IndoStar Capital Finance Limited (INDOSTAR) Earnings Call Transcript & Summary

Good day, and welcome to the succession plan and strategy update call of IndoStar Capital hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Tibrewal from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.

Thanks, Alan. Good morning everyone and thanks for joining the strategy update call of IndoStar Capital. We have with us today our senior management team from IndoStar Capital Finance represented by Mr. R. Sridhar, Vice Chairman; Mr. Deep Jaggi, Chief Executive Officer; and Mr. Salil Bawa, Head of Investor Relations. Let me now hand over the call to Mr. Salil Bawa, Head IR, to take the proceedings forward.

Thank you very much, Abhijit. Good morning, everyone, and a very warm welcome to this update call. We hope you and your families are safe. As mentioned by Abhijit, we have with us on the call Mr. R. Sridhar and Mr. Deep Jaggi. Since this is an update call followed by Q&A, all financial numbers will be covered during the quarterly call. During the discussion today, we may be making some statements that may be forward-looking in nature and hence may involve certain risks and uncertainties. With that, I will hand over the call to Mr. R. Sridhar to begin the proceedings of the call. Thank you all once again for being with us and over to you, Mr. Sridhar.

Good morning to all of you. Let me first thank each one of you for taking your time out to join this conference call and wish you all a very healthy, Happy and prosperous 2022. We have had many occasions to interact, particularly during the quarterly results discussion, but this call is slightly different. This has been organized to discuss the leadership change at IndoStar Capital. As all of you are aware, I have joined IndoStar in April 2017 with a mandate to manage the transition from wholesale-dominated business to the retail 1 and also take this company public. So at the end of 5 years, I have taken many steps to take this organization, retail, transform the business and they took a lot of strategic initiatives to take this organization to where it is today. And at this point of time, I have decided to move on and pass on this batten to the next level of leaders. Consequently, the Board has accepted my request and appointed my colleague, Mr. Deep Jaggi as the Chief Executive Officer last Friday and I will continue as Vice Chairman until my tenure completes 5-year tenure complete on 17th April 2022. As a CEO, I have always spent responsible to plan a succession. If you look at my earlier organization in Shriram Transport, where I was CEO for 12 years, in 2005 when the private equities invested, I had identified my successor, who is the current CEO and he was a business head, regional business head in South located in Chennai and brought into Mumbai and then I passed on the batten to him in 2012. In the last 10 years, he had done exceptionally well, taking the organization twice the asset size and the market cap also doubled more than that. So I am a very, very conscious about identifying my successor and during the period of around January 2020 exactly 2 years back, when Brookfield has been contemplating an investment. We have put in place a succession plan and brought Mr. Deep Jaggi as Chief Business Officer, when that position was not at all there. It was created especially to establish a second line of management and Deep Jaggi, if I have to introduce him, was hard core operating person, who had built the credible businesses in HDB as well as Chola, very reputed NBFCs in the country. And in the CV financing business, he did an exceptional job, particularly in HDB where he created a very profitable, credible business of commercial vehicles to a AUM of around INR 25,000 crores and the cumulative disbursements of more than INR 50,000 crores. In Chola also he was heading the northern region and built a sizable business for Chola, which is still now remained as one of the best portfolios for that company. Then Deep joined us in 2020 as Chief Business Officer. He immediately took on the mantle of managing the entire retail business of the company and did immense contribution in the last 15 months. If I have to mention that Deep is a natural leader with a lot of aspiration, capability and ambition and the leader is always defined leader as one who has followed us. And in the case of Deep, who was followed by a very large number of people from this [indiscernible] organization, which made IndoStar very strong in terms of people, particularly in the niche business of commercial vehicle in the North, West and East. IndoStar already happens to be a strong company in the south, but this team building capabilities have made North, West and East very strong. So today, we are one of the strongest in terms of people all over the country. And we also worked on product mix changes, credit policy changes, brought in new concepts of smart branches, digitization and all within the last 15 months. And all of you are aware that last 15 months happens to be one of the challenging periods. In my career of 3 decades long in commercial vehicle finance business, I have not encountered such a challenging period of moratorium, restructuring COVID 1, COVID 2 and now COVID 3. But in this period, under the leadership of Deep, we have done INR 3,000 crores of fresh lending, and it would be heartening to note that out of this INR 3,000 crores, more than 90% of the portfolio in spite of the challenging environment remains in scale 1. So even though the business is focused mostly on the used vehicles, it's profitable, coming at 16% to 17% yield plus excellent asset quality. So I am satisfied that I'm leaving this company to a more competent, very capable leader who will take this organization particularly in the retail business of CV and affordable housing finance business, where the company is planning to build a large volume, Deep will be the right person to lead this organization. So -- We have put in place a succession plan and we have implemented it at the right time. I think the next 5 years is going to be a very exciting for IndoStar. And I will be as one of the stakeholders will be keenly watching the way this company is going to build up and I will always be available to contribute in any manner which the Board and the management think. With this initial remarks, I would hand over the mic to Deep to take his comments and then we are definitely available for your specific questions. Thank you very much.

