MAS Financial Services Limited (MASFIN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '22 Earnings Conference Call of MAS Financial Services Limited, hosted by Elara Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shweta Daptardar from Elara Securities. Thank you, and over to you, ma'am.

Thank you, Stephen. Good evening, everyone. On behalf of Elara Capital, we welcome you all to the Earnings Conference Call of MAS Financial Services Limited to discuss the Q4 FY '22 performance. From the management, we have with us today Mr. Kamlesh Gandhi, Chairman and Managing Director; Mrs. Darshana Pandya, Director and CEO; Mr. Ankit Jain, Chief Financial Officer; and senior management team. Without taking much of the time, I now hand over the call to Mr. Kamlesh Gandhi for his opening comments, post which we can open the floor for Q&A. Thank you, and over to you, sir.

Thank you, Shweta, and good evening, everyone. I'm very happy to connect to all of you once again. While we have the presentation and the press note already published, but just for a better understanding, I'll take you through the basic strategic intent of the company that highlight the numbers. So as you all know that we passed through the most unprecedented time of our life through COVID pandemic. And as I've always shared with you earlier also that the main focus of the company remains to strengthen the balance sheet as we have been doing it since last more than 25 years. And while this was an unprecedented time when the challenges -- where we have navigated such kind of challenges in the past, too. So that gave us a good insight on how to navigate through this, and the net result is that we are once again on the growth trajectory as we were before the pandemic started, and hopefully, things will be normal. We are once again on our normal growth trajectory of 20% to 25%. While this quarter also, we are very near to that with close to 17% growth in AUM, corresponded by the 17% growth in profitability with an all-time high disbursement of close to INR 1,960 crore, indicative of the fact that businesses across all the segments have grown -- are not only survived, but have now started growing gradually. On the fundamentals -- to take you through the fundamentals, we maintained a very strong capital adequacy of 26%, out of which around 23% is Tier 1. So once again, that gives us the room to grow at the rate which will be there and where we should aspire. And as we all know that we have a very strong self-propelling capital model, but in terms of the growth in AUM, the capital adequacy always stands very strong and the intention of the company is to maintain anywhere about 20% going forward. In terms of distribution, we increased our distribution. As I've said with you in our earlier call that we are actively working to increase our brand position and distribution, and in line -- in those lines, our distribution is now at around -- close to 5,000 centers, which is reflected in rise of our retail assets, whereby our direct distribution contributed 52% of the business as compared to 42% last March. And our distribution through NBFCs is 48%, which was 58% last March. Having said that, we value both the distribution equally, but time and time again we've been reiterating that since the pace at which our distribution will increase will be much faster than at which the pace of our Tier 2 10 years relations and hence this result and hence this shift, which will be going this way I anticipate in this year also. On the products, we continue to focus on our flagship products that is micro, small and medium enterprise loans, which contributes more than 80% of the loans reviewed, and two-wheeler and commercial vehicles also contributes around 10% to 12% of the total AUM. With normalization of activities, we presume that there will be increased contribution from those products also. And within MEL also from next quarter, we are trying for a better credit and risk assessment and exploring the possibility on small ticket size personal loans, the MEL loans, which we have given to use for the personal purposes, which we'll try to identify at small ticket size personal loans going forward. So that can be an addition to the product slowly and gradually. In terms of technology, I think working on technology as this is an integral part for all of us. So updating on the technology and advancing on the technology from time to time remains our main plan and that will help us to improve the efficiency. We are trying to adopt technology, and we are trying to have the digital cycle -- digitization in all our product cycles in which we work in. That's why the -- which should result into customer delight and better credit dispensation within our lines of -- and intention of extending credit where it is due. So we -- just to give you a hint on that, we have tied-up with close to 20 -- we have now close to 20 API integration, which helps us in the decision-making. And we are also increasing our niche on technology, on origination and onboarding the plans as well as on the credit decisioning. On the housing -- now I take you to the housing finance business. On housing, we registered an 11% to 12% growth. But once again, as I always -- I would like to reiterate that with a smaller size, we'll be in a position to -- that is a growth trajectory of anywhere between 25% to 30%. And we are seeing that possibility is right from Q4, and we are confident that, that business will also start contributing meaningfully. A very important to share is about the quality of the assets. The quality of the assets remains very strong at 1.7% net stage 3 of AUM in our parent company and it's around 0.5% of the net stage 3 AUM in our housing finance companies. And still, in our parent, we continue to hold a special buffer of 0.75% of our on-book assets. And in our housing finance business, we continue to hold more than 1% of the special buffer on our on-book assets. This is in line with what we think that the lender would like to seize on the opportunity wherever we get to create buffer, which I think with normalization will also normalize going forward. So way forward from here, with around INR 6,500 crores of consolidated AUM, we firmly believe that we are on track as it's sounding repetitive, but we are on track of our normal trajectory of 20%, 25% growth. It's a strong enabler of a very strong capital adequacy, very strong liability management. While Ankit and Darshana will take you through the numbers in detail. But if I just give you the heads up on the liability management, we already have gap of -- we already tied up for almost 2 to 3 quarters this year also. So that's been a very strong enabler and along with a very strong team of more than 2,000, we are now working on 2,000, increase from 1,450 which was last March and from date. So with all the strong enablers with a vast market size in which we sell, we are confident that we are well on track for the growth, which we have demonstrated over all these years. I think I will -- I'll be missing on a point if I don't talk about the current interest rate hikes. I think we all knew that it was around the corner, but this was a little sudden and which is more than what we all had anticipated. But barring last 3 to 4 years, rate hikes has been a very regular feature in our journey. So we have clue on how to manage such rate hikes. Ultimately, as intermediaries, our role is to pass on the money from the favor to the consumer. So when the rate hikes, as NBFC, we don't use money for ourselves, it has been reliant to the borrowers. So ultimately, the borrowers will bear the rate hike, whatever it happens. At the same time, we'll try to be as efficient as possible by calibrating and recalibrating our borrowing configuration so that we are in a position to get the minimum rate hikes and, hence, pass on the minimum rate hikes. In between during the duration, whatever the transition will happen, that will happen slowly for us because maturity or almost all of our lending is not EVR-based lending, but it is MCLR-based lending. So it takes time for transition. So we'll get sufficient time to adjust our books accordingly. And secondly, our average book tenure being around 18 months, so this gives us further room to calibrate their rates with more than 75% of our assets under arrangement. Thereby, if the need be, we are very competent to raise the rate, if required. So this is how we'll be navigating this rate hikes anticipation without causing much stress on NIM and ROA. So this is from my side. I will hand over to Darshana to take you through numbers for better information, and then to Ankit who will take you through the liability management. Over to you, Darshana.

