CSL Finance Limited (530067) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the CSL Finance Limited Q4 and FY '22 Earnings Conference Call hosted by TIL Advisors Private Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Sayam Pokharna from TIL Advisors Private Limited. Thank you, and over to you, sir.

Hello everyone, and thanks for joining the Q4 and FY '22 Earnings Call of CSL Finance Limited. It is our first time hosting the call for CFL Finance, so a very warm welcome from all of us at TIL Advisors. The investor updates have already been published on the company's website and on the stock exchange. To take us through today's results and the update on the business, today, we have with us: Mr. Rohit Gupta, Managing Director; Mr. Amit Ranjan, Chief Operating Officer; Mr. Naresh Chandra Varshney, Chief Financial Officer; Mr. Chandan Kumar, Credit Head; Mr. Rachita Gupta, Whole-Time Director. We will be starting with a brief overview of the Q4 and FY '22 performance by Rohit followed by a question-and-answer session. I would like to remind you all that anything said on this call that represents any outlook for the future that can be construed as a forward-looking statement must be viewed in conjunction with the risk and uncertainties that we face. These risks and uncertainties have been mentioned in our annual reports. I would now like to hand over the call to Mr. Rohit Gupta. Over to you, sir.

Thank you, Sayam. So I welcome you all to the Quarter 4 and the Financial Year '22 Earnings Call of CSL Finance Limited. Thank you for taking the time to attend this call. It is a pleasure to address you all today and walk you through our performance for the quarter and the full financial year '22. Firstly, the quarter update. Our total income for the quarter 4 financial year '22 stood at INR 23.09 crores, an increase of 22% quarter-on-quarter and 35% year-on-year. Our pre-provisioning profit before tax for this quarter stood at INR 14.72 crores, an increase of 21% quarter-on-quarter and 15% year-on-year. Our PAT for this quarter stood at INR 10.67 crores, an increase of 23% quarter-on-quarter and 22% year-on-year. For the full financial year '22, our total income for the full financial year '22 stood at INR 24.08 crores, an increase of 21% year-on-year. Our pre-provisioning profit for financial year '22 stood at INR 48.49 crores, an increase of 10% year-on-year. Our PAT for financial year stood at INR 33.45 crores, an increase of 22% year-on-year. Now coming to the balance sheet update. The total disbursement for quarter 4 financial year '22 stood at INR 196.60 crores, an increase of 30% year-on-year. Out of this, SME disbursement had an 18% share of INR 35.57 crores and the balance, 32%, was wholesale disbursement. The total collections for this quarter stood at INR 96.94 crores. Collection efficiency has been over 99% for overall portfolio, the highest in past 12 months. Our AUM as at 31 March '22 stood at INR 519 crores, an increase of 57% year-on-year. We also witnessed a 38 basis point decline in GNPA to 1.73% as at quarter 4 financial year 2022 compared to 2.11% as of quarter 4 financial 2021. The company has raised equity capital to the tune of INR 30 crores through a preferential issue to strategic investors, mainly Mr. Sanjay Gupta Mr. Lalit Dua. On the debt side, the company has onboarded two most highly regarded private sector banks, namely HDFC Bank and Kotak Mahindra. The company has adequate liquidity of INR 27.36 crores, including cash and cash equivalents and undrawn levers as of financial year '22. Our net worth stood at 24% higher than the previous year at INR 321.49 crores. So coming to the operational update. To strengthen on our onboarding and underwriting platform for SME business, we have successfully migrated to fully customized and digitalized platform with multiple API integration. This platform should help us reduce and automate the majority of the underwriting process, thereby reducing human error. Further to drive growth on the SME front, we have made some key changes, such as a COO coming in our SME business, including zonal credit head and operations head, which will help us to improve our coverage and brand productivity. It is noteworthy to mention that our employee strength has crossed 200 as of financial year '22. We are also utilizing good traction in the under resolution NPA cases, where we found legal recovery [indiscernible] mode as a steady alternative compared to arbitration award. We have also moved to a totally digital platform for detecting and monitoring of legal cases efficiently. There's one round of ratings update already in place, which we got in November, from BBB stable to BBB+. The company is confident of securing another round of upgrade in the coming quarters. This should help us in optimizing our credit incremental borrowing costs. We also aim to add more lenders in the coming year. The company is also working to achieve a portfolio mix of 40% to 60%, retail, 40%; and the wholesale, 60%, from the current 27-73 mix. This target, we think, we'll be able to achieve during the next coming 18 months. We have also migrated to a fully digitized loan origination and management platform. Going forward, the focus is to add more modules to improve collection and data analysis. We will also be working on optimizing our cost/income ratio in the coming 2 years as we leverage our expanded SME team and achieve better brand productivity. So thanks, everybody, for participating in the call. Your questions are important to us. And we strive to be transparent in our investor communication. Yes, we can start with the question. This was a very brief update so as we can take your questions on the market side, yes.

[Operator Instructions] The first question is from the line of Nikhil from Securities Investment Management.

