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

Ladies and gentlemen, good day, and welcome to Repco Home Finance Limited Q2 FY '22 Earnings Conference Call hosted by Prabhudas Lilladher Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to [indiscernible] from Prabhudas Lilladher. Thank you. And over to you, ma'am.

Thank you, Lira. Good evening, all. On behalf of Prabhudas Lilladher, I welcome you all to the 2Q FY '22 Earnings Conference Call of Repco Home Finance Limited. We have with us today the management will be presented by Mr. Yashpal Gupta, MD and CEO; Mr. Karunakaran, COO; accompanied by other members of senior management team. I would now like to hand over the call to Mr. Karunakaran for opening remarks. Thereafter, we can open the floor for Q&A. Over to you, sir.

Yes. Thank you. Good evening, ladies and gentlemen and actually a warm welcome to this earning conference call of Repco Home Finance for the quarter ended [ 2021 ] . I hope you and your loved ones are staying in this challenging time. As we saw last year, business confidence and momentum picking up meaningfully as the localized restrictions were lapsed one by one. The fact that the vaccination drive was [ ongoing ] also boosted sentiment and possibly people's behavior. In the last quarter, we have shared that we restructured about [indiscernible] loan book under OTR 2 and has given guidance that incremental addition to this pool will be contained but below INR 100 crores. I'm happy to inform you that addition to this OTR 2 were contained below INR 30 crores. And our ratio, that means restructured under OTR 2 to the total loan book at end of September stood at 51.7%. In addition, we have already started a strong collection from [indiscernible] accounts, and we are confident of resolving most of the cases before the slated time lines. Our business performance showed handsome sequential improvement with the sanction and disbursement rising over 100% over the previous quarter. Loan book contracted about 1% sequentially, settled at INR 11,889 crores. Prepayments and repayments at the end of September 2021 stood at 19%. On the profitability front, we reported multi-quarter high spreads and margins which are at 4% and 5.2%, respectively because of our strong recovery mechanism and there is -- the model we could -- able to maintain this spread. Profit before the provision line grew by 14% year-on-year in Q2. Quarterly, profit has come back to usual rate of INR 83 crores to INR 86 crores per quarter. Once the provisioning cycle normalized in the next quarter and the growth comes back, we should set the target of achieving INR 100 crore profit per quarter. We reported ROA of 2.9% in Q2 as against 1.1% in Q1 of this current financial year. Even though our [indiscernible] coming down steadily, our ROE at the end of September 2021 stood at 17.3%. Stage 3 ECL provision improved to 43% and the overall ECL coverage at the end of September 2021 stood at 77%. It varies between exposure to the self-employed and salaried class people, stood at 51.5% and 48.5%, respectively. The share of nonhousing loans, otherwise called loans against property or mortgage loan is considered about 18.7% of the total loan book. Cost-to-income ratio more rated to 13.2%. Total capital adequacy ratio continues to increase and be comfortable at about 33.2%, comprising of capital of about 32.7%. Our retail network comprises of 155 branches and 32 satellite centers. Liquidity continues to be -- remained robust for us. And at end of September, we are adding INR 600 crores cash and cash equivalent in the balance sheet. And we are having more than INR 1,600 crores unutilized line of credit. Now I will summarize the key financial highlights for the period ended September 2021 before opening the floor to the Q&A. Total income stood at about INR 56.9 crores. Our PAT end of September stood at INR 118 crores. Our ROA and ROE stood at 2.0% and 12%, respectively. Loan book remained -- stood at INR 11,889 crores. Total profitability remained strong with robust spreads and margin of 3.9% and 5%, respectively. I express my sincere thanks for all of you for joining the call. Now the floor is open for Q&A.

[Operator Instructions] The first question is from the line of Abhijit Tibrewal from Motilal Oswal.

