Repco Home Finance Limited (REPCOHOME) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Repco Home Finance Q4 FY '20 Earnings Conference Call hosted by Yes Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rajiv Mehta from Yes Securities. Thank you, and over to you, sir.

Good afternoon, everyone. Firstly, thank you to the management of Repco for giving us this opportunity to host the call for Q4 FY '20 results. So we have the entire management team with us. We have Mr. Yashpal Gupta, the MD and CEO; Mr. Arun Mishra, the CDO; Mr. T. Karunakaran, CFO; Mrs. Poonam Sen, GM Credit; and Mr. Subramanian Balaganapathy, AGM Finance. So Mr. Gupta, I would want you to start with your initial remarks on the numbers and your assessment of the current situation. And post which, we can open the floor for the Q&A. So over to you, Mr. Gupta.

Thank you very much. In addition to all the names that you mentioned, I would like to mention that Mr. Prabhu, our Company Secretary and Chief Compliance Officer; Mr. Palpandi, our Recovery GM; and Ms. Shanthi, she's our CRO, are also here if you need any question to answer them. Now welcome to all. First of all, I want to have a hearty welcome to all of you on the -- and on these days, the -- all -- hopefully, all of you and your families are safe and you are taking care of the -- to safeguard yourself from COVID-19. We -- as you know, COVID-19 has been bad storm event, maybe it is more -- it has disrupted our entire economy, our entire nation and maybe entire world. And also, it has brought everything to a standstill, including Repco Home Finance. Our operations were meaningfully affected until May because of COVID with virtually no disbursement till May. Collections are restricted to electronic mode with no cash collection during this period. Fortunately, things have started improving somewhat in June -- since June 2020, which also coincided with opening up of economy and easing of restriction. Our disbursement -- and we have got renewals during this period. Our disbursements are now about 50% of the usual length, and we expect it to improve further. And by end of Q3, if everything goes well, it should be about 80%, 90% of the normal run. And already, collections in the month of June has improved to 68%, net -- it improved to 68% in the month of June. And in July, it is somewhat better. Of course, still, there are 6 days left. So I cannot tell you the exact number. Maybe when we have Q1 meeting, then I'll share with you the exact number. But we expect it to be crossing 70-plus percent in the July month. And then again, if everything goes normal by October or so, it should come to normal level of 95%, 96%. Then I'll share you more details going forward. Our financial performance remains resilient. Though the book growth was affected, but when you look at the bottom line, it remained resilient. We all amended a lot ourselves virtually and with tepid demand environment even before COVID-19. As you know, our economic growth has been slowing down for the last 8 quarters. That has been a challenge to us. That has reduced the demand for credit also, and the DSA sector is one of the most affected sector. It goes without saying that if there has been no lockdown, then our disbursement for this last quarter would have been higher by about a couple of billion rupees. We have done about INR 6 billion in the last quarter. We could have done about INR 8 billion. It will observe [indiscernible] because it affected our business for the last 15 days of March. But there are no regrets. Things happen. We have to adjust ourselves to that requirement. We feel moderate to have had recapture of our lenders, who not only consumed to old commission, nobody has canceled their loan to us so far, but also, sanctioned new credit sanction. In fact, in the last quarter -- period of March to July -- or rather, April to July, we have got INR 2,000 crore additional sanction including from NHB, from SBIM, from many others. And we are at quite lower rate. But vis-à-vis, our cost as compared to March has come down only by 25 bps, but incremental borrowing cost had come down significantly. And we expect that will continue to come down because we do not expect RBI to increase the project anytime soon. If anything, we will further decrease it. So that will also benefit us in terms of our cost of funds. As a matter of operating cost program, we need extra provision of about close to INR 40 crores over and above what's our required under the Ind AS. We have made INR 39.2 crore additional provision and that provision has been made not annually, but based on the substances which matter. We have arrived at the provision looking toward things like is that one of the borrowers that we have now arranged, borrower's occupation, number of [indiscernible] and