Poonawalla Fincorp Limited (POONAWALLA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Poonawalla Fincorp Limited Q1 FY '22 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kunal Shah from ICICI Securities Limited. Thank you, and over to you, sir.

Thank you, Lisa. And good evening, everyone, present on the call. This is Kunal Shah from ICICI Securities. We have with us today Mr. Abhay Bhutada, Managing Director of Poonawalla Fincorp; Mr. Vijay Deshwal, Group CEO; Mr. Sanjay Miranka, Group CFO; Mr. Manish Jaiswal, MD and CEO of Poonawalla Housing Finance; Mr. Rajive Kumaraswami, MD and CEO of Magma HDI; Mr. Pankaj Rathi, CFO Poonawalla Housing Finance; Mr. Mahender Bagrodia, Head Collections, Poonawalla Fincorp; and other management team members from Poonawalla Fincorp to discuss their Q1 FY '22 earnings and their medium-term strategy. So over to you, sir.

Yes, good evening, Mr. Kunal. I welcome you all and thank you for joining first ever investor call of Poonawalla Fincorp Limited on this Saturday evening. I will start with a quick update on some of the important milestones achieved post the transaction. These are the things that were part of the future road map as per the transaction. And I'm happy to provide this update that we have successfully achieved this in a very short span of time. #1 is, the Board reconstruction was done with Mr. Adar Poonawalla as our Chairman. The renaming and rebranding have been done successfully in a record time. Strengthening of the management team across verticals of credit, risk, analytics, sales, Human Resources, announced strategy, risk monitoring has been done. We continue to build a larger talent pool within the organization, which will drive the risk culture in the organization. As laid out in our product strategy, we have shifted our focus to consumer and small business segment along with discontinuation of non-focus product. The new product addition have already started happening with loan to professionals like CA, CS and doctors, personal loan to the super Cat A, Cat A companies' employees, all the products are live now. The rest of the product launches will be launched as per the quarterly plan mentioned in the investor deck. In Q3 and Q4, remaining products will be launched. Right now, the focus on technology and going digital has already started. With record time, we have implemented the LOS, LMS and the CRM platform. The digital-first approach is gaining ground with the launch of our new optimized website, with a seamless integration to our backend system with a very strong business rule engine as well. We have created a strong in-house contact service center to ensure we offer excellent customer service. This is powered by the best people, process as well as the technology. We are working on building another pillar of sales and distribution through our strategic alliances and corporate tie-up. This will benefit us in our cost of acquisition. And from next 2 quarters, we will do a lot of additional alliances and corporates, which are underway right now. We all know, Q1 FY '22 has been a tough quarter for the entire sector due to the second COVID-19 wave. But despite of that, we have put a very strong performance and worked towards building the right building blocks for future growth. So this quarter we have remained flat in terms of AUM, which is currently at INR 14,424 crore due to COVID-19 restriction across the country. We had consolidated profit before tax of INR 81 crores --- against the INR 47 crores quarter-on-quarter basis. Our NIMs improved by more than 1%, on quarter-on-quarter basis. ROA almost doubled to 1.80% from 0.9% on quarter-on-quarter basis. Our strategy of focusing on the liability side has started yielding us benefits. We have started seeing gains on the incremental borrowing that we do. With fresh borrowing coming in at sub 7%, our liability strategy will be a key driver for us in the coming times. I will look at these results in light of COVID-19 second wave. I would like to state that we remain cautiously optimistic on the business and have used this time to create back end efficiencies, which should boost our performance in near future. With these building blocks, I wouldn't say that we are on the way to build a very strong franchise based on conservative and calibrated approach to the risk management and asset quality. As the collection efficiency shows sign of improvement, we are looking at the market with a very cautious optimism and are well prepared and positioned to tap into the same. I will say, our investment in building a strong leadership team, implementing best-in-class technology for a digital-first approach along with our customer-centric approach, these are the strong routes of our growth journey ahead and will enable us to achieve our management vision, which is to be a diversified tech-enabled NBFC, focused on risk calibrated growth with customer-centric approach, providing a growth-oriented environment for the people as well as creating value for all the shareholders. So thank you so much. And with that, I will hand over to Vijay, who is our Group CEO, who will take you through the detailed strategy and execution plan. And after that, our Group CFO will take you through the detailed financial update. Thank you once again.