Congratulations on the set of results. Sir, just 2 or 3 questions here. Firstly, on your disbursement. Sir, I was looking at -- I mean, looking at the past, about 2 years back, you used to do or rather you had achieved before about INR 850 crores. So what I'm trying to understand is since then, I mean, you're holding only under INR 5.7 crores or something in between. We have only gained [indiscernible] and despite that our levels of disbursement kind of continued to languish. My -- if I look at some of your other peers, they have all been reporting historical high levels of disbursements, just like you have reported, and historical high levels of spreads and margins. So sir, when can we -- I mean, I understand, I mean, last 1.5 years was [ dissipate ] because of COVID, but when can we reasonably expect that you can go back to your old ways of disbursing something like, let's say, INR 850 or INR 900 crores on a quarterly basis, especially in the second half of the fiscal year? So that's my first question.

So you ask other questions together?

Sir, I can maybe tell you 2 of my other questions together, and then you can answer that. Sir, the second and the third question as well because it's given to understand that your current term is getting over in January, January next year, so -- and given that, I mean, maybe the Board will only meet for the next set of results sometime -- maybe in February. Has the Board deliberated or have you already applied for an extension? Or are you looking to take up some other role, and we are already looking for a candidate? This is something that I wanted to understand. And sir, lastly, on the operating expenses, we are already running a very lean machinery. I mean there's not much to [ lead ] into your operating expenses. But given the time that we have also been saying that we are investing in kind of building our digital capabilities, have you already started kind of reflecting the investments that you're doing in technology in your OpEx? And sir, a last question that I wanted to sneak in. This Friday, the RBI circular, which talked about our recognition of NPA. So if you could just shed some light on that if you had the chance to deliberate on that?

Yes. I will answer all question one by one. First [indiscernible] so yes, we have started behind here because we did not want to compromise our margins. And if you are aware, all the [ borrowers had lower rate ]. But from the [indiscernible] because we know that we do not [indiscernible]. And hopefully in Q3 and -- Q3 and Q4, we grew at the rate of INR 100 crores budget in Q3. So we hope that it would be [ renewed ] whatever Q2 [indiscernible]. That's the first question. Secondly, [ it will remain here ]. I will only say, I will not be here at the end of the year, right, at whatever the result, will go to the [indiscernible]. As you are aware, both [indiscernible]. What about the other areas, what we operate. I think we are 1 or 2 months delayed. [indiscernible]. Now it will [indiscernible] already. They are effective from April. It will be [indiscernible]. But [indiscernible] because capitalized. [indiscernible] So I cannot be [indiscernible] except to say that it will really comes back for 2022, then we'll see. [indiscernible] as you said, [indiscernible] is over, we are -- I mean, what the impact of that would be on us. But right now not [indiscernible] share any numbers on that.

Perfect. Sir, and I think I don't know if it's only my line was bad or was it the case for everyone. Sir I briefly lost you when you were commenting on -- I mean if at all there is any succession planning or what was the plan like? I briefly lost you. Could you just repeat yourself when you were commenting on...

What I was saying was that Board would have the [indiscernible] to the core company and [indiscernible] move on. So that's 1 week or 2 weeks, then we'll see.

[Operator Instructions] The next question is from the line of Sarvesh Gupta from Maximal Capital Group.

Sir, one question that we have been hovering around is this INR 12,000 crore loan book. So what is the guidance for the full year in terms of the loan book growth? And I'm not sure if I heard you correctly, but are you saying that next quarter onwards, we are aiming for an expense of around INR 1,000-odd crores?

Yes, you are right. You are absolutely right. And [indiscernible] in higher book. As long as we have every year increase on price. This year, what we are hearing at June -- only in June, would be the outcome [indiscernible] having the book at [ INR 8,000 crore ] [indiscernible].

On margin. And what will be the similar guidance for the NPA number?

No. Of course, [indiscernible]. But otherwise, we [ expect ] at around [ 5% ] GNP.

Okay. That is in spite of -- so we are [ discussing ] like around INR 500-odd crores but still the loan book on a Q-o-Q basis came down by 2 percentage points. So I think even with like INR 700 crores, INR 800 crores book, we will -- disbursement, we will probably be at the same level, right? So I think...