whether a moratorium is taken or not taken. All those things have been taken in to account, that's why because it's odd at INR 39.2 crores. It is not a round number. It is an odd number because we have calculated based on formula, not randomly provided for.. And since we have adequately covered in terms of provisions, the stage 3 coverage ratio because of this extra provision has gone up from 7% to 36%. If you compare sequentially, that is from December to March. Our total PCR average is 48% total provision income ratio. And you would see in annual report, there is frequent downturn -- downsizing in these 2 cases significantly, about close to INR 1,000 crores reduction in stage 2. So both will -- which also including forward NPLs. Going forward, we see -- we'll use our some provision to make further provision to create a buffer over any other credits that may come out. Though we are quite hopeful that we will continue to recover our customers' money, even now, as I told you, during these difficult times also, we are getting 68% collection. But on the asset growth side, we feel it is better to be prudent than aggressive. That is why we are not aggressive. While we are giving loans, we are being cautious. So that they should not come back to bite us. The collections are improving, but we are very careful about the new loan book growth for some time. Right now, we are focusing more on existing plans and better civil core clients rather than going after any clients, which comes to us for a loan because that may become an entry in future . The rest of -- during the year, we expect book growth of 7% and the product came down. But as I told you, that was excluding 15 days of March. The repayment stood at 14%. During the quarter, we earned a spread out that is where if you compare our PS, listed PS, I'm not talking about unlisted because we don't have the data, over the expanded, margins are highest, our spread was 3.5%, which has gone up marginally, and NIM margin is 4.7%. Then going to pricing discipline and resilient operating performance, Q4 provisions are high -- before provision profit is higher by 23% year-on-year. While net profit is lower because we have made extra provision of INR 39.2 crores. But if you look at profit before volume, it is higher by 23%. And it is an important note that we are choosing customers, which is higher estimate before as I told you. In fact, 28% of our incremental sanctions went to salaried segment. That is why we changing the mix. Now that mix, we have 51.6% of self-employed and 48.4% of salaried segment, if you see a couple of years back, the self-employed segment was 60%. So from 60%, it has come down to 51.7%, and -- 51.6%, sorry; and salaried ratio has increased from 40% to 48.4% with LAP remaining constant 83.7%. That's all. The cost-to-income ratio also remained in our guided range of about 20.5%. Our capital adequacy ratio during this difficult time is, again, one of the best in the industry, [indiscernible]. It is 25.9%. It is entirely be tier 1 capital. There is no gearing -- additional gearing bond or Tier 2 bond. They are all common equity with 25.9%. Then the liquidity remains robust for us. In fact, if you see March balance sheet, we have INR 350 crore of liquidity in the balance sheet in the form of cash and cash equivalents and INR 2,500 crores of -- as on March of undisbursed sanctions, some of which we avail after March, but still, some more sanctions we have got. So liquidity is not a problem. In fact, probably we have not availed of any moratorium of our lenders while we grew margin with customers, but we have availed of any moratorium to our lenders. In fact, some of the high cost debt we are keeping also. Today, very few NBFCs and HFCs have the liquidity to crimp any high-cost volumes. We are doing that. We are one of those sort of fortune-wise who have the balance sheet strength and liquidity support to do that. Now I will summarize the key highlights of our financial year '19-'20 performance and then floor is open for your questions. The revenue from operations, it increased 13% to INR 1,317 crore. Now here, you see very important thing, the book growth is 7% only, but the total income growth is 13%. It means we are able to manage at a higher rate of interest. The NII has gone up by about 13% against INR 530 crores at 4.6% NIM. The profit before tax has gone up by 20% -- close to 20% at INR 280.4 crores as compared to about INR 230 crores savings last year. Now if you look at ROE, ROE as I told you, arguably, this is one of the best in the industry at 2.5%, 18%. Now I'd like me -- me and my team will be happy to take your questions. Thanks, once again, for joining this con call.

[Operator Instructions] First question is from the line of Rahul Jain from Credence Wealth.

