Muthoot Capital Services Limited (511766) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Muthoot Capital Services Q4 FY '24 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Daptardar from Elara Securities Private Limited. Thank you, and over to you, ma'am.

Thank you, [indiscernible]. On behalf of Elara Securities, we welcome you all to Q4 FY '24 and FY '24 earnings conference call of Muthoot Capital Services. From the esteemed management, we have with us today, Mr. Mathews Markose, CEO; and Mr. Ramandeep Gill, CFO. Without further ado, I hand over the call to Mr. Ramandeep Gill for opening remarks, post which we can open the floor for Q&A. Thank you, and over to you, sir.

Thank you so much, Shweta. A very good morning to all of you, and thank you so much for being on the call. So I'll start this call. Basically, the idea is to provide you the Q4 earnings and as well as what happened exactly within the last financial year. The last financial year, when we had started, we broadly had 4 areas to cover. First 1 was the GNPA wherein we started last financial year with a huge GNPA number. Then team in place, then obviously, we wanted to increase our AUM as well. And fourth most important thing was tech. The objective was to reach to a phase where in the journey had to be upward from there. So we found very -- there are different ways to increase the sales, to bring down the NPA. So as to keep ourselves alive and stable in the market. And I personally feel we did a really reasonable job so as to reach our goals. Now I'll take you to the broad numbers and the way forward for MCSL. In last financial year, we acquired 1,74,178 new customers, which [ remarks ] 11% growth year-on-year, whereas the total sourcing has been increased by 9%, where indeed we did INR 1,438 crores of fresh sourcing during the last financial year. There are 2 more important factors into that, which will come into play. It's basically first one is the GNPA. We have been able to reduce our GNPA by 54%, which is basically a combination of 2 things. One, yes, we did our ARC sale of INR 235 crores in Q2. Second is basically the hardcore recovery of INR 70 crores, which we have done in the last financial year. 1The third thing is we -- as a company and that we have seen in the last financial year as well. The company has a good practice of keeping a high PCR. So we have closed the last financial year as well by keeping a PCR of 75%, therefore, closing our NNPA of -- NNPA at 3.40%. The best thing which happened to us -- the first focus was the GNPA, we try to analyze that when our case is becoming -- when our case, is becoming GNPA for the very first time, that is where the control -- the entire control has been established, and we have been able to see very good results into that. We have been able to bring down that early stage NPA by 68%. And as we speak, we are having a GNPA on that early stage is only 0.49 percentage. The company has recorded a profit after tax of INR 122 crores, marking a growth of 57% year-on-year. This also includes the exceptional item of provision reversal, which we have made 2 years back, but recording a jump of 57% year-on-year. Whereas our return on asset has recorded a jump by 71%. Therefore, we reported ROA at 6.35%. The company is operating at a very healthy CRAR of 31.24% as of 31 of March 2024, whereas return on equity stood at 22.25% and we have been able to deliver an EPS of 74.58. The total balance sheet size of the company stood at INR 2,314 crores, whereas the shareholder funds stood at INR 612 crores and the total borrowing of the company stood at INR 1,661 crores, taking the total AUM to INR 2,018 crores. Talking about the particular quarter-on-quarter, we did a number of INR 430 crores in the last quarter itself on that number, we have been able to acquire 45,667 new customers during the Q4, and then our profitability stood at INR 11.06 crores for Q4. Our rating agencies have kept our rating at A+ itself. Now the further evaluation will be done, post the results will be out. As we said, the part of the financial year, we were having a GNPA including the interest of 22.09 percentage, which has been brought down to 10.17 percentage. As we closed the financial year, whereas NNPA was 4.46 percentage, which has been brought down to 3.40 percentage, despite -- we -- at the start of the financial year, we did have a PCR of 88 percentage, which has been dropped down to 75 percentage. Because -- since we reduced our PCR, therefore, there is no impact that we have increased the PCR, that is the reason our NNPA has gone down. A proper hard cash recovery has been done therefore our NNPA, we are reporting at 3.40 percentage. Talking about the year-on-year, we can see that last financial year, we did INR 1,318 crores of sourcing, this marked a growth of 9% in the -- in last financial year, wherein we did INR 1,438 crores. We also tried -- we also framed one more thing for the investors that since we did ARC of INR 235 crores, therefore, we can see that there is a slight dip in the AUM by 4 percentage. If we would not have done that, there is a -- there would obviously be in the growth because our numbers have been higher as compared to the last financial year. We can see that there is a jump on every aspect of profitability, PAT and EPS of the company. And also, we provided the comparison so that we can share this to our shareholders and to the investors that what we did in the Q3 of last financial year vis-a-vis, where are the numbers as of the Q4. Q3 since it was a seasonal time, we did our number of INR 478.89 crores. Q3, we did -- sorry, Q4, we did INR 430 crores. This, we can see that there is some sort of dip. We said that we will be doing some INR 500 crores, INR 550 crores, INR 600-odd crores, but the only thing which hold us there is that we need to have settled team and because of that, see, there are 2 parts to it. We can see that there was a dip in revenue because our co-lending share was high, and our MCSL share was down, but that has been turned around over a period of time in Q3 and Q4 as well, and that too we are doing as of now. So that our total yield can be increased over a period of time and then that we have seen in Q4 as well and in Q1 as of now as well. We can also see that -- we can also see that the own funds of the company at the start of the financial year, it was INR 489 crores, which has been increased to INR 612 crores, approximately as we closed our last financial year. The company has a debt to equity of 4x at this start of the financial year end, without including the further funds, we know that we have been able to grow back the reserves and all. Therefore, our debt to equity stood at 2.7x, which is extremely healthy. As we speak, the EPS has also grown from INR 47.8 to INR 74.6, yes, we can say that there is one-off charge, which we have taken it back in the Q2, itself. One more -- 1 more slide, which I have shown this to the investors as well that we have tried to show to the investors that