CSL Finance Limited (530067) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the CSL Finance Limited Q4 and FY '24 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.

Thank you, Tushar. Good afternoon, everyone. We appreciate you taking the time to join us today on this call. As a reminder, our Q4 and FY '24 results, along with the investor presentation have been filed with the stock exchange and are available on our company website. For those not on the mailing list, please feel free to reach out to us, and we will e-mail you future updates regarding the company. Joining us today to discuss our results and provide an overview of the business and the outlook for the future, we have members of the management team. I'll just name them out. Mr. Rohit Gupta, Managing Director; Mr. Amit Ranjan, Chief Operating Officer; Mr. Naresh Chandra Varshney, Chief Financial Officer; Mr. Chandan Kumar, Credit Head; Ms. Rachita Gupta, Whole-Time Director; and Mr. Atul Agrawal, President - Finance and Treasury. We will begin with a brief overview of the quarter and the whole year from Ms. Rachita Gupta followed by a Q&A session. Please note that any forward-looking statements made during this call should be considered in conjunction with the risks and uncertainties that are outlined in our annual report. With that, I'll hand over this call to Rachita. Over to you.

Thank you, Sayam. Good afternoon, everyone, and thank you for joining us today. I'm pleased to share with you the highlights of our company's performance in quarter 4 and FY '24. Overall, as you can see, it has been a very good year for the company with an all-round year -- all-round performance in all key metrics. To begin with, our AUM has shown robust growth of 9% quarter-on-quarter and 38% year-on-year, reaching a total of INR 1,030 crores of an AUM. Subsequently, our loan book has reached INR 926 crores as on financial year '24. With this, we have delivered on our AUM target of INR 1,000 crores for FY '24. A significant portion of our incremental growth has been driven by our SME Retail vertical, thus shifting our AUM mix further in favor of SME Retail. Currently, the SME Retail and the Wholesale AUM mix stands at 44% to 56% in FY '24, wherein we have seen a shift of 4% in the favor of SME Retail over FY '23. Disbursements across the entire year have been robust, while wholesale disbursement tends to be a little lumpy. Overall, we have seen significant improvement in this number. We have made cumulative disbursements of a total of INR 1,052 crores in FY '24, registering a 39% growth over the previous year. Going forward, we will focus more on the SME Retail vertical, which will also make the disbursement less lumpy. In Wholesale vertical, our focus will be to generate off-book AUMs, Co-lending, Direct Assignment and Down-selling models. Overall growth will be seen in both on-book and off-book AUMs. Now we come to our asset quality, which has remained robust with a further improvement in GNPA and NNPA, which stood lower by 17 bps and 10 bps, respectively, over the previous financial year. Further, we are prudently provisioning a flat 1% of our loan book as opposed to the regulatory requirement of 0.4%. We are following a conservative accounting policy and are maintaining a provision coverage ratio, 270%. Furthermore, we have also witnessed decent tractions on the recovery front. In FY '24, we have recovered a sum total of INR 2.34 crores from an earlier write-off. I would like to reiterate that within our NPAs and return of accounts, we have a very strong mechanism in place to follow through on recoveries. We have a very robust team that works on our NPA recovery through various legal teams and collection teams and platforms. Our bad debt recovery has been strong with more than 65% to 70% of the same has been recovered in the SME segment. And if you look at -- and if you talk about our Wholesale segment, there has been no NPA. Despite a 3% quarter-on-quarter growth in total income for quarter 4, we experienced a 4% decrease in net interest income in Q4 due to higher liquidity and negative interest carry on the same. This was primarily due to sanctions received towards the end of the quarter, which could not be deployed immediately after quarter closes. However, our net profitability improved significantly with 11% quarter-on-quarter increase in PAT and a 57% increase year-on-year. For the full financial year, our net interest income is up by 38%, reaching INR 120 crores and a net profit for FY '24 stood at INR 63 crores, registering significant growth of 39% over FY '23. Our yields have remained robust in both the verticals and the majority of our portfolio has been repriced according to the prevailing interest rates over the last financial year. Given our healthy and profitable growth, I'm pleased to announce that the Board has recommended a dividend of INR 2.5 per equity share. CSL Finance continues with its dividend-paying policy demonstrating our commitment to fair value creation for all our stakeholders. We are pleased to announce that we have added 2 new lending partners this quarter, the DCB Bank and India Overseas Bank in the quarter 4. And our total lending partners at the end of the year stands at a total of 23, which is earlier in FY '23, it was a total of 15 lenders. Another crucial update from last quarter has been the credit rating upgrade to A- Stable from Acuite Ratings Research from erstwhile BBB+. This was a very important development as the A rating allows us to access more funds and competitive terms. It will allow us to access more funds from public sector banks and help optimize overrated average cost of borrowing. Additionally, our leverage ratio is very comfortable right now, and there is decent scope to leverage our book from existing 1x debt to equity to 2.5x over the coming 2 years. This will further aid our ROE. Improving employee and branch level efficiency remains an ongoing activity and a key area of focus. AUM per branch has improved significantly in FY '24. And as you can see from our presentation, aiding to brand-level profitability and overall profit contribution from the SME Retail verticals. Subject to market conditions, we are looking to add significantly more branches in FY '24. We will increase our branch count by 50% in FY '25, and look to double the branch network in the next 2 years. A lot of improvements have happened in our existing branches as well with respect to teams, systems, infrastructures and locations. As communicated earlier, we are working towards our off-book AUM or towards growing our off-book AUM in both Wholesale and SME Retail through direct assignment, co-lending and down-sell structures to generate a sustainable fee-based income. This will help leverage our domain expertise and improve overall ROEs of the company. So far, we have accumulated a total of INR 104 crores off-book AUM, and we expect this to increase recently in the coming quarter. We have the potential to generate an annual fee income of up to 2% of the AUM under Direct Assignment and Co-Lending without any legal recourse. I would also like to provide an update on the new Suvidha Loans product that we have been working on for the last couple of quarters. Firstly, we experienced a slowdown in disbursement and collections for this product during quarter 4 as we encountered several on-ground challenges with how the product and the loan accounts will behave during this period. Furthermore, the festive month of Ramadan also led to a slowdown in both disbursements and collections for this product. Based on these learnings, we are currently reengineering our systems under Suvidha Loan product itself. Once these improvements are implemented, we will roll out the product again. Additionally, the roll out of our dedicated new loan origination and disbursement platform, the Suvidha Loans has been delayed due to significant complexities involving developing and implementing this unique and one of its kind platform, which involves a mixture of personal loan and supply chain. However, we are in the final stages of concluding this task and expect the rollout to happen in quarter 2 of the new financial year. I want to reiterate that our at most focus is on, first establishing robust product and systems followed by growth. We do not want to lend loosely, especially given that this is a -- for consumer -- just product offering lately. Finally, our outlook for the coming year remains robust with an AUM aspiration of up to INR 1,450 crores for FY '25. This is subject to a conducive macro environment on both fund-raise front and general business environment, but we are fairly confident in achieving our AUM target. Further, we aim to achieve an AUM mix of 55:45 SME Retail to Wholesale in the coming years. As we scale up in the coming 2 years, we expect our ROE to improve further and be in the range of 15% to 16%, which has already started to happen on a quarterly basis as of Q4. In conclusion, we are excited about the progress we have made in the fourth quarter and the full financial year '23-'24. We remain committed to delivering value to our stakeholders and driving sustainable growth in the years to come. Thank you, everyone.