So thank you, Abhay, and good evening, everyone, and thanks for coming on the call. While Abhay has outlined the product vision, let me take you through in brief on how we plan to achieve the strategic objectives of being a diversified tech-enabled NBFC, focused on risk-calibrated growth with customer-centric approach. We have chosen consumer and small business as focused customer segments for our lending business. In consumer and small business, we have further realigned our business mix towards highly scalable products where we feel there is huge funding gap and large opportunity landscape. Taking from the last investor deck, what we presented at the end of May, we decided to discontinue certain business lines, primarily due to 3 reasons. They were heavy on operating cost, cash collections and very low or negligible on lifecycle profitability. We have picked up our go-forward focus product segments judiciously based on the market opportunity and evaluated on the product mix that should help us deliver risk adjusted returns planned over medium to long term. These are precisely affordable home loan, pre-owned cars and business loans from the current offerings, and adding loan against property, personal loan, loan to professionals, co-branded credit cards, machine loans and equipment loans for a healthy mix of secured and unsecured businesses. In terms of growth ambition, as mentioned by our MD, we are aspiring to grow at a CAGR of 25% to 30% over the next 2 years to 3 years. I'll take you through 5 operating levers that will help us achieve the desired growth and risk adjusted return on capital. For enabling levers in order, first and foremost, brand and equity capital. We are backed by one of the most respected and trusted business houses, not only in India, but across the globe. We have got sufficient equity capital to support our growth ambitions, at least for next 5 years. Next is our cost of funds. We have started seeing very aggressive repricing of the existing tech and raising incremental funds at industry best rates of interest. Additionally, the liability mix will further be realigned with optimum mix of banks, debt capital markets, long-term financial institutions, including re-fi institution. The third lever will be distribution infrastructure. We have inherited a very well-established Pan-India branch infrastructure being complemented with strong digital capabilities to facilitate customer acquisition at optimal cost and ensuring process and delivery of credit at committed TAT. The fourth pillar will be digital, which is key to financing around entire customer centricity. Our digital strategy is being adopted basis of price, convenience, turnaround and service model, where technology and analytics will lead to continuous product innovation, digitization to help direct customer acquisition, improved TAT, and provide data for analytics to further serve the customer better. It will greatly help in bringing down the cost of acquisition and also cost of operation. Operating leadership team is our fifth, but not the last lever. We have spent considerable time over the last few months in identifying the best talent in the market from the finest and best governed financial institution, and from within across businesses and partner functions. All these leaders have relevant domain experience on an average 20 years and are fully capable of delivering the ambitious business plan that we have envisaged. I'll also dwell upon how will we handle the credit costs. One of the most important variables in retail lending or rather, I would say lending in any credit, we have carried out a complete overhaul of our credit and underwriting policies in the last 2 months. The exercise has been based on significant learning from our own businesses and the external environment faced by the industry over last few years. It does not mean only tightening, but policies which are business enabling with right guardrails and ridden off any redundancies. Additionally, the prudent measures taken in Q4 FY '21 and the expected recovery from what we already provided for will help us weather any potential shocks in near future. On profitability, we spoke about right selection of products and customer segments, significant equity capital, access to best-in-class debt capital, optimal cost of acquisition and credit cost. All of these aided with the reduction in OpEx, which is necessary right now to build for ambitious business plan growth. As we scale up in the next few years, it will keep on optimizing. And this will ensure that we deliver the planned risk adjusted return on capital. All in all, our strategy on products, backed by low-cost liability, supported by digitization, cost rationalization and lower credit cost will ensure desired result. Moving on to Q1 performance. Abhay already mentioned the key highlights of our operating performance have been maintaining the AUM in a challenging environment despite discontinuing some of the products, improvement in NIM on a year-on-basis, containment of credit costs and led by improvement in collection efficiency and a sharp growth in profitability to PBT of INR 81 crores. Now I'll hand over to Sanjay Miranka, our Group CFO, to take you through the financial update in detail.

Thanks, Vijay. Good evening, everyone. Hope you and your loved ones are doing good. First quarter financial performance of Poonawalla Fincorp has been well placed. More so, given the limited time opening of the economy in general, and transition journey for the organization in particular. While our asset under management at INR 14,424 crores was flattish, there was a growth of 6% in the AUM of continued and focused products. With new capitalization and the parentage, the company is poised for accelerated growth. The large capital infusion, the cost of funds advantage led to 107 basis points of improvement in the quarterly NIM at 7.9% per annum. We have started engaging with banks and undertaking aggressive repricing of our existing loans. Also the incremental borrowing is being done at the finest rates in the industry currently being at sub 7% levels. We expect our incremental cost of borrowing to be about 250 basis points lower by March. Talking about our ALM and update on liability management, we have an extremely comfortable liquidity of about INR 3,200 crore on book and another INR 600 crore of sanctioned lines. We have surplus ALM across all our buckets. The Gross Stage 3 declined by 37 basis points to 5.4% on Y-o-Y basis. Even the quarter-on-quarter increase of 169 basis points was contained despite large scale shut down during April and May '21. The Net Stage 3 book declined by 103 basis points to 2.7% in the reported quarter. The credit cost stood at 1.5%, 89 basis points lower than Y-o-Y quarter credit cost. Pre-provision operating profit improved by 15 basis points to 3.6%. Our restructured portfolio is currently placed at 5.9%. As regards to collection efficiency, after dropping down to 80% to 84% during April and May, it rebounded sharply to 93% in June '21 and further to 98% in July, which is similar to pre-COVID levels of collection efficiency. We at Poonawalla Fincorp Limited adopted one of the most stringent and conservative provisioning and write-off policy in March '21. As on 30th June '21, our provision coverage ratio on Stage 3 book stands at 51%, which is amongst the highest in the industry. Moreover, we are carrying a provision cover of 21% on Stage 2 book. And this is by far the highest PCR on Stage 2 book in the entire industry. As on 30th June 2021, we are carrying INR 283 crore of specific COVID provision, which is included in the above provision coverage ratio, which I talked about. This along with conservative provisioning basis revised policy in March '21, visible improvement in the collection efficiency and expected recovery from write-off pool provides enough cushion and would help us bring down the credit cost in the remaining 9 months. We would strive to achieve net NPA of less than 1.5%, by the end of this financial year. Our consolidated PBT in Q1 FY '22 is INR 81 crore against INR 47 crore achieved in Q1 FY '21, witnessing a significant growth of 72%. The profit after tax has increased to INR 65 crore against INR 38 crore in the corresponding quarter of FY '21. Our ROA has doubled to 1.8% as against 0.9% achieved in the corresponding quarter of last year. So this was a brief summary of our financial performance. Thank you so much. Over to you, Kunal.