Thank you, Sridhar. Thank you to all the stakeholders for -- thank you to all the stakeholders for keeping yourself available for this call. I am really excited to take this role of CEO of IndoStar and looking forward to meet all the expectations of all stakeholders. Let me also start by saying that I truly believe in a massive growth potential of the IndoStar. As an organization, we have been doing a lot of work in the last 14, 15 months after I joined. It was a very difficult time when I joined. I joined in the month of October 2020, when the first COVID wave was getting over. There were a lot of uncertainties in the external factors and internal environment. So when I talk about external environment, I'll just take you back to the month March 2020. March 2020 was a time when especially the vehicle industry was going from a transition where the ministry had shifted from Euro 4 to Euro 6, which meant the cost of the vehicle was going up by 15% approximately, which has impacted the retail customers a lot. Besides that if you recall, our GDP was down in the month of March and also we were going through the first COVID wave and there was a national lockdown. So it was a very, very difficult time. But we also had some issues, which were internal especially the inorganic portfolio was not behaving the way we want it. But we also had certain strengths. The strength was we had a lot of issues. There was no issue of the liquidity. And before I joined, there was an aggressive plan, which was a 5-year plan laid out made by the management, which was approved. So I had a challenge of a portfolio and external environment issues, plus I had to also plan a growth for 5 years, which was again a 4x, 5x kind of growth was expected [indiscernible]. The first thing I did was primarily I saw there what is the portfolio and also saw the network. So the kind of plan that we had made, we were actually present more towards South and West. So for the plan, the first thing that it was required was to have a pan-India presence. So we hired a discussion with Mr. Sridhar and we made a network expansion plans towards North and Eastern part of the country, which were at that time were the untapped market for us. So the second thing was on the product mix. When you talk about product mix, we had issues in terms of inorganic portfolio plus. Due to COVID, there were certain products which were hampered, like buses. The buses -- the school buses was a very good portfolio otherwise. But with this problem of COVID, there was a lot of delinquency. So we made a plan thinking that even if there is a COVID 1 or COVID 2 or COVID 3. It should impact minimal to us. We made changes in our policies. If you see my old portfolio approximately 35% was [indiscernible] CV new, we came out of it. We focused on used portfolio, which is a high yield portfolio and it is a depreciated product. So even if it is a COVID 2 or Code3, the losses were be minimal and my NIM will improve. That was the objective of getting into this used product. Besides that, we also started focusing on used cars like commercial vehicles because even if there is a COVID 2 or COVID 3, the internal consumption of this country, which has a population of $135 billion, there is a need of groceries, there is a need and which is all taken care by light commercial vehicles and ICDs. So we focus those products, which were more internal from the consumption point of view of this company. So we worked on these parts. We started our expansion from -- in the north and the eastern part of County. I'm happy to share with you that we started our business in East only in the month of March. And today, approximately 12% of my business is coming from East. Similarly earlier our portfolio had 70% contribution from South. Today, it has gone below 30%. That doesn't mean that we have degrown in South. Rather, let me share with you, we have added branches in South as well. But other parts of countries have grown much faster than south. So today, approximately 30% each is coming from north and southern part of the country and 12% to 13% is coming from East. The rest is coming from the western part of the country. So it has made us a pan-India player, which is required when you have laid down an aggressive 5-year plan, you have to be a player, which is a -- which has to have a pan-India presence. So we approximately in the plan, we are approximately going to double other branches by March 22, with a special focus on the untapped territories where we were not present. Coming to the product line. So it is actually when you talk about geographies, so we have derisked that product from the geography. So from a South or a West base, we are a pan India in terms of geography. This was our objective besides the expansion plan. Second is, you have to derisk yourself from the products. So first thing was in the COVID times, you lose more money towards the heavy commercial vehicles new, so we discontinued that. We focused on used. We have built up new with the better NIM. Now we are also focusing on used cars. We are focusing on used commercial construction equipments. We are focusing on the tractor, used tractor business. And these will be the growth drivers for coming years because we will have to focus on building up different verticals within the commercial vehicle space as well to deliver the kind of objective, which has been laid down by the management. The third thing that we have done is on the