JM Financial Limited (523405) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the JM Financial Limited conference call to discuss the company's financial performance for the full year ended March 31, 2022. [Operator Instructions] Please note that this conference is being recorded. Kindly note that any forward-looking statements made on this call are based on the management's current expectations. However, the actual results may vary significantly. And therefore, the accuracy and completeness of this expectation cannot be guaranteed. I now hand the conference over to Mr. Vishal Kampani. Thank you, and over to you, sir.

Thank you. On behalf of JM Financial, we extend a very warm welcome to all of you to the conference call of JM Financial Limited to discuss our financial results, both for the fourth quarter and full year ended FY '22. We have uploaded our results update presentation, our press release on the website and stock exchanges, and I hope all of you have had a chance to go through the same. Our consolidated revenue for the full year ended FY '22 stood at INR 3,763 crores, which represents an increase of 16.6% year-on-year. For the same period, profit after tax is at INR 773 crores, an increase of 31% year-on-year. This represents an earnings per share of INR 8.11 vis-a-vis INR 6.34 for the same period last year. Given the uncertainties around COVID-19, we have taken additional provisions across the group with a tune of INR 194 crores for the full year ended FY '22. Our Q4 FY '22 revenue is at approximately INR 840 crores. The Q4 PBT is INR 322 crores, which is an increase of 3% year-on-year. Q4 '22 PAT increased by approximately 1% year-on-year from INR 177 crores to INR 179 crores. As of March 31, 2022, the net worth, excluding minority interest is at INR 7,634 crores, which translates into a book value of INR 80 per share. Our consolidated loan book stood at INR 13,017 crores, which is up 19.9% year-on-year. The breakup of the loan book is as follows: wholesale mortgage constitutes 48% of our loan book, which is approximately INR 6,286 crores. The wholesale mortgage book registered a year-on-year decline of approximately 12%. The capital market loan book constitutes 6.4%, which is approximately INR 834 crores. The capital markets book has registered a year-on-year degrowth of 2%. Our bespoke financing loan book, which includes our corporate loans as well as our promoter financing book constitutes almost 33% of the loan book at INR 4,287 crores. This registered a year-on-year growth of 105%. The retail mortgages loan book constitutes approximately 9% of the loan book, which is at INR 1,170 crores. This loan book has registered a year-on-year growth of 57%. The financial institutions loan book, which is the last pie of the loan book constitutes a 3.4% of our loan book at INR 439 crores. This entire loan book has been disbursed in this year. Overall, our retail loan book is at approximately 15.4% of the total loan book of the firm. Coming to asset quality. The gross NPA ratio of the lending business is at 4.3%. Net NPA is at 2.7%, and SMA2 stood at 0.8% as of March 31, 2022. The loan book under the resolution framework for COVID-19 as announced by RBI stood at 0.81% as of 31st March 2022. The SMA2 actually is at 4.2% because of a technicality of 31st March. It reports as 0.8%, but the SMA2 actually is at 4.2%. On leverage and liabilities on a consolidated basis, our group debt equity stood at 1.22x as of March 31. And on a net basis, it was at 0.87x. During the full year ended FY '22, we raised INR 3,800 crores through long-term borrowings, and we have raised INR 2,245 crores through NCDs, out of which INR 565 crores was in the 10-year bucket and INR 500 crores in the public issue of NCDs. We raised INR 1,565 crores term loans to banks and others. We have been able to diversify our initial base to include insurance companies, pension and provident funds. Our borrowing comprises of 77% from long-term sources and 23% from short term as compared to 78% and 22% as of March 31, 2022. So it's almost similar. As you would know, our segments were realigned to ensure a sharper focus on our clients as well as channelize the bandwidth to achieve desired client focus and be able to deliver value to our stakeholders. The first segment is our Investment Bank segment. The Investment Bank focuses on all of our institutional, corporate, government and ultra-high net worth clients. It includes our investment banking, institutional equities, fixed income, balance sheet as well as international operations. Within Investment Banking, it includes the equity capital markets, private equity, debt capital markets as well as advisory business. For the full year ended March '22, the segment had a revenue of INR 1,273 crores, PBT of INR 473 crores and a profit after tax of INR 352 crores, which is an increase of 22.4% Y-o-Y. Full year return on equity from this business is at 15% and return on assets is at approximately 6%. The second segment in the group is mortgage lending, which includes both our wholesale and retail mortgage businesses. Wholesale, as you all know, includes construction finance, project loans, loan against land as well as structured financing for real estate. And retail mortgages include affordable home loans, small ticket loans against property as well as education institution loans. For the full year