Yes, Lisa, we can start with the Q&A.

[Operator Instructions] The first question is from the line of Kunal Shah from ICICI Securities.

Congratulations, sir, for the entire senior management team for the management vision. So it's very exciting to see in terms of being a diversified tech-enabled NBFC focusing on risk calibrated growth with a customer-centric approach. So couple of questions from my end. Firstly, in terms of the product. So we are following a consolidated grow and lead kind of a strategy and we have highlighted in the presentation that we will consolidate for say initial 9 months, thereafter it would be a growth phase for 9 to 8. And then we would be leading in some of the segments. So if you can highlight, at the time of the consolidation in terms of the products that we would focus even in terms of the growth? And finally, in terms of being a leader, which are the key product segments which we are looking at? We have highlighted the products over the next 4 quarters, but particularly from a growth and leadership perspective, which should be the key segment which one should envisage in the medium term?

Kunal, I think this is the most appropriate question to open the dialog. In terms of our near-term growth drivers, as we clearly have identified our product segment very clearly and judiciously, we will be starting focusing on the growth on pre-owned car finance, affordable home loans, business loans, and affordable LAP that we are going to start in the current quarter. Going forward, and I'll also mind that the year of FY '22 will be a year of capital conservation. It will be a year of where we will focus more and more on credit costs. We will focus on profitability, and we will focus on calibrated growth on the identified products that we focus on. Largely, this year will be around secured products, and slowly, as the situation around COVID evolves and we see market opportunities, we'll also start getting into unsecured loans on a calibrated fashion going forward.

Yes. And in terms of the leadership, if we have to look at it over a period, some of the product segments, wherein we would lead say from 3- to 5-year perspective amongst the NBFC space or the financing space?

So we -- Kunal, we aspire to be in the top-3 in pre-owned car finance, in business loans and in affordable home loans.

Secondly, in terms of the digital, we are quite clear in terms of being a tech-enabled NBFC and we have highlighted a lot in terms of what would be -- how would be our digital focus. And interestingly in terms of customer acquisition, end to end and E2E digitized process. So when we look at it in terms of our customer segment and our employees, besides maybe catering, say, digitally, how would we tend to realign them given the way that we have been working till now? So how would we bring about the digital alignment amongst the stakeholders, be it the employees, customers as well? Yes.

Kunal that's a very appropriate question. And you're right that we've been into certain business models, which were more around people, which were more around large branch networks. However, within that, we have even before the infusion, there was a journey which was on-boarded towards central processing, journey towards paper-less processing of the transaction. So that was started. Now I'll give you an example, in the Erstwhile Poonawalla Finance, which was led by Abhay over the last 2 years, there is an illustrated record of E2E digitized process where online application journey, which goes through online verification checks and a BRE goes through an approval system on the fly, moving through an e-agreement, e-NACH registered and an online disbursements. So pretty much everything do-it-yourself. We have strong learnings from that. We will integrate our existing businesses on the similar philosophy, and we have already on-boarded on the journey of digital taking those strong fundamentals. I will also add not only digital, data sciences and analytics is something that we will use very, very strongly across our sales and distribution, credit risk and monitoring and collections optimization.

The next question is from the line of Piran Engineer from CLSA.

Okay. So my first question is, you'll spoke about the complete overall credit and underwriting policy over the past 2 months. Could you please elaborate a bit that?

Yes, Farhan. Thanks for bringing that question. So we actually went through each one of our existing products, which we've been handling, whether it is pre-owned car finance, whether it is affordable home loan or whether it is business loans. So we studied each one of the policies, which was sort of while there was some action taken in terms of evolving COVID situation in the last 1.5 year itself. However, we try to align it to the evolving customer segment that we want to focus on. Largely, earlier if you see the customers' focus was more around self-employed non-professional segment, largely in the rural and semi-urban spaces. We are planning to move the customer segment and geographies more towards formal income, income proof and credit tested customers. As well as in terms of geographical distribution, we are looking at more of urban and semi-urban. So all the credit policies have gone through the filter of requirement of the customer and the geographies. So that's how we have really approached it. And each one of the credit policies have been overhauled, keeping that in mind. And as I mentioned, it's not only about tightening the credit policies, it's about making them as business enablers. If we found something which was not helping us over a number of years in terms of containing credit cost or business enabler, we have done away with those kind of redundant filters, I would say.

