Emerald Finance Limited (538882) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Emerald Finance Limited Q1 FY '27 Results Conference Call hosted by Kirin Advisors Private Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand over the call to Mr. Karan Thakur from Kirin Advisors Private Limited. Thank you, and over to you, sir.

Good afternoon, everyone. On behalf of Kirin Advisors, I welcome you all to the Q1 FY '27 Earnings Conference Call of Emerald Finance Limited. We have with us the senior management of the company led by Mr. Sanjay Agarwal, Managing Director Ms. Gurmeet Kaur, Chief Risk Officer; Mr. Talin Agarwal, Head of Business Development; and Ms. Amanpreet Sodhi, Head EWA Sales. We will start with a brief opening remarks, which will be followed by a Q&A session. I would like to hand over the call to Mr. Sanjay Agarwal, Managing Director. Over to you, sir.

Good evening, everyone, and a very warm welcome to all our investors, analysts, stakeholders joining us today for the Q1 FY '27 Earnings Conference Call. Joining me on the call today are Ms. Gurmeet Kaur, Chief Risk Officer; Mr. Talin Agarwal, Head Partnerships and Product Integration; and Ms. Amanpreet Sodhi, Head EWA sales. On behalf of the management team, I sincerely thank all of you for taking the time to join us for our -- to join us today. We are pleased to begin FY '27 on a steady note, delivering healthy growth across all our key financial parameters other than the gold loan business. The quarter reflects the strength of our diversified business model, expanding partnership ecosystem and our continuous focus on technology, innovation and disciplined execution. This quarter, we have onboarded 32 new corporate organizations, further expanding our employee network and strengthening our employee financial wellness ecosystem. Our EWA platform continues to witness encouraging adoption with an average ticket size of INR 26,000. During the quarter, we have also entered into strategic alliance with Credila Financial Services Limited to introduce education loan solutions and we have recently partnered with AU Small Finance Bank to strengthen our gold loan offering. Coming to our financial performance, I'm pleased to share that Q1 FY '27 has been another decent quarter for Emerald Finance. On a consolidated basis, our total income increased by 39.97% on a year-on-year basis to INR 9.44 crore, while our net profit increased by 52.72% to INR 4.88 crores. Our diluted EPS has improved to INR 1.44 from INR 0.92 on a year-on-year basis. As we move further into FY '27, we remain focused on strengthening our business fundamentals, expanding our corporate partnerships, enhancing our technology platform and broadening our portfolio on financial solutions. We believe our diversified business model, disciplined execution and customer-centric approach position us well to capitalize on the growing opportunities in India's financial services sector, while continuing to create sustainable long-term value for all our stakeholders. We are also adding new programs and benefits to engage more of existing users and corporates and respect new corporates for our EWA program. Before I conclude, I would like to sincerely thank all of our shareholders, lending partners, corporate clients, customers and employees and all our stakeholders for their continued trust and unwavering support. Their confidence continues to inspire us as we build a stronger, more resilient and future-ready financial services platform. With that, I thank everyone once again for joining for today's call. I now request the moderator to open the floor for question and answer session.

[Operator Instructions] The first question is from the line of Divyansh Jaju from Trinetra Asset Managers.

So my first question was over the last year, the company has diverged its lending portfolio. So looking ahead, what would be the ideal mix across the -- all portfolio products over the next few years?

See, our interest in the EWA business is continuing to grow as compared to other verticals in the last quarter, on a consolidated basis, the share of EWA was about 8%. And this year, it's -- this quarter, it's almost crossed 10.5%. So -- lending business is going on a steady pace. We had about 12.5% growth in the last quarter. Also, there was a dip in our existing syndication business, primarily on account of fall in gold loan business because RBI has put a lot of restrictions on the banks and other financial institutions who are into gold loan business. But we are taking steady measures to counter make up for that loss of business. We already tied up with EU Bank for furthering our gold loan business. And we have planned to partner with at least one more partner in this quarter to strengthen the gold loan business. Plus we have already started education loans. We did only about INR 1 crore last month. And I think this portfolio will increase. And we also continue to focus our home loan LAP and business loan portfolio is showing steady rise.

Okay. So understood. Next question is like, could you help us understanding like how borrower behavior has evolved recently for us? Like is the particular customer increasing their larger ticket size or tenure or anything changes in the customer for us?