ended March '22, the Mortgage Lending segment reported net revenues of INR 708 crores with a pre-provision profit of INR 601 crores, profit before tax for the segment stood at INR 376 crores, and profit after tax post noncontrolling interest is at INR 117 crores. Annualized ROA for this business is at 3% and ROE at 7.1%. In quarter FY '22, our net revenue and pre-provision profit stood at INR 177 crores and INR 147 crores, respectively. The PBT at INR 112 crores and PAT post noncontrolling interest stood at INR 30 crores. On the retail mortgage business, we have a very granular retail mortgage book of INR 819 crores across 7,126 customers with an average ticket size of INR 11 lakhs, carrying an average yield of 12.6% and an LTV of 56%. Our book is well spread across 9 states and 55 branches. On the wholesale mortgages, the loan book has reduced from INR 6,091 crores to INR 5,676 crores as of March '22. Our third segment is our combination of our distressed credit business as well as the alternative credit business. This includes our ARC. We reported our highest ever full year profit on the distressed credit business. Our AUM has been almost flat at INR 11,000 crores. The AUM is well diversified into multiple sectors. The segment had net revenues of INR 293 crores with a profit before tax of INR 236 crores. PAT post-noncontrolling interest from this segment grew to INR 107 crores. The gross debt-to-equity stood at 1.1x with an annualized return on equity of 10% and ROA of 4.7%. In Q4, our net revenue stood at INR 30 crores and PBT at INR 23 crores and PAT post noncontrolling interest at INR 10 crores. The Board of Directors has approved yesterday the scheme of demerger which undertakes our private wealth and PMS business, which is today part of JM Financial Services, a wholly owned subsidiary, along with the investment we have in our institutional equity business, which is a wholly owned subsidiary of JM Financial Services into JM Financial Limited. The scheme shall be subject to regulatory and other approvals. Accordingly, once demerged, the private wealth and PMS divisions will be classified under the Investment Bank segment and will be divisions of the stand-alone listed company. Our fourth segment is Platform AWS. The business is completely focused on providing an integrated investment platform for all the individual clients of the company. It comprises of asset management, wealth management and our securities business, which we call AWS. This platform will be Internet-enabled and digitally focused and our endeavor would be to be one of the leading players in each of these subsegments over the next decade. For the full year, March '22, the Platform AWS business segment had revenues of INR 662 crores with a profit before tax of INR 128 crores. Profit after tax for this segment is at INR 96 crores. The annualized ROE and ROA for this segment are 12.3% and 3.2%, respectively. In Q4 FY '22, our revenue stood at INR 153 crores, PBT at INR 19 crores and PAT at INR 14 crores. We operate through our own branches and franchises. We have been growing our franchise network, which now stands at 630 franchises in 185 cities. Our online trading app, BlinkTrade is gaining steady traction and we are continuously upgrading it to improve customer experience. We have been able to increase our online transaction percentage to 63% as compared to 52% last year. The majority of our online clients are trading through mobile trading apps and 86% of our account opening is happening through digitized mode. We have demonstrated INR 35,500 crores plus peak volume through online platform, demonstrating scalability of the platform. Now we will focus much more on acquiring clients and give them a seamless DIY journey through our online trading platform. On our wealth management business, our private wealth segment caters to high-net-worth individuals with an AUM of INR 61,000 crores. This includes 46% in equity assets. As you all know, we had started our Elite Wealth business in 2019 catering to affluent clients. We have quickly ramped up to 92 advisers across 8 locations and have crossed the milestone of INR 1,000 crores in AUM this year, demonstrating an 88% growth Y-o-Y. This business is likely to grow much more rapidly. On our retail wealth ISV business, which predominantly deals with retail customers through a network of 7,300 active independent financial distributors, has recorded a steady growth of 22.3% Y-o-Y, and its AUM stands at INR 20,200 crores. Over the last year, we have built out our PMS team and have made senior hires in the PMS team. Our total team size in PMS has expanded to 18 people. In the AMC business, our AUM stands at INR 2,318 crores; INR 569 million in equity, INR 1,749 million in debt. We served 1.35 lakh customers and close to 16,700 distributors. And in a bid to grow our AUM and our folio base, the company has onboarded very senior hires across functions such as investment teams, products, sales, risk, operations and technology. Our engagement efforts are taking place, and we have been rebuilding all our relationships with all our several key distributors. We are very hopeful of a full revival in this business and aiming to touch a scale of INR 25,000 crores in AUM in the next 2 to 3 years. With this, I would like to conclude, and we will be happy to take any questions. Over to the moderator. Thank you.

