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

Ladies and gentlemen, good day, and welcome to the Q1 FY '23 Earnings Conference Call of Repco Home Finance hosted by YES Securities. [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.

Yes, hi. Good afternoon, everyone. Thank you for joining on this call. We thank the management for giving us this opportunity to host first quarter FY '23 earnings call of Repco. We have with us Mr. K. Swaminathan, MD and CEO; and the entire senior management team. Without much ado, I would invite Mr. K. Swaminathan to start the proceedings with initial remarks on the company's performance, post which we'll open the floor for Q&A. Over to you, sir.

Thank you, Mr. Rajiv. Welcome to everybody. Good morning, good evening, wherever you are. Welcome to this conference call for the quarter ended June 30, 2022. On behalf of the company, I extend a warm welcome to all of you, and thank you for joining us. See, I would like to recall whatever we said 3 months back, wherein we expected that the company will get back its growth path. I'm happy to announce that after 2 subdued first quarter performances in the last 2 years, maybe because of COVID, but we have reported strong performance in the June quarter and have started this fiscal on a positive note. Business activity has picked up handsomely. The loan sanctions and disbursements returning handsome sequential growth. Loan sanctions have increased 6% sequentially to about INR 692 crores from INR 652 crores and disbursements have increased 7% sequentially to about INR 642 crores as compared to about [indiscernible] crores in quarter 4 of '22. Though not strictly comparable in the COVID situation last year, loan sanctions and disbursements registered an exponential growth of 236% and 168%, respectively, as compared to Q1 of last year. The loan book, however, has not moved much going to high prepayment for most part of the last 12 months. I'm happy to announce that our well-directed efforts have cut the total repayment rate to drop 3% sequentially in the first quarter. The annualized repayment ratio, including regular repayments, which stood about 21% in Q4 of '22 has moderated to 18% in Q1 of '23. We will try to maintain this ratio at similar levels going forward. On the profitability front, we reported loan spreads of 3.3% and 4.6% above our [indiscernible] levels of 3% and 4.3%, respectively. On the interest paid, there has been a sequential reduction due to repayment of our few high-cost borrowings. However, the reported yields fell sequentially as our concurrent focus on growth and asset quality made us to take a couple of business editions, which caused a sequential drop in interest income going to an ROE reduction. Because we wanted to retain some good quality customers. We have waived some penal interest in some cases, in case of NPA accounts. We have offered some concessional fees to operate new customers. In addition, the recovery in technically written off accounts were lower in the current quarter as compared to the March quarter. Our Stage 2 assets have also come down sequentially. That is a positive point, which implies that there is a lower penalty generation as well as penalty appropriation. However, the lending yields have not fallen much, and we'll hope hopefully in the subsequent quarter. Average yields in the book have fallen from 10.3% to 10.23%. I expect the spread and the margin to remain higher than our [indiscernible] in FY '23. The profit has grown 93% year-on-year to about INR 62 crores as against INR 22 crores in the previous year. The GNPA, the gross NPAs, have declined about 60% to 6.4% sequentially. The NNPA has fallen by 70 basis points and now stands at 4.2%. GNPA provision coverage registered a 5% sequential improvement to 37%. Overall, ACL provision remains steady at about 4% of the loan book. In addition to our Stage 3 provisions, we also have made a provision of INR 20 crores to meet any requirement on account of slippages in restructured books. These provisions are floating in nature and will be utilized to make asset specific provision in the subsequent quarter. The restructuring window on -- onetime restructuring assets have got over in Q1 FY '23, and regular billings have started for these accounts. The asset quality outcomes will be known in Q2 and thereafter. The said assets are in stage 1 or stage 2 now. We are trying our best to minimize the slippages to NPA, and we'll give you an update in the next call. As far as earnings are concerned, we earned an ROE of 2.1% as against 1.6% last quarter and an ROE of 11.9% versus 9.6% in the quarter 4 of '22. The recovery in return ratios was attributable to improving business performances, as well as lowering of credit costs. The balance between other exposure to self-employed and salaried segment stood at around 51% and 48.8%, more or less at the same levels. The share of [indiscernible] that is also more or less at the same level and is around 19.4% of the loan book. Cost-to-income ratio stood at about 23.9% in Q1. The capital adequacy ratio is comfortable at 34.2% of which tier 1 was 33.2%. Our retail network is comprised of 158 branches and 22 satellite centers. As we did earlier, we have resumed our network expansion. During the current quarter, we are doing some surveys. Hopefully there will be some new branches opening or new satellite center opening in the third or fourth quarters in the current year. Liquidity continued to remain comfortable for us as we have carried around INR 275 crores of cash and cash equivalents at the end of June '22. In addition, we have around INR 1,900 crores of unutilized lines of credits. Now to summarize for the happenings of first quarter of June '22. While the loan book has stood at 11,862 crores, registering a 1% sequential growth. PAT surged 93% year-on-year to INR 62.1 crores and sequentially, the growth is 48%. ROA and ROE stood at 2.1% and 11.9%, respectively. Core profitability has remained strong with strong spreads and margins of 3.3% and 4.6% respectively. NPA stood at 6.4% with the coverage ratio of 37%. With this I conclude and we are all -- the entire management team is ready to answer any of your queries. Thank you. Back to Mr. Rajiv.