about the MCSL yield. We started this year with a yield from the MCSL loan at 21.47%. That has gone down to 20.11% depending upon market and the sourcing which we are doing. What sort of customer base we wanted to take. That helped us. Then we also provided this on the corporate loans, though the book price remained more or less the same. There we can also see that there is only a 8% to 9% percentage of growth in that book, but yield -- the yield has gone up there also. So as borrowing costs, we can say that the average MCLR has been increased by 0.12 percentage, whereas it has only impacted us 0.08%, as we speak. The recoveries have been the strength of the company throughout the last financial year because we know that if denominator is not getting increased through sales and all, we don't wanted to have any impact on the new NPA on the fresh flows and roll forward of the company. The companies have been able to take funding or take NACH recoveries from 48% from the start of the financial year to 56% at the end of the financial year, which also helped us in saving more of cost towards recovery, and remaining recoveries comes from cash, which is approximately 44 percentage. So the cost of recoveries, which was 5% at the start of financial year that we have been able to bring it down to approximately 4% at the close of the financial year, our corporate loan book stood at INR 181.64 crores, wherein we can see that there is only a marginal growth in that, that too you know in order to support our co-lenders or any other parties, wherein we really seeing that -- because we really don't want to take chance into that, because since we have -- our main focus still be 2-wheelers, used car and used LCV. The NNPA trend, we must have seen that in Q2 as well, we closed an NNPA at INR 194.44, whereas we can see that even in that -- as I said that even if the denominator is not getting increased, we need to focus on NNPA so that fresh flow of roll forward can be brought back. We closed our NNPA at a -- precisely at INR 191.49 crores, and out of that, INR 143 crores pertains to like pre-COVID era. On this, the company will be taking the call. When we say that -- when we talk about the portfolio analysis of the company, last financial year -- financial year '23, we were at 58% in South, but now since we -- in last financial year, we decided to go pan-India, that 58% has become 44% in South, and that -- if we talk about the co-lending business, co-lending business was 22% in FY '23 -- sorry, in Q3 of last financial year that has gone to 32% in Q4, whereas as far as the concentration in East, North West, it remains more or less the same for the company. Talking about the standard portfolio of the company, 89.35% remains standard and remaining 10.65% remains NPA for the company. In terms of the segment-wise, yes, 11.24% of the NPA comes from the 2-wheeler segment and 5.26% comes from the used car as NPA. Talking about the co-lending, the last financial year, we had 5 partners for co-lending and 1 partner we added for the BC, wherein if you talk about co-lending, we had 5 partners, which has a total share of INR 600 crores. Lastly, in the last few months of the financial year, we also entered into the EV space for the impact funding, and therefore, we have signed a co-lending partnership with ev.fin, so as to -- so as to enter into the EV space as well as to understand as well that even if MCSL wants to go full flow that what needs to be done. It has given us a great results as of now, and from April onwards, we started our own EV funding as well. One BC -- so total co-lending partnerships and BC partnerships it stood at INR 600 crores with 0 NPA as we speak. We -- I have also provided -- also said at the start of the call, the company has -- the policy of the company in terms of NPA, it remains that, that minimum PCR of 75% has to be provided, making sure that NNPA of the company should be under the PCA norms as prescribed by the RBI. Talking about one more update for the company, wherein the company did one ARC sale through following security receipt method, wherein at Q2, we had a security receipt of INR 102.22 crores. Those security receipts now standing at a balance of only INR [ 63 crores], with point that case, even if the case has been sold to NPAs and all, but yes the organization is equally focused that yes, the security receipt balance has to go down. And it's going down extremely well. And there is no impairment has been provided in the books as per the rating agencies are concerned as of 31st of March. Talking about the funding -- talking of the funding of the company, first we'll talk about shareholding pattern. Promoter & Promoter Group still holding 62.62% in the company, whereas retail is holding 28.14%. The remaining has been segregated between FIIs, NRIs, other corporate bodies. In last financial year, though our borrowing costs -- we can say that it's 9.80% as an average cost of funding, but in last financial year, we raised somewhere -- we raised INR 754.49 crores, which is a combination of NCD of INR 200 crores, fresh working capital demand around INR 170 crores, CP of INR 241 crores and a small chunk of PTC of INR 144 crores at a borrowing cost of 9.67%, as well. Also talking about the update on the fixed deposit, which I gave a glimpse in Q3 as well that we are trying to increase -- we have increased the rate so as to remain competitive in the market. In Q4, we have seen the results as well. Our deposit book has started getting growing now. We have been able to raise INR 6 crores as an additional funding, and we have been able to renew INR 7 crore fixed deposits during the last quarter itself. So now we have seen that deposit book, we have also hired a fresh team for fixed deposits in the Q4 itself, wherein we wanted to see a result in this financial year and the quarters to come. Talking about the funding concentration of the company now, the working capital demand loan provide us 52% of the funding, whereas 25% comes from NCD and MLD of the company. The securitization has been dropped down to 20% as of now and the remaining concentration is of 2%, which comes from fixed deposits and other things. So there's [indiscernible] -- and the third thing, which I really wanted to update is as far as our provisioning is concerned, the company still carry -- is still carrying an overlay of INR 61 crores, which we know that there is a pre-COVID portfolio to which -- for which we need to take a call. As far as ECL to IRACP is concerned, the company is carrying INR 21 crores as an additional provision of -- as an additional provision combining the Stage 1, 2 and 3 of the company. This excludes the management overlay, which the company is having. On this, we will take the call as and when the company will be taking a call on the previous portfolio. So those are the broad numbers from my side. Now I'll just hand over the call to the CEO of the company, so that he can take you through the business and the way forward. Mathew, Sir?