A couple of questions. Firstly, sir, with regards to the segment, which -- to whom we are -- which are -- to whom we have given loans, roughly about 50% of them are being salaried and other being nonsalaried. But can you give some more details about what kind of businesses this nonsalaried segment is into -- and typically, the salaried customer, our ticket size is roughly around INR 15 lakhs. So if you could share some more details about the customer profile, which we have, that could be helpful in assessing some understanding on the asset quality going ahead.

See, that is a very wide range of nonsalaried cuts. They are shopkeepers, they are vegetable vendors, their real estate players, small real estate businesses, not big ones, then some of them are in jewelry, some of them in textiles. So it is -- I mean if we want details, Bala can share with off-line the details. Right now, number-wise, we don't have because what we find is that our customer is so wide. They are across so many industries, where we don't have concentration in one sector. Some of them are in automobiles. So it is wisely working for some. Bala will share with you that data off-line.

Sir, in your assessment in last about 80 to 100 days, any kind of segment which -- where did you find some pain point and which possibly could impact some more problems going ahead? Out of those people who have taken morat and also maybe some of them might not have taken the morat, but going ahead, there can be some issues. If you could share some inputs?

See, of course, there are -- as you know, pharma is doing well, those who are in that sector. But the -- who are running restaurants, there and prolonged. Those who are selling vegetables on -- vegetables vendors are doing well. There is a mix. But fortunately, we got, as I told you, we also know that they may create problem for us going forward. That's how we have started second moratorium. We are quite fixed. That is why your collection, as you can see, as of June, it is 68%. It is expressingly improving in these months and going forward. That is one thing. Second is, because of -- these are customers with small -- when you say average ticket size is INR 15 lakhs, so there are customers with a higher loan of INR 50 lakhs and INR 1 crore, and there are customer with low loan of, say, INR 10 lakhs or INR 8 lakhs. So amount is not very high. And they are all self-customary houses they are living in. It is not an investment for them, for most of them, no. For some, people do invest in, but more than 90% were look it as an asset. So we don't see -- and housing is such, we can see people in smaller cities, they give much importance, so housing loan default is probably the only last thing that they will commit. So -- and that is why we are providing buffer. Problem may come, but I don't think it should be in size that we don't cannot handle. In fact, we are expecting our NPA for March 2021 to be in the same range or this lower. We don't expect to -- it will be lower about at 4% to 4.5%. We don't expect it to go up. And another thing which I have told you, the stage 2 cases have come out significantly. So going forward, whatever may happen, but I don't think this is something which is going to bother us too much.

Sure. Sir, in terms of growth, last 2 years including FY '20 also, growth has been quite subdued due to competition and due to issues specific to state of Tamil Nadu. So going ahead, how do we look at growth post-September, October when things are more clearer? So what is the focus of the management in terms of which kind of therapies you would like to pursue growth? And what kind of growth do you feel could be possible given the competition where it stands today?

That is very difficult because growth is also, apart from competition, a function of the economy alone. And economy was in not a good situation before COVID. After COVID, people are making different achievement, some are saying minus 5%, some is saying minus 7.5%, minus 10%. Then as I told you in my opening remarks, right now, we have lot of undertakings. That why we have decided to prudent rather than -- I can tell you, we -- as of today, we expect growth to be somewhere between 5% and 10%. But it is difficult to find a number because we do not know what will happen. Like what we see in Chennai itself, when we thought everything was okay, they declared lockdown from 18 June to 4 July. Then some lockdown is declared in Bangalore, and some lockdown is going on in Pune for a long time. So these are our key markets. It is very difficult to give any numbers right now, I will tell that. But actually, thought of just a random numbers without any assessment. That's why we are focusing more on recovery collection and liquidity movement.

Sure. Sir, one last question. So with regards to OpEx, the cost side, have you taken some steps in last 2, 3 months in this tough period, whereby, some of this cost reduction could be sustainable either on the employee cost also? Or also, on the nonemployee costs, any reductions which could be sustainable?