[Operator Instructions] We have the first question from the line of Himanshu Upadhyay from O3 Capital.

My first question is on the Credit Solutions business. In this quarter, we see a number of players in top 3 are corporates like TVS, JSW and Shapoorji. Are we changing the nature of book of our clients? Can we get similar historic NIMs with these groups? Second, what is the type of collateral we get from them? Number 3, can you elaborate on the chunky NPAs in Mumbai and Chennai, and the large SMEs in Pune? 4, what are the repayments in FY '23 and -- sorry, I'll just change the question. The -- actually, those are my questions.

Yes. So Credit Solutions has always had the option to do promoter financing as well as corporate lending. And so whenever there are larger ticket transactions, and we normally do larger ticket transactions with safer and larger corporates. That is when they partner with the Investment Bank segment and lend their balance sheet. So these are largely loan against shares, both the TVS Group as well as the JSW Group. And Shapoorji Pallonji is a real estate group. So that doesn't change anything. That is the core business of Credit Solutions. So you will see the -- so we are not really changing the color of the business. It's just that we've expanded more on the corporate and promoter loan side in the last 6 months relative to real estate. And real estate also all the efforts are underway. And there is a -- we are facing a lot of prepayment in real estate. So we have the construction finance book which has seen a slower amount of drawdown because sales have been very strong. And at the same time, because of the sales being very strong, many of those accounts have been refinanced, and therefore, we are sitting on a huge amount of cash in JM Financial Credit Solutions. The current cash balance is over INR 1,600 crores. And this is all a function of a lot of refinancing and repayments that is happening on the current book. It's also a function of -- because we consciously haven't grown the book in the last 2.5, 3 years. And therefore, you're seeing that most of our CS assets have matured and therefore, sales are even stronger and refinance is easier. I do not see this trend continuing. We definitely will be adding to the real estate book over the next year and 2 years. And you will see a trend reversal in terms of the lending book pick up, you will see a trend reversal in terms of how real estate loan book growth numbers will be over the next few quarters. You had a question on NPA. Our Chennai NPA numbers have always been high. And as I've alerted on all my previous calls that Mumbai has seen excessive risk taking in the last 4, 5 years, and therefore, we've seen some sort of gross NPA numbers go up in Mumbai. But as I said, that we remain fairly confident that we have a lot of provisions in our book. I would say we've provided very well. And we should not be having issues in terms of making sure that these are well contained and maybe even better than what they have provided for. And we can -- we don't disclose exactly what accounts are in SMA2 or are in gross NPA going forward. We used to do that, but we are facing a difficult time with the borrowers not wanting to make those disclosures. Any other questions?

Yes. Actually, I'd like to add on to my question, that it is -- what are the repayments in FY '23 and pending disbursements in Credit Solutions currently? And the next question is the restructuring in a subsidiary, what is the rationale impact of that?

Yes. So I think the repayments, which are contracted repayments will be the tune of around INR 1,300 crores, INR 1,200 crores to INR 1,300 crores, if I'm not mistaken. And disbursements, which are sanctioned will be, I think, a shade lower than that, around INR 1,000 crores to INR 1,100 crores. But the challenge is that it's not about the contracted repayment. I mean our prepayment last year and last to last year has been higher than the contracted repayment because of refinancing as well as because of very strong collections in escrows. I think I mentioned this also in some of my earlier calls that our escrow collection is running at very, very high levels because of the sales momentum we have seen across markets and specifically in Mumbai and Bangalore and Pune, which are our biggest markets. So I think even this year, our contracted repayment is at INR 1,200 crores, INR 1,300 crores, but we could see higher than that versus what we'll disburse. And this restructuring is fairly simple. So we have a wholly owned subsidiary called JM Financial Services. It services ultra-high net worth clients through a division called the Private Wealth Management. We see a lot of synergies between that division and the clients. It serves with our institutional and corporate and investment banking business. So we're just transferring that division through a demerger into our holding company. The second division there is PMS. PMS is more like an alternative investment business, and we have seen a lot of synergies of that business is what we are planning to do on the equity side in our AIFs. And therefore, we are moving that business also into the holding company, and it will be part of the AIFs plus PMS asset management strategy.

[Operator Instructions] We have the next question from the line of Akhil Hazari from RoboCapital.

Sir, my first question is regarding the wholesale mortgage loan book. So currently, I think it's around INR 7,300 crore as mentioned in your press release. I just want to know, so what is the growth target for how to grow the loan book in FY '23 or FY '24 going forward?

Yes. So we've done some business planning. So for the mortgage lending vertical, we have a growth target that we want to achieve a book size of INR 15,000 crores by FY '24. The INR 15,000 crores asset book will be split INR 12,000 crores in wholesale assets and INR 3,000 crores in retail assets. our long-term ROE target by FY '24 is that 15% plus. And we want to focus on resolution of our stressed accounts and have the net NPA plus SMA2 numbers well within 5%. So this is our sort of target for FY '24.

The 15% ROE is for mortgage plus retail or only for mortgage?

Combined, retail will be lower and wholesale will be higher.

Okay. Fine. Retail will be lower, okay, fine.

Retail is still building. It is still investing a lot in infrastructure. That's why it will be lower.

And what would be the credit cost going forward for the wholesale book?

So if you look at our current provisions, I don't think we should have credit costs which are higher than the provisions that we've already made. That's how we should look at it.

Okay. Fine. And my last question is regarding the -- I just want to clarify the profit of FY '22 and Q4 FY '22 for the Wealth Management and Securities segment is INR 96 crores for FY '22 and INR 14 crores for Q4 FY '22, right, the PAT?

Yes.

[Operator Instructions] We have the next question from the line of T.V.K. Vivek Kumar from Bestpals Research Advisory.

So my question is regarding the overall growth of the company. So the last 4, 5 years, we had events like demonetization, GST and then RERA and then IL&FS crisis and then COVID. So we've had events like this, which actually stunted our growth in terms of loan book and the way we were shaping out our company. I've been invested from the last 5 years. So I'm just trying to understand how management is trying to create shareholder wealth in the next 4, 5 years in terms of tackling bottom-up opportunities, which will lead to our more predictable growth. It's not that there was no growth, but because there are many NBFCs while in the last 5 years have faced the same set of events could exploit a lot of bottom-up opportunities and grow and create wealth. So I'm not saying it should be done, but if you can throw more light on what are your thinking because we have done 2 QIPs. And sorry to say this, but we shareholders will only make money on a 5-, 10-year period only through capital appreciation and not like -- actually the management has remuneration to back on, but we do not have that. So we -- for survival, we are very clear, our company will survive for a very long run. But to thrive and create shareholder wealth, what are the areas of growth in a predictable manner that we can bank on, what you think and your ideas on shareholder wealth creation on a 5, 10 year? I'm not saying, okay, let's -- whatever has happened has happened in the 5 years. But over the next 5, 7, 8 years, what are your thoughts on shareholder wealth creation? If you don't mind, if you can throw light, sir?