Thank you, Ramandeep. Good morning, all. Thank you so much for joining the call. Once again, it's a pleasure connecting with you. So I think Raman has already briefed you on the numbers. I'll just take you through the journey a bit. So the first quarter of last year, when I had taken over and the new management had come, we had several challenges, which was one, the team was not there, the NPA was high, collection team was just getting set. So in fact, over the course of the year, in all the calls, we've been updating you the progress that we made. Today, we are very proud to say that the entire team is in place. We managed to get all the -- tick all the right boxes in terms of getting all good people from the market, changing our new [ LOS ] to be competitive today. We are able to give approvals like the -- similar to the best in the industry, 5-minute approvals, 0.5 hour to 45 minutes disbursement. So all those problems are behind us now. And we have started seeing results of that. In fact, if you look at the overall disbursement of INR 1,437 crores of last year. The first quarter was only INR 200 crores, and second quarter was also slow at about INR 360 crores. 64% of the total disbursement happened in the second half of the year. Of course, Q3 was -- is generally a good time for the industry because of the festive season in North and West. So we also gained on that. Q4 is the time when we implemented our new LOS, and therefore, December and January, we took a slight hit, but then we started recovering. Today, we are -- as we speak, we are already at 25% of what we did in the whole of last year. So the plan for this year or first half of the year is to cover up whatever we have done in the whole of last year, to cover up by September. That is on the business done by MCSL alone. Co-lending, of course, moves at their own pace. So as of now co-lending, I'm not talking about, I am talking about whatever MCSL team did on its own. For the whole year, we will cover up by September. That's the plan, and that's how we are poised, and start has been extremely good for us in April and the half of May. All other, we've invested in -- a lot in technology, in data analytics. So today, we have a business intelligence and strategy team. We have our scorecards for collection where we predict the probability of bounds, the pre-delinquency score card, there are post-delinquency scorecards, which are the customers who have the probability of roll back and who are the probable roll forward. So collection strategy team put in place and the entire collection allocation happens based on the outcome of the scorecard. Again, we have brought in data science into our origination as well. So we have now a scorecard to decide the approval rate also. During the course of the year, we also want to move into a risk-based pricing based on the scorecard that we have not implemented yet, but we -- sometime during the year, we will also go into a risk-based pricing, where we will be able to price the better-profiled customers at, say a lower price or give benefit of the price to the better [indiscernible] the customers and of course, charge higher from the high-risk customer. So that is the direction which we will get into. A very comforting factor on our portfolio distribution is that 98% of the portfolio that we built last year, our customers who have their own house. So that's a huge comfort in the 2-wheeler segment. I think that would be compared to the rest in the industry or maybe the rest also because that high level of own house proof means that our collection efforts and everything will be much more easier and the customers would be traceable. Another factor is that the vehicle models, which have a very high resale value or relatively very high resale value, which is Hero and Honda. These 2 OEMs contribute to 70% of our portfolio. And the next -- so these 2 are the OEMs who have a good -- whose products have a good resale value. And the next one is TVS and that has about 14% share. So between these 3 OEMs, we are about 85% of our entire portfolio is covered. Also, on the distribution in terms of credit bureau scores, what we call as near prime or slightly below prime portfolio contributes to only about 11% of the overall portfolio, and everything else is on the prime or super prime category. So overall, the portfolio has stood up very well. The quality that we are incrementally acquiring is very good and the momentum has picked up. So we are extremely bullish on the current year. Thank you.