Thank you, sir. Good evening, everybody. I welcome you all to this earnings call for financial year '22. So we started this year with AUM of INR 5,372 crores, and we -- and we all know that the Q1, that was a dip in AUM in Q1 and then the 3 quarters were down -- normalized and we closed at INR 6,246 crores. And if we look at the configuration -- product-price configuration, our MSME portfolio is around 88% of the AUM, which is INR 5,524 crores, and wheels portfolio is 12%, that is INR 723 crores. If we look at the growth numbers, we grew over MEL portfolio by around 9.39%. SME loan portfolio, there is an increase of 21.49%. Two-wheeler loan portfolio grew by 15.52% and commercial vehicle loan grew by 70.14%. Here, the percentage looks high because the base is very small. If we look at the total income on Q-on-Q basis, it has grown by 29.66%. Last year, it was INR 139 crores, and this year, we ended at INR 180 crores. Profit before tax, there is an increase of 13.55% on Q-on-Q basis. So last year, profit was INR 50 crores as compared to INR 56 crores this year. Profit after tax, there is an increase of 16.55%. So this year, it is INR 42 crores as compared to INR 36 crores last year. If we look at the Y-on-Y numbers, income grew by 10.70%, INR 657 crores this year as compared to INR 593 crores last year. Profit before tax grew by around 10%, that is INR 211 crores this year as compared to INR 193 crore last year. And the profit after tax grew by 10%, that is INR 157 crores as compared to INR 143 crores last year. If we look at the quality of the portfolio, our stage 3 -- gross stage 3 stands at 2.28% as compared to 2.35% in December '21, and net stage 3 stands at 1.70% as compared to 1.76% in December '21. And here, I would like to mention that this is on real-time basis according to RBI guidelines. We still hold COVID provision of around INR 38 crores as on 31 March, which is 0.74% of our total on-book assets. So this was about the parent company. Now coming to the numbers of housing finance companies. Our portfolio, we closed at INR 316 crores as compared to INR 285 crore last year, that is 11% growth in AUM. Total income is INR 8.86 crore as compared to INR 8.57 crore last year, that is 3.30% growth. PBT stands at INR 1.5 crore on Q-on-Q basis as compared to INR 28 lakhs last year. And the PAT is INR 1.22 crore as compared to INR 20 lakhs last year on quarterly basis. So last year, there was an impact of INR 76 lakhs of special COVID provisioning in the profitability, so hence this number. On yearly basis, our income grew by 1.58%, that is INR 35.83 crore as compared to INR 35.27 crore last year. And PBT, there is an increase in PBT by 52.64%, that is INR 5.78 crore as compared to INR 3.78 crore last year. And PAT stands at INR 4.56 crore as compared to INR 2.89 crore last year, that is 58.16% increase in PBT. Coming to the portfolio quality. Gross stage 3 asset as on March '22 is 0.53%, and net stage 3 stands at 0.38% as compared to 0.69% and 0.49% in December '21. And here also, we hold COVID provision of INR 3 crore, which is 1.19% of our total on-book assets. So this was about the key numbers for both the companies. Now I'll request Ankit to take you through the liability management.