[Operator Instructions] The first question is from the line of Ankit Gupta from Bamboo Capital.

Congratulations for a good set of numbers, and congratulations for the rating upgrade, too. So my first question was on the rating upgrade and its impact on our overall borrowing profile. So with this, A- rating will be able to access more PSU banks and our cost of borrowing is also expected to come down. So if you can highlight what kind of advantages do we see in terms of our overall borrowing cost as well as new -- as well as new banks being added in our lenders. So if you can talk about that first?

Good evening, everybody. This is Rohit Gupta. So definitely this rating upgrade we were looking for last, I would say, few quarters, and this has come in this -- present of this quarter in the March. And the rating definitely will help us on the PSU front, especially because certain banks have put a threshold of reminder. In spite of that, they were keen to lenders, and that was one limited -- limitation for us. And with this coming first, the PSU will -- a lot of PSU will get opened. And secondly, the size which we can get from the PSUs are sometimes not available from the small finance bank or the larger NBFCs. So in terms of size and new openings from PSU banks that will be there. And definitely, the cost of borrowing will come down over a period of time. The incremental cost that will come down from all lenders and subsequently from the PSU front, maybe in the range of initially 50 bps to 75 bps initially and as going forward we'll be able to leverage ourselves more.

So post the rating upgrade, have we added further lenders in our borrowing profile?

Definitely. Look right now, we have only 4, 5 PSU lenders, even those lenders -- 3 lenders, and even though they have taken a special approval to fund as A-, but with this coming, the focus will be -- going forward will be on the PSU banks and the larger private sector banks. So definitely it will help us both in terms of the price which we are able to get from those -- these vendors. And in terms of cost of borrowing, we see that they will be -- on a weighted average will be lower 50 bps to 75 bps. I would say the immediate -- this 2, 3 quarters and going forward, as our overall cost keep on going down with the new borrowing costs, we will have more bargaining power with the lenders at that time.

Sir, my second question was on the team's strength. We have seen a significant jump in number of team members from 421 people in -- by end of FY '24 compared to 257, which were there last year. And we had just added 3 branches last year. So what has led to the significant jump in our teams and despite opening hardly 3 branches last year?

As we told, the focus was to make the listing branches more productive and to increase their -- I would say, the geography. So the focus was to keep more sales people -- add more sales people there in the existing branches. And so -- and strengthening our middle level team in -- having our cluster heads and both in long terms of sales, collections and on the credit side. So those strengthening of middle level and senior and the people at the branches have been done. And with this strengthening now we did not add people at the middle and senior level with the extension which we have planned in next 2 years, and we are planning an aggressive suspension. This is what we have done in the last 3 years. So we are thinking of opening 50% more branches, which may be in the range of 16 to 20 branches in this financial year and the same number in the next financial year. So that was required. So because of those parameters and in addition to that, we opened a new unsecured -- quasi unsecured fabricated division, which also where roughly -- around 40 people were deployed. So that was also one of the reasons which we did 2 quarters back.