digitization front. Now we are committed and focused to get ahead on the digitization curve. We have been working with IndoStar [ Go Digit plans ] since the day I joined and we have engaged KPMG and other fintechs to help us to achieve that. The fourth objective that we have taken was having a separate collection vertical. With the kind of speed that we are building up our portfolio, I think we need to have a separate collection verticals. So the business is well positioned with a strong balance sheet. We believe that we have well provided for the future credit costs. The collection overall in the last 2, 3 quarters has stabilized and now we are trending towards close to pre-COVID levels. Additionally, today we are one of the best capitalized industry with a capital adequacy ratio close to about 35%. Leverage is 1.6x, which provides enough margin of safety. I can assure you that IndoStar will grow more profitability in coming years as we will have a place a lot of emphasis on the quality of the loan book and on the governance. So the third thing is IndoStar is also committed to become a pure player in retail finance company. As you are aware that you had exposures in the corporate book, which is coming down, today it is less than 20%. And today, 80% of portfolio is retail and it is going to be further -- the corporate book will further come down. We are not focusing that part. We do not expect any changes in our business plans. We are also focused towards the profitability and targeting high ROA products where we have a specialized offerings and experience. Our focus will continue on 2 major products. One is the used vehicle financing and second is the affordable housing finance. Today, since November when we have joined 80% of our commercial vehicle business is used vehicles. It is very profitable, high NIM. We have established ourselves in this segment because we feel that there's a space available. We feel this segment is underpenetrated. Now we will be adding more products as I have mentioned earlier. We will be focusing on used cars, used tractors. We are in the process of building up a product mix, which will be resilient to a third wave or a fourth wave of the COVID. Our used vehicle finance is currently largely focused on the commercial vehicle. In the used vehicles, we have seen a revival of CV cycle, offshoots of which are more than visible a small base, which will increase multifold. We expect very strong retail disbursement, solid balance sheet and we are well capitalized -- increased retail penetration in Tier 2, Tier 3, Tier 4 cities, focus on products with unique specialization. I'm sure that we'll be able to grow the loan book 4 to 5x in the medium term. The improving freight environment for truckers, freight rates for the truckers have improved by approximately 5% to 10% in the month of December. Freight rates held up through 3Q and then coupled with the stable retail fuel prices have aided truck operator margins. This will further help companies like IndoStar, who is going to focus this product. We also have seen a marked improvement in the freight demand. The rise of freight rates are largely driven by industrial activity. Just let me also share with you that even today in the new vehicles, although the industry is reviving, the new vehicle -- new heavy commercials, it is not at the level of pre-COVID, so that demand is being met especially by the used heavy commercial vehicles and that is where we are going to play a key role. A large market opportunity EBITDA, there are too many players focusing on used vehicles, particularly in our core segments like small fleet owners. A few of our competitors are dealing with their own issues around capital adequacy, viability of financing and we think we have a good platform, abundant liquidity. And I have no doubt in saying that competitive intensity today is limited and far lower than pre-COVID for us. Now coming to the affordable housing. We have recently recapitalized our affordable housing company and continue to make truly independent. Here again, we benefit from a small scale, which helps us to grow faster a very large market opportunity, established process and a fantastic team under Mr. Shreejit Menon, who is designated as the CEO for the affordable housing. We will be overall a very bottom line focused NBFC with improving profitability, not just through the normal NIMs, but also [indiscernible] we will be also targeting reduction in the cost. One of the key contribution comes from the CapEx reduction in CapEx. We brought in a concept of smart branches. When we go towards Tier 2, Tier 3 cities we don't need large branches. We brought in smart branches where we can break even in 9 to 10 months. So that has given us an edge by adding approximately 200 branches within this year and we will continue to add more branches, same number of branches even next year if it is required to deliver the desired numbers. So overall in summary, looking at all the external factors and internal factors. I'm very excited to lead IndoStar in the next phase of profitable growth. I also gave special thanks to my mentor, Mr. Sridhar, who besides I had a good experience in the market, but -- he guided me, he mentored me in the last 4, 5, 6 months in other segments, other verticals like risk, audit, HR. He has been guiding me to take over this position for the last 5, 6 months. With that, I'm happy to answer any questions you may have. Thank you