Thank you, ma'am. So good afternoon all. To further elaborate on the liability management, we -- currently, we have a liquidity buffer of around INR 800 crore and unutilized cash credit facility of around INR 400 crore. In addition to this, the company has sanction on hand to a tune of more than INR 1,600 crore in the form of term loan, direct assignment and co-lending, which will be sufficient or good for next 2, 3 quarters. In the last quarter, company did around INR 350 crore direct assignment transaction with various banks. The company further has more than INR 1,000 crore sanction on hand, which will be utilized during the quarter -- current year. The company aims to maintain around 20%, 25% of AUM as off-book through direct assignment and co-lending. In the last quarter, company did around INR 50 crore co-lending transaction. The company plans to do further tie-up and co-lending with banks, which will be in composition for both the entities. Company has available cash credit facility of INR 1,825 crore, out of which, we utilized -- utilization level is of 65% to 70%, and this portion is kept as a liquidity buffer. We raised INR 535 crore term loan during the quarter with an average tenure of 3 to 5 years to help us to further strengthen the asset liability maturity pattern. We have sanction of INR 600 crore on hand, which will be utilized during the current quarter. We'd like to highlight that in a convention of our business model with partnering of NBFCs and MFIs, we have come up with a SIDBI sanction of INR 300 crore, which is under their special support of double intermediation scheme. Thereby, they will be extending trade to us for all lending to our NBFCs -- the NBFCs and MFI partners. So this is a special line they have sanctioned us for INR 300 crore. On the structural liquidity, if you see company has a structural liquidity for the period ended 31st March. And based on the assessment, there is no negative impact on liquidity and the cash flow remains positive in all the buckets. We remain adequately capitalized whereby the total CAR is around 26.35% with a Tier 1 capital of 23.08% and debt/equity of 3.48x. The cost of borrowing for the quarter remained stable at 8.67%. Also I'd like to highlight the LCR, that is the liquidity coverage ratio, stands at 193% as against the liquidity requirement of 50%. So this is on the capital and liability management, and I hand over the mic to Kamlesh sir for closing remarks.

So that's all from our side on sharing the information and the strategic intent of the company. We'll be happy to take the questions regarding our business.

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

Congratulations for a very good -- very decent set of numbers and with higher favorable disbursement during the quarter. Sir, my question was on the fees and commission income. If we look at it, despite such a sharp increase in disbursement and our focus towards lending through our own branches, we saw a dip in fees and commission income on Y-o-Y and Q-o-Q basis on the income side. And subsequently even on expenses side, there was a sharp increase -- while on the expenses side, there was sharp increase on fees and commission expenses on a Y-o-Y basis. So if you can explain that, it would be helpful.

As I shared last time also that we have changed the model with our partners, whereby first, it was netted out. And now what we do is that we collect the company's installments for better operational control, and then the thing is shared with them as fees and commission. So first of all, it was shared upfront, but now we have a practice with many of the partners where we feel it is necessary, whereby we book it in our book first and then it is being given to them as fees or remuneration of the activities they undertake for us.

Sure. Now increase -- significant increase in fees and commission expenses?