Sure. So how do we see the employee cost, which had jumped significantly last year. Will we continue to see 30%, 40% growth in our employee costs given the new branches that we are planning to launch next year -- over the next 2 years?

I would say now we are in the middle of appraisal also -- appraisal will also add some portion of the cost. And we have -- I wouldn't say that this will 30% rise because now we only require people at the branch, we don't require people at the middle level, at the regional level or at the SO level. So the cost, I think should not go beyond 20% to 25% in this financial year.

And my last question was on the Suvidha loans. So we have been working on this for close to a year now. And there have been some tinkering that you have mentioned in the presentation regarding the platform and the changes that you are making, but you would have been able to evaluate the kind of opportunity and the risk which exist in the segment. So let's say, when we are starting with this rollout of our new platform next year. So how do you see this segment skinning out for us -- scaling up for us over the next 2, 3 years? We like currently, it's hardly anything contributing anything towards new and so how do you think -- see this segment growing for us? And what kind of risks are associated with this segment?

Amit is there, our COO, for the retail part here.

So basically, you have rightly highlighted that in the last year, we have started this product. And in the first quarter, as in the presentation, it is given the fact we are soft on Suvidha because whatever learnings which we have taken from the last 8 to 9 months, we are incorporating into the system. And once we relaunch it in the month of July, it will be totally on the digital platform. And the idea is take it to the next level because we have seen there is a pull in the market that this kind of product is nobody is selling. And we have been able to onboard around 1,500 to 1,600 clients, out of which around active is around 900 clients as of today. And we don't see any challenges in scaling up once the digital platform is ready. And the team is also there. So primarily, if you see the cost will come only on the RM/RO side because this is a product where mainly RO/RM is required to source the business. So we are very, very confident that this will be another good product for company as well as for the population also. So that's the idea, and that is the reason we are planning all the shortcomings, which was there in the earlier product. And maybe from July 1, we will be able to relaunch it.

Ankit, I would just like to add. Initially, when we started, we started as a kind of a term loan with a lot of credit checks and all those. And as we thought that let's scale up, so a lot of things were little bit loosened, and secondly, to be very frankly, this segment in the North, it's a community dominated where Muslims are 80% to 85%. And thirdly, I would say, we have certain things with the learnings which have come in terms of making that e-way bill must be captured. Sometimes our account goes into DPD, the same address for co-applicants is not disbursed. Our MIC should come at live at all times in terms of collections and how the disbursements are happening, that needs to be reduced. So all those thing which we made the system, but there were certain practical learnings from that, and where we have to now sort of -- in building the retailer into it also. We're keeping some kind of, I would say, kind of annuity income to in and the looping in the total system. So as to have a better control over the borrowers and to have a better authenticity that then it is going for the supply chain finance only. And a little bit -- so we thought we have been, as you know, we always think that we must have a complete domain knowledge, and this has helped us to have a, I would say, a 360-degree view in terms of learning from our angle now, focus is to build a new model, and we are building a little -- some changes in the team is also happening. And at the same time, we are focusing with the existing team to focus on collection and the fresh business is not the way we were doing it earlier and we will do it with more aggression in the month of July with everything coming on board -- and the system which we were developing and the tweaking which were happening. So even the service provider was also taking time because the learning was giving us more tweaking at every time. And that is why that system which we developed needs to be little -- changed, keeping in view of all those things.

So how big do you think this segment can become, for us, over the next 2, 3 years? And in addition to that we've started this product with just 1 company, APL and targeting fabricators, do you think we can also expand it to other segments and other companies?

Definitely, we thought that now to make it a little more, I would say, to increase our size, we thought that we will go beyond APL only. With APL, the subvention was coming. With those we will be funding with the interest cost. And we have also thought that we will increase -- we were being a bit around 20% to 22%. We will increase our interest rates to take care on the credit cost side also. So -- and then we can leverage to other, I would say, the other items and all those, apart from steel, we can look at others, but we have initially the focus for -- after relaunch for 9 months to 12 months will be on this segment, plus doing for other manufacturers, where the convention will not be there and we'll be charging interest from Day 1. So it's a kind of a quasi personal loan where we have to ensure that the amount which we are going in -- only going for the funding of their invoices, because the retailer is not settling his old bad debt. So a lot of those -- and system has to drive this, and the MSME should be coming at all times. It lies with -- all our [indiscernible] team, and as -- so okay to make all those things in the system, we are reuniting it, and with this new version we will be relaunching, and we'll save it more confidently on this segment after I would say, end of September when we relaunch it. And -- but now at the end of the day, we would like to sum for us, it's a lending -- it is one of the lending fees. So our SME has been doing extremely good at the same time, wholesale. So this was the third quarter, which we have added. And I would say it's a little -- may be slow at what we promised and a little more cautious, but that has been our ethos and that we first learn it, and we don't want that. We do a huge mistake on building a credit cost and then implementing those learnings. So, we have been upfront and a little cautious, and that's why we have thought of going to a new platform with new policies and processes around that.

The next question is from the line of Anant Jain, an individual investor.