Come again, I couldn't understand the question. Can you repeat again?

Like my question here, is that from the borrower behavior, like any -- recently any changes are there, like they are taking more particularly larger ticket sizes of loan, they are taking any more tenure from particular same customer only, existing customer?

Change in borrower behavior?

Yes, yes.

No, there's not any change in borrower behavior, we're not seeing any particular trend.

[Operator Instructions] The next question is the line of [ Onkar ], an individual investor. Due to no response, we move on to the next participant. The next question is from the line of [indiscernible] from Emerald. [Operator Instructions] The next question is from the line of [ Rohith Arora ], an individual investor.

Sir, when are you expected to launch the upcoming products?

Within this quarter, we are actually working on the final testing of majority of products with estimated retail. We expect to launch within a month.

All the products?

Not all, a few of them. So we are actually in touch with various vendors for each of them and it's finally need a compliance and technical integrations are on the way.

And are we going to distribute them through our app only?

Yes, apps, portal website. So there will be multiple distribution channels, again, catering to not only our existing customers, but the open market in general.

And are we looking to add more employees to distribute these products?

Not necessarily. I mean we don't require these all API to the [indiscernible] so the technology itself will take care of it.

The next question is from the line of [ Kethan R. Shedda ], an individual investor.

Thank you for the added disclosure that you have provided these AUM in this quarter's results presentation. My question is with respect to this INR 125 crores AUM that you are showing. So is this purely MSME loans or we are also providing some other loans through our own balance sheet?

No, this includes our own lending book plus EWA clients.

Sorry, say again?

See, this includes some total of all the loans which we have given. It is MSME personal loan and under the EWA clients.

Okay. But this is...

This is some total of all the loan book.

Correct. But then this is on the books of our company. This is our...

Yes, yes, yes. These are not the managed part. These are the books on our company, loans on our books.

Okay. Okay. So one more request with respect to this disclosure, if you can just go one step ahead and maybe from the next quarter, we can provide the breakup also of this AUM that again helps us because then we know what segments have been.

That's already given. You can look at from here only. Like of INR 145 crores is the total book and out of this INR 12.5 crores is from EWA.

Sorry, sorry. I'm not able to hear you very clearly. If you can come close to the mic, please.

It's from INR 125 crores book, INR 12.5 crores is from EWA and the rest is from the MSME book, MSME and personal loan book.

Right. So now when we talk about MSME and personal loan, if you could help with the breakup of these 2?

See, majority is MSME and I'll give the number I don't have right now with me. Majority is MSME and some part of the personal loans.

Okay. And the gold loan is basically for distribution, right?

Yes. Gold loan is distribution business for us.

Okay. And we have seen our NPAs rising, you've given that data every data is basically higher than the previous one. So is there a concern because the NPAs are rising pretty fast.

Book is rising at a steady rate. So we actually expected some NPA will come around, right? So this is much lower than what we provision for. It is almost 50% of what we have provisioned about [ 0.3% ] of the book [indiscernible] so maybe actually well below, even our provision hang on the market issue rates.

Can you give us a breakup? Gurmeet are you there?

Yes, yes, Sanjay. I think there's -- as we look at the portfolio over the quarter, there's no concern. We are also growing our book. And from a percentage standpoint, this is not really concerning to us. So when we look at, for example, in our EWA, we have provisioned for about INR 3 lakhs for our 90-plus book. And the population that has reached the write-off window has been about 3 lakhs. So that particular amount is quite within the permissible ranges that we have put for ourselves around the portfolio. And when it comes to the business loan and the personal loans, we have kind of provisioned for about INR 8-odd lakhs for 90 plus, and we have written off over the quarter about INR 6 lakhs. Having said that, whatever that we had written off till end of March, 2026, we had been able to recover another INR 4 lakhs from that. So even though we write off, our recovery rate is -- we continue to follow on recovery. There is -- the customers are contactable, and we are able to do various collection, permissible collection activities, we are able to get in touch with them and are also able to recover the money.

This provisioning also includes what we have to provide as per RBI guidance for standard assets also.