[Operator Instructions] The first question is from the line of Shivam Agarwal from Equitree Capital.

So actually, I have a couple of questions. First, on the dealership side, the 70% dealership comprises of Honda and second company will be.

Hero and Honda.

But sir, like Hero, the major financing comes from Hero FinCorp, and it also had a contract with Ujjivan Small Finance Bank. So like the major source of financing for Hero was -- that what I heard or what I read about. So what is your take on this?

I didn't understand the question. I'm saying that of the 1.74 lakh customers that we acquired last year.

Okay.

The 43% of that constitute -- is constituted by models of Hero.

Okay. And sir, what is the updates on the SBU side, like they are doing the SBUs of our products and our 2-wheelers and use that vehicle. What are the updates on that?

I didn't understand the question.

Sir, what are the -- like in the SBU of our products, like 2-wheeler different SBU, used different SBU?

SBU. Yes. Yes. Yes. So 2-wheeler continues to be our bigger SBU. So last year, bulk of the business came in 2-wheeler, but we started the used car business last year, we did about INR 25 crores, INR 30 crores of disbursement in used car and CV we started this month. So CV, we disbursed our first loan this month. So today, we have 6 products, 2-wheeler, of course, is the biggest chunk. But this year, towards the end of the year, we will have a good size -- a good part of the business coming from used car and CV also. Apart from that, we have a product called Loyalty Loan, which is a personal loan. [Foreign Language]

Hello, sir.

So used car and -- so you have used cars, you have CV, which we already started, which I told you. 2-wheeler, of course, continues to be the warhorse. We have a product called Loyalty Loan, which is a personal loan given to the customers who have satisfactorily paid off at least 12 months of 2-wheeler or any other product. And that is not actually a personal loan. It's deemed as a personal loan, but the asset continues to be the security because NOC is not issued to those customers. And we have our retail liability also. So we have these 6 products that we will have from this year.

And sir, earlier in a con call, you had a target for INR 10,000 AUM within 3 to 4 years. So what is the breakup of that?

So this year, we are targeting an AUM of INR 3,000 crores. And by '24, we are targeting an AUM of INR 3,000 crores. And by '25 -- March '25 AUM will be INR 3,000 crores and by '26 we will reach INR 5,000 crores.

And sir, the major contribution would be from 2-wheeler vehicle will be?

2-wheeler will continue to be about 60%, 65%.

[Operator Instructions] The next question is from the line Rishikesh from RoboCapital.

Sir my first question is with regards to the yields. What was the yield for quarter 4?

The first question, as I said, the blended yield comes at 17.52%. When I say blended yield, it's basically a yield, which is a combination of my co-lending and the combination of my Muthoot Capital in-house business.

Okay. So when compared to last year, where we used to be around 19.4%, 19.5%. So what's the plan now? How are we looking to go back to those levels? And how would that happen?

Yes. Yes. Yes. So thank you so much for asking this question. I would just like to answer this question in a very structured manner. Yes, last financial year, first of all, when we compared it to something with the last financial year, yes, last financial year, we just entered into a business called co-lending, wherein we spend approximately 3 to 4 months in co-lending, whereas in this financial year -- for the financial year for which we are presenting the results, the co-lending had a chunk from the entire year. Therefore, the impact with co-lending yield brought -- co-lending has brought down our yield by 2%, 2.5% because we have been operating this co-lending from the last year or so. But one good thing with that, wherein I would add, is that despite creating INR 600 crores of co-lending business, we had 0 NPA as of now, which is quite good, because that also helped us in saving our cost of OpEx, and our ECL also has been saved because of that. Third thing, where we will be in terms of -- as I said at the start of the call itself. The focus is, yes, on the yield. There are 2 focuses. Yes, NPA will always remain the focus for the company. But still, there are 2 main focuses. One, yes, we are working -- we have already started working on the yield. If you see last financial year Q1, we -- MCSL has done somewhere around INR 40 crores a month, which has now been increased to INR 85 crores a month from our own business, right? So we try to contain that -- yes, we try to contain the business, which we are receiving from the outside. But at the same time, we just want MCSL business to grow higher and higher, so that a proper yield can be matched up, which we can see in next 4 to 6 weeks from now that, yes, in Q1 what was the yield of the company in last financial year, and Q1 what's the yield now, because of the fact that we have been able to almost multiplied our MCSL business by 2x every month in this quarter as well. And this is happening from last 3 to 4 months from now, which is a good, positive sign for the company.