Congratulations on a very good set of numbers. My first question is that, we've seen a significant increase in the fee income on a year-on-year basis, where like it's gone up from INR 5 crores to INR 9.5 crores. I mean, which is like even in relation to the interest income, it's significantly higher. The growth in the fee income, commission income. Can you just help explain what is the reason for this? And can we see this trend continue in the coming years?

Yes, definitely, we are doing -- one is the retail part. When we are doing a retail, so typically, our IRRs are -- we have done lending at around 18%, and the DA is happening between 10% to 11%. So we are getting a spread of 6% to 7% on the retail. Yes, it's without any kind of recourse, but at the same time, we are very cautious and that it will only grow if our -- the quality of our book, which we are down selling is good. And on the wholesale, typically, we are able to get 1.5% to 2%, which on the down sell and on the DA part and sometimes the spread is more where we are down selling our own book. And a little bit of fee income is also coming from the co-lending, which is not captured in our AUM, where the fee element is lesser. So it's a combination of all 3 retail where the spreads are higher, DA on the wholesale where it is typically 1.5% to 2%. And typically, on co-lending where it is between 1% to 1.25%. Even our co-lending on the wholesale is roughly around INR 500 crores, so that is also one element of that.

So, the fee income gets generated from all these activities?

Yes, yes. And in spite of that, we wanted to build our SME, we build small relationship with PSU banks on the retail side as we see that being our book being PSL and qualifying, all our book qualified as PSL and the rest part as the MSME book, and where a lot of PSU banks and larger NBFCs are very keen to go on a co-lending model.

The second question is like Ankit before me had asked this question on the Suvidha loans. If you could just give some idea in terms of what is the -- I know it would be difficult for you to quantify as to what our loan book could be in Suvidha maybe a year from now because there still the system needs to come up and it needs to stabilize, we need to grow our book. But purely from an opportunity point of view, if you can give us some idea, that would be very helpful. And second question is that...

See I would say, we have got data of around 1,50,000 fabricators across all-India. So typically, we are lending, may be penetrating 10% to 15% -- 15,000 to 20,000 customers on an average, 1.5 to 2 lakhs, which remains there for 90 days. So that can be an immediate opportunity, which can be, I would say, we can encash it or we can target it in the next 2 to 3 years. But at the same time, it is one of the products, and we have to see operating cost and the credit cost. And with the new version, we are very hopeful that we'll be able to control both of that. And so for a lender, one part is coming from the company where we have associated with in terms of the debtor and the subvention for a limited period. The other part is to optimize the credit cost and the operating costs.

So the opportunities, as you said, is like 15,000 to 20,000. Can you just quantify that for me in terms of what -- like 3 months is the tenure, but in terms of...

We are able to credit rate 10% to 15% in next 2 years, 3 years, roughly around INR 150 crores to INR 200 crores, if our ticket size remains 1 lakh to 1.5 lakh. If we can increase our ticket size then our penetration can also increase. So there is nobody else. And when you do the same segment again and again, you develop a domain knowledge. And we as a company think that, that is the keys to our differentiator compared to other. Yes, the way we thought we will be able to do in last 2 quarters, the performance is not up to mark. But yes, we thought that instead of going with the existing platform and building a little credit for us and all those, we thought it's better to halt for a few months, build a new system, and at the same time, all those learnings, we must incorporate. One thing, we can increase our IRRs as initially we thought that it can't go beyond 20% to 22%. But now we foresee that we can even target at a higher IRR, maybe 300 to 400 bps higher, and that will also take care of our credit cost to some extent.

That's good to hear. Last question from my side. We have seen that the ticket size has actually come down every quarter. So any reason for that?

Suvidha?

Yes, Suvidha.

It was intentionally. We, as a management decided that we should focus first on numbers, learning the various geographies, behavior of those customers, build their history into that, and it was basically to keep on the same for the last 2 quarters. It's a pilot time, the pilot with huge, bigger size, I don't think that makes any sense for us. It was that onboarding the customer. They are able to know what CSL is and understanding their credit behavior, understanding their geographies and building the team and implementing the system. So for that, we are not in the initial year, even in the next year. It will not be -- the first year will never be a year where we can make any substantial income out of that where because your operating costs will be higher in 3 to 6 months, then you optimize that cost and the thrust will be on to acquire customers. And because it is a very repetitive business and once you have acquired, the next effort going forward comes down.

Got it. So once the -- I mean, you have mentioned before as well, so once our system comes up, the new system comes up with -- around July is when you said, do you think that we would be onboard other customer -- other clients as well like -- or have other partnerships? When do we see that? APL Apollo, we are already working...

Partnerships. I can't -- as of now, whenever we have gone, there was a lot of demand that while you are limiting with one company and because sometimes APL sells at the -- their quality and their costs are higher as compared to B-grade customers and sometimes in Tier 2, Tier 3 cities, they want products from those companies also. So going forward, we will be funding those customers also who are going beyond APL, but we'll be charging interest from day 1 where the subvention may not be coming from those companies. And when we do that and exhibit to other companies then we can -- then we may see that subvention coming from those companies. First, we will focus largely on APL and optimizing the product and seeing that operation on the new platform.

So maybe once it stabilizes 6 months after that?