Sir, so that was for that. The fees and commission has been given to our partners, okay? We have a partnership arrangement for sourcing remuneration and what all arrangement what we have for them for creating assets. As I shared, first, whereby the fees were netted off, but now we are collecting the installments. We are having the complete control in the cash flow. And once we get everything, we pass it to them. So there is just a change in the business model.

Sure, sir. And sir, second -- okay. And second question was on the fintech lending tie-ups that we are doing. So how do you see this segment growing for us over the next 2, 3 years? And we do hear about the restructures, but if you can address that a bit.

If I heard you correct, you are talking about fintech, right?

Yes, fintech partnership and tie-up that we have done with the partners. So how do you see this segment expanding for us over the next 2, 3 years? And what are the key risks associated with this segment going forward?

Yes. As far as our fintech partners are concerned, we are slowly and gradually increasing our partners. So we are working with various partners. Currently, we have almost -- and in such a manner, which enhances our big team of extending credit warranties due and within our line -- within our area of operation and within our lines of products. What we do is that we chalk out there also that we have that filter for credit sale, where we use that platform -- since they have a platform, the origination is done through them, but complete filters -- the credit filters and the assessment is done jointly by us. So I think in Q4, we did a disbursement of more than INR 200 crores to various fintechs, and we see that increasing slowly and gradually as we find the opportunity working with them without compromising with the quality of the assets. The biggest thing while working with fintech is to see the quality of the assets because right now, the arrangement is such that we are immune from any of the losses. But having said that, we are conscious of the fact that the portfolio as a whole should behave in such a manner that it creates an immune situation both for fintech and for us. So that's very optimistic on the stat, but the only caveat is that we'll have to go with the ones who understands the importance of quality irrespective of what capital they have. And we are working closely with them to drive all the fintechs we work with on those lines.

The next question is from the line of [ Harshvardhan Agrawal ] from IDFC Asset Management.

Sir, just wanted to understand if I were to look at the quarterly PPOP numbers for our company over last 5, 6 quarters, that has been stagnant at around INR 60 crores. That's at the top level. So if you can just throw some light as to why is that despite, say, 20% growth in our AUM? Are PPOP numbers are not growing?

So if you -- there are various reasons for that. Now PPOP is a function of the operating environment also because if you see it in the last 3, 4 quarters, the major thing is that we have been carrying an excess liquidity on the book. We have been very conscious on the credit we extend to various borrowers. So thereby, the restricting capacities are limited and hence that had the impact on the yields that we got. So these are the various factors which affects the pre-operating profit. But going forward, once the thing stabilizes because no 2 years are comparable. Because last 4 quarters, it was just a matter of getting the credit right and getting the liquidity right. So carrying excess liquidity on the balance sheet and releasing the yield and trading off the yield with better quality of the assets are the key reason for PPOP segment. And secondly, normalization of activities increasing the operational expenditure also because this year, we expanded from close to 95 branches to 125 branches from 3,500 centers to 5,000 centers. So these are the various reasons due to which we think that we are hovering around that number on the operating profits.

So sir, you -- so basically, probably, going forward, our PPOP growth should more or less limit the loan book growth, right? Is that understanding correct?

It cannot be an apple-to-apple comparison, but more or less, it will be on those lines.

Okay. Sure. And sir, another thing that I wanted to understand was the excess liquidity that we're carrying. Because if I'm not wrong, we've been mentioned at around INR 800 crores of liquidity buffer that we are carrying. So any thoughts or any plans to ramp -- to put -- reduce this liquidity buffer?

Yes. So we will be doing -- we will be happy with around INR 400 crores to INR 500-odd crores of liquidity buffer. So within a quarter, I think we should be there because once we create a buffer, we cannot reduce it overnight. So we are gradually reducing it, and we think that it hovers around, say, INR 400 crores. As such for many years, we have managed that only the -- unused the liquidity [ and the CC is ] the liquidity. But post that IL&FS price lesson learned that even CCs, cash rate limits temporarily, banks have the right to freeze and they might do it practically also. So we have started putting this liquidity buffer, which will not be as it is INR 800 crores. That will be close to around, say, INR 400 crores, INR 500 crores, which will translate into -- which would be filled with our disbursement and repayment plan and approximately it comes right around anywhere between 4% to 5% of our EVR.

Right, sir. And sir, one last question on the fintech piece. What I heard -- if I heard you correctly, you said the disbursements were at around INR 200 crores this quarter, right?

Yes.