Yes. Sure. Happy to do that. So it's a very good question. See, first thing I want to highlight is that if you just see growth over '21, '22, -- and you're absolutely right in saying that the company has faced a lot of external headwinds and not really any -- that much of internal headwind. And we still come out stronger. Our ratings are intact, right? Our reputation is intact. Our client sets are intact, and we are doing great business. But if you just look at our growth, just simple growth in FY '21 to '22. Our revenues grew at 17%. Our pre-provision profit is actually almost INR 1,700 crores, which grew at 28%. And that number is very important to highlight because that is actually sort of the cash flow we've generated, right, including tax with the cash flow the company has generated. And the cash flow we've generated is up 28%. And it's very important for you to mark that because we barely increased leverage, right? Our leverage is flat. How many companies actually increased their PPOP by 28% without increasing leverage? If you look at our PBT, our profit before tax is up 26.4% at INR 1,348 crores as a group, right? And our net profit is up 31% last year at INR 773 crores, right? The issue is that because we are a diversified financial services company, we don't have every business performing every quarter, right? So our ARC is a little bit -- you know it performs 2 quarters, doesn't perform 2 quarters, right? In our Platform AWS business, we do a lot of IPO distribution, IPO funding, right? So that is not continues every quarter. But if you see the year-on-year performance, I think it's a solid performance. Our return on assets is at 4.2%. The reason ROE is at 10.6% is because our leverage is low, right? Otherwise, the return on assets, I don't think most financial services, which are in lending would have a return on asset of 4.2%. So I think the management that JM Financial and all my partners and all of my stakeholders have done a phenomenal job to deliver these results in very challenging times in a year where we went through Delta as well as Omicron. We've done extremely well. Now if you look at the 4 business verticals and we did the restructuring last year, we are very clear on our strategy, right? We are creating one of the best integrated investment banks, which has a very strong reputation and pedigree. And our strategy there is that we want to advise, we want to originate, we want to finance and distribute capital, both net and equity in public and private markets for corporate institutions and high net worth individuals. And we want to deliver this integrated investment bank experience to all our clients and never compromise on the trust that our clients have placed in us. And if we see success, our success is going to be defined by the success our clients achieve working with us, right? And they get value from our capabilities. And the more we are able to make our clients succeed, the more value we'll create for our stakeholders. So if you ask me on financial goals, our financial goal is that this division has generated close to a 14% to 15% return on equity, right, the integrated investment bank. So we want to push this ROE for this division to around 18%, 19%. We want to be in the high teens, right? And we want to establish and maintain a top 5 league table position across the services that we offer. So that in force is the strategy for our investment bank vertical. We want to grow earnings between 15% to 20%, and we want to have an ROE in the high teens. And we're almost there. We are at 14%, 15% ROE. And I think we'll get to the 18%, 19% that we want to get to. When you come to the mortgage lending, I answered in the earlier question, we have a target. The target is set. FY '24, we want to be INR 15,000 crores in assets: INR 12,000 crores in wholesale, INR 3,000 crores in retail. In retail, I think we are building a fantastic business, right? It goes completely unnoticed because we are a large business. But you tell me today, a good retail mortgage company with INR 3,000 crores in assets with INR 11 lakhs of average ticket size generating an excellent ROA, what the valuation should be. I think the valuation of that business will be more than the market cap of JM. So that business, we've hugely invested. We already have 55 branches. We're adding 20 branches more before Diwali. So we have 75 branches this year, and we hope to be at 100 branches by June, July next year, right? That's a lot of growth. And everything that we need to invest in is already underway. Yes, we have faced headwinds in terms of asset quality. But if you look at our last 60 quarters, all of our headwinds actually started because of COVID, right? These were completely external circumstances that have led to us having this 10% sort of stressed account number, including both NPA and SMA2. And yes, there are some other cases in SMA2, which may slip to NPA, but we are very confident of recovery. But still, our focus is that in the next 2 years, we want to make sure that we focus on the resolution and get the net NPA and SMA2 numbers well within 5%. I've said this on my earlier calls. Historically, the wholesale mortgage business always runs high SMA numbers. It is only in COVID that it slipped into NPA. But we are very confident. We think the space is cleaned out, there is less competition, and we'll finally have a clear 3- to 5-year window to go and rebuild the business. When we come to platform AWS, our strategy is very clear. We will make large-scale investments in both Internet assets, digital infrastructure. We will be literally best-in-class, and our endeavor is to be the most cost-effective financial services provider for all brokerage capital markets and mutual fund products, right? And this entire business has been carved out to focus on individual clients, right? COVID has shown us a key change in the number of individual clients across the depth and breadth of the country that want to participate in the capital market growth of India. And this is exactly what we are planning to do through an integrated technology-led vertical, right, which will focus on this business. The long-term return on equity target in this business is 25%. We don't need too much capital here, right? And we're going to keep cost to income -- we're going to bring down cost to income from the 70% levels that we have here less than 60%. And our mutual fund target AUM is between INR 25,000 crores to INR 30,000 crores for FY '25. We've made significant hires in the last 2 years in this vertical and very excited by the new teams, which are working extremely hard to deliver the momentum in this business for us. Coming to the distressed credit business. We've had our highest profit in the ARC in the history of the ARC. Yes, we do understand that we need to start adding new assets. That also has started. Last year, we have added a few assets. We are already looking at new assets from a strategic basis. Long term, we are looking at this business as an asset management, a higher return on equity business by raising funds through an AIF platform. So again, growth will restart in the ARC very shortly. We have brought down the debt equity in the ARC from a peak of almost 2.5x to 1.2x, and we'll be very comfortable at the current levels of 1x to 1.2x. We will start adding assets, as I said. And we will also look to build out a full-scale asset management AIF platform, which will leverage not only the capabilities we have in the ARC, but also use the strong capabilities of our integrated investment bank to do more transactions in the space. So I think our strategy is very clear. I mean we've already seen growth, and I'm very confident that over the next 2 years, which, from what I've outlined, you will see even more growth.