You're right on that. But one thing is that we are aggressively [indiscernible] higher loan which we're now going to work in Q2. So as [indiscernible] ROE, which we are going to do. So we look [indiscernible] in 2 quarters, about [indiscernible] we're in and will reflect [indiscernible] Q3 and Q4.

Understood. And in terms of the competitive intensity in the environment, earlier I think the bank transfers were a bit higher than usual. So how are you seeing the competitive environment right now? Are you seeing a similar level of bank transfers happening? Or has it come down marginally because of loan growth in other segments and the economy, if you can comment on that?

It's the same. It's the same as last.

[Operator Instructions] The next question is from the line of Vikram Subramanian from Spark Capital Advisors.

Sir, my first question is regarding growth again. Sir, you had mentioned that we have been -- clearly have been [indiscernible] first, really want a confirmation [indiscernible] are reducing the rates. Could you give us some guidance on what kind of yield reduction might we be looking at going forward? And do -- how some rates are playing out? I mean is there any other strategy that we are implementing to drive the growth [indiscernible]?

Yes. [indiscernible]. One thing also, we have also -- starting with ROA of around [indiscernible] where some of [indiscernible], as we have told in the -- what we are [ doing ], but also [ worth 1% ]. What we hope that [indiscernible] because we can -- because yes, [indiscernible], that number. Number two, when we look at the [indiscernible], we are trying to make the [indiscernible]. We are working [indiscernible] So we hope that this would result into [indiscernible] cooperation, [indiscernible].

Okay. Okay. Okay. Sir, one more question if I may on management continuity. So I think I heard you saying that you will not be continuing in the [indiscernible].

[indiscernible] will say a proposal put up in the Board. We know in [ one offering ] what will happen because as long as I continue to still [indiscernible] to 2022.

Okay. Okay. But in the evaluation stage, if we are evaluating, would it be internal or external? Is there any indication on that?

That is -- see, that's -- Board will evaluate, right? You know what we'll reply to that question.

Okay. But we will get within the next 2 weeks or so?

Yes. Correct.

Okay. And finally, just one last thing around the [indiscernible]. I understand you're treating the valuation because it's -- nothing has been [indiscernible] update on the valuation [indiscernible]. But the concern there is not as far as for [indiscernible], all of the updates seem to be either [indiscernible]. So is there at least any ballpark range of -- is there a back of the envelope calculation figure of how much impact you could have on the headline [indiscernible]?

I cannot declare the number. But we have [indiscernible] late '22. So I think we're [indiscernible] is that we are selling all of our -- collect [indiscernible]. If we collect [indiscernible], then there's no whether, whether there is actually an impact there or not. It matters only if we grow [indiscernible], we collect only what is [indiscernible] Where the link today, we told [indiscernible] to collect full orders. And I think then, we can [indiscernible] are there. But we are [indiscernible]. And then as of now, we feel really we'll deliver the number. But again, as you know, in quarter endings, [indiscernible]. [indiscernible] quarter. [indiscernible].

[Operator Instructions] The next question is from the line of Abhijit Tibrewal from Motilal Oswal.

So is that hard to write [indiscernible]

Is not coming clear, may I request you to speak to the handset?

Is it better now?

Yes. Thank you.

Sir, is there [indiscernible] given the opening remarks you suggested that going forward, you will be looking to target quarterly profits of about INR 100 crores given that, I mean, credit costs are expected to normalize. What I was trying to wrap my head around was -- I mean you also suggested that we are now kind of trying to -- or rather already discuss our net of interest. And when I look at our cost of borrowing at least on a calculated basis, I could see the impression that our cost of borrowings need to have [indiscernible]. So if we are going to cut our interest rate, I mean that will impact your maybe spreads and margins and given that the current operating expenses do not reflect the investment that you are doing on the digital side, are we just trying to suggest that this normalization in credit cost itself will ultimately deliver INR 100 crores of impact in the quarters to come?