Thank you very much. We will now begin the question and answer session. [Operator Instructions] The first question is from the line of [ Pankaj Prasoon ] from HNI Investor.

Best of luck for the Sridhar sir for the next assignment. And Deep Jaggi sir, it is very nice to hear that you are going to head the investor because I have great trust in the company that it is going to be a good wealth creator. Just a few questions, sir, in 3, 4 years, what kind of the branch expansion you are looking at, the number of branches? What is the current branches out there? Plus just can you throw some light on the risk management side because the last time the company has a poor risk management track record. That's why we had seen this kind of mayhem in the entire portfolio and all. So how you are going to address that?

Thank you, Pankaj. So now coming to the branches in the next 4, 5 years. As I have already mentioned, we are looking at 4x, 5x kind of growth. We have plans to add approximately 700 to 800 branches pan-India. That will depend primarily how we grow. We can add more as well. It depends how we are going to grow overall. We can exceed our expectations of the management as well. In terms of current year, we are just doubling our numbers. We were approximately at 200-plus branches on March 2021. So we should be at about 380 plus to 400 kind of branches by March 2022. In terms of quality of portfolio, I had already mentioned about our issues, we have first made changes in our product mix. That was point number one. Point number two, we also have a better collection vertical, which was not there earlier. Third, is the quality of sourcing. I have brought my own team. I have a certain set of people, who have established in difficult markets like North and East. They are not easy markets. So I brought people who know those markets should not be an issue. And as also mentioned by Mr. Sridhar in the initial remarks, just let me also share with you again portfolio, which we have built after November 2020, which is about 14 months, has also gone through a COVID 2 wave, which was there in the month of May and June. Our Stage 1 today in the new portfolio is in excess of Stage 1 is 90% plus, which speaks about the kind of sourcing, the kind of collection mechanisms that we have built up in the last 12 to 14 months. I think that should take care of your answer, I suppose.

Actually, I also belong to the banking side only. I had started my career with State Bank and Axis Bank and risk management also, I had worked. So the key -- the integrity of the people is very, very important in these cases. So it has to be technology enabled with the integrity of the people. So this is a request that please keep eye on all those things. So that in future it should not fall back on us.

Rest assured, we are working on that. Even we are working on the digital platform as I mentioned. By Genpact, within this month or next month, we're going to roll out our Go Digit app. It will take care of all these things which we have mentioned.