Lastly, I would also say in last 2, 3 months, there will be a lot of, I would say, from the regulators and the banks regarding unsecured. So even our lenders sometimes used to ask, especially what kind of unsecured book you are having. So right now, so very frankly, unsecured book is not being seen very positively by any of the lender or a rating agency.

And the next question is from the line of Pankaj Parab from Molecule Ventures.

My question is on the technology front. So we have been investing in technology since the last 2, 3 years. So I just wanted to know what's the development here till now? And how it will help us in going scale and getting scale in the future?

So to answer that question, in the last couple of years, we have been constantly working from a very basic data entry system to pretty much an involved system, like we are doing for SME loans. We are completely 100% digital. There is no paperwork happening even from loan origination and the underwriting and we have built a very robust underwriting platform as well on today's date. Like everything is happening digitally and with the number of API integration in terms of fraudulent checks at the login and the kind of bureau analysis, bank statement analysis, ITR, GST, pulling out of all Udyam Aadhaar, we are doing it -- all automated at a click of a button. So from there and the disbursement phase and our collection platform is, we are receiving about 93% all digital via NACH, UPI, RTGS and only a mere 6% to 7% is something which comes in collection -- comes through cash. And we are also live on all the public platforms like all the Paytm, PhonePe, all these UPI apps. So in terms of digital transformation, we are constantly growing day-in, day-out. We have our system -- our system is also now getting closer to machine learning as well as it's now picking up concepts of throwing automatic deviations to the users whenever they're just putting up data and we are constantly working on a day-in, day-out. Our dashboard system -- our analytics systems, our dashboards are all in place and we have a dedicated team who is working on creating those exhaustive dashboards with graph and everything, which is so that we can have a better access to the technology. And like I said, like we have been already evolving now we're going to be revamping our entire LOS, our loan origination platform into a much better and a much smoother, which will definitely help us to reduce our TAT, have a look at -- and have a more streamlined and a smoother flow even than today.

And are we developing any in-house customer rating system for the credit disbursement or credit check, sort of that?

The system where we do a lot of analysis in terms of whether to capturing various credit bureau checks, maybe coming from FinBox, CRIF, CIBIL and auto-analyzing, capturing various data. Our system is doing the machine learning and those we are able to rate it with being a secured product, target audience where still your banking and their cash flow analysis or GST or ITR doesn't fully reflect the true state of affairs of the customer. So how to do that based on certain qualitative and quantitative sectors we have built in, and where -- based on that, we are able to analyze it. But it is not an unsecured product, we have certain rules to put in and where a lot of data is coming. And based on that, we are able to do up to a certain amount of 50,000, 1, 2 lakhs. Yes, you can put best of those things into our system, which is already there. But it will give you a complete outcome, and based on those outcomes, you are doing the lending that will never happen, can never happen because unless until your borrower is doing everything is on their number, which is not there because their GST ITR and banking doesn't reflect their even 70% to 80% of the business. So you have to evolve for the segment. And so the assessment has to be done. ED has to be done with the customer. Being a secure business, technical evaluation of the property and Title has to be done. And so that is the combination of debt and along with the ED and the physical checks.

[Operator Instructions] The next question is from the line of Sanjay Kumar from ithoughtPMS.

So just a basic question. How does it work if you are funding the fabricator? Do we lend against the purchase order issued by the fabricator's end customer? Or will it be against APL Apollo's distributor sales invoice? I just want to understand if you have access to the actual tonnage or the volume being purchased from APL Apollo?

Yes. Typically, when we give the pro forma invoice from a retailer, and we -- after the onboarding, we disburse directly to the retailer and after disbursement, the final invoice is being captured. So we are not funding directly to the customer. 25% is coming from the customer and 75% we are funding.

Okay. And why fabricators and not the dealers? Is it because if you can throw...

Because the dealers -- their ticket size will be from INR 5 crores to INR 25 crores, maybe even more. And largely it's a quasi-secured kind of product based on receivables and all those. Thirdly, it's the competitive segment between 11 to 13 already being targeted by the large banks. Even the group company of APL, existing service is already doing that. And we want to be in those areas where we are not competing with the larger NBFCs and the bank and build our knowledge, and we have seen a segment where the competition from the larger in terms of IRR is not there. So -- and the ticket size is smaller, that is why we have chosen to fund fabricators and whereas still lies in terms of SMEs. We are also targeting a little, I would say, one step, I would say -- gradually -- customers, and SME are also similar, maybe a little one step better than this. And so those dealers are not a cup of a [ teen ] neither in terms of IRR, neither in terms of size and being a quasi-secured product.

Got it, sir. And so, even for future partnerships, we'll be focusing only on retailers then?

Yes, yes, let's say, if you understand -- otherwise here it's a very higher conscious market. I would like, Amit will also add from his experience here.

Yes, basically, what we have made here is a product which is only suited for fabricator. And first, we get a lot of clients on board we see what kind of payment method is there. We are paying on time, plus the churning is fast and getting a better IRR. So in spite of getting into more clientele like funding the retailers or the dealers better to focus on one segment, explore it to the best and own the rewards once your master of that product.

