, we have, I don't know, 300 projects in inquiry stage evaluation -- due diligence..

Can you just speak little loudly? I'm not able to...

Yes, yes. So what I'm saying is, if you can give some number that 300 projects are under due diligence, average ticket sizes, I don't know, INR 30 crores, INR 50 crores, some kind of number, if you can give it to us.

I'm not able to understand what -- you're saying the pipeline what we have?

Yes, yes, yes. Can you hear me now?

On the wholesale side, we have a pipeline of INR 150 crores as of now, which we, along with co-lender will be doing in the next 1/1.5 months and which our component may be around INR 40 to INR 50 crores -- INR 60 crores. And the SME, we think that we should be able to do INR 6 crores to INR 7 crores per month going forward from December onwards and our October month has been reasonably good as compared to last 18 months. And now we are also focusing on raising our debt, because that will be also a critical element in growing ourselves, and we are in discussions with a lot of PSUs and because that is the area we think that we'll be able to keep our cost of borrowing under control, and we are -- we believe in growing ourselves profitably with reasonable names. And we are very hopeful that we should be having a growth after 2 years and a reasonably good growth after 2 years.

Okay, okay. And then sir, if you can hear me a little bit long-term question, let's say, 3, 4 years down the line, your disbursement and overall scale has to go to 3x. I mean we will pretty much have to disburse INR 250 crores, INR 300 crores kind of quarterly run rate if we look at a little bit medium-term. And to get to that kind of number, we -- as you said, we have to increase the duration or we also have to increase the ticket size, right? And these things involve certain risk and then you have managed very well in the last cycle?

We have a very strong pipeline always on the both wholesale and the SME there were certain limitations at SME, the growth was not happening, and the focus was more on collections, but now we have increased our team. So we will not be increasing our ticket size. We have reasonably very good pipeline with us, the only limiting factor, as of now, very frankly, has been that we should be able to raise debt and we are focusing on that. Raising debt and improving our credit rating, which will help us to raise debt.

Okay. Okay. So you -- I mean even medium term in terms of...

Until we achieve certain size, our ticket size will not increase.

Okay. Okay, sir. Okay. So in at least medium term in terms of only debt raising is the only thing that is pending. Team and pipeline and everything is in place?

24 months post ILFS, there were little concerns for the NBFC segment, and our collections have been so strong. And in the interim, the COVID came. And so we were always sitting on very strong collections. So we never ever faced the challenge of limitation of the funds. And now the focus is on growth. And earlier, it was to maintain our balance sheet quality and now the focus is on growth on both the side wholesale and the retail. And you can see from last year, we have added around 50 people on our employee strength, it has increased by roughly 33%, and it's a sizable number.

Okay. Okay. And just last question, sir, what will be roughly any range on cost of debt?

Now we are at around 10.25%.

And new debt you're looking to raise, it will be similar on cost of funds.

We are looking in that range only.

The next question is from the line of Siddharth Agrawal form Prudent Value Partners.

My first question is as you already explained, our disbursement in SME segment were quite muted in spite of the economic activities picking up. So how has it been for October, both the disbursement as well as the collection efficient SME segment? Is it picking up?

I think, Amit, the CEO for this SME segment will explain this in much better in detail.

Yes. Amit this side. I'm looking after SME retail piece. In terms of your question, in October, we have seen an unprecedented jump in the terms of sanction and disbursals both. So we started very -- at a very nascent stage since I joined in July. So we started from 0 to now we are doing at least INR 4 crores, INR 4.5 crores of disbursal month-on-month basis. And we intend to take it to at least by this financial year-end, at least INR 8 crores to INR 9 crores, monthly disbursal from entire branch network. In terms of collections, we have been doing reasonably well on the total collection, which has raised to around 96% of collection, we have been doing month-on-month basis now. So we see a lot of changes in terms of collections efficiency as well as with the team building and business happening on a daily basis. So the total trajectory is an upward trend, and we are moving in a very positive way in each and every direction wherever we are based out of.