So there are 2 parts. We are [indiscernible]. While the overall market may [indiscernible], but we will [indiscernible] at the higher rate. Again, [indiscernible] lower rate. So [indiscernible], we hope it will put [indiscernible]. We will make figures like that. Second, when we look at the higher -- what we do the [indiscernible] with the book rate. Because while we reduce the rate, but in our case, we noticed that we have -- we are even starting while [indiscernible] starting [ 14% ]. We thought that we [indiscernible] once we have normally charged the lower rate to our [indiscernible]. So we hope that by increasing [indiscernible]. And we are [indiscernible] margin will become INR 13,000 crores. That is what we're actually seeing. There's [indiscernible] increments, obviously, [indiscernible], mainly [indiscernible]. So we are [indiscernible] will increase.

Right, sir. And sir, the INR 13,000 crores, I think, that you're giving that is for the end of this fiscal year, right, over the next 2 quarters?

That's for 2022. Yes.

Yes. Sir, the next question is for Bala. Bala, if you could just help me, I mean, I see we had about INR 375 crores in [indiscernible]. What is the corresponding IRS provisions that we have now?

So we're not disclosing that, Abhijit.

The next question is from the line of [ Akash Jain ] from [ Money Gold Investments ].

I have 2 questions. I think one question is something that I think all investors have been asking every quarter, and that is on growth. And I think to some extent, has answered question. I'm curious because we are -- obviously, we are suffering because of [ balance also held ] by banks, right? There are so many affordable housing companies in [indiscernible], in our core market which are -- the number is 17%, 18%. And now some of your customers have a track record, so we can also get a comfort around their payment, et cetera. Why are we not still being aggressive in doing in -- on direct transfer for customers. Because if you are losing customers, we should be very aggressive in getting customers from others also. That is one part. The second part is on collections. So we have restructured the book, both restructuring 1 and restructuting 2. Just want to get a sense on what is the kind of collection efficiency we have seen in the restructured book. Do you see some of these -- some of the accounts falling into delinquency or you are seeing strong recovery trends on the restructured book?

Okay. Clearly, I told you last time [indiscernible]. That is we [indiscernible], [indiscernible]. We are [indiscernible]. But in the past quarter, [indiscernible] worthy of [indiscernible]. We have seen high recovery [indiscernible]. Otherwise, we are doing whatever we can, not only will start to occur, but also because of [indiscernible]. Second part is -- what was your question?

The efficiency on the restructured book.

On the restructured book, we're already [indiscernible] growth over the year. But it [indiscernible]. So just in that, I would say [indiscernible] more than 80%. But when you say in future, we [ reschedule all those plans ] [indiscernible]. That is obviously true also last year, last [ collection year ]. You know when we [indiscernible] we had allowed the [ highlights ]. Results [ were very good ]. So we have given [indiscernible] with INR [ 1,000 ] crores of the following [indiscernible] market [indiscernible] Whoever keeps that will have [indiscernible]. That's same also [indiscernible] we will be able to collect. But yes, you want to do that after [indiscernible] Q1, but which is less than INR 100 crores in [indiscernible]. However [indiscernible] in this Q1. Despite just our [ EPS ] on March '21 was [indiscernible]. So [indiscernible] which is always that they are [indiscernible] but then they are not [indiscernible] selling some shops, some, sustaining fees or some other for things. They are not able to [indiscernible] then, but now has made [indiscernible] account that -- in the [indiscernible] and our own liquidity [ will not come ]. Then by March, everything will be all right. That is what we are expecting. And we are [indiscernible].

Yes. So if I understand you correctly on the first question, you are basically doing that on affordable housing companies given very small ticket size loans, and that is why it is not necessarily economically useful for us to take over loans of those ticket size. Am I right?

So broadly you are right. [indiscernible] because we collect [indiscernible]. We are not in the [indiscernible] market. That is one other reason, but [indiscernible]. So we are -- what we are doing, but we have [indiscernible].

Do you have any follow-up questions?

No, I'm good.

The next question is from the line of [ Rishikesh Oza ] from [ Global Capital ].

Sir, my first question was on loan book growth. So if you could indicate what growth are we going to make in the second half and also going ahead in FY '23?

See, I think that this year, we plan, as I told earlier, we will present -- we'll get I think [indiscernible]. If we got better, then [indiscernible], we are [indiscernible], but when we look at [indiscernible], clearly number two.