Okay. So how would that impact the yields going ahead? Would we -- can we see from Q1 a trajectory towards own yields, or what would be your target yields for now then?

So I'll tell you -- sorry, I'll just answer this. Now when I say our blended yield at 17.56%, that will obviously grow comparing with quarter stand-alone, right? Because we know that hypothetically, say, if I do INR 430 crores in this quarter, right? Of that INR 430 crores, I know that INR 300-plus crores will come only from the MCSL, which was not the case in the Q1 of the last quarter, wherein out of INR 200 crores, we know that INR 100 crores came from MCSL, remaining from the co-lending. So that basically impacted the yield. Wherein we know that total revenue of the company from MCSL yield, we will be having some 22-odd percent, whereas some co-lending, we'll be having some 15-odd percentage of yield. So that is something which will not be the case for the company from now onwards, because we know that majority of the business is coming only from the MCSL route itself, which is on a higher yield. Sir, I hope I'm able to answer somewhat of your question?

So can you just tell me the implemental business...

I will just add to what Raman said. See, on our own portfolio, about 4% is from Tier 1 cities, about 20% -- 28% comes from Tier 2 cities, and 68% of our business is in Tier 3 and Tier 4 cities, where we get a much better pricing. So we do upwards of 23% there, okay? And that is what is impacting -- that is what is a positive on our yield. Now when the own share contribution will increase, last year, the contribution of MCSL to your co-lending was 50-50. And that's what brought down, because co-lending happens at a typically lower yield. So that is what pulled down our yields. But this year, the ratio of co-lending to MCSL own book would be 75-25 at a best. So that will automatically impact the yield. Plus our continued focus on cities, Tier 3 and Tier 4 cities will help us increase the yield.

Okay. So co-lending, we are still lending at 16% yield?

Co-lending, we have different yields with different partners.

Yes.

But as a blended...

Based on the volumes that they have committed; we have different rates with different partners.

Okay. And what would be the yields for our own book then?

It will be 22% for the own book.

Okay. Okay. And so in that case, whatever incremental disbursements that we made for this year, at what yields would we be making that blended yields, if you could please share?

So if you ask me, as you know, our CEO has said 75% would be the MCSL as a site that we'll be doing. So blended yield would be somewhere that could come close to 20-odd percent, including my processing fee and everything. 20% is something which I am expecting as a blended yield for the whole year.

Okay. Okay. And...

And this is from the Q1 itself.

Yes. Got it. Got it. And what is our disbursement target for FY '25 as well as FY '26?

So I'll tell you. For FY '25 is concerned, we are projecting from -- so there are 3 parts to it, which we have -- sorry, I'll say that first there is 2-wheeler. We will be targeting somewhere around INR 1,100 crores of fresh disbursement. For my used car, I will be having some INR 150 crores of my new disbursement. We also started some -- we also started used LCV, wherein I'm expecting the target of INR 160 crores, wherein we have framed our B plan accordingly. From our alternate channel, that is the funding -- that is the business which we are taking from MFL, wherein we do synergy with Muthoot FinCorp, wherein we are expecting a business of somewhere around INR 168 crores. Corporate loan book will remain more or less the same. There will be only 5% jump from the existing ones. And co-lending, we are expecting somewhere around INR 400 crores to INR 500 crores during this financial year.

[Operator Instructions] The next question is from the line of Kshitij Verma from Rest Assured Wealth Advisors.

I had queries regarding our co-lending business model. Number one, as mentioned that our NPAs as of now is 0 in the co-lending model. So doesn't it make more sense for the management to actually increase the co-lending part, because their underwriting seems to be better than our own underwriting, the NPAs much higher. What would be your feedback on the same?

No, no. So that's a balanced view that we will take. So we don't want to be an organization which is only dependent on co-lending. So we want to continue our business, because yields are fairly larger. So we will continue to build our own book. Secondly, co-lending is always a function of striking the right partnerships. And there are always rate challenges, because there are larger players who can come and undercut the rate and then they start diverting business there. So there is a certain amount of uncertainty also, which we don't want. So our business model would continue to be focused on our own business, and we will accept co-lending partners on their merit. So we were never saying no to them. We will continue to focus on that as a business, because as you rightly mentioned, there is a positive side on, what you call, the NPA and stuff like that, but we will continue to build our own book.