But if I remember, even in 3Q, we had the same level of disbursement, and at that time, you mentioned that probably, we will increase our disbursement run rate to somewhere around 20%, 25% of our total disbursements. So hypothetically, just say, we had around INR 2,000 crores of disbursement this quarter. So maybe around, sir, INR 500 crores. Obviously, it should not -- it won't happen in a quarter or so. But just wanted to understand your thoughts as to -- are we seeing some issues with these types because we are not ramped up on a sequential basis, this disbursement number?

So as we give a guidance of 20% to 25%, it's on a yearly basis. So it all depends upon the opportunities we get with various fintechs to work and the way we tie-up because the fintech tie-up is a very operationally time consuming thing. So we need to integrate our systems as we need to have common means and all those stuff. So we would like to operate once we are through on the operational part of it. So maybe the operational part, which few of the companies took more time. So that would not have reflected their real intention. But we see the opportunity at 20%, 25%. But at the same time, we would not like to make ourselves accountable on a quarter-to-quarter basis. On a yearly basis, I still see the opportunity of growing at around 20% to 25%. Once again, with the condition, if we are satisfied with the overall quality of the portfolio, and we take our own time in synchronizing our operations with that.

Sure. Sir, one last question on the fintech thing itself. You also mentioned that at the moment, we are immune to any losses in this fintech lending. So do we have some affiliated tie-ups with the lenders, with the fintechs?

Yes. So we went with the fintech who have a front-end NBFC model. So we are yet to scale up our model only where there are only fintechs and originating products. While we are exploring and understanding how they really work, but there's been a sizeable business done with a fintech platform only. So we work with the fintech company, which has an NBFC front-end model. So the complete technology is where they use the technology and the first loss guarantee is given by the NBFCs.

Sir, and if you can share what's the FLDG given?

It depends upon the product that we insist anywhere between 10% to 20%.

[Operator Instructions] The next question is from the line of Madhuchanda Dey from MC Pro.

I have a couple of questions. The first is, I'm just hoping on the interest margin question again. It seems like from a calculation that there was a slight dip in margin sequentially also in the fourth quarter. So any particular reason? And I also wanted to get your views on -- RBI has already hiked REPO rate by 40 basis points yesterday, and there are expectations that rate might go up by another anywhere between 75 to 100 basis points. So given this backdrop, where do you see your NIM trajectory for the year? I have a couple of more questions on this side as follow-up.

See, we would endeavor to keep our NIMs anywhere between 6.5% to 7%, given normalization of our liquidity buffer, if you hover around between 6.5% to 7%. Now coming on the aspect of interest rate rise, so as I shared in the opening remarks that majority or almost all of our borrowing is MCLR-based. So we are not going to get the rise overnight. And there are reset timings as far as interests are concerned, right? So that will give us the room to calibrate our lending also accordingly. And secondly, on the asset size, around 75% of the assets are such whereby there's an inevitable interest rise in between, we can pass it on to the customers, which will be very negligible for a small borrower in terms of what they have to pay extra. But for a company, we'll be in a position to preserve our NIMs between 6.5% to 7%. That is what we foresee right now. Maybe that can be a pressure because of the transition that we do or the transmission that we do from our lending to -- from our lenders to borrowers in increasing rate. So there may be -- there can be a small pressure for a temporary period of time. But having said that, in the past also, we have navigated through such interest rise and we have done the same thing, whereby we get some time. There's a lag effect on the increase. By that time, we try to set the things right with our borrowers also. The new borrowing -- the new lending will also factor in the interest rate hikes. And secondly, our [ total ] asset cycle is also 18 months. So a combination of all such things. On a yearly basis, I presume that we should be in position to preserve our NIM that is what currently it looks like.

Sir, you said 75% you have pricing power, some kind of a pricing cloud. Is that right?

75%?

You said, 75% of the borrowers you have a loss to be priced. Is that correct?

Right. Right. Exactly.

Yes. Okay, sir. My second question is, you also alluded to getting into unsecured lending. So that's a completely new turf, right? You have not done unsecured so far. I mean why getting into this at this stage? What is kind of the logic? And I mean, basically, I just wanted to understand the logic behind this kind of a diversification. And that comes with usually a huge risk of asset quality, especially for the kind of borrowers you usually target. So any comment on that?