Three questions, sir. One is on the schools portfolio. On the call, you had mentioned that they would stay or share for some time. So how are you seeing the portfolio evolving now? Are you ready to divest on the school side because, I think for last few years, there won't have been many upgrades or expansion at the school level, so -- and any write-backs we are seeing on that portfolio? Because we had taken enough provisions, so any write-backs you are looking at this?

Yes. As you know, the schools were closed for 18 months, particularly. And most of our exposure are into tier-to-tier case, which are basically turning over. So we didn't do any disbursement until December. Now slowly and surely, we are looking at again starting our school portfolio. We have sanctioned one or two schools in this -- the current quarter. As of now, we are -- how the portfolio is performing, you can say 90% of schools are now paying, maybe paying one or two EMIs. And this trend, we have been seeing for the last 4 months. And we have seen a write-back of INR 2.33 crores for the financial year '22 and the majority of which are from school and as our gross NPA has also come down from INR 12.5 crores to INR 8.5 crores. So we have seen a good amount of recoveries. And certain schools, which are paying but are still in NPA, because the DPD was more than 12 to 15 EMIs, which hopefully, I think, by end of this year, and we hear it's by the end of September, some of the schools which are paying will come out of the NPA. So school portfolio for us has been very good. Until March 20, we had only 1 account in DPD. And going forward, still we see that school is -- will be our important segment in the SME portfolio. And we'll continue to look and go in this segment. So this -- the whole last 2 years have given us a reasonably good experience and a 360-degree view and maybe never further full time because we never had this kind of assessment in our credit diligence that they can close on 18 months, even after that, in the same schools that are performing reasonably good in spite of what has happened. And being us also school semi-rural, we would say that our portfolio is reasonably good. And whatever few cases we're still facing challenge, you can say it's a little learning curve also, which was done in the starting phase. And going forward, the school will continue to remain an important segment for us in the SME, yes.

Sir. Would you say that now, having looking at last [indiscernible]?

There is static that is coming from your line, sir.

Hello? Is it better now?

Yes, better.

Yes. Having seen the performance of the portfolio over the last 2 years, the 3, 4 years they were during the COVID and the way it has come back, in the overall SME book, purchases as a percentage may increase -- the proportion may increase over 3, 5 years or the proportion of mix remain as it is? Because I think this is a more stickier and a better portfolio. So that's what I'm trying to understand.

Yes. Because schools definitely will have a very predictable cash flows. From that account, schools are very good. And it's only that our focus was not there for last 2 years and now we have again started. I think in this coming rest of these 9, 10 months, we will again start focusing. And what the percentage it will be, I can't say as of now. But definitely, earlier, we used to target 30% to 35% of our total portfolio in the semi. And yes, I think at least 20% to 25%, we will see that it remains in our portfolio to that extent. And it's only that this quarter, we have started again looking at it. And the next 9 months will be a little slow on the school side. But going forward, we will focus it more strongly within the SME.

Sure, I'll come back to the queue.

The next question is from the line of Ravi Goenka from o3 Securities.

My first question is what is the level of penetration in NCR market for us, especially in wholesale side of the business? Are we now adequately present in all the micro markets which are targeted also?

I have with me Chandan. He can explain better [indiscernible]

For wholesale segment, we have captured the complete Delhi-NCR market, including -- starting from the Noida base, Ghaziabad, then all base of the Gurgaon and extended [ Gurgaon 2 ]. Palwal and some parts of [indiscernible] is also covered into that part of the system. And we are now expanding our market a little to the [indiscernible] and [indiscernible] side also. But [indiscernible] are going on. And it would be penetrated into the coming months or coming quarters as well. That is, for the micro market, we are covering each and every part of Delhi and NCR completely.

So apart from those few pockets which we think are not performing or where we don't want to be, we are present in each and every micro market of NCR. A few of the pockets like Yamuna Expressway or a little bit of Dwarka Expressway, where we are not so as present there. And this is because of strategic reasons that we don't -- we still see that traction is not that great. And apart from that, wherever the traction is there, we are fully present in each and every micro market.

And also in terms of small builders, how many builders are in our actual list? And how many small builders are there in the micro market where we are targeting?

Yes. So just as we have discussed, that is all about the wholesale loan. But the small business loan and micro market which we are present and targeting is mainly the Gurgaon and the South Delhi market, which is [indiscernible] and a highly -- the demand testing market, where the demand and supply is almost not equally. So for the small business loans, the major target areas are those. Now we have opened some of the areas of the East Delhi -- and East and West Delhi also, where we have started targeting some of the builders who are good into the network and other -- and fulfilling our other trade parameters. And we are spreading this builder market ourselves, a small builder market in total businesses. So the current target market for the small builder loan is mainly South Delhi and the extended part of the Gurgaon, especially major areas or main sectors of the Gurgaon [indiscernible].

The next question is from the line of Dhwanil Desai from Turtle Capital.

Sir, congratulations for a very good set of numbers. So a question that I had is that we did a INR 196 crores of disbursement in Q4. And that is a significant jump even compared to last quarter and the year-on-year. So going forward FY '23, what kind of numbers that we are looking at in terms of disbursement?