Employee cost is already very well at INR 45 crores as a whole. It is already very low. Some costs, wherever it could -- reduction of like [indiscernible] rental cost that we were taken, but that is not going be material because, as you know, percentage-wise it's high, but the book size is entirely little, it's not a corporate book size. So we could not do comparison with others. I think if you look at 20.5% is -- amount-wise it is hardly INR 100 crore. I don't think substantive reduction is possible, we are looking at much reduction. In fact we felt it will, percentage-wise, maintain; amount-wise, it may go up certainly, overall.

Next question is from the line of Anand Laddha from HDFC Mutual Fund.

Sir, can you hear me?

Yes, sir.

If you -- I just want some data points, sir. Sir, on the moratorium book, if you can give a breakup between housing loan moratorium and LAP book moratorium, sir?

See, that data we don't give. But you ask off-line to Bala.

Okay. And sir, in terms of collection efficiency, sir, you indicated 68% collection efficiency.

Sorry, I could not hear. Can you repeat again?

In terms of collection efficiency, sir -- can you hear me, sir?

Yes, yes.

In terms of collection efficiency, you indicated 68% as a collection efficiency. If you can give you some color, like, sir, how much -- hello?

Yes. For the month of June, yes.

Yes. Yes. So how much is collection efficiency for the market segment and how much is the collection efficiency for the LAP segment, sir?

No. It will be same only. Anyways, you ask Bala. He'll tell you. But I can say, broadly, it's the same.

Okay. Okay. And sir, if you can give the breakup, which you usually give the presentation, in terms of gross NPL between home loan and LAP and also net NPA?

Yes. One minute. One second, Bala will tell.

Anand, so NPA for the housing segment was 3.8% in March. For LAP, it was 6.6%.

Okay.

For salaried segment, it was 1.6%. For nonsalaried, it's at 6.7%.

Okay. Perfect. Hello?

Yes, sir.

Sir, if you can give some data point more, like what percentage of check bonds you used to see pre-COVID and now what is the check bonds? How much time does it take for you to collect from the customer? What sort of collection infrastructures are created in terms of call center seat? Or in terms of collection agent? How you are preparing yourself post-August when the moratorium is lifted? How do you see things?

See, as far as collection in provisions is concerned, we are not hiring any collection agent. We want to do everything in-house, in company. So there is not going to be any change whether COVID or non-COVID. Yes, we do take help of some third-party agents, but this is for not collection, chronic NPA cases, which are NPA for about 1 year, 2 years or more. For selling provisions [indiscernible], we take their assets in. But otherwise, we do internally because we find the commission is quite high. We're charging them, of course, there's always a quota connected to everything. So we're going to follow that. We don't intend to overlap. What we are doing is that we are making more calls to customers because the customer has a limited cash. He has many liabilities to meet. So it is a question of whether we are presuming it first. So we make more calls. We try to meet the -- it fetches our people. We are focusing on also bucket 1, bucket 2 who are stage 1, stage 2 cases in addition to NPA. Our people are going, we have ticket systems developing ahead of it as to how many times or what frequency [indiscernible]. They should -- immediately, we should take action. Those are things we are doing. But everything is in-house on that. And we are in pursue of developing our IT system. We appointed KPMG as our adviser in February and following immediately after the appointment, this COVID happened, so things got set back for some time. But again, they have started the process. And we are doing complete revamping our IT system that will involve our collection mechanism also. We can do better monetizing, efficient collection system, but again, it will be in-house only.

Okay. Sir, on the moratorium customer, like 32% odd is the moratorium customer, if you can give some color like what proportion of the customer who have not paid a single installment for us?

Not paid a single installment?

So from March onwards, a proportion of customers who had taken moratorium 1 as well as moratorium 2 and not paid a single installment from March till now.

That is for B2B because the 32% whoever has taken in June, most of them, maybe about a couple of percentage maybe have paid in March, April, May, but very few. So you can say about 32% or 30% have not paid a single installment since March. But as I told you, this 32% is coming down in July on that. But if we see up till June, about 32%, they have different moratorium in the first phase also.

Okay. So is it fair to say, sir, almost like 28% to 25% of the customer as such have not paid a single installment?