Okay. And I noticed that we have also rolled out several branches in over the time, Gujarat and Haryana and Rajasthan. So I assume some of these branches at least would have stabilized. Could you talk a little bit more about some -- give us some more visibility on the regional performance of our book? How is it shaping up? Which are some -- some breakdown of our SME book across these markets. Where is it scaling up where we are still -- or any reasons where we are still struggling?

By the time when the second COVID hit, it was -- definitely we were struggling, entire industry was struggling. But post second wave, we are working on all the verticals, whether it is operations, credit, collections, and we have been hiring good talent from the market. And post that, we have -- simultaneously, we have also started penetrating into our presence, whether it is in Gujarat, Rajasthan, Haryana, Punjab. And if you can see, like I said in an earlier comment that we are into upward trajectory, so everywhere from a very little bit, we have started stabilizing few of the branches, and we see a lot more business coming from Rajasthan because Rajasthan is a beautiful market, and we have been doing reasonably well on branch-to-branch basis, whether it is Jaipur, Ajmer, Jodhpur and also in Delhi NCR as well, because we have opened up Noida branch. And in the second month already, we disbursed around 65 lakhs with a small manpower of 1 or 2 RMs. And we intend to stabilize Delhi NCR, Rajasthan and Gujarat as well have been started showing good numbers, because we have little -- yes, we have changed our -- the way we have been working earlier, we have changed our entire processes and products, and it has made more customer-friendly in terms of acquisition of the customers in future as well as in present scenario also. So we have a focus on Rajasthan Tier 2, Tier 3 cities; Gujarat Tier 2, Tier 3 cities; as well as Punjab. We are very cautious in Haryana because we have not been able to get good portfolio there. So we are trying to see -- go very cautious in that area. But yes, Punjab, Delhi NCR, Rajasthan, Gujarat have started showing good numbers, and we intend to stabilize these first, then only we'll go for expansion in next financial year. In terms of processes, there are a lot many changes which we have developed here. We have infused a lot of technology also like to avoid fraud kind of activities, fraud clients coming into. So best of the APIs, we are getting integrated into our current system as well as we are building up new system, which will help us in getting into a digitalized mode into new financial year, which is we are -- as far as -- if you ask me, we are gearing up for FY '22/'23 with a regular disbursal of around INR 7 crores to INR 8 crores from coming month.

Could you please speak a little bit about our school portfolio? I mean what is the current total outstanding in the school portfolio? And how has been the disbursement as well as collection in the first half FY '22? And do you see the performance improving now? How has been the experience as the school started -- most have started reopening?

I think our total gross portfolio 12 months back was around INR 24 crores, out of which during the COVID period, 40% to 50% clients were paying and 50% were not paying. And so our INR 12 crores portfolio was into DPD out of which we have already provided around INR 7 crores for that. But -- and prior to COVID only one account was into DPD. So most of the schools are based in Tier 3 -- Tier 2, Tier 3 cities are semirural in kind, and they were not offering any kind of online facility to the students and neither the students have get kind of infra to go through the online. And now what we have witnessed our collection has improved from 50% to 70% in this month. And 70% of the clients are now paying 1 or 2 EMIs. The Only problem is that they are not coming out of the NPA because they have the 7 to 10, 15 EMIs are pending. And I think in next 6 to 9 months, more and more accounts will become regular. And if the -- next 12 months, we don't foresee any kind of problems from the -- the schools remained open. We are very hopeful that most of the schools will come back -- will become regular. And we have built a very strong legal team in last 2, 3 months. And as during COVID phase, most of the legal -- the courts were not working and that segment was that, that part was also slow. But now our legal team has been strengthened a lot, and it is helping us to recover our -- to make our existing accounts regular. So schools I don't -- 10% of our schools can see that they may not be able to operate or may -- they may see a very low strength in terms of students. And then the trend in terms of the collateral that we have taken will come into claim it through legal process or through the recovery process. But that will be a very miniscule small amount, maybe 10% to 15% of the total portfolio. And we have already provided -- out of INR 24 crores, we have already provided INR 7 crores. So you can see -- 25% to 30% has already been provided.