So Vishal-ji, if you don't mind. I'll just -- actually if you see the pipes, even 5-, 7-, 8-year track record, you have actually grown. But my -- just one question, I may be wrong, you can leave it. My thinking is, especially in finance companies, wealth will be only created for shareholders only if you create a predictability of that growth and also the risk because -- or else -- actually, if you've seen your brilliant numbers on a consistent basis, if you actually see. But the wealth -- they're not making well because the risks are always -- pursued risks are always greater than the pursued returns in terms of -- and there is no predictability of growth on the structure of business. Maybe if you can communicate -- because you are much, much better placed than investors like us who are to make investors understand better, because the predictable growth is what creates vision, because or else every year we are seeing some risk and share price never goes up in the long run. But although the numbers really come, actually, you're growing at 10%, 12%, but the share price will never get by 10%, 12% that it will not reflect -- the 10%, 12%, 15% will not get reflected in the share price because there's no creditability of the business model. So what happens is actually numbers will come, but you will -- that will not get created into wealth creation, and shareholders have only one way to make money is through share price, not...

So that's a fair point, but only the point is you yourself made a statement that if you look at our peak -- take our peak-to-peak profit for the last 15 years, right, every 3 years, 4 years, our profit is more --

But what I'm saying is -- sorry to say this, I'm not trying to contest what you are saying. People don't look backward, people look forward. So when the business model is not really creating the predictability, the wealth creation would be dispelled. That is my -- I may be wrong, and so you need not take my point, but I just wanted to understand your thinking on shareholder wealth creation, because we have done QIP 2x and unless there's a growth and in a predictable manner, I do not see -- I just wanted to understand. At the end of the day, your company. So I just wanted to understand.

No, no, end of the day, it's our company, all shareholders own the company.

Yes, yes.

But the point is, as you began your statement saying that how do you go predictably when you've been affected as NBFC sector through IL&FS and you are hit straight away by COVID, right? So every time when you want to restart growth, you have a big challenge, which is ahead of you. And despite that, we reported our highest ever profit this year, right? So I think the point we're trying to make is getting lost in translation, right? At the end of the day, we have to look after your long-term interest, not your short-term interest. It's very easy for us to pump up the book and borrow INR 10,000 crores and lend, right? But the best NBFC in town is the one which is able to collect, not the one that is able to lend.

No, no, I just wanted to understand, so that -- we invested in the last 6 years, actually. So it's not that I just bought last year. I've been there for the last 6 years in the company. I just wanted to understand your thinking about shareholder wealth creation. So I just thought I would ask this, so that I have more clarity, that's it.

No worries. Thank you.

[Operator Instructions] We have the next question from the line of Dhruvesh Sanghvi from Prospero Tree.

Overall, a great set of numbers in general. A couple of small points. So in the overall IPO funding space with this new change, how much are we getting affected? If you can quantify a bit, not by exact, but the direction sense?

Yes. So I think IPO funding plus IPO distribution would have been roughly INR 120 crores of profit for us. So there will be an impact this year because of the change in regulation by RBI as well as SEBI.

Right. So does it mean that this entire INR 100 crores like really goes down to 50%, 60%, 80% levels or no, I mean not that big?

No, no, no. The INR 120 crores goes down to 0.

Okay. Complete 0, fine.

Yes, because in the RBI rules as well as the SEBI rules of allotment, which we have seen in the earlier IPOs of the last --

Yes, the 2 IPOs, yes.

Yes. So that actually goes down to 0 because there is no reason to do IPO funding.

Right. So within this space then, I mean, of course, the same capital and energies will be used somewhere else. But are there such enough easy opportunities, which were -- I mean, IPO funding is a far easier opportunity, and that is why I'm using the word easy. So if you can share some thoughts on it.