Since March?

Yes.

Yes. No, when you say not paid single installment that can have several correlation. They've not paid a single installment in their lifetime or they have not paid single installment over 10 years, not paid a single installment since March, yes.

Okay, okay. And sir, this provision of 40 -- COVID-related provision of INR 40 crores, which we made this quarter, if you can give some color like on what basis is INR 40 crore we have determined?

INR 39.2 crores. As I told you there are 4 parameters we chose, and we went by those 4 parameters. First parameter was what is their area zone for defaulters, whether that's in red zone or green zone or orange zone. Then what is the overall occupation; salaried, nonsalaried, self-employed. Then number of defaults in the last 6 months before COVID; whether he has defaulter, whether he is paying regularly; and whether moratorium is taken or not taken. These are just parameters. Our adviser, Edelweiss has run a simulation and this is where exactly INR 39.2 crores. Let me tell you this INR 39.2 crores is not only for stage 3. This is spread across stage 1 and stage 2 and stage 3. All these customers, we only have customer accounts that we have, we jointly -- I mean based on this 4 category we made by the group and then allocated certain numbers. These are the parameters.

Okay. Sir, so like what we understand is RBI said that on overdue balances, you need to make a 10% provision. What was overdue balances for us, sir?

No. See, RBI has not said that. RBI said is that those who are following -- not following Ind AS, those who are following Indian GAAP, for them they should make 10% provision for overdues as on March. But those who are following Ind AS, they said, let you make provision as per Board approval policy on guidance from Institute of capital requirements. So since we are Ind AS, we have not gone by that 10% goal.

Okay. Sir, is there any change in LGD assumption? Because in the past, you used to have very low LGD assumption. I mean this COVID, are we increasing our LGD assumption?

No. We are still increasing the assumption because that will be affecting in future also. We have made additional provision. So we have made LGD assumption change also as well as the ECL change also and complemented with default also. But history of any 2 would be same number, we have divided. For example, as per our old model, the provision was coming to INR 174.8 crores. What we've done is addition -- rather than dividing numbers, we have made addition provision of INR 39.2 crores. However, INR 39.2 crores, INR 6 crores are in stage 1 cases, INR 3 crores for stage 2, INR 31 for stage 3. So rather than dividing the numbers, we have created additional numbers. For that, those additional numbers can be taken away once COVID situation improves. So it is increasing, but rather increasing the basic formula, we have made addition for it.

Next question is from the line of Abhijit Tibrewal from ICICI Securities.

Yes, sir. I have just 2 questions. Firstly, I wanted to understand what is the current liquidity position of the company and how much liability repayments should we have coming up over next, say, 3 to 6 months?

One moment. How much liability we have pay in 6 months?

INR 1,400 crores.

Okay. So there are 2 things. One is the liquidity position. As of now also, we have about INR 300 crores of cash in hand in the form of FDs with bank, short-term FDs. So that is one. Second is that we applied to SBI for that decreased short term that they are seeing, plus we have about INR 2,000 crores of undisbursed sanctions. We are going for NHB about INR 500 crores by this month. That itself means about INR 1,200 crores. The total liabilities which are maturing in next 6 months are INR 1,200 crores. 3 months maturing is about INR 800 crores. 6 months is about INR 1,200 crores. But liquidity, if you look at, we have INR 300 crores of cash in hand plus about INR 2,000 crores of undrawn lines plus many additional investors are willing to give additional loans. We don't actually know what we will do with that. So liquidity is quite comfortable.

Perfect. Okay. All right. Sir, the second question was around -- I mean what is the pressure that you're seeing on foreclosures and balance transfers? Now the rational -- I mean, the reason why I'm asking this is we keep hearing from a lot of these DSAs, which suggests that some of the public sector banks, I mean, they are very, very aggressive on home loans and home loan rates for some of those customers have even hovered around, say, 7.8% to 7.9%. So what is the pressure that you're seeing on foreclosures and balance transfers now?