Okay, okay, understood. And now that you mentioned that we are targeting more of a formal income class in urban and semi-urban geography, then what will be really our unique proposition to clients, because you've got the whole host of banks where you got even the other Poona-based NBFC out there, large one. So really what is going to be our unique proposition out there? Except for our cost of funds, which is -- what is really our right to win?

Farhan, very valid question. As I mentioned that our entire customer proposition will be on the models of PTCS. Pricing, we have already mentioned that we have one of the best cost of funds. We are looking at a complete turnaround in terms of our processes and an agile back-end operations by leveraging technology. While you may say this is hygiene, but what we have experienced in our Erstwhile Poonawalla Finance that by really delivering it and we did the experiment with loans to professionals to the CA community, we realize that not only the customer on-boarding, almost negligible cost of acquisition and zero -- almost next to zero credit cost. So that is our value proposition that is going to be, because as long as we are confident on containing the credit cost, we will be able to deliver value to our customers. And you're right that we will have to differentiate in each one of our business segments. And therefore, the products that we have picked up have gone through the rigor of micro market opportunity, complete data of credit record of these customers over the last 2 to 3 years also across the COVID cycles. So that is what will be our play, combined with the existing sense what we had in those markets.

Okay. So our proposition will not to be to try to offer the best rates or something like that?

Farhan, my take on that will be that rate is something which is derived by the market, a customer will get the rate what the customer deserves. Our cost of funds will actually help us in achieving profitability and targeting the right set of customers so that my credit costs are contained within the parameters that I've defined for myself.

Okay, understood. And lastly, the co-branded credit cards, with whom are we tying up? Is this towards -- is this in the late stage of tie-up or is this just a plan that we have, but nothing has firmed up yet?

Farhan, we have...

Actually my name is Piran.

Piran, okay.

Yes.

Sorry. Maybe in the first place you would have corrected, it would have saved me. So first of all, on the NIM, we cannot disclose because it's confidential as of now. However, we have gone through in detail on what exactly we are going to offer to the co-branded credit card. It will be slightly premature to discuss the overall strategy. But yes, when we say that we have applied to the regulator, you will see the launch pretty soon in near future.

The next question is from the line of Shreepal Doshi from Equirus.

Sir, my question is with respect to our strategy in the pre-owned car segment. So what is the -- so if you can just throw some light on how is the product structure like has been since we are targeting in semi-urban and urban locations. How will this product be like in terms of features? What kind of pricing bracket are we looking at? What kind of tenure are we planning to put across? So if you can just throw -- and what is our -- so what will be our customer acquisition strategy or what kind of tie-ups are we planning to have in terms of dealer tie-ups or the second-hand dealer tie-ups that one can look at? So what is that -- so if you can just throw some light on these lines?

I'll take it up in 2 parts. One is that, how do I see the competitive landscape and also in terms of what is our right to win. If you look at the overall industry of pre-owned car finance, all of us know that in our country, there is a ratio of about 1.5 times of used cars to new car sales that happens, primarily driven by ownership cycle in India, which is slightly more than the developed markets. We end up owning a car for almost about 6 years to 7 years. While in Western world, car ownership lifecycle is about 3 years. And therefore, as the trend changes and as we graduate towards less than 4, 4.5 years of ownership of a new car, there is a huge opportunity, which is coming up in terms of opening the used car financing market. Second interesting dynamics is that just about 20% of the total used cars which are sold actually get financed. That is also undergoing change and we see that over next 4 to 5 years, almost about 30% cars will start getting finance. Now we have a huge presence all across the country in terms of our branch network. We have a unique underwriting model. We have a seasoned team, which has a close to about 15 years of experience in the same industry. However, we were limited by our cost of funds, our scale of operation. And because our cost of funds was high, our ability to raise debt capital and equity capital was limited, we were focused only on a specific segment in certain geographies. I'll just take an example, we were not present too much in Maharashtra for example. Now with our ability now to raise funds debt capital at a very finance pricing and support of equity capital, we will focus very, very aggressively into the Maharashtra market. I can say that with fair confidence. Now what is my right to win? My right to win here in this segment is that I have an understanding of this complete industry. We have a seasoned team to deliver it. I have the backing off data analytics and technology and digital delivery. And I have the formidable backing off the finance cost of funds. So we will do it 2 ways. One is that we will penetrate into the markets wherever we are already present, and we will hugely exploit the markets we were not there and go very, very deep into that.

But sir, like in these geographies, there are already large players with significantly better cost of funds. So and winning on those lines will be sort of difficult, right? So then in that case, what is the customer segment that we are prudently targeting? Where we have a right to win?