Yes. So I'll tell you one reason we did not even grow the book very aggressively last year, our general loan book very aggressively is because we were indirectly deploying leverage for almost 3x a week for 9 months of the last 12 months in IPO funding, right? There was no need to take additional long-term risk when on a short-term product, you could make almost INR 100 crores of profit. That obviously changes and you've already seen that change when we saw the writing on the wall, you've already seen almost a 20% expansion in loan book quarter-on-quarter. So as I've said in my previous calls also, right, I mean, it's not that we cannot increase the loan book. We'll increase the loan book at the right time. And if we are able to make money for shareholders using our diversified business model without taking higher amount of risk, we will do so. And IPO funding is an absolutely low-risk product compared to giving a loan to a developer from a 4- to 5-year perspective. But having said that, we understand that there is going to be a INR 100 crore plus -- INR 120 crore plus shortfall in earnings this year, and we will make it up through long-term accretion in the loan book.

Okay. Okay. Fine. Fair. The second is, I think you also spoke somewhere and I missed that exact line, but your pre-provisioning profit, did you say some INR 1,500 crores, INR 1,700 crore number?

INR 1,696 crores.

Yes, yes. So now when do we start seeing write-backs? Because at the end of the day, the real estate prices or the prices of apartments, et cetera, have all somewhere gone up. And even the most disputed of the properties are coming back in the market in some time, in 3 years, 5 years, 7 years. So whatever is recognized as NPA, when does it start getting reversed on the P&L and start giving us some profit?

We'll start seeing it from this quarter.

Okay. And will this -- I mean, is this a 3-, 4-year thing? Or no, it will all get over very fast?

I'll tell you my original estimate before Delta was actually 12 months to 18 months. And after Delta, I added almost another 6 months to 12 months to it. And therefore, I think it is anywhere between 2 to 3 years. So the issue is that the properties which slip into NPA, some of them are resolvable, okay? Because it is slipped, but you can provide some construction finance, complete it, recover a good percentage of your sales. But the challenge only comes in when there is home buyer litigation. Is there any form of litigation that needs to go to RERA or go to the courts which comes from home buyers and their dissatisfaction, then the time lines get resolved, right? To give you an example, say, there is a residential project, say, it's got 100 units to sell, INR 2 crores a unit, right? INR 200 crores of sales. And you've sold, say, 40 units. So we are sitting on INR 160 crores of inventory. The project needs to be completed. But if any of those INR 40 crores of sales goes to court and goes to RERA, the time lines get extended, right? This is, for example, one of the challenges we face. Then we have to wait. So we know we can fund more. We can -- there are lines outstanding. We can complete the project, but nothing happened still, all of those issues get settled. So this is just one example. Therefore, the time line for many of these originally estimated at 12 to 18 months, I think will be anywhere between 2 to 3 years now. The pleasant surprise is that in many of the cases, we have seen the product price go up, right? So what happens is sometimes delay works in your favor, but sometimes it doesn't. It depends, it's case to case.

Right. So to a person who doesn't understand a lot of banking accounting or NBFC accounting, if somebody has to on a ballpark, understand that what is already out provided in the P&L and what can come back, is there a quantifiable number? I'm not looking at the time. Let's say, 3 becomes 4 years, that's okay. But some broader quantification, so that we can gauge this?

This is very hard to do. Let me tell you what we do, right? So there is a provision we are supposed to make and there is a management overlay and a provision we make because of our assumptions on what we can recover from a COVID perspective. And a large part of our provision, the total provision number is roughly INR 770 crores odd and INR 500 crores of that is COVID-related and large part of that is in real estate. I think almost INR 400 crore odd is real estate. So what happens is we do a stressed time line assessment to the recovery, right? So when I told you in the first wave of COVID, we had stressed the time line to a certain extent. And post Delta, we realized that we need to stress it a lot more. So what happens is we do a present value calculation of when we will be able to recover the money because this case is going to go through insolvency, right? And then we get the present value and we apply sometimes in certain cases, very high discount rates. We can apply discount rates as high as even 20%, 22% in terms of just simple present value calculation because we are uncertain, really uncertain about the time line of the litigation. So to cover for that sort of delay even after making a certain conservative estimate, we use high discount rates. And then we come to a number which we think is the present value of the collateral in terms of cash flow. And then we adjust that from the outstanding value of the loan today and the difference in the 2 basically goes into a provision that we create. But it's being discounted at a very high rate. So if you're able to recover faster, you see write-backs. If there is a larger time line to recover, then you will not see write-backs. But the percentage number will keep going down over time. See also, you have to keep in mind that we've not grown the loan book. There are many lenders who will grow the loan book and these percentage numbers look small. We've been very prudent. A lot of our origination teams have worked hard in the last 2 years to make sure the number is contained and the number is not going into a crazy status here. We've traded some assets which we thought are difficult. We've resolved some of the assets which you're not seeing in the book. And also, we've been very lucky that there's been a phenomenal sales cycle through which we've had a very hefty cash balance, which puts us in a pole position because every developer knows that when construction is needed even for a stress project, JM is going to be around and the construction project will get completed. So this is sort of all in all the landscape. So it really depends on time line. We are very sure of collateral. We are not very sure of time line.