Looking at the company, we always refrain ourselves from giving any numbers. But we can say that now the COVID has passed on and the last 2 quarters, we have seen a reasonable growth in both the segments, even on the retail side. And as a company, we are fully geared up to grow in terms of our fee size, our infra and even our digitalized model on the retail. So we have geared ourselves for growth. And the year prior to that, we were more on a consolidation phase, where we thought that maintaining our quality of book is more important in those difficult times of COVID. So now we are fully geared for growth. And in terms of market size and all those, we have the ability to capture that market. The only limiting sector I can say is our ability to raise funds at the right cost. And so if those are there, the growth will be reasonable.

Okay. Second question is on -- if you look at the SME loan metrics, the average ticket size in that portfolio has almost doubled from INR 6 lakh to INR 13 lakh from December '21 to March '22. So is it because a particular segment of that -- our SME product, which we have kind of started reporting at SME? And what -- how should we look at the average ticket size in this portfolio?

So Amit will add in detail, but I will just give a few things. One, we have re-categorized one of our portfolio, which we used to show in wholesale, which were in the range of INR 50 lakhs to INR 4 crores, INR 5 crores. And we have INR 23 crores, INR 24 crores, which we have categorized as mid-sized SME. The INR 23 crores coming into -- from that segment, which has pulled the whole -- the size from INR 6 lakhs, INR 8 lakhs to INR 13 lakhs. And there has been a little strategic share from the retail also. I think Amit will explain in detail. But majorly the change has come from that mid-sized SME lap, which has been categorized and shown under this segment [indiscernible].

This is Amit. And the question pertains to the average ticket size. Basically, we have redefined the entire product and as well as the team is attuned to -- we are looking forward for those type of clients, which are not marginal. As well as in these kind of loans, which is lending from INR 13 lakhs to INR 20 lakhs, we get a good client base as well as we get a good collateral also, quality collateral. So the major shift has been to do quality cases with good client, having a good cash flow, churning is happening on a daily basis and they are visible in the market. So that's the shift which we have done. And we intend to maintain that in the coming financial year also. And the penetration in the market is like that so that all the loans which is coming to us have some kind of vintage in terms of business, at least 4 to 5 years of business they are having, multiple businesses are having so that the EMI is not impacted. So those kind of strategic changes has been done. We have a good team at all the branches now. And the total model is ready, both in the form of digitalization as well as on the physical front. Because in this segment, a little bit of a touch point with the client has to be there. So the model is ready. Now we can do good numbers in coming days. And the LTV, which is loan-to-value ratio, we intend to keep it up to 30% only. So we are covered at least 3x on the property. So these are the things which we have kept the mind and we have downloaded to the team as well.

Okay. Got it. And sir, another question, Rohit, is that -- so we are -- if you look at our balance sheet from NBFC perspective, we are hardly leveraged, right? And we raised INR 30 crore of equity capital this quarter. So in terms of debt to equity, what kind of, first, the rationale for raising additional equity? And then what kind of debt-to-equity level we are comfortable with? Is it 3:1, 4:1? How do we look at that over the next 2, 3 years?

First, coming to the question of raising this small amount of INR 30 crores, I think you are absolutely right. Otherwise, based on our debt/equity ratio, this makes no sense to raise the equity at this point. And that has been our thought also. But only sometimes you come across a good set of investors, where you can have a more strategic research phase, which helps in your growth of your business. And if that was the basic purpose of diluting our equity to these very well-known HNIs in the market and certainly coming to what kind of debt/equity ratio we are comfortable with as a company. Yes, most of the people say that we are too conservative. But that is not has been the situation. So in the last 3, 4 years post IL&FS, we were a little cautious and the COVID is making things bad from the retail side. But still, we try to capture numbers at the bottom line. In test and quality, they focus on the quality. And now as you see that we have focused more on the growth with the platform and everything that we have worked on these last 18 months, so the debt/equity ratio on the retail side, we think that, 1:2 or 3 in the immediate 2 to 3 years and over a longer period of 1:4. That is our internal thought. And on the wholesale, maybe 2, 2.5x, that is what our thought is.

Got it. I have more questions, I'll come back.

The next question is from the line of [ Varun Bang ] from [ Brandston Investment ].

Yes. Congratulations for a good set of numbers. So you spoke about your ability to raise funds at reasonable rates. So what is rate -- at least your rating financing in the market today? And what more can you do to achieve better credit rating here?

I think the biggest -- another milestone that we are able to keep that is the rating and which we are quite hopeful that our numbers are -- the borrowed debt rating, even in last 1 or 2 years also, there have been sometimes a reservation around our geographical concentration on the wholesale side or customer concentration. That is also now getting reduced with the focus on the small builder loans on the retail segment of spending. And now confidence of our lenders and rating agencies have also increased on our wholesale book as they have seen the vintage of the last 7 to 8 years and specifically the last 3 to 4 years and the way we have been able to come out in most difficult times, and we have demonetization, COVID, RERA and with all those things. And so [indiscernible] our ability to raise fund will increase much higher. And we are a little cautious that we don't raise rates at a higher rate, which sometimes certain companies do. And we target below 10%. And still that, we are able to raise below that rate only. And HDFC was far better. So I think with the rating coming and still we are in discussions to file those stages with 3, 4 lenders. And we are very confident that within this year, we'll be able to add [indiscernible] the decent number of new lenders into our book.