I'll save time for the entire I think participants who are present today. So I'll actually speak out the competition which is present. So this market is largely dominated by large banks like HDFC Bank, ICICI bank, AU Bank, and some of the NBFCs. And even as we speak, we are at almost #6. So therefore, we are talking about not really coming from scratch, but we are coming from #6, and we aspire to be in the top-3. In terms of customer segment, if we talk about, we were focused largely on SCNP and commercial usage, limited by our cost of funds and our access to capital. We will move that towards semi-urban and urban and we will take it forward accordingly. Also we have an operation, which is backed by a very, very strong collections infrastructure, which is seen in our collection efficiencies over the last few months.

And sir, second question was you've highlighted the collection efficiency numbers. So are this -- so these are against the billing for that particular month or how -- or with including the arrears?

So if we talk about collection efficiency overall, all of us are aware that when wave 2 hit us in April and which persisted through almost middle of June, the collection efficiencies dipped to almost 84% in April, sequentially, to about 80% in May, returning back to normalcy in June at about 93%. And in July, I can confirm to you that we have seen a very, very strong collection efficiency of 98%, trending back towards normalcy or pre-COVID levels.

Right. But sir, are these numbers against the billing for that month or including the arrears?

These numbers are in line with how the industry reports the collection efficiency. This does not include foreclosures and part payment. So to that extent, okay, it's a far more conservative definition.

Okay, got it. And sir, on a business model perspective. So what is the kind of normalized credit cost that we are looking at going ahead, for the lines that we are expanding, right?

So over the next 2 to 3 years time frame, we are looking at normalized credit cost of about 1.5%.

The next question is from the line of Umang Shah from HSBC Securities.

This is Umang Shah from Kotak Mutual Fund. Congratulations on a good quarter and the transition. Sir, my question is a little strategic. So if we take a step back -- while we appreciate that clearly the management is kind of bringing in a lot of changes, both on the product side and in terms of the way the whole business is being done. But if we just take a step back, clearly, the expertise of the company or the employees have been in a very different sort of a business and the kind of target markets and the customer segment that we are now looking to approach in our new avatar, clearly, that is something which is kind of diagonally opposite I would say in some sense. How easy or difficult the transition is going to be, both in terms of adoption of culture and the whole technology changes by the employees? And if you could just throw some light in terms of employee attrition and the whole transition from the operational perspective. That's my first question.

Thanks, Umang, for a detailed question, I would say, and bringing us back to the drawing board in terms of what exactly and how exactly we are going to do the business transformation in specific. So you're right that in the Erstwhile avatar, the teams were focusing on certain lines of business, which were primarily I would call it wheels and affordable housing. When I say wheels, it was all around CVs, across NSCV and primarily into used. We are also doing used car finance, we are also doing new car finance and there was a wide array of products, but not a singular sort of leadership. And we're also spread across urban, semi-urban and rural geographies. So all we are trying to say is that the teams have an experience, fantastic experience into the wheels business. The products that we have picked up from the Erstwhile bouquet is pre-owned car finance, there in a way, there is a right to win which exists with the team, I explained in detail. We have a fantastic affordable housing franchise, which has been built very, very carefully over the last 3 years. We have done our own sort of business -- in the business loans and unsecured segment, which has so far tested -- the test of the COVID 1 and COVID 2. Added to that what -- I mean you are aware that Poonawalla Finance, which Abhay was leading was into loans to professionals and personal loans. So there has been an experience of 2 years in to those segments which are completely led by digital. So you're right, there is an amalgamation happening. We are picking up learnings from all our experiments in past and we are trying to arrive at the synergies. We have completed on the technology side, I can confirm it to you that the entire migration of the loan origination system, loan management system and the CRM has already happened. Complete training of the entire teams right up to the ground has gone through. Today, all my new loans are getting booked into the new systems and these are things said by my teams on the ground. There has been again, negligible attrition because now people are looking forward to a growth journey. They were sort of held up because of the want of debt capital, equity capital and no growth happening over the last 2, 3 years. They have seen a new lease of life. And all the teams are professionals. I can confirm it to you that in my last 2 months after I joined and even previously I had a feedback that the teams on the operating side are almost best in the industry. The franchise on the ground is solid. So we are -- we will going forward, integrate them into the entire business plan and we have done. In fact, I mean we are not only talking to you, we have done at least 10 to 15 town halls, before we have come to you. We have traveled to the geographies. We have met people and we are trying to help them on the -- having a sort of alignment towards the management vision that we have tried to spell out.

Sure, sure. That sounds comforting. Sir, my second question is pertaining to a couple of group companies and the sister company. So what happens to the Erstwhile Poonawalla Finance? I mean do promoters continue to run 2 companies separately or at some point in time, we look at -- and does the regulator would kind of allow that?

Umang, we will not do further business in Poonawalla Finance. All the lines of business, which were happening in Poonawalla Finance are being migrated to Poonawalla Fincorp, including the existing portfolio.