Right. One question related to your retail lending. So on the channel checks, I came to know that, let's say, you are redistributing for HDFC Bank as a home loan product. So that is one part. And the other part, which you are talking about is the INR 10 lakh, INR 11 lakh average ticket size. Am I understanding that both are that retail INR 3,000 crores? Or no, the other part is the distribution-led income, which is not on a loan book?

So we do very less of distribution for anyone. When I talk about the INR 3,000 crores, the INR 3,000 crores is our loan book on our balance sheet. The number today is roughly INR 1,200 crores of retail loans. And the number INR 3,000 crore I talk about is on balance sheet retail mortgage assets.

So how do we differentiate here? And what -- can you expand a little bit more on this business? Because your comment about such a wonderful business getting created, if you can expand a little bit more in terms of strategy, how we are different versus what other companies are doing? I mean, one big name that comes to the mind is, let's say, Aptus. So is it a like-to-like that kind of business?

It's not similar to Aptus. I think Aptus is a little more diversified player. I think we are more focused, affordable home financier, as well as we do some amount of LAP. So our strategy is fairly simple, right? See, there is a segment of housing, which the government wants to grow, which I'm sure you're aware of. And we see massive growth not only because of affordability also because of home loan rates and also because of the government push into the affordable housing finance space. And so this is exactly the kind of opposite business we do in wholesale mortgages, right? Wholesale mortgages, we are more city-centric and retail mortgages, we are really outskirts of the cities and we are in smaller towns, really in larger -- smaller Tier 1 towns and larger Tier 2 towns. And therefore, the strategy is very similar to, say, Aavas Finance, which is really focused on granular affordable home loans to both salaried and non-salaried customers, non-salaried customers being a larger part of the equation. And therefore, your credit assessment becomes very important, on the ground credit assessment, understanding the borrower, understanding his income and being able to understand even the development to which you are lending to. Most of the loans that we do, almost 90%, 95% of loans are completed homes. We don't take too much of construction finance risk in this segment because many a times, the developers are not well known. So from that perspective, we keep credit quality in check. The advantage we have is that in this space, we are one of the few lenders who is very well rated and has a good cost of borrowing. And therefore, we are able to make sort of the same spread lending at 12%, 12.5%, while some of the other NBFCs have to lend at 13.5% to 14%. Our processes are fully digitized, they're completely tech-enabled. And therefore, we'll run an extremely tight cost to income as we grow the business. And at some point this year, I think, will make a specific presentation with a lot of details on this business. We'll give investors a good idea and a bird's eye view of what we are doing.

Sure. I have 2, 3 more questions, but I will join back in the queue if in case there are others.

[Operator Instructions] We have the next question from the line of Anoop (sic) [ Anuj ] Sharma from M3 Investments.

This is Anuj Sharma. Vishal, congratulations for a decent set of numbers. My first question is what is the outlook on the competitive environment in the wholesale book? We are estimating almost a 27% growth in loan book in the next 2 years. So what is the key reason? Is it the competitive environment or the buoyant real estate outlook?

I think it's a -- good question. I think it's a combination of both. We are quite bullish on the prospects of real estate over the next 2 to 3 years. Also the competitive intensity is low because many of the NBFCs are not there in the space. But having said that, I don't think we will be able to get extraordinary yield in the space. And the reason is that if you look at Mumbai, for example, the top 10 developers who had kind of a 20% market share in Mumbai 7 years ago, here will probably have close to a 36%, 37% market share of Mumbai sales. So even on the developer side, there is a bit of concentration with the better names, and we will be moving our book a little more aggressively towards the better names. And therefore, there will be some amount of yield pressure. Earlier, we've been lending at around 15% average yield. I think we will be at close to a 10% lower average yield, and which would also allow this kind of loan book growth to happen. If you were to lend at the current 15% sort of yield, then we will not be able to grow the loan book to INR 15,000 crores.

Okay. All right. And just one extension to that. So, one of the large competitors will undergo a merger and acquisition, and will that leave us some space to grow, especially because of regulatory constraint, they will not be able to do exactly what they were doing earlier. So does that also provide us some leeway?

That is correct.

All right. My second question is, despite volatility in the markets, we have managed to have a decent growth or less of a stability in the investment banking book. So just 2 questions on that. How is the pipeline looking like and we'll be able to again maintain some sort of consistency?

Yes. So I think, as I said earlier also, I think our pipeline is very strong. We have 100-plus written mandated transactions and almost another 50 to 60 transactions, which are getting mandated underway. It is, I think, one of our strongest pipelines in the history of the firm. And I'm actually very, very bullish on this vertical. And it's sometimes unfortunate that most people don't understand what we are trying to create, but we are trying to create a very effective and strong cross-selling machine where we will literally be the port of call for any form of solution that a corporate or ultra-high network or institution needs. We will be able to provide equity capital markets, debt capital markets, private placements, M&A, financing, all capabilities to all the large B2B customers that we can work with across India. So I'll give you a simple example, right? Our IPO market share last year is at around 20%, but there are 80% clients who've done IPOs, but they haven't done them through JM. That doesn't mean those clients are not going to be banking with JM in the future, right? So I think the consolidation in the investment banking space is sort of done. Clients know who are the 4 or 5 large domestic names to talk to and who can actually offer solutions to complex problems, as I said, across all of the services and products that we have. So it's a very powerful proposition. There will be a few quarters of sort of volatility and uncertainty, but that's fine. I mean, we can -- even for example, last year, we actually delivered these numbers with almost 3 months to 4 months of a pretty dull time, which we went through in Delta. So 3 quarters is basically enough for us to deliver a flat earnings. And if we get the full year, we will see -- you'll see decent growth.