That's [indiscernible]. And in SME financing, there is a lot of focus on cash flow analysis of the SMEs. So how good is the understanding of our ground-level staff? And what are we doing to improve their understanding of cash flows and all other aspects of the [indiscernible]?

Yes, I was not able to hear the first line on the cash flow, what you want to say.

So in SME financing, there has to be a lot of focus on the cash flow of the SME, particular SME. So how good is the understanding of our ground-level staff when it comes to these financial metrics? And what are we doing to improve the understanding of the cash flow and also the entire region's process?

Yes. For this, I will update you on the ground-level staff as well as the senior management level. We have taken people from the industry who were doing these kind of businesses for the past 7 to 8 years. So they have a better way of analyzing the client at the ground level. And the same has been done at credit at the branch level. So every month, we have a training on the credit front, whatever rejection has been done in the file, what kind of lending has been done by meeting all the clients on the field. And their client businesses, at least for 2 to 3 hours, they understand what is the footfall, if there is a departmental store. Or if it is a manufacturing units, so they understand what kind of vintage they have as well as what kind of turnover they are having. They analyze then and there. And then we have a regional-level credit manager also who visits the particular client. And whatever analysis has been given at the branch level, they are processing it. Post that, again the [indiscernible] segment also visits that particular client. So all -- at least two to three times, that client is analyzed based on their cash flow, along with the banking. And if the client is also filing returns, we do check each and everything. So based on all these things, parameters, we analyze the eligibility of the client. Also we check civil, whatever the obligation is there, how far -- how their track record of the past loan is going on. So every concept of analyzing a loan has been done. Then only that we get into the legal and technical aspect of the properties. So it's an end-to-end process through which we give loans to any of the clients which are applying for loans.

Okay. And one more question. Can you explain the ROE for SME financing and wholesale financing? What is the mean and cost of operations, credit cost that we target?

The ROE on the wholesale side is roughly around 17%. And on the retail side, it is around 19%, including the PF and all those. And the second part, operating cost, our blended operating cost is around 20% cost/income. And going forward, we think that we have built a reasonable -- we have a team which we can take it to INR 1,000 crores without any major addition, even including the cost, and especially on the [indiscernible] level and maybe a few salespeople may be required. So we don't foresee any substantial addition in our costs to grow ourselves for next 1 to 2 years. And our spending on the infra side, maybe on the technology, maybe on improving our hardware infra and improving the infra of the branches, that has been taken care of during the last 9 months. And so we don't -- and with the focus on productivity, which was not there because of 6 or 7 months, there was no business on the retail. And our retail has reshaped only last from October, November onwards. So going forward, we see that with the productivity kicking up from the retail, our cost-to-income should come down. And yes.

Okay. And sir, just one more question. What percentage of our new loans are through DSAs? And what is the DSA, what we have spoken about in the last con call?

I do not understand this question. New loans, what?

What percentage of our loans are from DSAs?

DSAs, okay. On the retail side, yes. On the wholesale side, you can say 90% of our cases are direct and only 10% sold through to very few established DSAs. And they are not DSAs, I think they are specialized high-ticket [indiscernible] in this segment, who knows this segment very good. And on the retail, [indiscernible] the sort of idea of getting into this business is to not directly deal with the client. So personally speaking, we don't deal with DSAs as much as people would have understood. So all the cases which -- since July onwards, almost 95% are from direct sourcing and only 5%, you can see from references or existing DSAs to maintain the relationship, that's it. So going forward also, we intend to go directly to the client by micro marketing system. And we want to build a DSA model where direct sales is happening at the client place. And DSA, we will definitely see it, but not now, but once we have stabilized, we have a good AUM, then only we'll look into that. Because where there is a branch model, we should definitely go for direct sourcing. So almost 95% to 96% of the book is direct sourcing, only 3%, 4% would have been from references or DSAs.

The next question is from the line of [ Karan Jain ], an individual investor.

Sir, my first question was on our exposure in wholesale book. So I just want to understand, is that -- is the wholesale exposure outside India? Or is it 100% NCR?

Yes. Our exposure is only in India. And secondly, mostly into NCR, you can say 95%, only 5% in [indiscernible]. And going forward, we want to expand into that area. But as we see the opportunity, still we have a lot of market to expand ourselves in existing area. But for geographical spread, yes, we will be going into that segment, I think that part of North India. But still, I would say, right now, 95% of portfolio is coming from the NCR. [indiscernible] it's a huge area within the, I would say, a radius of 70 to 80 kilometers.

Okay. And my second question was on the retail/wholesale book mix. So you have tried to bring the retail to 40% of your book from the current 20% -- 27% in 12 to 18 months. So when you shared this, how are you trying to looking at it to achieve this ratio? Like will it be decreasing our wholesale book or you are going to increase our asset base at all?