The second line can be a retailer, which from -- to whom the distributors are supplying, that can be a funding between 15% to 18% and the ticket size can go up from INR 25 lakhs to INR 1 crores. That can be a second segment, but I -- we still don't want to do it because of -- at this size of a company where it doesn't allow us to take that kind of risk by doing unsecured loans with a higher ticket size. So we will like to remain ourselves in this segment for the next, I would say, 1 year, then we will look at retailers. But this instrument is helping us building relationships with retailers and distributors and that we can definitely leverage in the coming years.

Got it sir. Makes sense. And second, the Suvidha platform that we're building, is it going to be fungible in a sense, can we plug and play with, say, a B2B e-commerce platform like Grasim has launched Birla Pivot and they are looking for lenders, L&T has SuFin. Are we looking at partnering with such platforms?

Primarily they have that platforms, they have the dealers and retailers, which have a better, I would say that audience in terms of our customers. These are little kind of a subprime kind of customers. They are organized players which have organized shops and dealers. So, we are going a category below what the category which we have just proposed and which I have been saying earlier. They are funding to dealers and retailers. And we are going with the end borrower, who is converting -- who is putting value addition while using that product and converting it. If I just take your example, it is like funding to those painters who may buy from retail shops and do that fabric painting on a per square feet basis to the customers. So -- but they are not going to that segment, they are only going to the retailers and distributors.

Got it, sir. And finally, which IT company is helping us build the Suvidha platform, the LOS system?

I think the company which we gave our first mandate who was Synoriq, so we do all that. We are just -- it's a kind of in-house company for us because all our LOS, LMS which we were the first vendor and a lot of knowledge has come from our side to them. And we have a good synergy where we are able to leverage each other far better and the kind of -- so it is working with a bigger company for -- if we give on that, tweaking our product on a daily basis based on the learnings, then the to and fro from the larger companies become very, I would say, very slow and cumbersome. And from here, we have a very good advantage.

Sorry, sir, what was the name?

It is Synoriq. That's a company based out of Jaipur and all parts -- and Mumbai.

Okay. The reason I asked was, is the delay because of their capabilities that is causing a delay because there's a company called Veefin which PSU's are preferring.

I just heard this name, but this is really on both sides because they were also busy because we have been working with them on [indiscernible] LOS which Rachita already told earlier. Most of the team was working on the beta2 version of the LOS where lot of input has come from us. We were also integrating the accounting part -- integrating the accounting also. So the -- thirdly, they were focusing on making an LMS for our wholesale segment also, which had a lot of complications. So, they were preoccupied at the same time. There was a lot of tweaking every day based on the learning. And so I would say both the ends they were also slow and for us -- from us also a lot of changes were being told to them, and I would say, frequently, which Rachita can actually share.

And in my past experience of making so many technologies and we've worked with a lot of technology vendors and we've kind of realized bigger the company it is, initially they will really found that those projects can be completed well within time, but in our personal experiences we have seen that the larger companies have taken way beyond their time and with this company like, sir had earlier mentioned, we have had a good synergy and the turnaround time for developing those platforms even with the way we are giving a changes on a morning and evening basis, it has been very, very prompt. And we have worked with -- to name a few vendors, we have worked with Jaguar, [indiscernible] Finnone, [indiscernible] Nucleus and so many other companies we have worked with, none of them have been that responsive. So we can call it a mixture of a combination of both the parties, which has led to a little delay in the production.

[Operator Instructions] The next question is from the line of Sanjay Ladha from Bastion Research.

Sir, couple of questions. And -- so sir, the Suvidha loan platform which we are developing, what is the cost associated in the platform we are taking up? And also this TAT, which we have said is less than 6 hours, has been done in the Q2 FY '22 or it will take time?

That's why there were limitations with the existing system and the existing was more a kind of a term loan kind of a system, but it is a more quasi personal loan and unsecured. So in terms of cost, as you know, we have been their first customer and a lot of knowledge about the product we are giving to them. So the cost advantage is also usually with us and as compared to the larger one, they are very cost effective and we may be giving them 30% to 40%, which the larger one will charge and our turnaround time is far, far better. And we don't negotiate on the, I would say, giving the scope and then negotiating the commercial. So that is also a big, I would say, help for us. We only -- so that kind of synergy and the relationship we have with them. So yes, as compared to the larger one, they are more flexible and even cost competitive.

Sir, can we quantify that amount?

Quantify. It will be roughly between INR 30 lakhs to INR 50 lakhs and then their A&C and enhancement costs, which keep on happening at every time.

Sir, my second question would be on, since we are witnessing a strong demand in the housing segment, so are we looking at the wholesale segment AUM to increase? Or we will restrict ourselves as we previously also said that we will restrict and commit -- not increase the AUM in the wholesale segment. Is their intention is stay intact? Or are we increasing that AUM?

Chandan will explain more. I will just say one thing. Strategically we have decided that -- the focus is more on the retail, but at the same time, our housing segment is being extremely good which we have seen in this segment also. I would say the collections, prepayment was equal to more than our book. Collections are roughly around INR 752 crores, whereas book -- closing book is around INR 500 crore something. So it is very well explained in those numbers that a lot of preclosure, prepayment has happened and lot of boarding and the disbursement figures were higher. So the focus will be to do more business by doing down selling and being on the co-lending, on the -- about housing and how it's doing, Chandan can add on that side.