And Deep, sir, one more request is there because I had seen in the past in this -- our IndoStar case, many of the top management people have used their ESOP like daily cash flow management, that is very bad. So those things should not happen because it hurts the sentiment of the investor like us also.

We will take care of it.

[Operator Instructions] The next question is from the line of [ Gopinath from PNR ] Investments.

Sir, I have come a bit later and I might have missed the answer already. May I know that was it well planned that Mr. Sridhar will leave by this time or is it something that has happened in middle or what is the reason behind it. Can you elaborate if you can?.

So I would request Mr. Sridhar to answer this question, sir?

As I explained in the beginning, this mechanism of succession has been put in place. And I wanted to move on completion of my 5-year term. So that's purely a personal call and I don't think that you should attribute any reason to that. So I have explained in detail that how we have thought about this succession. And today, with the kind of changes which are happening in the environment. So I have also felt that after spending 3 decades, more than 3 decades in this business. I should move on and lead this company's operation to younger and the energetic team, which we have explained that Deep Jaggi is the right person. So that is the reason for putting in place this succession.

[Operator Instructions] The next question is from the of Abhijit Tibrewal from Motilal Oswal Financial Services.

So Deep, sir, I mean while you have, I mean, in greater detail, kind of articulated the strategy of IndoStar Finance going forward. But I had just a couple of specific questions. So, I mean, we don't talk a lot about SME a lot. So if you could just kind of dwell upon the SME segment a little bit? And secondly, if you could kind of help us understand, given that you've already talked about the kind of growth that we are looking for the branches, but in terms of the next 5 years what is the kind of growth aspirations do we have? I mean, where is it that we see our loan be growing to at the end of this 5 years?

Thank you, Abhijit for the question. In terms of SME, we will continue to build high-quality SME business, which will be focused on the smaller ticket and high-yield SME loans. As on today, there are due to COVID 2, there has been certain issues in terms of restructuring. We have corrected that and we will be focusing on SME business, which will be low ticket. Now coming to the branch expansion as well as the growth. See, we are a retail organization, which is going to focus on used business. All -- most of the branches, we have covered actually all the Tier 1, Tier 2, Tier 3 cities. All kind of branches, which we will be bringing -- which will be established will be in Tier 3, Tier 4 cities. That is where we see there is potential for us, the kind of product mix that we are looking at, the kind of rates that we are looking at, that's a market, which is still untapped. I'll just give you an example of East. Now East, I've been focusing on East primarily. East, even today is underpenetrated with the private banks. There is -- it is being addressed by only a couple of NBFCs. We see an opportunity there. Similarly, we will be continuously working on the new geography Tier 2, Tier 3 cities where we feel that it is -- it will be beneficial for the growth of the company.

Right, sir. And so to that extent, I mean, while you did talk about a separate collections vertical, can you kind of help us and the investors understand -- What is it that we have done there in terms of building a separate collection vertical? And to that extent, how can it lead to better collections for you in the coming years?

See, what we do primarily is that the business is sourced by the business team. First 6 to 8 months, the business team is responsible for collection. After that, we hand it over to the -- for the follow-up because the sales team has to also focus on increasing business productivity, sourcing productivity. To support, we will need people and that will be in terms of collections. So we have built up a team, which is going to follow up and ensure that we exceed 90% plus Stage 1 at all times. As we are building up the portfolio today, our ticket size is getting smaller as we are into the used verticals -- used vehicles. The number of cases will be very, very large. After 6 months, after 8 months you will see the ticket size going down and number of cases, number of customers will be very, very large. It will not be possible at certain places to follow by the sales team. For that support, we need collection team wherever you have a follow-up is required. That is the objective of the collection team. I hope it answers your question.

Sure. Maybe one question from my end. During the opening remarks, you also talked about a lot of initiatives that you have taken to kind of further digitization in your company? And you also suggested that you engaged or you are still engaging with KPMG and a few fintechs. So if you could maybe help us understand. What is it that we are doing here now? And how is it going to help IndoStar?