Definitely, we are looking -- we'll keep going. And on this standard area, we want to achieve that 40%. Here, as a company, if we have limited availability of funds, then our first preference is to grow our SME and to bring it out to a healthy mix. And we want to maintain a 60-40 immediate 2 years and then going forward, a 50-50 mix in after 3 years. So that is our thought and -- on the mix. And so if there is a little constraint on the first, then the first focus is building the SME side.

The next question is from the line of [ Ankit Gupta ] from [ Bamboo Capital ].

Congratulations for this set of numbers that we have performed during these tough times. It's pretty commendable. Sir, if you look at the result, definitely we do realize after really 2021, 2022, there was [indiscernible]

Mr. Gupta?

Yes. Is it better now?

It was a bit muffled. If you can take the phone off speaker, please?

Sure. Is it better now? Is it better?

Yes.

So I was asking that in -- like we had reached an equity size of around INR 320 crores, INR 330 crores by end of this year, largely driven by the results that we have accrued and INR 30 crore of additional equity that we have raised in last quarter. And you have indicated that we have plans to reach a debt/equity ratio of 1:3 and then long term of 1:4. So when do we see this kind of like target being reached? And how much -- and how many years do you think we can reach this optimum debt/equity ratio of, let's say, 1:4?

Well, now I think you are asking is a forward-looking statement. Well, now we have geared up for growth. And that in terms of payment and processes and building a completely digitalized platform is well in place. And with the rating approval coming and our -- we're raising our [indiscernible], we can reach that. If that is not a limitation, then I think in the next 3 years, we can reach that figure easily. And the only limitation I told you is to raise funds at the right cost. And we don't want to raise funds as for making the -- building our AUM. And we want that we grow with the reasonable earnings, which we always have thought. And with that in view, so -- and we are confident that with all those years of COVID and some apprehensions about people, about real estate and the wholesale portfolio, which is, I think, the people are now more accepting that our ability to do business on the wholesale side also. And with the fundraising, which we have done in the last 1 quarter and going forward, I think that we'll be able to raise that decent sum of money and with the rating outstanding. So in the next 3 to 4 years, 3 years, we should be able to reach our target. We are able to reach the target. Now we are fully geared up for that. In terms of size and penetration, we are fully geared.

And sir, on the wholesale side, we are largely present on the NCR side. So do we have any plans to enter into new geographies? Or do you think the NCR market itself provides us with a significant opportunity to increase our wholesale lending book to INR 1,000 crores, that kind of number?

Still in terms of market size, there's a lot of unpenetrated market, so we can do a lot of business here. And one thing is that it's a very specialized segment, where our domain knowledge about that particular area requires. Even if you see most of the developers, they are regional. And we want to go into that area, the next area, which is [indiscernible] Chandigarh suburb, which is just like a mini NCR, consisting of Panchkula, Zirakpur, New Chandigarh, Mohali, Kharar and all those. So that has a decent spread of 40 to 50 kilometers. But this is one segment where constant monitoring is very important and your domain knowledge. And we -- just for the sake of geographical diversification, we don't want to do that. As our size grows, and with -- unless until you have a [indiscernible] just go into [indiscernible] area and do one or two transactions there. So we have already built our team in that Chandigarh suburb and they are doing the initial research and meeting the potential borrowers. So definitely, in this year, you'll see some few accounts coming from that area also. And with respect to our vision, we still have a lot of scope to expand ourselves. A small builder role, I have told earlier also in the last con call, that the segment, which is very, very good. And if we become a little more competitive under 250 bps, we can grow that segment very, very strongly next 2 to 3 years, which is only IRR, that is one limitation in that segment. So I think I've answered your -- what you wanted to know.

And sir, on the branch opening side on SME, like how many branches are we planning to open in FY '23? And any other new [indiscernible] that we're targeting to enter in next year or 2?

So in SME, we don't intend to open any more branches or whatever branches we have opened in the last financial year. We will continue with those branches only because there's a lot of potential, which is to be penetrated into those areas. It is always good to do businesses where your [indiscernible] strong and the team is strong. They have been trained on that particular geographies. So we want to, first, make these branches profitable as well as penetrate all those...

Members of the management? We request the participants to please stay connected while we reconnect the management. [Technical Difficulty] Ladies and gentlemen, we have the line for the management reconnected. Thank you, and over to you, sir.

There was some breakdown in our building and [indiscernible].

No worries, sir, yes. So you were talking about consolidating the SME branches this year and growing from there?

Yes. So like I said earlier, so we don't intend to open any more branches. And we want to make these branches profitable from day 1. So we will keep the same set of branches for this financial year. In coming financial years, we again will see. We are not more on opening more of branches or expanding into different geographies. Because what I feel that these branches still have a lot to give to SME portfolio. So it is better to have around 24 to 26 branches and then perform from there. Once we achieve certain AUM of around SME book, 40-60, then we can think of a little bit of expansion. But currently, we have this particular set of branches, we will continue with this one.

And normally, how much time does it take for a new SME branch to break even?