You mean to say the existing portfolio is already kind of transferred to Poonawalla Fincorp?

That will start moving as we speak.

Okay, all right. Sure. And just lastly on the affordable housing and insurance subsidiary. So the Erstwhile management of Magma Fincorp overlooking at some sort of a value unlocking or a demerger of the affordable housing business or value unlocking opportunities on the insurance side. Just wanted to understand what's the thought process of the new management on this front?

Umang, as we speak, I mean in last -- I mean in this quarter we have invested or infused INR 500 crore of fresh equity capital into Poonawalla Housing and -- last quarter, to be correct, we have invested -- infused INR 500 crore of equity capital. So that shows the commitment of the new management that this is an integral part of our business. However, as I mentioned, as we accelerate the growth trajectory of Poonawalla Housing, we will look at a value unlocking through an IPO in our run towards our growth journey towards 2025. And the timing of that will be completely depending on the market opportunity and our own requirement of additional capital stroke value unlocking.

Sure, sorry. And just one last question which I wanted to squeeze in. Any updates on your dialogs with credit rating agencies, any time lines of which they are talking about in terms of rating upgrades?

Umang, yes, we are engaging with our credit rating agencies. There have been rounds of discussions, and we are optimistic that in the next few weeks, we will be able to get a confirmation and the final rating from them.

The next question is from the line of Prashanth Sridhar from SBI Mutual Fund.

Yes. A lot of interesting stuff. Just a couple of things I had. So one is, how do you plan to get rid of the discontinued book? Would we see a sell off or you would run it down? But I guess that would mostly be CV where currently at least the market would see higher delinquencies. That is #1. #2, when you switch from a self-employed to sort of salaried class, all your branches would be located in very different geographies, right? So do we sort of see or expect to see a lot of branches being closed and the new ones being opened up according to your new customer segment? And then just lastly, if you could give us some background on how big the Poonawalla Finance balance sheet is or credit costs delinquency, ROAs et cetera? Just we know that eventually this is going to be merged into this Fincorp entity that would give us some idea. That's it from my side.

Prashanth, I mean very valid one that how do we look at the rundown of the discontinued book. So over next 30 months, Prashanth and rest of the participants, this discontinued book would have run by almost 90%. Large part of it over the next 2 years itself. However, at the same time, I can give a confirmation that this book is giving us good recoveries and we do not have any immediate plans to sell it down unless we come across very highly compelling value proposition, which we feel that on an NPV basis is something that we need to really lap it up. But given that we have strong collection franchise on the ground, we will allow it to run down in due course and recover the maximum from this book possible. On your second question of Poonawalla Finance book. So we really do not right now discuss about Poonawalla Finance because it's a separate entity altogether. And we'll let know in the subsequent quarters as and when the progress happens on that. However, what I can confirm it to you is that it has a book, which is the best in the industry is something that I can leave you with a thought.

Okay, okay. But the idea is to eventually merge both the NBFCs? Would that be right?

No, no, no. We will not merge the entities. Poonawalla Finance...

I mean whatever AUM is there on finance would move to Fincorp. Is that correct?

Yes. The AUM will get -- will move here. And I can say that 85 plus DPD, it's 0 as of now in that book, and I will maybe hold back my further sort of intelligence to comment on anything on that book.

Sure, sir. Fair enough sir. And what about the branches? So when you do self-employed to salaried, would you close all these old branches and then open new ones because that would be kind of OpEx everywhere?

We will look at -- so we are looking at rationalization of the branches, so it won't really mean -- and sorry, I'll come back to -- Prashanth, do you want to understand about the branches of Poonawalla Finance or you're looking at an answer for rationalization of...

No, no, for your current -- this entity, Poonawalla Fincorp since you say you're switching from self-employed to salaried, I'm assuming the branches also would have to move, right? Or is that wrong?

No. So I'll take it into 2 parts. One is that, see, we will continue to do the businesses that we do well. We will also have a tilt towards the segments, which we were not covering at all earlier. So there will be a movement towards those segments and there will be healthy mix of what we were doing earlier, plus what we'll be doing afresh. And there will be a mix of physical plus digital there. There will be some rationalization of the branches. Not all our branches are rural or semi-urban, but there was a large tilt towards semi-urban and less urban. So we will look at rationalizing these branches over the due course and we'll keep you posted on that development in the subsequent quarters.