Chandan this side. As you have mentioned that the demand in the housing sector is robust. Definitely, we are very much positive on the sector side and on the real estate side also. But as Rohit has already mentioned that we are targeting an AUM mix of 55% to 45%, definitely, on growing book side or the AUM side, once it grows, and definitely the on-book AUM of real estate book, that's the wholesale part, will also grow and sync with that part of [ acceptance ]. As mentioned earlier, we are focusing on down-selling part and the fee-based, increasing our fee-based income also. So the main focus is totally towards on that part on growing real state through co-lending or DA kind of arrangement where our book, we will be restricting our on-book AUM towards 45% or 55% kind of mix on total AUM part. And thus, we will be boarding on the kind of DA or the co-lending kind of arrangements.

Sir, my next question would be, since we have already -- the rating has been upgraded and you have also mentioned that the weighted average would be the cost of borrowing, we will be benefiting by 50 to 70 basis points. So can we assume that NIM can increase in the year itself like 100 basis points or it can be below that if we can answer it?

I would say about 25% to 30% of the benefit that we will get because it will run only on the incremental one. And -- so the wasting on renegotiating will be difficult. This is only when they get repaid on their incremental volume. So in terms of NIM's, I would say whatever -- what can be the benefit in terms of cost of borrowing as it might -- cost of borrowing can go down by [ 56 bps ] to 75 bps, so it is only the incremental cost. I would say, in terms of NIMs, 0.25% to 0.3% can be the net addition in the first year. In the second, third year, that will be -- we can see little high figure, but the first year that will be the maximum impact that can help.

And sir, in the cost side, since we are increasing on platform and the employee cost and also on the branches front. So how much the cost we can expect to increase in the year or 2 years down the line? And now what is the impact on that side will be taking place?

For the larger portion of the IT spend has already happened. So, going forward, the spend on that side will not be huge and apart from the [ AMC ] cost and others. And in terms of employee costs, as I told earlier in the presentation also that our middle level and the senior level employees are there and they can do even 2, 2.5x the business of the SME with the same team, which is only that junior retail team at the branches will be added. So largely in the SME and the retail segment, you build cost upfront because of the senior team and the middle level team, and it gets optimized over years, I would say, and we have already achieved -- done in that last 3, 4 years. And going forward, our incremental cost will be on the team at the branch level. So it will not have a huge impact apart from the impact on the appraisals and the size. So...

So on the branch cost side, if we can -- that is also not will be significant.

Branch cost is roughly in terms of terms of including all costs, if we are adding 5 people, 1 [ DM, CM ], I mean the -- just INR 3.5 lakhs to around INR 3.5 lakhs, including rental and everything, per month.

[Operator Instructions] The next question is from the line of Sanjay Kumar from ithoughtPMS.

Sir, one question on SME retail. I see that some of the products have a tenure of even 7 -- 7 to 8 years from whatever I've seen MSME at such tenure is always a risk, the max that even banks go up to is, say, 3, 4 years. How comfortable are you with this long tenure SME loans?

Firstly I would say, in industry, less than 3, 4 years, it's a largely unsecured products. None of NBFC, any housing companies may be even in the form [ LAF ], which is largely a LAF but in the form of housing they are giving from 10 to 15 years and going any product to a segment where we are catering because it is for them, both they want the minimum amount, which we are able to -- which can help in their businesses, and at the same time, their EMI cannot go beyond their limit, they can't service. And thirdly, there is also, I would say, a lot of competition from the market. And everybody is offering a product where we are in. If I would say, none of the company where they are giving larger tenure, we are restricting ourselves to 7 years and most of the companies are giving between 10 years to 12 years. And that is where most of the competition is hurting us. And a few of the customers and our sales team has been pressing us for the last 2, 2.5 years, to increase our tenure. And we have been registering our team that we can't increase it. And with this our competition, maybe a smaller or a bigger company, the tenure is more in the range of 7 to 12 years. Still, we have tried to restrict ourselves and average tenure is around 6.5 to 7 years. And thirdly, foreclosures of 15% and more or less, the count is fine, either the counts gets taken over by other, unless and until we don't give them additional amount or some type of amount of lower IRR. So typically we say an average life of a customer in MSME tenure is around 4 years.

Okay. And if you could name your competitors in this particular product, SME retail?

Yes. When I would say a smaller ticket size from INR 5 lakhs to INR 15 lakhs, Finova is there, AVIOM Housing is there, Star Housing is there, even [ virtualizing the full loans ], then Cholamandalam, Five-Star, AU Small Finance Bank is there, and Shriram Transport is also coming up in certain areas, Capri Global is there, so different development size -- SK Finance, so these are all of the segments. If I run through all, starting from Aadhar, Aavas, Adani, [ Agriwise, Express ], Bajaj, Canara, Capri, DCB, [ Fairbank ] and Shriram, Piramal also, so different areas, different products, there we have products from INR 5 lakhs to INR 30 lakhs, INR 40 lakhs. So INR 15 lakhs - [indiscernible] other than Finova, AVIOM, SK, Kotak, Liberty less than INR 10 lakhs. Namdevis also there in Rajasthan. Total geography, certain place, so every geography we will find 3 to 4 people who are our main competitors. So -- but there's a lot of market size still underpenetrated and still this is a segment where I would say, any NBFC we can -- any NBFC can build domain if they work around under the same segments with few products. So every NBFCs has a tenure more than 7 years.