Did you say INR 15,000 crores?

It will go to that, but we're not already -- what is there.

Okay. And sir, if you could indicate what credit costs are you going to maintain going ahead in this year and next year?

In [indiscernible] INR 800 crores Q1, higher because of the provision, 10% provision [indiscernible]. But I joined a long time, something which is required, then we will [indiscernible], 0.5.

0.5. Next year, you are seeing 0.5?

Yes.

Okay. And sir, what branch additions are you going to do going ahead?

See, before [indiscernible] between changes [indiscernible] every year. We have to look at the same base [indiscernible] for this year and for next year.

Okay. Okay. And sir, ROE -- your ROI guidance that you could share, sir?

Which guidance?

ROE and ROA guidance?

ROA up 2.2 -- around 2.2% and our ROA could be higher and ROE up around 13%, 14% to 15%. [indiscernible] very low.

So ROE of 14% to 15%, you are saying for this year, sir, or next year?

No, clearly for next year. [indiscernible] around 12% quarterly but not [ quite ].

The next question is from the line of Vikram Subramanian from Spark Capital Advisors.

Just one clarification on the previous answer that you gave to the previous participant. On the credit cost guidance, I think you mentioned something like 0.5 percentage, is this for FY '22 or '23?

No, it's [indiscernible] Q3, Q4 this year and this year only.

Okay. You mean -- I don't get it, sir. You're saying 0.5 percentage for Q3, Q4?

No, I think 0.5 was Q3, Q4 and [indiscernible].

Okay. Okay. So for FY '23, you're saying 0.5. But given that we are...

[indiscernible] quite high and FY 2022 [indiscernible] December and [indiscernible].

Okay. Okay. Got it. Sir, what I was about to ask was 0.5, 0.5 percentage of credit cost for FY '23, given that we are targeting now reducing [ USP ] trajectory, and therefore, we will see a bit of release of provision. That doesn't [indiscernible] targeting?

[indiscernible]. When I say it is high, you are right. But quarterly [indiscernible]. So [indiscernible] is definitely higher, right? where the savings might come.

okay. I'm trying to ask, are we envisaging any major write-offs in FY '23, maybe coming from the -- is that the reason we are seeing [indiscernible]?

Yes. See what happens, the write-off, one is further [ quality ] [indiscernible] there are 100% [indiscernible] number one. Number two, which are either [indiscernible] over 3 years. So when we will [indiscernible], everything you said. We may only -- [indiscernible] only and therefore [indiscernible] year or more. So [indiscernible] throughout the year. And may I add one more thing, that though it is a drop, but it is a drop only [indiscernible].

[Operator Instructions] The next question is from the line of [ Praveen ] from Prabhudas Lilladher.

Hello, am I audible?

Yes.

Yes. I have 3 questions. Firstly, on your Stage 3 has been lingering at 4%-plus levels. How do you see the headline asset quality shaping up going ahead? And if you could provide any ballpark number for this? My second question is on, could you please provide the breakup of Stage 2 and Stage 1 assets and write-downs during the quarter?

[indiscernible] INR 4 crores, INR 5 crores, not much. They're coming [indiscernible] number of GNP of [ 33 ]. You are right, we're already around 4% in June [ to September]. But the [indiscernible], peak, [ 30% ] in June. But you will get March -- last year March, [ 3.5% ]. So our target is for this month [ 1 32 ]. We are targeting -- we clearly see here 3.12%. And during that [indiscernible] then we are -- already we'll achieve that number. Of course, we just see [ what going back ]. Now that's the result. But Stage 1 and Stage 2, Bala?

Yes. Stage 1 is around 85%. And Stage 3, as you know. 4.3%. Yes.

[ Praveen ] , do you have any follow-up questions?

No.

Thank you very much. Ladies and gentlemen, that was the last question for today. I now hand the conference over to [indiscernible] for closing comments.

Thank you, Lira. On behalf of Prabhudas Lilladher, we thank the management of Repco Home Finance for the opportunity. Thank you all.

Thank you very much.

Thank you.

On behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.