Yes, just to add on that. Abhay, here. The current branches what was missing in Poonawalla Finance was the branch. See, at that point of time, I think there was only 9 -- count was only 9 in terms of branches it was a digital model. But as you rightly pointed out, we are focusing on digital and other things. What will you do with the branches? The reason behind Magma acquisition is the collection infrastructure, readily available branches, and we wanted to focus of digital model as well because few of the product will require a physical presence. For example, for pre-owned car, we will require a physical presence. And for micro labs and the affordable housing, you will require physical presence, then for small business loans to go to the customer, meet them, and understand, it's a cash flow-based lending. For personal discussion with these kind of set of customers, you need physical branches. Then for cross-sell of insurance, we will again need a physical setup up to a certain extent. And overall for the collection also, if you see all the FinTech, they're struggling with the collection infrastructure. So here also in Poonawalla Finance though we started with 3 unsecured product, but later on we thought behind Magma acquisition because of the branch ready infra available. So there will be a rationalization of branches, but yes, these are all helpful branches for us in terms of collection, in terms of cross-sell of insurance, in terms of affordable housing, micro labs, small business loans, pre-owned cars. And as you are aware in the Q3 and Q4, we are launching 2 new product consumer durable and few other products. So we will require such kind of set up on the infrastructure.

Just one doubt. When you say pre-owned car, would this be like the commercial segment of OLA, Uber-type drivers? Or is this more retail use?

Actually we'll only not be doing that, what you just said. We'll not be doing commercial. We'll be doing everything else.

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

And I think -- and I must first, I mean, kind of congratulate you for what you have kind of achieved with the Erstwhile, Magma franchise and kind of thank you for giving out such elaborate or exhaustive details around your business strategy. But sir, please don't misconstrue me if some of my questions come across at present. I'm primarily trying to do this to get more comfort and understand what is your level of comfort now and the visibility that you have after all the reorg that has happened in terms of processes, underwriting and collections. So 2 or 3 questions here. So firstly, you have kind of moved your headquarters to Pune. So I mean how has this been received by the existing Magma team? I mean are they comfortable moving to a Pune headquarter or are you seeing some kind of an attrition in the current team?

I can only say that I have got so far and the entire management team including myself, MD, CFO we have got a tremendous support from the entire Erstwhile Magma team. In fact, somebody asked me about few weeks back that what was one of the most pleasant positive surprises that you saw? And I confirm that, that time also the one of the most pleasant positive surprises is that the willingness and the positive attitude of the team to really go through this integration. Also there is a huge positive confirmation by a large part of the senior and middle management team, because, see we have a huge branch network, you need to appreciate. Not everyone was sitting at Calcutta or Bombay. And people are now looking at growth opportunities professionally, personally. And in fact I will -- I have with me Mr. Mahender Bagrodia, who heads the collections. He's been 25 years with Magma. So I'll request him to actually speak more on that instead of I trying to convince on somebody else's behalf.

See, I think you know the background that Magma actually moved their head office, 3 years back from Kolkata to Mumbai. So it was not a Kolkata-based company, as actually -- when we did this transaction. Now actually if you see the background in Magma, we were struggling, largely because of the cost of fund actually, but we discussed actually and then the transaction happened because of the trouble actually which we had in Magma. Now if you see the -- for the entire employees of Magma, they are coming under roof of a very big group. And that is a big motivation for all the people actually coming under such a big group and the new opportunity which they get not only actually for the existing customer profile which they were expert, but largely actually to now they have the entire market that they can actually dominate. So internally, within Magma, people, I will say, people are quite motivated. And many of the senior leaders as we speak, have -- are already actually moved to Pune. Actually, it gives you -- it gives you the reply we were looking for.

Sure, Mahender, sir. That's useful. The other 2 questions I had was around -- sir, I mean, from what I understood, the Erstwhile Poonawalla book that we had was largely to loans to professionals and personal loans, and we had about a 2-year kind of experience giving out this purely digital loans. I mean how comfortable are we in terms of the seasoning of that book, in terms of the performance of that book, the kind of credit cost that you saw in the book to really tell that now that we are implementing this in the rebranded Poonawalla Fincorp, the results are what you are expecting. And sir, the last question, maybe I'll just add here and you can answer both of them together. In the past sir, like you know right, I mean, predominantly 3 products at the Magma's table, which was vehicle financing, unsecured MSME loans as well as affordable. So while affordable, I think, I mean we had reasonable comfort in affordable loans. Vehicle, we are largely vacating the space. We are probably continuing only with pre-owned vehicles. What's the thought process around making this unsecured SME piece more secured going forward? And the other question is, sir, what are the graphs that you identified when you took over the Erstwhile Magma team and which you think you would have fixed them in the last, let's say 2 months or 3 months and now you have reasonable comfort that going forward actually the asset quality performance that we saw in the past is going to be very different in the future?

So I'll request Abhay to take the first question and then I'll take the rest of the 2, if that's okay.

Yes, sir.