Sir, just a follow-up question. There were articles in the paper mentioning that there was some issue with the indirect tax department regarding the co-lending model. So is there any update on that from the GST Department?

Not yet. We have not received any update on that. But for us, as of now, it's not. So whenever we will have any update on this, we'll update the investors accordingly. Nothing related to Muthoot Capital as of now. Yes.

[Operator Instructions] The next question is from the line of Bhargav, an individual investor.

My question is to Mr. CEO. Actually, I have been an investor for the last few years. So the last 2 quarters after you have come. So if I'm not wrong, in Q2 con call, you have guided for INR 600 crores of disbursement and it ended at INR 468 crores, INR 469 crores, like that. I mean, in Q3 call, you said that this time we'll definitely do the disbursement of INR 600 crores, but if you look at it, it is not even INR 400 crores. So what is the guidance for it? Because continuously, even in the last year, they have guided for INR 2,700 crores for the full year closing, but it didn't end up. It ended up in the same range. So how would you say that you are going to achieve the INR 3,000 crores. Because for the last quarters or last year, every time you are giving targets and you are unable to achieve it.

Okay. So let me clarify on that. Yes, we did give a guidance of INR 600 crores for Q4, but that is the time when, as I mentioned in my opening remarks, that in December, we changed our LOS from the old to new. That's a much more robust LOS, which can help us give a decision in 5 minutes, or disbursement in half-an-hour to 45 minutes as against earlier, which we were taking 24 hours to give a decision. And when you implement a new system, that's a major, major change in the life of an organization. And we had initial -- we took 1.5 months to 2 months for the system to stabilize. And that is where we missed out on the business, but that was a conscious call, because that was at some stage we had to do it. And that was, of course, an investment for the future. And on the Q3 guidance, again, that was on the seasonality factor of November. That time we had not implemented. We purposely postponed -- our software was ready, but by taking feedback from the field, we decided to postpone the implementation, because we did not want to -- want the disruption in business because of that Q3 thing. That was the reason why we missed out on our guidance that we had given. But definitely, we are committed towards the numbers that we are seeing. And this year, you will definitely see -- this quarter, you will see the numbers coming in, because today, all -- it's a well-oiled machine now. We are doing -- and I -- as I again mentioned in our opening remarks, as we speak, we are already at 25% of what we disbursed through MCSL own business in the whole of last year. So our commitment is to complete the entire figure that we did whole of last year by September, and that we will achieve.

And what is the guidance for this quarter? Because already this is May and there's hardly only 1-month left for the quarter. What is the disbursement that you are going to execute for this quarter? Because most of the...

INR 400 crores we will do. That will be 100% growth over Q1 of last year.

No, don't compare it with Q1, because anyway out of the INR 400 crores, INR 300 crores will come back towards the decrease in the portfolio, because it's 2-wheeler. So only INR 100 crores AUM will increase from INR 2,030 crores to INR [ 2,120 ] crores by end of the quarter.

Yes. Yes. That's right.

And how do you see the other divisions contribute? Because you have hired -- everything is done in other parts, because this EV business is going outside, everything is going along. And what is the part on the 10% gross NPA. And how are you going to decrease it? Because I don't see a significant collection in the last 2 quarters as well?

So collection has definitely improved in the last 2 quarters. And last year, we actually brought down the NPA, not just as a percentage, actually brought down the quantum of NPA by about INR 65 crores from -- other than the ARC, just I'm talking about without including the ARC. And -- what was the second question?

It is on the NPA, and the second one is the contribution of the other parameter apart from 2-wheelers.

Sorry, on the other parameters. So what will really impact our growth in AUM is the kicking of the new car and -- sorry, used car and used LCV business, because they are fairly larger ticket size. Average ticket size there is INR 5 lakh, and the average tenor is about 48 to 60 months. The runoff would be much smaller than -- lower than the 2-wheeler business. And that will -- whatever we disburse there should largely contribute to the AUM as well.

So does it start from this quarter itself, like Q1?

Car in Q1 would be not that much, because it is picking up. Of course, it will be -- maybe in Q1, we should do whatever we did in the whole of last year for car, but that is about it, but it will not be significant. But both car and LCV will start contributing really big in H2. From, say, August, September, both these businesses will be kicking.

And last time you said that you are going to do an ARC transaction for the rest of the -- there is some more parties, and you said you will think about it in the Q1. So any update on the ARC transaction?