This used to be a good segment for us. Is there -- do you foresee that this segment coming back for us as a growth area in next year? Or do you...?

Next 4 to 5 months in this financial, we may not be doing any fresh business, and we want to see how our existing accounts perform. And then definitely, we are funding the cash flows and primarily -- and the cash flows had been very, very consistent. And this 18 months, nobody could have thought that school will remain closed for such extended period. And all the other segments have opened and schools are just opening now. And definitely, we will -- we have had a lot of learning, and we have built our domain knowledge in this segment. We will definitely start lending again in the next financial year to this segment..

And we also noticed that our net debt has increased from INR 86 crores to almost INR 110 crores in this first half of this year. So what is the cost of our incremental borrowing as well as the average cost currently?

The cost has remained same. The weighted cost is around 10.25%, this increase of 0.5% has happened because State Bank from where we had the credit -- working capital facilities as their policy, they have converted all their working capital facility to term loan to all of the NBFCs not with us. As a matter of this we will not be giving cash credit facility or working capital, WCDL facility to NBFC, and they converted our -- all those limits in the term loan. And as per their policy, term loans are priced little higher, 0.5 to 0.75 basis higher as compared to their WCDL and CC limits. So because of that, because gaging the largest lender, our cost has increased by 0.5%. And what further borrowings we are intending, we are intending in the same cost.

You also mentioned that are credit rating -- our credit rating is also one of the monitorable for us. So when is it due for review?

We will go for review, and hopefully, let they out results, and earlier, the people had the -- credit ratings definitely used to had apprehension about, basically 2 things their exposure on the real estate side, which we already used to tell that we are doing it very differently. We are into affordable segment. We are into last-mile funding. We are into builder flows, which are very, very stable. And the COVID was one and the second is the geographical concentration, which is a big concern that come out. And we always say that we would like to remain in our area of strength. And as we know, then we will spread ourselves through out the geography. So these has been 2, 3 major concerns about that rating agencies, and let's hope that...

[indiscernible] due in October or November itself.

Next [indiscernible].

[indiscernible] Sorry. And apart from that, I would also like to add one more point, Siddharth. The thing is that in appraisals when we are rating was done, so we were discussing. There were some positive as well as the negative covenants that the rating agencies use to mention into their rating reports. So on a positive covenant part, we have achieved almost all the things, and that's why we cited for that upgrading our rating itself. But just for the sake of -- COVID that the period was under the COVID itself and they have their listed susceptible on the real estate part, they have -- but like given the reason that we would take our look for upgrade in the next review itself. Otherwise, there is nothing or not a single negative comment that we have rated. All the positive covenants on the rating part has been achieved by us.

Okay. Great. One final question about the wholesale book. So in the NCR, especially the reason where we -- most of our assets are there. So demand in real estate has used to have revived and the property prices, especially the land prices have been up sharply across NCR. And the demand seems to be strong. The builder source seems to be selling well and inventory seems to be getting down. But somehow that has not translated into a wholesale AUM. The relative growth has not been as strong given from what we hear anecdotally for the real estate sales volume. So could you speak a little bit about it? Is it a conscious decision to not grow the wholesale book accelerate it or is it just some timing issue here?

Siddharth, the point is that, look, Rohit has very much clearly mentioned that they are the 2 major concerns that due to which we were unable to grow our wholesale book first. The first constraint was the reasonable on the self that we were a little limited on the fund part. And the second part that the post COVID, that the first phase itself and that is in September last year. We have seen a very much a surge in the collection part. The collections were so tremendously good that it funded our internal requirement of the wholesale disbursal itself. If you go by the number itself on a quarter-on-quarter basis, we have -- monthly or month-on-month basis we used to receive or collect around INR 24 crores -- INR 20 crores to INR 25 crores per month. So the collections was so much robust that we -- that internal requirement or the portfolio number -- growth number is not demonstrated on the AUM part. Otherwise, disbursements are good. And if we go continue with the same trend, we will be able to achieve our target in coming financial year.