So as you rightly pointed out, I think it's a very good question, I will say. As we speak what was the reason behind Magma acquisition. As I told you branch infrastructure as well as the employee strength and of course we have discontinued few of the product, but in pre-owned car, affordable housing, they are doing pretty well as compared with the market. So coming back to your question, see apart from this reason of Magma acquisition, Poonawalla Finance is one of the main reason behind the Magma acquisition, because when you have experience, as you rightly said, Poonawalla Finance was AA- rated by CARE. And if you compare with any or a lot of 2, 3 NBFC, I don't want to give specific name, with more than INR 4,000 crore AUM, backed by top corporates, which are rated by CARE only at AA-, the reason behind this is why we got AA+ at that point of time, and as you rightly said the seasoning is just 2. Though, on paper, customer seasoning looks 2 year, but average bureau seasoning is 7 years to 8 years. Because there was no disbursement to new to credit, it was clear cut from the pre-approved customer kind of thing, personal loan to super Cat A, Cat A customer. As on today, as we see speak, despite of COVID wave 1 and wave 2, 0 plus DPD, hardly 2 or 3 cases. I'm talking about zero DPD. Professional loan around -- out of -- around close to INR 600 crore loan book. 0 plus is just 1%. Out of business loan, mostly backed by GST data, TDOs and backed by again bureau history and cash flow-based lending, PDF banking, the 85 DPD is 0. 0 plus is around 4%. So thanks to the COVID. we got to know even despite of COVID wave 1 and wave 2 how the book is performing. But as you rightly pointed out, same question asked by the rating agency, the seasoning on overall book is more than 9, 10 year as a bureau seasoning. Business vintage seasoning is 12, 13 years. But yes, on paper we are seasoning of 2 to 3 year. Because of the lesser cost of fund, 100% I will say negligible cost of activation because in Poonawalla Finance there was no DSA model for personal loan and for professional loans, 100% acquisition digitally. No single check, no PDC. As Vijay, mentioned, eNACH, e-agreement and the total digital process and the stringent credit parameter and the stringent credit policy. At the same policy, we are going to follow in the Poonawalla Fincorp as well that Poonawalla Finance used to write-off all the cases 85 DPD. So there was a pressure at -- there was a pressure on all the teams at the start from onboarding till you underwrite, because you are going to write-off at 85 DPD. Here, we have decided that all unsecured products we are going to write-off at 90 plus, which we have started from March itself. And again, June we have done the same thing. And our secured products 180, all the Magma vehicles and all and mortgage products at 730 plus. So to answer your question, 90 plus DPD was always 0, but if you ask me, you should always check 0 plus DPD because Poonawalla Finance was believing first time collection, which is our the NACH collection. The first time NACH collection across 2 products was 99.7% and business loan, it was around 94% to 95%. So I think that will give a fair picture. And speaking to you at this point of time, these are the figure post-COVID scenario.

And just to add half a point there, that there cannot be a better situation that running an 200 years kind of situation, which is COVID to -- if the seasoning -- to taste the seasoning and expected, okay performance of any credit book.

To take the -- if I understood the second part of the question right, was what was the logic of when we were discontinuing the wheels? Some of the wheels business is largely I would say it was MHCV and CV and the farm equipment and the rural businesses. And we decided to retain the pre-owned car finance and we also decided to grow the business loan segment. The primary reason I explained the pre-owned car in detail, I will discuss the business loans why we really decided to retain that despite of being an unsecured. See, clearly what differentiates business franchise and business loan is how strong collection machinery you have on the ground. It's not a business of distribution, it's a business of distribution and collection. Second, how strongly do you credit underwrite these customers, backed by the data from the bureaus which is already available. And we can clearly see that in each of the micro markets, what is the kind of opportunity which exists. There is a large market. However, we have to figure out that, how many locations we would want to be and what kind of customer segment we will pick up, whether that has gone through our own internal tests of credit, bureau, data analytics and everything, backed by a very solid and dedicated unsecured business collection franchise on the ground.

And sir, the last question that I had that what are the gaps that you identified, when you took over this Erstwhile Magma team either in terms of underwriting or collections and which you think has now been fixed and asset quality performance will be better than what we have seen in the past?

So 2 things. First and foremost, we looked at -- that's a business rule engines which were there. Those had to be really aligned towards the market reality. We found that some of those were sort of dated. Second was the customer segment on which we were focusing was sort of per force, not really evaluated through the metrics of opportunity and the credit costs that they will eventually levy. I am firm believer that credit cost is decided on the date of customer on-boarding not in hindsight. So these are primarily 2 of the major things. Third thing which we found was lacking in terms of investment in technology and data analytics. So that's something that we are strengthening. So therefore huge synergies, I would say. I mean we are investing heavily into data analytics and digital and technology. And we are investing heavily into BRE. So therefore, I mean, those are the things that I could see off the cuff about these things.

Thank you. Ladies and gentlemen, due to time constraint, that was our last question. I now hand the conference over to Mr. Kunal Shah for his closing comments.

Thanks to the entire senior management team of Poonawalla Fincorp for articulating the vision, medium-term strategy and product proposition, as well as very clearly highlighting where Poonawalla Fincorp is headed to, and sharing your perspective. And thanks, everyone, for being there on the call on Saturday. Have a good weekend. Yes. Thank you, everyone.

Thank you, Kunal, and thanks all. Thanks for the opportunity.

Thanks for giving us the opportunity to host you, sir. Thanks a lot.

Thank you, everyone. Thanks, Kunal.

Thank you.

Thank you. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. We thank you for joining us and you may now disconnect your lines. Thank you.