We are contemplating. We have not taken a firm decision on. We are still contemplating. But yes, I missed one question. You were saying on the guidance on the NPA. This year, by the end of this year, we will bring it down to 6% GNPA.

So your guidance for the whole year, INR 3,000 crores AUM and 6% gross NPA?

Yes. Yes.

Even if you do the ARC transaction, if you exclude that also, it should be in that range, right, INR 3,000 crores AUM and 6% gross?

Yes. Yes.

Okay. I hope you will do what you are guiding.

Sure. We will definitely try to meet all those expectations.

See because we have been investors for the last few years. We have not seen any returns, rather we lost capital.

We really thank you for your patronage. We really appreciate that. And we will...

So hope you will reward that with the returns from you by contribution...

Surely.

[Operator Instructions] Next question is from the line of Kshitij Verma from Rest Assured Wealth Advisors.

I just had a follow-up question. We had seen in the last couple of financial years, RBI taking a certain crack down on unsecured loans and risking earn -- increasing the risk rates. Seeing the 2-wheeler industry, the NPA ratios are almost at the same level before RBI took a crackdown on the unsecured lending business. Are we also as a management feeling that RBI may someday increase the risk rates for our 2-wheeler portfolio? What is your feedback on the same?

I think that is not a question for us to answer. But 2-wheeler is a secured portfolio. We are able to repossess the asset wherever there is a default, and we are able to recover substantial amount of money through that process. So I don't think -- but it's not for me to answer that.

Sir, just one more question. If there is an interest rate cut in the future, say in the coming 1 or 2 years, how does that help us in our NIM expansion? Or do we have to pass back all the gains to the borrowers in our segment of 2-wheelers?

Interest rate cut, you meant from RBI repo rate cut?

Yes sir, from RBI side. So our borrowing also should go down ideally, I believe.

Repo rate cut will definitely help us as a company, because last year, there's been an increase in MCLR, and therefore, we also saw a correspond -- but we were able to maintain our borrowing rates fairly at the same level by negotiating well with the bankers. Also our financials have improved in March '24 over March '23. So that also will help us go for better rates -- bargain a better rates from our financials. So all that has been a positive. And if there is a rate cut, then of course, it is going to benefit us. As I mentioned earlier, since we operate in Tier 3, Tier 4, our rates remain fairly constant on the lending side.

And sir, other than 2-wheeler business, are we looking at co-lending in the other segments, in used commercial vehicle and other segments?

Wherever there is an opportunity to do co-lending, we will definitely do that.

Next question is from the line of Rishikesh from RoboCapital.

My question is with regards to the AUM contribution. We have given a target of INR 3,000 crores of AUM in FY '25 and INR 5,000 crores for FY '26. What will be the contribution of used car and LCV for the same?

Okay. Sir, I'll take.

Yes. Yes.

So what we are expecting for this financial year, in this year as of now, from used car, we are expecting a number of somewhere around INR 150 crores to INR 160-odd crores, whereas from LCV as well, we are expecting the same number. Since used car, we already have our teams that is there in place from the last 4 to 5 months, LCV team has just been Muthoot Capital from last 2 months itself, and we are expecting these numbers, though the average ticket size is extremely high in these businesses, right? So we are expecting -- in the next financial year, we are expecting some INR 350 crores from the used car and some INR 400-odd crores from the LCV. That is what we have taken as our number. So business side, obviously, a higher number has come, but we have taken only 70%, 75% of it, while giving the expectation to the shareholders or investors.

Okay. And this is AUM number, right?

This is the sourcing number.

Okay.

Disbursement during the year. And too -- if we talk about AUM of that also, since these products are for 4 to 6 years, 4, 5 years, right? So there will not be much reduction as compared to the 2-wheelers which we see, wherein one investor has also said that even if you do INR 400 crores, we'll be seeing some INR 300 crores of repayments, which is right. But in terms of LCV and used car, that is the sole objective, too, that we want to have a product there, wherein repayments are not as fast as 2-wheelers are concerned, because when we do INR 1,400 crores a year and that too when growing the book by only 8%, 9%, whereas if we do the same number in used car and LCV as well, it will take a good jump to the entire AUM of the company.

Okay. Okay. And what is our targeted OpEx growth for FY '25 and FY '26? And what would be our credit cost guidance for FY '25 and '26?

Okay. So first of all, I'll take the comp of credit. Since for 2-wheeler is concerned, as our CEO has said that maximum [ BNP ] which we are expecting is 6%, inclusive of everything, wherein we are expecting the same ECL to follow, wherein we are providing some stage 3 assets, some 42.22%. And yes, for used cars and LCV, since these are new products, wherein we are not expecting much of that kind of bad repayments into that, and since we have industry experts too, we are expecting to bring an overall ECL of somewhere around 0.6% to 0.75% on these 2 products. That is one. Second, talking about the OpEx of the company, one thing is for sure is that whatever cost is that, that we have to observe, we have already taken in the last financial year. The hiring has been done. Everything has been done. Only the field staff hiring, that too for LCV, is remaining. Other than that, the OpEx will remain the same more or less, as we have reported in the last financial year as well.