It takes around -- roughly around 9 to 12 months. And that, too, on the business front, if we do a business of around INR 6.5 crores with an IRR of around 18% to 19%, then only we'll be able to make breakeven.

Sure. And Rohit, given the things that you are seeing currently and the kind of spread or the kind of mix we want to have between wholesale and retail, do you think during FY '23, retail growth will be more than wholesale? Or do you think that the traction that we are seeing in wholesale will continue during FY '23 as well?

I have told you that if there's no limitation of funds, then the wholesale will equally grow because we are very confident into that segment also. And we are looking for core lending opportunities also with the various -- we are doing already with one or two players and a lot of NBFCs. And one or two banks have approached us on the wholesale lending side also. So we will never lose business on the wholesale. And so even if we have a limitation of funds, if we say, and then our SMEs are our first focus, then we will build those opportunities through co-lending model also. And yes, if we are able to raise [indiscernible] and which we are quite hopeful also with the rating [indiscernible] coming, so you can see very reasonable growth on the wholesale side also, along with the SME part.

Sure, sir. And just last question on the increase in interest rates that we are seeing currently, so how are we able to pass on the interest rates to our clients? And do you think there can be some pressure on our lends in coming few quarters or FY '23?

Recently, with the prime focus on which RBI has done, most of the banks have done, I think, with the [indiscernible] doing 0.15% only. So right now, we have not passed on our existing portfolio. And mostly, it's on the fixed basis. But going forward, when we are looking for the wholesale and on the retail, we are trying to bargain a little more of 50 bps to 100 bps on the basis that the inflation and the interest rates are rising. Definitely, with the interest rates rise, we'll be able to pass on to our customers, we also understand. And so that is not a challenge here that you lose out a client just because you have raised interest. But in the industry, the rates have been raised by everybody, so it will be a part of that only.

Sure. But normally, this wholesale lending book that we have, these are fixed interest rate loans? Or we do have some now floating interest rate loans as well on the side?

[indiscernible] But normally, we don't have a 4- to 5-year kind of [indiscernible] our book turn gets repaid on an average 24 months, 18 months, 24 months. So that does not pose as a challenge. And we're working with already a reasonable lends, so a small move doesn't affect us. And we have already started negotiating a little higher when we are onboarding a customer after this RBI rate high. So that will not be a big factor unless until we see a huge rise in interest rates in a very short span.

The next question is from the line of [ Sahil Sika ], an individual investor.

And congratulations for a healthy set of numbers. I have a couple of queries. First is you briefly mentioned on the new tech platform. Can you please do some detailing on the same? And where will the same help here from -- in terms of growth and credit quality and [indiscernible]?

Thank you for your questions. So to start on that, we have built a fully customized loan -- lending tax origination platform right from onboarding the customer on a mobile application, wherein we're doing all our preliminary fraudulent checks at the entry level only, doing all the fraudulent checks which is helping us remove -- eliminate all for entry-level first. And we are -- on an everyday basis, our entire team is working with a set of the developers in terms of making our credit system quite robust. And then we have it fully integrated with our LMS and as well as the collection system. So our aim is to basically onboard the customers on the technology of the platform, make it 80% technology-driven. And the rest, 20%, will be touched by the -- our team members on the ground because there has to be technical business that has to be done. The legal business has to happen. So that cannot be excluded. But other than that, the entire credit underwriting and the -- credit underwriting and disbursing the case is all digitized. We also have taken up the -- we're also making our collections -- I think 95% of our collections are all digitized collections. Only just few cash collections are relative very few percentage with the help of [indiscernible]. So -- and we feel that by having this global system, we'll be able to do a credit underwriting better for our SME portfolio. And as well management give us a great dashboards in the -- BI dashboard and [indiscernible] support.

Second question is so I think it was briefly mentioned a while back that you have a target of achieving INR 1,000 crores AUM in the next 1.5, 2 years. So what constraints do you see, considering the current market and the current scenario and environment?

We have not given any kind of -- this kind of numerical targets. And we have only said that we are fully geared up for growth in the next coming years in terms of team, in terms of infra and policies. And we are fully geared. The only limitation I told you is related to these funds. And for that one sector is a rating upgrade also going to A category. And with the kind of fundraising, which we are definitely done in the last 5 months and the way the few initial term sheets have come, we are confident that going forward, that will not be a real challenge and we'll be able to raise debt. And their growth will be there, but I will not commit to any numbers in next 18 months or 24 months. Our ability to -- we are ready for that. And as you know, for us, our only raw material is money and primarily to the debt side. And so -- and every company strives for that. And we are quite confident that we'll be able to raise reasonable debt in the next 1 to 2 years.

The next question is from the line of Madhura Nansi from o3 Securities.

My question is you have a good experience of builder finance and have a pretty good ROE in that business. So why would we not focus on that segment and then grow to INR 1,000 crores [indiscernible] on other segments?

I missed your first line, ma'am.

We already have a good experience in builder finance and a pretty good ROE in that business, in builder finance business. So why would we [indiscernible] to grow to INR 1,000 crores before focusing on other segments?