So in our kind of business, a task is very, very important. We need analytics, we need to support the customer. Today, what happens is that the customer is -- there is a sourcing done by one of our employees, the file is moving. Prior to that, you can upload the file on the app, you can take faster decisions. It improves the productivity of our guys. It gives faster results. It gives fastest decisioning. So it will overall help. The faster response to the customers. That's the objective of building up the digitalization platform.

And sir, maybe one last question before I again kind of request the operator to open it for the question queue. Sir, if you could just kind of help us understand these last 2 years and -- And out of which, 15 months, you've already been here at IndoStar. So in the last 2 years, what all has structurally changed at IndoStar because of which investors can now look forward to a different IndoStar than what we had in the past?

Okay. So we are very clear today. We have built up a portfolio even if we have a COVID 3 or COVID 4, it should give a minimal impact. Then we are working at 16.5%, 17% of IRR, building up a higher NIM. We are not compromising on that. Third thing is we have cut down CV New. Whenever there is a down cycle, the maximum money lost per vehicle is in CV new. Today, we are doing a product, which is a high yield and which has got -- which is already depreciated even if you read to that if there is a delinquency, you don't lose money, you lose minimal money. So that helps overall and this is being sourced at about 200 basis points higher to 300 basis points higher than its CV new. That's one. The second is housing, affordable housing. This has started working as an independent company. These are the 2 basic changes that we have done. Today, let me also -- while I'll not mind sharing that in the last 12, 14 months, our HCV new is not even 1%. It is less than that and most of the customers are existing customers. Besides that, we have worked on the processes. Largest change is in setting up a robust collection infrastructure. Reach. Now we are going closer to the customer. So from 200 branches when we go to 380 to 400 branches, we are going much closer to the customer. So it helps. These are the 4, 5 things that we have taken care, which would help us in future. And if we can deliver 90% even going through the COVID 2 wave, I think that speaks volumes about the kind of portfolio that we have built up in the last 1 year. I hope it answer your question.

The next question is from the line of Manjeet Buaria from Solidarity Investment Managers.

I have 3 of them. The first one was I wanted to understand what are your insights or reflections from the whole IIFL transaction in terms of what went wrong. And perhaps if you could also throw some light on why we couldn't identify those issues in that due diligence?

So thank you, Manjeet. I would not say that where we went wrong. I would say, It has more to do with the external factors like when the COVID impacted and there was a down cycle. And the IIFL book had more exposure towards new heavy commercial vehicles and the buses segment. With COVID one coming in, this was impacted much higher than the other products. So that is where I think we went wrong and it is not -- I would not say we went wrong. It was the external environment, which brought all the problems of IIFL. Second thing, let me also share with you today our commercial vehicle book -- It's -- it has a tenure of about average tenure of 36 to 38 months. We bought this book 2.5 years back. Today that book is hardly there. It's already done a run off. Our old book, the ICF book, IndoStar book or India Infoline book as we speak is less than 35%. And the kind of pace that we are growing out by 31st of March, this book will be less than 20%. And once you have that book running off, I think we will be -- we are out of it already. And we have enough -- we have provided enough for that book to take care of losses in future.

Right, sir. My second question was you mentioned in your opening remarks that the competitive intensity in the industry is much lesser than it was pre-COVID. If you could just go into some detail here in terms of who are the players who are losing out and how long can this intensity stay the way it is. With improving times, would not liquidity and consequently competition come back faster?

See, when you talk about used car -- used vehicle business, there are 2 major players. One obviously is Shriram. Shriram focus is for first-time users. And then you talked about Chola. The second company is Chola. Chola focuses on smaller vehicles, which is light commercial vehicles. And again, they focus on the first-time used buyers. Now if you see, we are focusing especially only on first-time buyers, where we have only one player actually. So we find that this is the place where we can build up volumes. So that is why we started focusing on this particular product with the expertise that we have in our team in the heavy commercial vehicles. It is easy for us to build up volumes here and then create a foundation for future and then built up on the other products such as used cars, used tractors, commercial construction equipment used. So it will be a win-win situation for the company as well as the stakeholders.