[Operator Instructions] The first question is from the line of Akash Jain from [MoneyCurves].

We are happy that it seems that the company has finally turned the corner in terms of AUM growth as well as a little bit on the credit cost side as well. So I think, hopefully, this will sustain. But after like you mentioned after a few quarters of really not so good numbers, I think finally, we have seen some good numbers. So I think congratulations for the management team and especially to Mr. Swaminathan, who seems to have really picked up [indiscernible] so congratulations from our side to the management team. I have a couple of questions, sir. Like always, it's always focused on 2 things. One is credit cost and the other is on growth. On the credit cost, I think you clearly mentioned that the whole restructured book of about 700 crores has now opened up for regular payments. But clearly, any slippages will only start to reflect from Q2 onwards. But from the initial early trends should we as investors be a little worried about. Because that's a very large book at INR 700 crores of the structured book is a large book. So are there any early stage warnings in terms of slippages in that book? Is there something we need to be a little cautious about? Because you have already created a INR 20 crores of provision, which I'm assuming is for the restructured book. But are you seeing or is there any worry about slippages coming from that book?

See, let me be very clear. As far as credit cost is concerned, whatever we have already projected in the INR 80 crores to INR 100 crores for the entire year is still maintained. As far as credit provisions are concerned, we do not think that we will be able to make additional provisions that is INR 80 to INR 100 crores that we have already provided -- already budgeted. Yes, as far as numbers are concerned, I am still keeping my fingers crossed, I do not want to give any false hopes. Yes, the INR 700 crores are there, but we are doing our best. We hope we will be able to contain the NPA percentage as much as possible at least to an extent of 7% or something. But I'm unable to give you any clear guidance as far as the GNP numbers are concerned for the second quarter. But as far as provisions are concerned, yes, we are somewhat comfortable. This INR 20 crores that we have provided is only a push up. Actually, we have made a push up this 20 crores. So for provision-wise, we do not think that will be an issue. But GNP number, I do not want to give any guess as far as the credit cost is concerned. As far as growth is concerned, I'm thankful for the compliments made. Yes, growth has started, I'm happy, I'm happy to share with all the listeners. Why I'm happy is the growth has happened not just in 1 center or in 1 branch. Almost throughout the country, I am seeing some momentum, nearly from 80% to 85% participated in the growth in the first quarter, and I am seeing the momentum continuing in the current quarter as well. So as far as business growth is concerned, we are happy that this will continue in the current quarter as well. And not only that, see, even the ticket size is improving. From around INR 14.5 crores, which was earlier. Now the present ticket size for the current quarter, I think it is ranging from INR 16 crores to INR 18 crores -- INR 15 lakhs to INR 18 lakhs per ticket, which means slowly, we are moving up in the ladder as far as ticket sizes are concerned. So average ticket size also may go gradually in the coming days. But for the GNP numbers, we are gung-ho about the current quarter as well as the forthcoming quarters.

Sir, I have just 2 follow-up questions, more like the data points. So in the Q1, how much slippages we had because clearly, there was a reduction in Stage 3. So I'm assuming there is some slippages and recoveries. So can you give us a sense of how much was the slippage and how much recoveries were?

Yes, Q1 slippage was INR 104 crores. Recovery was INR 165 crores.

So this INR 101 crores slippage that is not coming from the restructured book, that is coming outside of the restructured book.

It is small amount from restructured book, maybe around INR 15 crores, INR 20 crores, I do not have the exact number because we did restructure in 2 or 3 stages, a small restructure was done earlier, which still due in the first quarter itself. Maybe some INR 15 crores, INR 20 crores maybe off the restructured book, out of this INR 104 crores.

And sir, I think in the last quarter, on the con-call, you had guided that by the end of the year, we were probably at INR 810 crores GNP number at the end of FY '22. And you had in your conference call said that your endeavor is to get that number to about INR 700 crores at an overall number from first stage 3 by the end of the year, both from recoveries as well as some slippages were there, but your effort was that you will get that INR 800 crores down to INR 700 crore. Do you think that is still possible given the trends you are seeing overall in terms of slippages?

Yes, yes. We still maintain. We have some plans on that thing. The only thing is from the second quarter there is an issue. Still 2 quarters are left for the year to end. So we are open, we still maintain INR 700 crores.