You are right. Foreclosure pressure is quite high. In fact, in June, it was very high. Fortunately, for July month, it has come down. We cannot match with the PSU banks in the rate interest. So we are trying to adopt other measures. Whatever reduction we can do, we are doing. We have created a team at head office and have taken proactive measures. But yes, the pressure is quite high.

Okay. All right. And sir, if I might ask just one last question. In the past, you have indicated that given our structure, we used to have a lot of collections towards the last, let's say, 10 days or 2 weeks of the quarter, which we were not able to do because of the loan terms. I'm assuming most of those collections towards those GNP accounts would still continue to remain in the moratorium, I should say. So when I say moratorium, I'm assuming they would not be paying now. So what is your sense after moratoriums are over? Can our stage 3 assets go up? Because I remember in one of the questions you had alluded that you're expecting to close FY '21 at similar levels to what you closed FY '20, around 4% kind of GNP limits?

I mean you are right, they should see it go up. But at the same time, they are in a market and we have sort of time to recover some of them at least. Because INR 400 crores odd -- INR 500-odd crores is not sort of chronic. They are -- some cases, 50% just 2 years old or there we had to finance authorization. But they've just become borderline free cases. So overall, we see that -- and because the moratorium, because collection have improved in the recent month, we don't see much addition. And we see a reduction in borderline cases. Chronically, we may not be able to recover so fast. But there, we have already added [indiscernible] meet 100% provision. So overall, I expect that for the month of -- over the financial year 2021, it should be in the range of 4% to 4.5%.

Next question is from the line of Anitha Rangan from HSBC.

Just wanted to know -- I mean, in terms of any regional level, can you give us some color as to how you're seeing the moratorium and the asset quality behaving? And also, second question, you spoke that your collection efficiency is close to 68% in June. Does that also include a little bit of May and April's pent-up collection? So only for June, how much would that be?

No. This 68% is only for June. If we take April, May, average will be lower, and only what for June it will be higher. June is only for June.

Okay, okay.

And just to tell you...

And which are the geographies you operate -- yes?

Geographies, we -- entries are -- percentage-wise, we're -- I mean, Odisha is high at 7.4%, and then Tamil Nadu is quite high at 4.4%, and Gujarat is slightly higher because Vadodara we had some issues. But there we are almost uniformly distributed. For example, lowest is in Madhya Pradesh where we just opened at 2.2% and highest at Tulu -- Kudla at 7.4%. So they are quite evenly distributed based on the leasing, based on the how old the branch is, based on what is the quantum of business and all that. They are quite uniform that way. And business-wise, Tamil Nadu continues to be our highest contributor to business at 55.8%, then South India, that is Tamil Nadu, Kerala, Karnataka then Andhra, Telangana as well as they constitute about 84%, 85%. Then Madhya Pradesh, like Gujarat and Maharashtra, they contribute about 14% or 15%, and then 1% or 2% are in other places.

Next question is from the line of Sarvesh Gupta from Maximal Capital.

Sir, first question is on your coverage ratio, which are still in the 30s. So any reasoning why we may not want to increase it in line with some of the other firms?

See, the coverage ratio, I mean there's -- still, many people have confusion about the coverage ratio. Coverage ratio is relevant in the Indian GAAP. It is not relevant in Ind AS. For Ind AS, we go by progressive default and loss [indiscernible] what time you arrive at each year. Now there is -- you need to have this sort of statistical model. And you have to put in a figure. You cannot go by this and then say 20%, 30% because this has been going on from 2018 since. We are now in 2020. In fact, in the first year, when it was implemented, our provision was lower than what was existing. And we had a huge argument with the auditor. The auditor said, "If you're following Ind AS, how can you make additional provision?" And there were a lot of issues. This is not about -- while we highlight provision coverage, it is not that we want to keep lower or higher like 31.2% also I told you is an outcome of a model. It is not that we decided 40, 50, 60. No. It is as per model. So as per model, if it was right number, of course note that if we give higher provision, it will affect our profitability. But we had no hesitation, we do not provide that. Model is there, whatever figure comes we take.