So my point was that the annual loans which we give, and we all know that many of them use that for their personal purpose also. So what we thought and what we have decided is for better credit assessment and understanding, we are going to bifurcate the ones who are using for personal purpose. So maybe certain MELs, what we are lending right now might be used for personal purpose, personal use, might not be only for the businesses use. So that will be one bifurcation. And secondly, as you know that the way we venture into any new segment, we are not going to go very [ long ] on that. There will be a very gradual increase in the asset size of those type of loans. But having said that, if I share with you that we have done this product in the past whereby we used to give personal loans to small businessmen and salary earners, but since our focus shifted only to MSME, we had shifted our focus mainly on creating MSME portfolio. So slowly and gradually, we will taste the water. If it -- thinks that it can add on to our asset size without compromising with the quality of the assets, that is also a class, which will need money from time to time because of the timing of the income or because of the shortfall in the income. But ultimately, our good borrowers to work with. So we have the first-hand experience having done this product in the past, and when we think that they have slowly and gradually without affecting our overall quality of the assets, we can build up this product.

Sir, I -- just a housekeeping question, that is, Madam mentioned that this NPA has been computed as per the 12th November guidelines of RBI. Am I correct?

Right. Right. Correct.

Yes. I have a slightly longer-term question, pretty macro question, honestly. That is about this loan NBFC model. With the merger of one of the largest NBFC now with the bank, that is increasing question about the robustness of the NBFC model because banks with their cost of fund advantage and now they are getting into all the turfs, which were previously like the forte of NBFC. So I mean beyond a certain size, any NBFC would face those kind of headwinds. So what is your plan, strategy and how do you react to this kind of scenario?

We have a medium-term region of 10 years, where we see ourselves around -- growing at around 20% on an average what looks like around INR 6,500 crores, can be close to around INR 35,000 crore, INR 50,000 crore. And on that size, we firmly believe that this model has a lot of value to offer to the borrower. In terms of the merger, definitely being getting merged with the bank has its own advantages, but I personally believe there are certain disadvantages also. The class of the borrowers will be so. The huge credit gap along with the growth in the Indian economy, I think we'll need banks and NBFCs both and both will find their specialty, the way it is being right now done. So banks entering the NBFC space or NBFCs also now allowed to issue credit cards and all, I think India is a story of coexistence and not only of existence of few. So given the huge market size and given the strategic intent to add value to the borrowers and through operational excellence, I think for coming 10 years, if I have a vision for 10 years, I think at around INR 45,000 crores, INR 50,000 crores, this model looks quite viable and value-adding. And we can definitely take a call post that. But we are firmly aligned to a strategic intent of being in this format or at least a decade or so.

The next question is from the line of Parag Jariwala from White Oak India.

Can you give me the breakup of our own lending to NBFC and our own generated book split maybe in percentage as defined for the last quarter?

I think that is 48% is through NBFCs and 52% is directly generated through...

Okay. And how was this, let's say, previous quarter, I mean, third quarter?

That was 58%...

That is March '21.

'21, yes.

No, no, no, I'm asking for the -- maybe you can give both the figures, maybe fourth quarter last year and maybe previous quarter or third quarter FY '22.

The fourth quarter was, I think, 58% through NBFC, which is of '21 , last year. In '21 last year 58%, which is now 48%.

And in December, it was 52%.

It was 52%.

Okay. So actually, the ratio is changing very fast, right? I mean so where do you see the numbers, let's say, in '23 and in '24 end?

To give a range down number, I think our NBFC distribution hover around 40% to 45%, as it looks right now. And our direct distribution will be close to 55% to 60%.

Okay. Over the next 1 year?

Over next 1 year.

Okay. That's great. And maybe the on-book would be driven by MSME, SME portfolio, which we are kind of aggressively invested in previous few years, right?

Yes. So we are very -- we are aggressively increasing our distribution. As said, this was the plan last year, kept on hold because of COVID. From 3,500 centers, we grew to 5,000 centers, and I think by the year-end, we will be covering close to 7,000 centers to improve our reach to all the areas where we find potentiality to extend loans for the borrowers we serve.

The next question is from the line of Bhavesh Kanani from ASK Investment Managers.

I hope I'm audible.

Yes. Yes.