Your question is absolutely right. The segment has been performing for us for last -- since we started our lending. And we are very, very confident. And the only issue sometimes comes from our lenders and rating agencies that there's a little apprehension about the real estate. And I always say that how you do it, that is more important. If you understand that segment in how you do that, and you will be able to come out of in any of the situation. And secondly, we want that we have an ideal mix of both retail and wholesale. So it brings out more stability, not in the view of the lenders or rating agencies or outside investors but for a company as a whole. Because retail is a more consistent business. And the segment, we are not going into too many segments into retail. The philosophy -- as a philosophy of the company that we want to focus into limited domains. In the wholesale, we are primarily into real estate-related segment only. In the retail, we are primarily into small, micro-cap SMEs, where there is not too much data. The only people is one of the data and banking, they have a limited banking and. IPR doesn't give -- do the right two pictures, so certain companies can't participate, can't enter into that segment. And mostly, they are into unsecured segment. So we have chosen ourselves where we want to be. And the title mix of both brings us stability to the company and to all our stakeholders. So that is the reason. So that's been one line. We say that because real estate is a little lumpy business, so to have, I would say, right mix, so that has been the thought to the retail and the wholesale growth.

Okay. In addition to this, there is -- we also wanted to know about the challenges in builder finance, which you are -- which are unanticipated and the risks in that business segment?

As a company, now we have more than 7 to 8 years. With every passing year, our confidence increases. And I still say, in any segment, maybe a wholesale segment, maybe real estate or any other manufacturing segment, you have to have a very good domain knowledge. If you build that domain knowledge and you do within the parameters and policies of the companies, you don't see that any segment gives you an extraordinary challenge unless until we see that housing, there will be no requirement of housing. Urbanization will stop. The people -- the GDP growth will not come. And people will not look for upgrading or buying new houses. Then you can see some challenges can come. But even if that scenario will play out, it will not play out within a few months. And as a company, we know how to change ourselves according to the dynamics of the market. So we don't see any major challenges for us. We work within our parameters and within our area of strength.

Okay. I have a few questions, but I'll wait in the queue.

The next question is from the line of Ravi Goenka from o3 Securities.

Sir, just wondering what is the number of customers which are repeat customers in wholesale business? And the player whom we have funded in the past, are they launching new projects?

Yes, you can see, small builders, that component is much higher. But our focus is to add more and more customers. And in this quarter and in this current financial year, the focus is to add more customers. And in terms of repeats, Chandan?

75% is repeat and the rest, 20%.

75% customers are repeat. When they come out, their [indiscernible] a new project, 75% percent are repeat and 25% are the new ones.

Okay. And we have spoken of entering markets like Chandigarh, Jaipur, Lucknow in quarter 4 financial rating call. What is the progress on that? And why has it taken more time to enter these markets?

Well, in the immediate next 6 to 9 months, our focus is Chandigarh suburb and Jaipur and Lucknow may not be happening in this financial year. This, we have told that in the next 2 to 3 years, these are the next 2, 3 target segment. The only thing I would tell you, unless until you have a size and there's everything that you'll be able to grow, and you have to build the domain knowledge and you have to do research of that area, where we have already taken few persons there and they are doing all those research and doing the review and meeting the potential borrowers, it makes no sense to just open a new area and start lending. So it requires 6 to 9 months of research before you start your first account. And secondly, definitely, you will see that few accounts we will do in this year outside of NCR region. But mostly, you have to have a decent size to enter in new area. Because this is one segment which you've got constant monitoring and constant meeting with your borrowers, so -- and we have a reasonable -- a lot of potential to grow ourselves in all three segments of affordable net income and small builder loan segments in the NCR region. So yes, the Chandigarh suburb will be the only one area where you can see that few accounts will be done in next -- in this financial year.

Okay. And one more last question. Were the growth in NCR market more by addition of new borrowers or existing borrowers taking more loans for new launches in the next 4 to 8 months, 8 quarters?

It's a combination of both. So far [indiscernible] if I have a limited fund, whether you take a new or old one, preference is to go to a new customer and definitely -- but as Chandan explained to you that we are 75% from existing and 25% from the new one, the focus is to add new ones more on the small builder loans.

The next question is from the line of Dhwanil Desai from Turtle Capital.

One question on liability side. I think in our presentation, you mentioned that you are exploring some avenues for securitizing our book. So anything else on the liability side, other than bank credit, like public entities or something like that, that is on the cards? Or are you exploring to ensure good liability mix?

Well, definitely we like to look for entities. From a project part, I think it will be a little too premature at this size and stage unless until we have a decent rating and an AUM of INR 1,000 crores-plus. You see that whenever the company has raised funds through public entities, that have been at a little higher cost. But apart from the cost, I would say it's still be a little premature to go into that debt-raising opportunities of the way from the public entities and [indiscernible] So these two things, I think, will not come in the next 1.5, 2 years. And -- but apart from that, we are facing all those -- looking for all those opportunities from the institutional banks, whether from a compilation form or term loans or working capital or entities or any other form.