Yes, there's standard provisioning as well and which as per RBI for our layer of NBFC, we have to do a standard provisioning of about 0.25% of the portfolio. However, we take a little more prudent and conservative approach, and we provision at about 0.3%.

The next question is from the line of [ Onkar ] an individual investor.

Sir, I want to ask a question. As the early wage access business scale rapidly, the funding requirement for salary advances will increase significantly. What is General Finance long-term capital strategy for EWA product to support this growth while maintaining healthy returns? Are you planning to fund? Are you planning to capital means, capital -- what is your capital strategy for EWA products?

See, we already -- the current net worth is around INR 90 crores. Against that, we have debt of INR 27 crores. Out of that, INR 27 crores, almost INR 16 crores is from banks, State Bank and we have just announced also that we have got INR 10 crore line from ICICI Bank and the rest is from NBFC. So we got a huge leeway even it's too early, let's say, what we call 1:1 debt equity ratio, we can easily raise about INR 63 crores as on date. And we continue to [indiscernible] with a couple of more banks and financial institutions for raising debt. Almost 55% -- yes.

Can we think of asset-light co-lending model with the bank and finance distribution.

Come again, I couldn't understand what you're saying.

For the EWA product, can we plan co-lending business.

No, no, no. We don't want to because we're not short of funds. See, we've got a net worth of INR 90 crores. We've got a huge leeway with us, against that outstanding debt is only INR 27 crores. So even if we got INR 53 crores more, our debt equity ratio will be very manageable at 1:1 ratio. As our RBI...

Yes. Sanjay, if I may add here Co-lending is a wonderful arrangement provided it is more on an interest-bearing installment loan, which can be business loan, personal loan or any secured commodity. But since EWA is a product where we do not charge any rate of interest and the customer only pays us a disbursement fee, this is something which may not be permissible to the banks by RBI.

The next question is from the line of Harshit Singhania from RoboCapital.

Congratulations on a great set of results. So I just wanted to ask, I think I'm new to the company. So I read the last call. So have we guided for like EPS of INR 7 for this year? Is that correct? Approximately guidance directional guidance?

Yes.

Do we think we will be on line with it as the quarters go ahead? Because I think that is around a per quarter EPS of INR 1.75 or so. And right now, we did INR 1.3 to INR 1.4.

INR 1.44. See, first quarter is normally in the whole financial services business is normally very slow. I think growth momentum should pick up in the next quarter. And we stand by the guidance of 7%. I think we should be able to reach around that. We have done back and forth calculation. I think we should be able to reach over there.

Great. And I just wanted to ask like...

Past history also, if you look at it, we have grown from 1.33% to 2.57% to 4.33% last year. While managing our books pretty well, at the delinquencies pretty well.

Okay. That's great. And...

And first quarter is normally across all banks and NBFCs first quarter is normally very slow as compared to the fourth quarter.

Yes. Okay. And on the EWA side, I think I just saw your last PPT. So EWA has been growing consistently from 2% to 8% in FY '26. So like where do we see the portfolio like contribution from EWA like stabilizing around?

So I think in terms of revenue earlier our expectation was that EWA we were flat around 10% of consolidated revenue. But this quarter, we've exceeded that. So now as projection, it should stabilize somewhere about 4% assuming that the distribution business continues to grow and the other businesses continue to grow at the pace they have been growing at...

Okay. And I can see that we have been growing like we have posted very strong growth for the last few years. Do we see that -- like how do we see that trend going forward for like medium to long term?

Going forward, I think our PAT has been for the last 2, 3 years going around slightly 100% CAGR. This should stabilize to somewhere about 40%, 50% in the next 2 to 3 years. Actually 40%, 50% CAGR would be a healthy growth for the company. Comparing our PAT margins are more or less now stable at about 50%, 51%. Company levels, our interest cost will go up, they will bringing down the PAT margin to 40%, 45%...

The next question is from the line of Ankit from Zen Nivesh.

In our presentation, we have clearly shared that there are 3 line items. One is the distribution income, the other is interest income and the third one is EWA processing fee income. Now if I look at the interest income, is it fair to say this primarily consists of only the MSME working capital primarily or there are something...

No they are primarily that only.

So as of now, as we see probably around 80% of our business is coming or more than a little bit of 80% is coming from distribution income and interest income. And EWA is less than 20% or maybe around 15%, roughly.