Okay. So how would OpEx grow for next 2 financial years? Could you indicate? Would it be fair to say around 10%, 12%, 15%, something range if you could give?

No. No. That would be on the higher side, because as I said, the team and everything has been set for a book comp of approximately INR 5000-odd crores, wherein we have set our entire team. Only growth we can see, wherein we can see some on those there in LCV and then there are chunks, which will be coming in our used car business as well. So these are the 2 businesses to grow. I can fairly say that some 6% to 8% of the growth, which I'm expecting in this financial year. That's it. For next financial year, we can project the same number.

Next question is from the line of Shivam Agarwal from Equity Capital.

Sir, actually I have a follow-up question. Sir, how we are approaching for -- actually, you made the remark on the 2-wheeler segment -- sorry, in EV segment. So how we are approaching for electric vehicle business? And what are the numbers, if you can share for this year?

Mathews sir, you want to take this?

See, 2-wheeler, as CFO mentioned -- for EV, as CFO mentioned during his opening, we have got into a tie-up with Greaves ev.fin, and there we do exclusive 2-wheelers -- sorry, electric 2-wheelers with us. They contribute about close to INR 20 crores a month with us. Other than that -- so as of now, our EV percentage is only 1% of my book, or last year's disbursement, 1% was my contribution. That will go up to about 5% -- 4% to 5%, because we are also starting electric 3-wheeler financing through one of our partners -- co-lending partners. So all these put together, this should jump up to about 4% to 5% of the book.

Next question is from the line of Bhargav, an individual investor.

Sir, any update on the personal loan, because 6 months back you said, apart from the used car and light commercial vehicles, you also ventured into the personal loan. So I understand you -- someone asked you, you said we are going to give to the existing person some loans. So without that, are you going fully on a personal loan basis?

We have a partner with whom we will be starting, but that will not be a very significant contribution, whereas somebody else was asking earlier, RBI has also broadened some norms on higher risk weightage, et cetera, et cetera. But yes, you are right, we have given our guidance and that we will start. Most probably in Q1, we will start that disbursement. But our larger focus will be on our existing base, who have a proven track record with us.

So how much would that be? Even on an annualized basis, would that be more than INR 500 crores or less than that?

No. Maybe for the whole year, we would look at, say, about INR 100 crores of disbursement overall.

Okay. And a small request from our side, because Muthoot Microfinance is also there, right, which is also recently discussed. So over there -- as it is this is also part of Muthoot, over there in the presentation itself they are giving how much is their guidance, and in the next box they are giving how much we have achieved. Guidance versus achievement, they are giving in the presentation itself only. So we would request in your presentations also to give that. And they're clearly guiding how much we have guided in the call and how much we have delivered. And the next slide, they are giving how much is the next year guidance. And quarter-on-quarter, they are giving like this. So we would request you to also go with that.

Thank you much for your feedback, sir. Feedback taken and we will start giving it that way.

As there are no further questions, I will now hand the conference over to the management for closing comments.

So thank you very much. Thank you. It was really nice engaging with you once again, and thank you so much for the questions that you put to us on various aspects. And let me assure you on behalf of the management that we stand committed to continuing to add value to all our shareholders. We'll continue to work hard towards achieving the numbers that we have committed to you. Yes, thank you so much.

Thank you very much. On behalf of...

Raman, do you want to add anything?

Yes, I'll just add to it. Thank you so much, investors. Last financial year, wherein we have seen some ups and downs as well. But one thing which was very sure from all of us that we had worked as a team, and we have been able to sail our ship throughout the financial year. Yes, we have been able to fight this all odds in terms of NPA side, sales side, the business side. 100% I'm assuring that we will be providing you with the results right from the Q1 itself. Wherein I'm not afraid and I'm making this statement because of they said that, because now I also feel that there is a need for the investors to have good ROA and ROE, and as Mr. Bhargav has said in the statement as well. Yes, people are trusting us. They are making investments on us for the last 2 years or so. It is high time to provide the returns. The teams have been set now, and I'm extremely sure that we will be able to deliver the results right from this quarter as well. Last financial, it was extremely good for us also, because we have not -- although we have not grown much, the growth of only 8%, 9%, still we have been able to sail our ship for the financial year. And thank you so much, investors, for trusting us and for investing in us and having the faith on us throughout the last financial year. We expect the same faith in this financial year as well. Thank you.

Thank you very much. On behalf of Elara Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.