Okay. And I mean, are we kind of planning to do at 10% of securitization kind of a number in the next 2, 3 years of the book? Or I mean, any numbers around that?

Yes. The only -- the tradeoff between securitization and doing direct is until you have the funds and you're able to raise funds and you are confident about your book, then it's better to do on your own book. Then you're not able to [indiscernible] from your own fund, then the securitization opportunities, one can look at. Still, our SME book is around INR 100 crores as of March. And going forward, we are coming across opportunities who wants to look at our SME book and wholesale book also. And to start with, we are looking to securitize our wholesale book in the next 2 quarters or a small portion of that. So that has the flavor of securitization. And the same we may do with SME part. And going forward, as we'll be exploring a bigger rate, I would say, in next year. But yes, we want to do something in a small way with the wholesale and the retail.

Okay. And one small clarification. So the ROE number that you mentioned for wholesale and retail of 17% and 19%, it is therefore -- I mean, as it stands today, right, on the leverage front and cost/income front. Is that a right way to think? Or this is like on a normalized basis, you are looking at 17% to 19% number?

I'm not able to understand your question.

So your leverage is -- what I'm saying is that our leverage is still [indiscernible]

It will have no correlation with my lending IRR.

Okay. So you're talking about IRRs of 17% and 19%?

Yes.

The next question is from the line of [ Saurabh Pal ], an individual investor.

Sir, I'd like to know what is the rate of -- what is the cost of fund of the borrowing? And what is the yield on the wholesale book and on the SME book?

The cost of borrowing is around 10%, weighted cost of borrowings from 8.5%, 8.25% to 10% as the weight is around 10%. And our -- the wholesale leverage IRRs are around 17% and retail IRRs are around 19%.

The next question is from the line of Nikhil from Securities Investment Management.

Yes, just one clarification, sir. If you look at our ROE, our ROE on a wholesale book and retail book, would it be right to say that the wholesale book would be a better ROE business? Because it would -- it is more B2B as a result, the [ employee team size ] is much lesser. But the retail business, where the team size is much larger, the feet on the street is much larger, so the cost would be much higher. Or would it be like the retail would be a better ROE business versus wholesale eventually?

To some extent, you are right. In the short term, your business maybe -- the wholesales book as a low cost-income and the ROEs are greater. But whenever you're starting a retail-to-retail, you have to invest. And I think in first 2, 3 years, the profitabilities are low. And in the intermittent period, we also saw COVID and also this disrupted our operation. But as I explained earlier, from the stability and the consistency we have, we want that ideal mix of both is very, very good. And so the retail is more consistent and the tenure of the loan is around 6 to 7 years. And so -- and we are -- the risk is also spread among a large number of borrowers and geographical strength also comes with it. And so to have the most level and consistent growth for us for the both segments are very, very important. And going forward, as I've said, SME, most of the cost has been built in this financial year. And going forward, with a focus on activity as the last 4, 5 months have been really very good. We think that the SME will also start giving the right operating numbers in the coming years and this year itself to start it. And so to have a right mix and more stable growth, the growth of both the segments is very important.

The next question is from the line of Madhura Nansi from o3 Securities.

I have two questions. The first question is you've spoken earlier about the time it takes a number of projects to have a good understanding of the market and wholesale lending side. Can you elaborate on generally how much time it takes and the number of projects we need to do to have a proper understanding of a micro market?

Well, a trial is starting -- any area of the trial penetrating into any area, like as we have told that we are doing into the Chandigarh area. So if I'm increasing into an area, our basic team or the field team includes the database with us and collect all the data related to the builders and what are the projects going into the particular area. Apart from that, the crediting was on the quality part, that was a quality prevailing on the different micro market and how the government wants the support and how that accorded into the one of the ways that the government can impact. That's our lending parameters. So based on those things, whatever the learnings which we need to collect from the market, still will be used to build up all this and then start penetrating the market. And then this side will take around 3 to 6 months minimum on each side before they start penetrating into any market. In Delhi-NCR, we have started from 2010. So in these last 10 to 11 years, we have built up our domain knowledge very slowly. We started with a new project around one to develop a system. And then in 2017, once we are equipped with or developed our domain launch in NCR -- or in and around that Delhi-NCR area, we started on expanding our builder portfolio into these areas. So the minimum time [indiscernible] would be 5 to 6 months penetrating into any area and collecting any demographic knowledge or [indiscernible].

Okay. The second question is you were talking earlier about increasing the duration of builder book in one of our calls. Can you elaborate on that as well?

Duration, you're talking about the duration?

Yes, the duration of the builder book, yes.

Okay. Generally, what happens that we used to onboard any buildup on the normal segment of around 36 to 48 months. But the book revolved itself into the 18 to 24 months for the small builder loans and 24 to 36 months for the builder loans. That is the way it normally is.

As there are no further questions, I now hand the conference over to the management for their closing comments. Over to you.

Thanks, everybody, for participating in this quarter 4 and the financial year '22 call, and hope to see you again in our after September results, the half year results. And thank you, everybody, and thank you, Sayam, and your team.

Thank you. Ladies and gentlemen, on behalf of CSL Finance Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.