Yes, sir. Sir, when I'm looking at the AUM mix, one of the largest segment for us micro enterprise loans, has been one of the last ones to see growth. Effectively, we ended FY '20 at 3,600-odd crores and the current micro enterprise loan is still lower than that. Whereas other segments like SME, which is sizable, has grown at a healthy rate. Two other segments, two-wheeler and CV, while small have still grown at healthy pace. So what exactly are the reasons which are still keeping us cautious on something that we consider to be our core business, that is, micro enterprise loans? And incrementally, for achieving the kind of growth, we are looking at 25% kind of growth, I would assume micro enterprise loan segment will play important role in achieving that kind of growth. So if you can help us understand the slow growth currently? And incrementally, how you are looking at this particular segment?

I think in line with our strategy to grow our SME books, how we identify is MSME segment. So there is micro, small and medium enterprise segments. We firmly believe that as we grow our balance sheet size, our ticket size should also increase. So anything given less than INR 3 lakhs is identified as micro enterprise loans and anything above INR 3 lakhs is identified under small and medium enterprise loans. So our focus to increase our ticket size is leading a healthy growth in the SME space and a relatively lower growth in the micro enterprise space. So overall, when we say on a INR 10,000 crore balance sheet size, if you see that this is going to contribute around INR 7,000 crore, we will be happy to see INR 3,500 crore being contributed by each, that is INR 3,500 crores by SME and INR 3,500 crore from micro enterprise zone. Having said that, this is a very ballpark figure, can vary depending upon the [indiscernible] across and opportunity we come across. But the basic idea is to increase the ticket size as we grow and the opportunity we grow, that to grow along with our own borrowers also. The borrower to whom we have funded INR 2 lakhs is now qualified for INR 3 lakhs, INR 4 lakhs, INR 5 lakhs are going for a machinery loan or a very longer-term loan will be our target customers. So this is in line with our intention of growing the ticket size.

So is it right to assume that incremental growth will be more driven by SME loans than micro enterprise loans?

Yes. Yes.

Okay. And the implication of that, what broadly would be the difference in yield that we charge on micro enterprise versus, let's say, SME?

Ultimately, the target will be to maintain ROAs at around 2.75% to 3% because followed by the yield, the operational cost and the credit cost. So looking at the dynamic of the operation and the credit costs, the yields will be decided. But at the end of the day, whether it is macro enterprise loans or MSME loans, we'll try to maintain the ROAs anywhere between 2.75% to 3%.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Sir, first question on the liquidity buffer. So right now, did I hear it correctly that it is around INR 800 crores and you target to reduce it to INR 400-odd crores in the next few quarters?

Yes.

Okay. So that would add around -- maybe around INR 30-odd crores in our PPOP, right?

It has been done over a period of time. So you have to do the calculation on that. I don't have any back of the envelope calculation on the same. But definitely, it will have a positive impact on the pre-operating profit because we'll be saving an amount on the negative pace.

Understood, sir. And sir, now we have rapidly expanded the branches at least last year. If I heard it right, we increased it by 25-odd percent. And obviously, there will be some growth in the existing branches as well. So given that, shouldn't we be targeting a much higher growth than 20% to 25% for FY '23?

Any branch that you started will not yield you good right from day 1. It takes time. So in line with the [indiscernible] time, which branch requires and the strategies also is not to do a substantial business as soon as we start the business in a particular place. So the strategy is to develop the branch for the long-term objective and not just for a year. So the combination of the strategy and the practical scenario, we think that even after opening the branches, we will be ending up at around 20% to 25% growth. And we are capable from the capital as a liability management side that is if we get an opportunity to grow more, grow it. But the guidance what I'd like to give to all of you is anywhere between 20% to 25%.

You have also said, sir, that we are trying to do more on the technology side. Now given that at least the image of the company is that we were more on the older way of doing things, and now there is a lot of stuff which is happening on the fintech side. But at the same time, we also have been believers of -- believing in touch and touch sort of a model. So from an organizational perspective, have you appointed a leader from outside? Is there a dedicated team which is looking at the technology and trying to integrate with the entire organization? So if you can give some more color on what exactly are the steps that you are taking to sort of change the pace at which we've been doing things on the technology side previously versus now? I think that should be helpful.

When we talk about kind of the fintech, it's an association between 2, the ones in expert in technology, other into expert in finance. So when we talk about our approach to financing, why not commit old or new. But the approach to financing remains the same, but extending credit where it is due. So we feel that by using technology that is enhanced and not compromised. So our tie-up with fintechs definitely helps us to gain ace on the technology front, and we get that readymade platform from those guys. Having said that, we are strengthening our internal team also. We have a team of more than 30 in analyst and the software team in order to tie-up with various fintech companies so that we can sync with the market practices and also we improve our digital journey of the products we sell directly. So -- and along with that, we'll be taking the help of the experts from outside. So we have a capable team within our organization who is managing this.