In this quarter, few of our transactions, which were due to close in September. But as sometimes due to credit and the diligence part, it's got postponed. And those transactions are closing in this last week of November and first week of December. And at the end of the day, the wholesale is a little lumpy both in terms of disbursement and collection. Sometimes, 1 quarter performs extraordinarily very good and the other quarter, because this transaction diligence all those take time and now there a lot of to and fro happens both on the negotiations and so many part of the covenant between the borrower and the lender.

[Operator Instructions] The next question is from the line of Dharmesh Patil, as an individual Investor.

Almost all the questions are answered. I just have 1 question. Sir, we are overly concentrated in just 1 region and 1 segment, that is wholesale and Delhi NCR. Are we doing anything to reduce our concentration in just 1 region and in wholesale? Like if we can go in retail and school segment, which are -- which may be facing problems right now, but they are generally a good set to have on books.

Dharmesh, you rightly said, our focus is to grow retail. But in COVID phase, the focus was more on collection and we were cautious, we want to see how the economy comes back. And that's why we have seen a de-crown in that segment. If you see as our employee strength has increased from 117 to 163, all those people have been added on the retail side only. So our focus is to grow the retail. On the school side, we have explained earlier, we will be just not doing it in the next 3, 4 months, but if all the schools opened and remain opened in next 5 months, we will open that segment from the next financial year. It has -- before COVID, it has been really a very good segment for us. So we are just on wait and watch and focusing on our existing collections of existing accounts, and we'll start opening it. So, yes, our focus which will be on retail. But at the same time, we don't want to lose sight of our wholesale, which has been done extremely good for last -- since we have started our lending. And we have learned a lot of lessons during this phase itself. As of now, I would not say that every account has been straight, but where there have been certain difficulties, we were able to manage it. And we always take a lot of lessons from account, which has been a little difficult. So those learnings have made us much more confidence and now we will aim to grow both the segments. And given a choice, retail will be the first one, and we are focusing on that. And Amit has also explained earlier. The lot of effort is going on, on all ways through processes and totally digitalizing our retail segment, and we have added a lot of APIs to improve the fraudulent log-ins. And the numbers have started improving, and we should be seeing good numbers from the next month.

And 1 more question, sir. Sir, in schools, do we face any competition from big players like private bankers like ICICI?

In action from school. I have not seen anybody on my account been getting taken over even the good ones, which have not defaulted. So everybody is cautious right now. Even the Indian School Finance, which was quite active, Varthana, who are dedicated school finance company. I have not seen that they are active in our part of the region. I don't know about the south and the central. And so everybody is on a wait and watch. Since schools are closed, who will dare to fund them except Tier 1.

Yes, sir. And any plans to move into Tier 1 schools in big cities like if we can provide funding for them?

There IRR will go down drastically, then the same thing can go even for our retail segment. So we only want to build our domain knowledge and focus in Tier 2, Tier 3 city, which is a little under banked. And so we want to build our domain -- special -- just focus on that area only. So the Tier 1, we will not be focusing even their requirement in terms of our ticket size will go up, which will limit ourselves to INR 30 lakhs, INR 40 lakhs. on an average it is INR 18 lakhs to INR 20 lakhs. So Tier 1, it will go up to more than INR 1 crore and the competition is much higher in terms of IRR. So in the immediate period, it will not be. And as we grow and build our size and by cost of funds and everything, then we can focus to that part also.

And 1 more question, sir. We have our presence in Rajasthan, Gujarat, Haryana and Punjab, which are like very good in terms of loans. They normally NPAs are less. I'm planning to go deep into these states, penetrate into smaller cities. Like in Gujarat, we have 4 cities where we have branches. But can we go into smaller cities like Himmatnagar, Gandhinagar, which are also good cities?