10% -- last quarter was around 10%.

Yes. So do we see this materially changing 2, 3 years down the line? Or do we think that it will be more or less in the same range?

So I think EWA as I answered in the previous question as well, EWA has actually grown beyond our expectations. Our expectation was that EWA will not cross 10% of our revenue, but it managed to do because distribution income fell sharply this quarter. It's growing forward, given the steady growth in both interest income and the income stabilize anywhere between 12% to 15%.

Sure. So now my next question is related to EWA only, which is basically when I see the competitive scenario, I see a lot of startups now entering the space in the last 3, 4 years or 5 years and they scaled their EWA business rapidly. So how do we see that playing out in our case? What is our right to win here?

For you this is a really, really one new thing, even after that, there are so many start-ups and fintechs are coming to see these. So we are actively on the lookout to partner with these in sort of a scenario. We already started with the couple of fintech platforms, we have [indiscernible] such as within the market. Do you know this add two many [indiscernible] products. So one they help with creating the market. We [indiscernible] startups at Gurgoan [indiscernible] So this spread awareness that there is a product such as EWA [indiscernible] so that we don't have to spend our capital or brand/product awareness. Secondly, none of these start-ups can lend on their own. They need to be an NBFC or a bank to lend. And this opens up a huge opportunity for us because then we can enter into [indiscernible] with them what happens now is the front end is different for products, but the back end, the main company financing becomes the same. So that's the goal that's being. So this has been actually a new channel we have developed in the last quarter. We have constantly on the lookout for such fintech startup, et cetera, to do EWA to their own clients to their own customers.

So correct me if I'm wrong, whatever fintech start-ups which have filed, I think there are at least 3 to 4 fintech start-ups who have either filed for IPO and their DRHP is there out in the open or there are a few start-ups which have got listed also. In all these fintech start-ups, what I see is that they have a wholly-owned subsidiary, which is also into NBFC and lending. So how do we feature into the scheme of things when the frontage is also with them and back in May, they have large banks also, large NBFCs also, you also and their own 100% subsidiary as well. So how do we feature in the larger scheme of things when they have so many options?

I know which NFC talking about -- so most of them were...

I can give you names, MoneyView is one, FishTree is another. The third one is Cable. All these have their own NBFC.

I'll answer them one by one. So again, all of them were there before we launched EWA. So I think MoneyView has been the pioneer acquired last year. So they've been one of the pioneers in India. [indiscernible] EWA. History does [indiscernible] CableMoney more even investment from higher [indiscernible]. So these are the 3 players have been there, right? So we have approved and we know that they have NBFCs, banks and they have own NBFC subsidiaries. So this competition we've already known about new start-up/fintech coming into this to partner with them.

So main competition right now earlier also was from which is owned by MoneyView and refined. So if we see players into this -- but there's a huge scope for the 10 players come into this market. India is such a huge market. There's room for another 10, 15, 20 players they can come into this market, and there will be business for each one of us.

Adding to that has just opened where they act as guar to employers to bank some employee loan something like that. So I think we're just exploring reaching out to them as well for [indiscernible] partnership.

The next question is from the line of [ Binoy Bhat ] from Hydra Capital.

Just we talked about some new products coming. Can you -- is it possible to throw some light on that? Or it's still under construction?

I'll tell Amit to take up this question.

In terms of new products, we've been [indiscernible] working on. So I think within the presentation also in the upcoming slide we have given. So, we are in advanced stages to integrate digital gold, silver loans to be already going in a issue, that small ticket SIP, corporate insurance, we are I think, the...

The next question is from the line of [ Deboy Hellen ], an individual investor.

Sir, my first question is what was the total number of gold loan that you distributed in Q1 versus Q4?

INR 290 crores versus INR 375 crores.

INR 290 crores versus INR 325.

INR 375 crores -- in Q4, we distributed about INR 375 crores plus. last quarter about INR 290 crores.

And what is the approximate distribution fees that we get from the bank on these loans?

It depends from bank to bank. like from HDFC 1.25% from ICICB on an average, you get 0.75% and from RBL 1%.

Okay. So on an average, can I assume...

On an average, let's say, 1% or 0.9%, depending on which part of business bank we are doing more business in that particular quarter.