So there will be a possibility that Q2 slippages will be slightly here, but then we will have the rest of the year to do recoveries that we have done in Q1, strong recovery we have seen in Q1?

Yes, it is possible. That will be recouped in the next 2 quarters.

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

So sir, given the sort of growth that you have looked at in the first quarter and in the current quarter, is there any updated guidance on where we want to reach in terms of FY '23 and loan book? I think in the last quarter, the expectation was around INR 13,000 crores.

See, we expect a growth of 10% to 11% in the loan book. We do not want to change, we're still maintaining INR 13,000 crore loan book by FY '23. [indiscernible] if there are any changes in the next quarter.

Okay, but as of now, you feel confident that we can reach there.

Yes, sir. I'm optimistic.

And this INR 80 crores to INR 100 crore credit cost guidance, this includes the sort of floating provisions that we have created of 20-odd crores this year, right?

Yes.

Understood. Sir, on the other side, I was looking at your employee cost, et cetera, and that also has been fluctuating a lot on a Y-o-Y or Q-o-Q basis. So are there any initiatives on the cost side, especially the employee cost side that we were planning earlier, which we are planning to bring from the current quarter, which will have an impact on your cost to income?

In fact, if we had budgeted an increase in employee cost. If you recall, I think even the first con call we had told. There may be an increase in employee cost overall because the salary division is due. We are also going for some recruitments and all there. There will be an increase in the employee cost in the current year. Quarter, you see, if you see year-on-year, there is an increase in employee cost only because the previous year, the first 2 quarters, there was more work from home and all that. So employee costs under travel expenses for employees were less and salary encashment things like this were less. So technically, it's not comparable. The employee cost, but in Q1 of FY '22 and Q1 of FY '23 it's not always comparable. In fact, there is a small reduction sequentially in the employee cost from INR 2 crores to INR 3 crores, there is a small reduction -- but going forward, there may be a small increase in the current quarter as well as the bigger increases in the next 2 quarters, because from salary revision is also due. But hopefully, the increased anticipated income will take care of all this.

And finally, on the repayment and prepayment side. So I understood you gave some comments in the beginning. But if you can throw some more light. So one, of course, is we are trying to not let go of our good customers. So maybe we are reducing the yields for them, and that might be one of the reasons why your repayment, prepayment has come down. But what are the other sort of things that you have done in this quarter, and if you can guide on this annual repayment, you said 18%. So does it include all the sources like prepayment as well as scheduled repayments, which is included in this 18%?

Yes. This 18%, whatever I've said, it includes everything. It includes a normal repayment. Some bulk repayments being made by our existing customers, normal closures of the account by our existing customers as well as the last is the prepayment of the takeover [indiscernible] all these are included in this 18%, this is one. Second, this percentage is coming down, that is prepayment or the takeover percentage is coming down sequentially. Hopefully, we will be able to maintain the downward trend in the coming quarters as well. So many activities are being done. One such thing is giving an interest concession wherever warranted, wherever we feel that there is a requirement to retain that customer, that is one. Second one, we have taken up with CIBIL also to see what best -- wherever our customers are approaching other institutions for any of the facilities and all that. So that we get a warning, and we ask our branches to contact these customers to see that [indiscernible] as much as possible, this is second. Third one, we have started maintaining contact with all our existing customers. Even though a customer may not have given facilities by the present management of the branch management, still we have been asked to make in contact with even existing customers so that the relationship is built. So any new requirements of the existing customers, our first call will be our company. So with all this, we expect, going forward, the BTs to come down.

And on the parallel side on the liability side, are there any initiatives, for example, increase in the NHB exposure, et cetera, that we are doing which can help us sort of retain the spreads that we were having last year?

See, we take a commercial call, whether it's NHB or a commercial bank or anything, we take a commercial call. Frankly speaking, even today, NHB is also increasing rates because of repo rate increases. Whereas some of our lenders, it is all [indiscernible] MCLR based. So this repo ratings are immediately transferred in our MCLR Class. So we take a commercial call whenever we require funds, that is to take from NHB or whether to take from a commercial brand or from our parent, a commercial call is taken. Overall, interest to see that our cost is less.

No, understood, sir. But my question was, do we have any levers?

Sir, but for any follow-up, so maybe request you to rejoin the queue as participants are waiting in the queue for their turn. Thank you. The next question is from the line of Amish Thakkar from Siguler Guff India Advisors. As there is no response from the current participant, we move to the next question from the line of Nidhesh Jain from Investec.

Sir, 2 questions. Firstly, on the yields, what is the reason for yields decline on a sequential basis? And how should we think about margin and the spreads going forward?

Can you complete all your questions so that I can answer in 1 shot.