Yes. This is Amit. Basically, you've asked the right question. But the current focus is to stabilize all our 20 branches first. And we have a pipeline and we have in total planning for expansion in FY '22, '23. And the idea is to go into Tier 2, Tier 3 cities and adding more strength to the branch, which is already present there. So like Gandhinagar, you said, we will be focusing more into Rajasthan and Gujarat as well as other states also, but it will be like a cluster approach we are going to do. 3 to 4 branches into the same cluster within the radius of around 30 kilometers, and we are identifying those areas where we can get a profitable business, which are unbanked and underserved. So rightly said that Gandhinagar is there on our map as well as we are focusing on Haridwar in Uttarakhand which is still a very good market for SME. So Haridwar, Roorkee, Rishikesh, though we'll be opening up with Haridwar, but it will be mapping Rishikesh and Roorkee with the Haridwar branch and Dehradun, we are already present. So this becomes 1 cluster. So this example, we will follow in the rest of the geographies where we are present. We are going to make 3 to 4 -- 3 to 4 branches a cluster and will penetrate in those areas, get more of the business from our fleet there and develop more profitable portfolio from those areas.

[Operator Instructions] The next question is from the line of Vishal Prasad from VP Capital.

Hello Sir, 2 more questions from my side. So based on the earlier question that the participant had asked, the way we are trying to grow our loan book, what would be the 2, 3 challenges we see, which can stop us from growing the way we are trying to grow. I mean, we can assume that COVID will not be a concern going forward?

The major 2 will be to how -- how we're able to leverage ourselves because we want that our cost of borrowing should remain under control. And one of the sectors that will determine is our rating also. And so in terms of business in wholesale, we have no challenges as we are doing a lot of business with the co-lender. And we have now started to look to down sell our existing accounts, which will add to our profitability. And so we can look for a lot many options at the same time, build our size through co-lending, through down selling and we can do the same activity in the retail also. So that will help us to grow our size and build our market presence. And at the same time, we will focus on building -- leveraging ourselves and we are focusing on trying to improve our rating also. So we're working towards -- we're going to totally digitalized on the SME side. It will help us improve PAT, help us improve processes and for some total It will help us. And even if constraints of debt that we want to raise, if we are not able to raise in that 6 to 9 months then we have a lot of options on the co-lending side, we will use that to increase our market presence, and that will also increase our profitability. So we are working on all the fronts. They are definitely the major 2 factors that will limit our growth will be ability to raise debt at the right cost and that is a major one. And apart from -- because we are small building our -- in terms of having a pipeline both on the retail and now with the existing team and on the wholesale is not a challenge going forward.

Right. So why I asked this -- I mean if I look at last 3, 4 years, due to ILFS and COVID and due to our being very prudent, we have not been able to grow. So do you think are we true risk averse?

No, we sort -- we are not risk averse. We were a little more prudent, because COVID when the Phase I came, we thought that while -- we don't know what will happen to real estate, the way the equity markets reacted and all those shops and all those were closed for extended period 2.5 months. So we thought keep -- if we focus on growth and we'll lose on our balance sheet, call it, strength or quality. So the major concerns from the lenders and the rating agencies will immediately come, and we thought let us sacrifice the growth and maintain our balance sheet strength and quality of the balance sheet. So it was a little give way. And if we have built a little -- our NPA would have increased both on the wholesale and on the retail. So then you and everybody concern would have been on that side also. And our ability to raise funds would have decreased a lot. So we thought as a smaller company because any small NPA in terms of percentages starts getting reflected in your books, and that was 1 of the major concerns. So we thought that let's focus on maintaining our balance sheet strength and we look for growth after the COVID phase ends.