The next question is from the line of Rahul Maheshwary from Ambit Asset Management.

Am I audible?

Sir, if you can speak closer to the device, please? Your voice was not clearly audible.

One second. Yes, is it better now?

Yes.

A couple of questions. First, when we look at between the AUM and borrowings, no doubt this year, it has been much better managed. But when we look at the borrowing as compared to the AUM growth, can you give some bit of color at the borrowing run rate on a Y-o-Y basis of 24%, 25% as a growth as compared to AUM growth of 16%? Was it because of the higher liquidity perspective we have taken a higher borrowing decision? Or can you provide some color why there's difference in growth between both the types?

This is because of the on-book and off-book restructure. So the off-book was around 25% to 30%. It was our direct SME book, which is not a part of borrowing. But now as we are growing to our INR 10,000 crore AUM, what we have made to internal policy is assignment should not be more than 21% to 25%. And therefore, that [ the ECS scheme ], which has returned to a borrowing -- on-book borrowing increasing compared to OEM.

So -- and plus the borrowing, which is entirely on MCLR basis. Nothing of -- is on external benchmark rate or something for individual?

Sir, it's MCLR-based. Borrowing in MCLR.

Yes, yes. Either it is fixed or MCLR borrowing, MCLR-based only.

Okay. Second question, as you mentioned in your presentation that your current leverage continues to be in the range of 3.5 to 3.8. And you said that going forward, you would be at an optimum level. What is that optimum level? It will remain at the same run rate where it is or where do you aspire to take it?

We would like to hover around 4, so to say, as of now.

And so from the next 2, 3 years, you can keep it as 4 -- as a good leverage or not...

Hello?

Hello. Am I audible?

It will be around -- it is currently around 2.8. Going forward, it can be around 4, 4.25. This is what I can utilize currently.

Okay. And second thing, I also wondered that many NBFCs peers are struggling [indiscernible] as a segment. No doubt...

Sorry, can you take the phone off the speaker, please?

Is it better now?

Yes. I don't get so many things. I can just understand 50% of it. I might not be in a position to respond effectively. Yes, please.

Sir, I just wanted -- hope I'm clear now. I just wanted to understand that though the two-wheeler segment is just contributing 5% to 6% of the overall portfolio, but we have seen across the NBFCs are struggling in this segment from an asset quality perspective. Can you give some color that how MAS portfolio in two-wheeler is completely different from there, though the ticket size is nominal but still? Hope I was audible, sir, this time.

We have been one of the oldest two-wheeler financing company, and if you see the two-wheeler portfolio has not grown to that size and that the reason being conscious on the quality. That's what we practices and that are being adopted just to get the number, which we have not adopted. And as a result of which we are in a position to maintain the two-wheeler quality portfolio, which you are looking right now.

And sir, just last question. Just a feedback, sir. Is the entire industry in the housing loan is able to grow where MAS is not able to cross that run rate of growth? Are we just in the investment phase and from here onwards, we can expect the same kind of growth? It would be very helpful to understand why the growth on the additional portfolio which we are growing at 15%, 20% is not reflected on housing part.

As you know, post IL&FS and post DHFL, where so many things were unveiled. And we were also not in a position to understand that how the market dynamic because of the various fundamentally flawed model operating in the market, that was one. The demand opening up as you know that even pre-COVID also, there was a slump in demand in affordable housing. And third was that we were not ready to look the other way on the certain practices, which have been adopted by many bigger housing finance companies or even the smaller housing finance companies. There are various such practices, which -- while we do not accrue of that. So we do our own time because we thought that housing finance is a very long-term business, it's a [indiscernible] margin business. We developed our distribution channels. We developed our team who can really understand us the way we work and that took us time. And now since that we are doing positively, the floor fundamentals are being corrected to a large extent by the experience what the housing finance companies had from various debacles they created. So all in all, a conducive situation for companies like us who would not like to grow at any cost is there now for us to grow at anywhere between 25% -- 20%, 25%, maybe on a smaller base, up to 30%. But once again, the priority will remain on the quality of the assets, profitability and growth.

Ladies and gentlemen, due to time constraint, that was the last question. On behalf of Elara Securities Private Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.