Okay. And in terms of this competitive intensity one follow-up. So is the competition struggling for capital really because you mentioned that as a point. But when we look at [indiscernible], obviously, capital is not an issue. So I could not tie up with who is struggling with capital right now?

So there are a lot of small NBFCs, which are focusing on Tier 2, Tier 3 cities. We are -- there are more than 10,000 NBFCs in this country. We, as in the industry, we will know only 3 or 5 names. Now especially this used vehicle is either done by the people, who are in an organized segment or the smaller NBFCs, which are struggling for capital. So those are the players which are going to be creating space for us. That is what we feel and that is where we have been successful. If you have seen our volumes, we showed good volume in quarter 2 as on 30th of September. And you will also see certain numbers in quarter 3 when we declare our results. So we are growing month on month on this particular product.

All right. Sir, my final question was, we are owned by private equity promoters and they have their own constraints in terms of their fund lives and having to exit their investment -- Now that will require them needing the management to take some calls which makes sense from, let's say, a 5-year perspective. But as a professional manager, who would want to build this up for 10, 15 years, that calls may not make so much sense. So how do you kind of reach a compromise or how does this challenge just tackled internally? If you could throw some light into it vis-a-vis you know what they would want from a 5-year perspective what's probably well for the business from a 10, 15-year perspective?

So if I talk about today, I can discuss only about 5-year kind of plan. Today, we are being owned by Brookfield as well as Everstone. Everstone is the people who are the founder member of this company. Brookfield entered into this venture approximately 1.5, 2 years back. And since then -- and they are the major stakeholders today. We know that they have -- wherever they invest, they have at least 5 to 7 years of horizon. And by the time, in the next 1 year and 2 years, the kind of growth that we are looking at I think we will be a very, very stable player in the market. We will not have any issue. Once you have numbers in your place, I don't think there will be an overall issue. But yes, we -- as on today, we are seeing a horizon of 5 to 7 years from the private equity point of view.

Right, sir, I appreciate that, that they would have at least a 5-year horizon, maybe a 7-year horizon. My question was more in terms of, let me put it the other way. If there are certain aspects of the business with the professional management, led by you want to run in a certain date, it does not jell with those plants, how much freedom do you have to operate within it? I'm just trying to understand the dynamics between the promoter and the professional management. Is it fully dedicated or how does it work?

I mean we are fully -- Sridhar sir was at the helm of affairs. We are fully empowered to take all those decisions. There are no day-to-day interference from the private equities.

Right This is helpful. I have a follow-up question. Can I ask it or can I come back in the queue?

Mr. Buaria, may we request that you return to the question for follow-up questions, sir. The next question is from the line of [ Gopinath from PNR ] Investments.

Yes, the question is related to the estimates that our PE funds [indiscernible] and they're supposed to bring it down. Are there any plans that are concrete now, how they are going to do this?

So this question, this is more to do with the investors. I am not in a position to answer. It is better. This can be answered by the investors not by me. They have their plans, what is there that they can only share. It will be wrong on me to comment on that part because it's not in my view.

Okay. My only worry is how it is going to affect the company from our -- as a company, is it a mandatory thing that we have to get it done to 75% or is it only their problem.

So Gopinath, this is one question which has to be answered by the industry. It's not in my purview. I'll not be able to comment on that.

The next question is from the line of [ Pankaj Prasoon ] from [ HNI ] Investor

This is my follow-up question for Deep Jaggi, sir. What -- how big is this used tractor market can be in 3, 4 years?

So we will be working on this product. I know this market is primarily in India, there's about 80,000 tractors sold every year and the average tenure is about 2 to 3 years for this particular product. After that, these particular products are available in refinance market and also there is a huge transaction which happened in the exchange melas, which are run primarily by the manufacturers. And these used tractors are sold in the Eastern part of the country. So we feel that it's a large, large market with 70,000 tractors being sold every year -- sorry, 74,000 tractors a month.