Okay. The next question is, I mean we talked about the changes we have brought in within the company in terms of processes and all. So can we talk about a few changes that we have brought in and what are the benefits we are trying to get out of the changes we have made?

So Vishal, Amit this side. Certain changes which we have brought into entire process and product, the way we were doing SME retail earlier. So what we have done, we have infused a lot of technology inside. For example, you must be aware about Karza technology, which we use for KYC checks and norms. There is a CIBIL and Equifax, which we are using for applications...

Basic...

Basics. Then, we have also integrated a ScoreMe, which analyzes banking to ascertain how many inward and outward -- what is the banking health of this particular client. And we are doing a free investigation also digitally at a central level. So all these things are already in the process, and we are already working on those. And then we have done payment integration also. So in the past 4 to 5 months, the way we have worked is that we have accelerated on the digital mode because we have to -- we will face challenges from fintech companies who are already on our digital platform. Partially, we have already made, and we are already in a developing phase of our new system through which all the processes, all the log-ins to disbursals, most of the thing happens on the system itself. Though LAP is -- loan against property is something which cannot be completely digitalized, so 70% to 80% processes will be completely digitalized by the end of this financial year. 30%, 40%, we have already done. So the penetration in terms of small retail segment, we are trying to do. We are getting good results in the beginning itself

We have moved from DSA to DST.

Yes. And moreover, this SME retail segment, which is a direct sourcing, more of micro marketing, more of micro management. So from the strategy point of view, we have moved from DSA to DST, where more of RM are there in the system now. They are going in the market, doing micro level activity, generating fresh leads, which means fresh people coming on the portfolio rather than a DSA sourcing a case for us, leaving us -- being with us for 6, 7 months and going away. So that's the strategical change which we have made, and this is a sustainable model, which is required for the NBFC to grow.

Okay. So I think in previous calls, Rohit mentioned that we don't compete with the new age app-based lenders. So is there something which has changed? I mean are we competing with them? They are getting into non KYC-based lending?

Vishal, it is still the same. What we are trying, we are trying to make our processes so seamless and fast that we can compete with our segment of NBFC, we can go one step ahead with those NBFC and we can capture more of clients, more of portfolio from those particular areas where all the NBFC in our segment is present. Obviously, fintech is there in our mind in terms of, I am totally unsecured. We are not on an unsecured mode, we are on a secured mode, that's the reason we said 70%, 80% will be digital and 30% will be -- obviously, will be improved.

Not any other customers to have the document signed physically do, so that part will still make...

And we have built a lot many checks in terms of onboarding a client. At a local level, credit manager meets the client. But at a central level, we do video call also, we do call directly randomly to a client to understand their requirements, whether the local team has conveyed all the processes and policies of the company or not. So we want to be very transparent, and we want to create a quality portfolio. We don't want to make a name where something is promised and not delivered. So we want to promise the same and deliver the same.

Okay. Got it. And last question, I mean, what is the breakeven cost of a branch?

So breakeven cost of the branch is as and when we reach INR 4.5 crores of our disbursal within 6 months, maybe then that is a breakeven because we don't have a cost on. We identify a very low-cost branch and is a low-cost things inside. It's not like a big bank or a big NBFC branch. And since we are present in Tier 2, Tier 3 cities the cost of rent is also very low. And we have a branch composition of a branch manager, credit manager and 4 RMs. So 6 to 7 people, costing is there. So once we touch INR 4.5 crores to INR 5 crores of a portfolio and a monthly disbursal of INR 75 lakhs a month that makes our breakeven.

Okay. You guys are building a good company.

[Operator Instructions]

I think there are no more questions.

Since there are no further questions from the participants. I now hand the conference over to Mr. Rohit Gupta for closing comments. Thank you, and over to you, sir.

I would, again like to thank everyone who is participating on the half yearly con call and look to see there again with much more promising numbers and what we have talked about in our -- we do a con call after the year-end. And thanks again. Thank you.

Ladies and gentlemen, on behalf of Kanav Capital Advisors, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.