Second can you share the Stage 2 for the number at the end of June quarter. And thirdly, what is the quantum of standard restructured book as of June '22. These are the 3 questions.

See, the second and third question, can I take it offline because I do not have the exact numbers with me. Okay, the restructured book originally was INR 700 crores, it has come down. Actually, the standard restructure book has come down, but you do not have the exact number as of 30 June. For your yield question let me answer, see repricing yield has come down not really because of our repricing of some of the loans. It is because of multiple factors. Only repricing as I had already told, we wanted to retain some of our good customers, not to leave. So we have repaid that is one. Second one, the penalties, for example, wherever there is a stage 2 reduction. I think you would agree, there is a stage 2 reduction number. Wherever there is a stage 2 is reduced, the penalty generation also will get reduced. To that extent, repayments going towards penalties also gets reduced. So our penalty income has come down in this quarter, second. Then recoveries in technically written off loans has come down, this is one. Then we do not have any repooling to loans. So there is a lag affectivity in our report revision. So this way also, there is an interest income reduction. So all these factors put together, all these factors put together there is income reduction. So it is not necessarily because we have given some concessions. We have not passed on the entire repo revision to our interest pricing. This is one of the reasons why interest income has come down, especially in the first quarter, we have not repriced.

How should we look at full year margins and spreads, full year margins and spreads?

I think we maintained that at 4.3%, right? 4.3% and 3% spread that we meet it. We will be maintaining. Hopefully, in the coming quarters, this interest rate -- interest reduction may not be to this level, hopefully.

And lastly, on what is the aspiration in terms of ROA and ROE of the company? As you stated this quarter, we had lower margins, some impact on credit cost. But on a statistic basis, how should we think about ROA and ROE number?

Now, it is 2%, 2.2%. ROA is 2.2%, ROE is 12%.

Yes okay. So expectation is to maintain these numbers going forward?

Yes, as of now it is 2.1% and 11.9%, respectively, and we maintain that as of now.

[Operator Instructions] Next question is from the line of Subrata Sarkar from Mount Intra Finance.

Yes. Sir, I have a very simple question like what will be the impact of this RBI November circular as well as like a modification to 15th February on us. After September, like 31st September. So do we have to do additional provisioning? If you can explain it a little bit more since I'm not fully aware, like do we have to do additional provisioning regarding that? Or what will be the actual impact on the P&L basically?

See RBI circular doesn't require us to make any additional provision. RBI circular only said, an account cannot be upgraded under the entire overdues of recovery. That is -- see earlier NBFCs can upgrade provided the overdues are less than 90 days. That particular feature has been withdrawn. So an account cannot be upgraded under the entire overdues are recovered. That is the only feature of this RBI circular. So earlier, NBFCs including our company, we used to upgrade whenever the overdues are less than 90 days. That particular facility is not there now. That is only issue. But as far as provisioning is concerned, all are same. As far as provisioning is concerned, there's no differentiation.

Okay, so in that case, sir, we have to show higher GNP, that is the only like only thing? Or sir, is there any other impact on the P&L? That's my only understanding.

GNP has to go up. In fact, it has already gone up in our company. We have already recognized all these accounts in the December quarter, December '21 quarter itself. That is why our GNP has certainly gone up from around 4.5% level to around 7% level. So it is only because of GNP. And naturally, because of GNP, the provisioning [indiscernible] .

Okay, so in our case, there won't be any impact, sir.

The impact has already been taken into account. But going forward, [indiscernible] because of that.

Pardon sir, going forward?

Going forward -- going forward, whatever the impact because of the November '21 circular, that has already been factored in our figures. In fact, in December '21, itself, we have taken that into account. Whatever, [indiscernible].

And this is a onetime impact only?

Yes.

The next question is from the line of Rishikesh from RoboCapital.

Sir, my first question is if you could provide a loan book growth guidance for this year.

Second question, only 1 question? We have given a projection of 10% to 11% for the loan book of INR 13,000 crores. As of now, we maintain that projection whatever number we have given.

Okay, and sir, what is the branch growth guidance basically? So you said you will be expanding the branches. If you could give some numbers, how many branches are we looking to open this year and maybe even next year?

Sorry, Mr. Rishi, I'm unable to give you the numbers, but I can tell you we have started the process. See we have asked our people also to do surveys and all that. Once we get the reports, maybe during the third quarter -- current quarter or the next quarter, we will take it up because of the places where we can start opening branches and all that. Maybe in the next conference call, we may be able to give you some numbers.

The next question is from the line of Amish Thakkar from Siguler Guff India Advisors. We move to the next question from the line of Bunty Chawla from IDBI.

Can you share the restructured -- standard restructured assets outstanding as of Q1 FY '22? And secondly, how much is the provisioning against these restructure has been done?