Right, right, right, right. That's why I was also thinking, sir.

So 70,000 tractors a month.

So I think who all are the player, who are financing under this segment? I had hardly heard about it.

So it is still not -- it is not being dominated by any particular manufacturer or NBFC. It is being done in certain geographies by certain players and also by a certain small NBFC which I have mentioned. So this is a place which we find it a sweet-spot for us. and we will focus the same in the future. It is a safe product rather even than the new tractor because in the new tractor, what happens is 15% to 20% of the tractors are not registered. I mean you are doing a used tractors, all the tractors are registered and it is at a very, very low ticket size and you do generally don't lose money.

And this is a final question from my side. So in 5 years, do you see our asset book is growing towards $10 billion? And what is the strategy in the housing finance side, what is the ticket size and who all are our targeted customer consumer segment?

So as of now, we have already got a 5-year plan, which we are looking at a 4x, 5x kind of growth. We will be focusing on that. In case we are growing faster, then we will relook at our plan in the middle of 2024 or so. But as on today, we are looking at 4x, 5x kind of growth. In terms of housing, the major focus is again in Tier 3, Tier 4 cities, which is a self-construction 8 lakh kind of ticket size, which is also being focused by the government of India. So there is a lot of subsidies being given by the government of India in this particular segment. So this is where is our focus primarily at 14%, 13%, 13.5%, 14% kind of take. We are not looking at rate of 6.5%, 7%, which is going to HDFC or the SBI or the world. We are focusing especially on Tier 3, Tier 4 cities, 8 lakh, 10 lakh ticket.

The next question is from the line of Abhijit Tibrewal from Motilal Oswal Financial Services.

And sir, just one last question, maybe in the interest of time from my end. Given that we have already suggested that, I mean, at least over the next 4, 5 years, we'll be at least making an endeavor to grow the book by 4x to 5x from current levels. And given that our focus is predominantly going to be on let's say, Tier 3, Tier 4 cities where the businesses that we do are typically high NIM businesses. So sir, I mean I understand, I mean, things have been rough for the last 2 years during COVID. But going forward, what is the steady state rate of credit cost that you expect from the kind of product segments that you are kind of looking to build, which is you see the SMEs and affordable housing? And what can that eventually feed into a steady [indiscernible] ROA for you, sir?

So Abhijit, what is happening is that there is already a restriction coming. The average tenure life of the vehicle is being frozen by the government at 15 years. Once that happens. So you imagine every year 2.5 lakh trucks will be going out of the market. To replace that, you need vehicles and that's the segment where the vehicle age is between 3 to 12 years. That is where it's going to be the segment which is going to grow. And second thing is that there was about 35% of customers earlier used to be of first-time buyers for the new vehicles. Now with new Euro VI norms. It is not viable for our first-time users to get into this space. So what he will do is he will get into this use space. He will get into light financial vehicles. He will get into [indiscernible]. This is where is exactly we are focusing by understanding that this is a market, which is going to grow much more exponentially than the new [indiscernible]. Also, let me also share with you by -- before 2023, we will not reach the pre-COVID heavy commercial new numbers, we will not touch. But overall economy is growing. When the economy is growing,and trucks are going out, 2, 2.5 lakh trucks are going out of the system every year. So then where is the demand is going to be met. It is from the used vehicles. That's the space that we are targeting. I hope it answers your questions.

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Abhijit Tibrewal for closing comments.

Yes. Thanks, [indiscernible]. I think, I mean, let me take this opportunity to thank the team at IndoStar Capital Finance for giving us this opportunity to host their update call today and kind of thanks to all the participants for joining us on the call today.

Thank you everyone. Thank you, and please feel free to reach any one of us for any further queries.

Thank you so much for taking time for us. We are available anytime to answer any kind of queries that you have. Thank you once again.

Ladies and gentlemen, on behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.