Okay. And all the sourcing is in-house, I believe, or do you see any...

We don't have a DSA model in our company. But we don't see that certainly it comes through -- sometimes come through intermediaries, what they call connectors and through their relationships. Yes, we only encourage direct model, but say, on the [ 25% ] to 30% business can come through the various relationships may be called as connectors or small DSAs.

Primarily it is DSA?

Yes.

And any particular reason for not engaging these loan aggregators or platforms, like, say someone...

2, 3 things. We are not an unsecured loan. We are a loan aggregator based on data. They can -- and the customer can come through various forms. Secondly, the DSA would like to target a bigger ticket size INR 45 lakh, INR 50 lakh-plus. Since they don't target too much, larger, bigger DSA don't target less than INR 20 lakh kind of a segment and where the small DSAs or individual small connectors or relationship guys working in particular small geographies and aligning them with few NBFCs that are working in that area in that quarter, so that is the way that is happening. And our focus is to tell our team to go directly in various marketing, I think, Amit can explain a little more.

So the idea of not engaging DSAs or loan aggregator is very, very simple. And these kind of clients to be directly targeted by the team so that there is no intermediaries are there, no fraudulent activities happening. They have been -- the customers are -- these are basically unbanked and unorganized sector. So it is better to target them directly instead of getting through intermediaries, because that creates -- that open the door for various means of services from DSAs in terms of name of services, which are a lot of thing from clients. So we don't want to get into that. And these clients are basically a first time entrepreneurs -- first or second-time entrepreneurs and they want money for their working capital. So the need is not much, and DSA will never come into this segment, because they will not get any kind of commission from any of the NBFC on a larger note. So that's the reason it is always better to approve these client directly rather than getting into the loan aggregator mode or from a DSA.

Perfect, sir. Finally, on collections, even that is in-house, but say, today, in wholesale, we have 70 accounts, roughly SME, 2,800 accounts, but in Suvidha we are already at 1,500. So the -- given the ticket size is lower, there are a number of accounts, the number of people you will be dealing with will be larger. How are you going to...

Suvidha, we are roughly around 850 clients on board, active -- not 8,000.

No. I said 1,500, anyway. So how are you going to build your collection capabilities given there will be a huge jump in...

Yes, for SME and Suvidha, it is a beautiful combination for RO and RM to earn an incentive on to both fronts. So in Suvidha, the RO and RM who is sourcing the business, there has been given a target of collecting as well. And till now it has been working very fine because they are getting incentive for doing businesses also and they are trying to meet the client on a daily basis if there is any collection is there, because it's a shorter term loan, 90 days loan. And within 60 days, we are trying to collect the amount so that the client also gets the benefit of submission. So there is no need of collection external agency right there right now. Coming into SME, we have around 2,800 clients, but the collections pool, which come to us, we are able to cater because up to 6 months it is a sales team also who is going hand in hand with the collection team for collecting collection the EMIs. And primarily, like Rachita also said, most of the collection is also coming from UPI and NACH, only 9%, which are coming from collections. Till the time these trends are there, we are not getting into any -- getting into any help from external agencies for collections as of now.

And secondly, I would say it's our experience when we did fintech lending and where we did 10,000 loans, and they used to outsource their collection from outside agencies. They are not absolutely working. They only appoint people do tele-calling, and they don't have Feet on the Street. So neither they know the customer, neither the customer knows them, so typically, we have a wealth collection officer in every branch, roughly around 30 collection officers, 1 regional head, and 1 national head. So that is a typical size and apart from that the local sales team who have done that account is responsible for 6 to 9 months. And after that, that it comes to collection. Our typical acceptance ratio is around 75% to 77%, 23% bouncing, which typically is the nature of our industry segment because of seasonality and so many issues. And because we only give 1 day, we put all that in 1 single date and sometimes -- and which is early in the month, it's 4th, and there is a lot of demand to put. Now we'll be having 2 days going forward with the new LOS coming and LMS. So out of your 27%, large of the -- most of them is coming through various, I would say, modes, payment gateways, and only 7% is coming from cash collection. So to give a very -- NACH is 64%, 17% is UPI, check is, wallet, or RTGS and all those are around 3%, 4%, and...

Only for 9% we'll have -- require any inventories for collection.

Got it. Perfect sir. This is very heartening and...

And I would say, outside collection agencies for our segments can never work. Any company telling you, I will never buy that argument. They are not at all helpful. It is helpful on unsecured loans. And when you write off give you a matter substantial discount or kind of an arrangement of that side, but in the segment of a secured product every company has to have their own collection team.

As there are no further questions, I now hand the conference over to Mr. Rohit Gupta for closing comments.

Thank you everyone. I think we had a decent financial year '24, and we are forcing that -- as now, we have already done this -- all those, I would say, consolidation in the SMEs of focus in growing ourselves and we have kept a little bigger target for ourselves for next coming 2 years, and we hope we'll be able to achieve that. So thank you all of you, and -- thank you, Sayam, and your team.

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