All right. And third and last question is, generally, what is the typical duration of a corporate loan? And how do you decide whether to allocate capital towards the corporate or the wholesale or these are independent decisions when you decide?

Good question. But looking at our debt equity today, it's not a problem. We can allocate to both, frankly. But the decision to underwrite the credit process behind corporate and the credit process behind real estate is very, very different. A corporate loan portfolio can be created a lot faster. It's also shorter term in terms of duration. The duration is, on average, 18 months to 2 years, while real estate is almost 3 to 4 years. So real estate, what happens is that you don't need to re-originate as quickly because the loan stays on your book for a while and you keep making that NIM, right? But on the corporate side, you need to have a strong engine, which is constantly be able to originate. And that is where the entire integrated investment bank strategy comes to play because we have a huge machine. We'll also have a private wealth machine, which gets added to our investment bank. So that would mean we'll have almost 60, 70 origination offices, which are able to cross-sell many of these products. But yes, corporate is more of a 18-month to 2-year product while real estate is 3 to 4.

We have the next question from the line of Akhil Bipin Thakker from Axis Mutual Fund.

I have 2 questions. One is on your interest income. This quarter, your interest income has actually declined while your book has actually grown. Is it more because a large share of the disbursement has happened towards the end of the quarter? Second question is in terms of your bespoke book. The mix of your overall AUM has changed on a quarter-on-quarter basis. Could we see that hence forth, this will be the kind of mix that we'll see where bespoke or the promoter financing book will continue to have a larger share in the overall pie? These are the questions.

Yes. So your first question is, yes, because the large part, see, we started pushing the book growth sometime around Diwali, right? And it takes us -- corporate underwriting is normally, say, 4 to 6 weeks of work, but real estate is around 8 to 12 weeks of work before we actually fund because of diligence and a lot of things that we need to do. And therefore, a significant part of the loan book booking happened only post mid-Feb around February 15 onwards. Also, the second significant part is that the third quarter was one of the best quarters for IPO funding, while the Jan, Feb, March quarter was very muted in terms of IPO funding. So the IPO funding revenue was not there. So on IPO funding, we were on average doing $1 billion of funding INR 7,000 crores to INR 8,000 crores of funding for almost 3 weeks of the month, earning almost 200, 300 basis point spread in Q3, which obviously was missing in Q4. So that is the second part of the delta, why the interest income is down. On your second question, yes, you will see a more diversified mix. So what we are trying to do is on the consolidated lending book, if you see our presentation, we have the -- we have a page, Page #50, and that's where you see the split -- so the idea is that over the next 2 to 3 years, our book definitely needs to be more diversified. So if you look at, for example, FI Financing, this is a fantastic business. So what do we do here, right? We are basically financing smaller NBFCs. We are financing NBFCs who we like, who are doing a good job but have a lower credit rating today. And all of these NBFCs that we finance have very granular assets, right? They are onward lending into the retail market. So whether it is secured home loans, whether it is LAP, whether it is auto financing, whether it is micro financing. So we basically fund these entities, and we have the network of these entities protecting us, right? But the underlying exposure that we are lending to is still very retail, very granular in a sense. And as we expand this business and we add more clients, we will even get into products like securitization with them. We will use our debt capital market and equity capital market services to even raise more innovative finance for these entities and also raise equity capital at the right time. So it's a very synergistic integrated business. So our top competitor without taking any names, for example, in this space has a INR 6,000 crore book, while our book is only INR 440 crores. So there is no reason why this book will not be a INR 2,000 to INR 3,000 crore book in the next 2 to 3 years. So it's really a retail business lending back in wholesale finance. So these are all very well thought through strategic moves where our reliance on real estate, if you go back 4 years, real estate was almost 75% of our portfolio, wholesale. So our reliance on real estate will not be that high. It will still be a big business. It will be profitable for us. It will earn very good ROA and ROE for us. But it will be our entire loan book, our overall loan book will be a lot more diversified than you see it in FY '24 and FY '25.

Okay. Sir, my one follow-up question. In terms of -- if I look at your asset quality even for JM Financial Credit Solutions, your [ G&P ] numbers have spiked up despite an increase in the overall AUM. So is there -- the new slippages, has that happened on more on the residential or your mortgage side book? Or is it in the corporate finance lease book?

No, no, it is all in the mortgage. Everything is in mortgage. Bespoke barely has any slippages. It's all slippages from SMA to the NPA bucket and a few from SMA1 to SMA2.

Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I would like to hand the conference over to Mr. Vishal Kampani for closing comments. Please go ahead.

Yes. Well, thank you very much all of you. I hope it was a good session. If there are any further questions, please reach out to us, and we will be happy to clarify. Thank you.

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