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

Ladies and gentlemen, good day, and welcome to the Q4 FY '23 Earnings Conference Call of Repco Home Finance hosted by Yes Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes [Operator Instructions]. Please note that this conference has been recorded. I now hand the conference over to Mr. Rajiv Mehta from Yes Securities. Thank you, and over to you, sir.

Thank you, Jacob. Good evening all. Welcome to Q4 FY '23 Earnings Call of Repco Home Finance. We thank the management for giving us this opportunity. We have the entire management team, Mr. K. Swaminathan, Managing Director; Mr. T. Karunakaran, Chief Operating Officer; Mr. N. Balasubramaniam, Chief Development Officer; Ms. Poonam Sen, Chief General Manager; and Ms. K. Lakshmi, Chief Financial Officer. Now I would like to hand over the call to Mr. Swaminathan for his opening remarks on performance of the company and the outlook. Post-this, we'll open the floor for questions. Over to you, Mr. Swaminathan.

On behalf of the entire management of Repco Home Finance, I welcome you all to the earnings call of RHFL for the quarter and the year ended March 31, 2023. We would like to thank you all once again for joining us in this call. Recalling the priorities of the financial year '22, '23 of bringing stability in business and asset quality to be under control, we are extremely happy to announce that we have continued the momentum of the previous quarters in the last quarter of the year '22, '23 and successfully closed the financial year. We have also been able to initiate the introduction of a new system and business processes and we should take advantage as seen in the current year. Some of the major steps that have been taken by the management in FY '22, '23 are bringing a culture of target-oriented approach in sanctions, disbursements, NPA control, et cetera. Simplification of underwriting processes, including decentralization of power, implementation of a new software, improving the employee morale, controlling BT outs. I'll go to the business update. Despite the expected initial glitches of the new IT platform during mid-quarter, we were able to achieve disbursements of INR 835 crores in the fourth quarter as against INR 601 crores of Q4 FY '22 and INR 696 crores of Q3 FY '23. This is the highest disbursement the company has made in the quarter in the recent past. Our AUM stands at INR 12,449 crores, which increased by around 2% in this quarter from the previous quarter of INR 12,196 crores and 6% from INR 11,759 crores in FY '22. This growth is despite bulk receipt of subsidy from government of INR 84 crores in '22, '23 and INR 51 crores in the current quarter -- last quarter. Loan sanctioned increased 30% Q-o-Q to INR 966 crores from INR 745 crores in Q3, and about 72% increase annually to INR 3,232 crores as compared to INR 1,880 crores in FY '22. The ratio between exposure between self-employed and salaried segment stood at 51.6% and 48.4% respectively. The share to nonhousing loan that is home equity stood about 20.7% of loan book of its housing loan sanctions contributed to about 79.3 of the book. The quality of our NPAs despite INR 700-plus crores of restructured portfolio hitting us during the year, we were able to reduce the GNPA to INR 719 crores at 5.8% GNPA percentage and net NPA at INR 362 crores with a percentage of 3%. We have a total provision of INR 519 crores with a provision coverage ratio of 50% for Stage 3 assets alone. Profitability. Our NIM for Q4 was at 5.1%. NIM for the year as a whole was at 4.8% for FY '23 compared to 5% for FY '22. We have been able to maintain a spread of 3.3% above our guided numbers of 3% by passing on the interest costs, despite intense competition. We will continue to monitor the movement in our cost of borrowings, constrained to pass the change of our customers as well as having a quick control on our other cost. Our average yield on incremental loans sanctioned rose to 10.7% in FY '23 as compared to 10% in FY '22. The profits grew 2% sequentially to INR 82.1 crores during the quarter, driven by stable margin and we earned ROA of 2.7% in Q4 FY '23, same as in Q3 and ROE of 14.4% as against 15.2% in the previous quarter. Our annual ROA and ROE stood at 2.5% and 13.5%, respectively, as against 1.6% and 9.6% achieved in FY '22. New software. We have started implementing a new software in phases. The Phase 1 has gone live from February '23. The loan origination module is fully stabilized. And once the [T-pin] issues are addressed, the loan management, loan collection and [EDL modules] also will be on par by the end of this quarter. There are value addition products as well, which we plan to roll out during the course of this year. Our distribution network was 192, comprising of 159 branches and 33 satellite centers with additional 2 asset recovery branches. I will summarize the key financial highlights for the year ended March '23 before opening the floor. The loan book stood at INR 12,449 crores, registering about 6% year-on-year growth. PAT for the year surged 55% to INR 296 crores. ROA and ROE stood at 2.5% and 13.5%, respectively. The core profitability has remained strong with a solid spread margin of 3.3% and 4.8%, respectively. The gross NPA stood at 5.8%, with a coverage of 50% and net NPA asset 3%. Way forward for the next year, we plan to grow sanctions and disbursements by 20% and achieve an AUM growth of 12% on a conservative basis. The GNPA numbers are planned to be brought down by at least INR 100 crores during '23, '24. I once again thank Mr. Rajiv and his team, and I leave the floor open for any questions.

[Operator Instructions] The first question is from the line of Aniket from BMSPL Capital.

So I had a question -- a couple of questions regarding the NIMs. So can you just give a color on what do you feel are the sustainable NIM that we can expect in FY '24, given that rates may have peaked. And can you give some sort of guidance over the next couple of quarters or over the next year for NIMs.

Any other questions?

Yes. And second question is since if NIMs are peaking, then what will be the main catalyst for profitability in the coming financial year and how are we looking at the loan growth and asset quality going into FY '24 as well.

Okay. For the second question, I think I have already answered in the presentation, in the initial remarks. See, we plan to grow around 12% as far as book is concerned, okay? And 20% growth in both the disbursements and sanctions in the current year. This is our broad expectations. We hope that we will be able to do this as we have already done some good momentum in the year pass by that is 2022, 23. As far as NIM, we are confident that we will be able to maintain. In fact, we have passed on all the cost increases, more or less to the ultimate -- in customers. One more thing which I would like to point out, we have also changed the method of passing on the -- that is the periodicity of reset of our interest rate. Earlier, we used to have interest rate reset of every half year. Now from April '23 onwards, now we have decided that such resets will happen every quarter. That is April, July and [Indiscernible] So this also will help us maintain the NIM that we have already projected. We plan to have at least 4.8% in the coming year as well.

Okay, okay. And just a final question, if I can put in place. Can you just give me the number for the slippages for Q4 FY '23 versus Q4 FY '22?

Okay. I don't have immediately, but I'll give you. Give me some time. I'll get the number.

[Operator Instructions] The next question is from the line of Aviral Jain from Siguler Guff.

Sir, can you please talk about what has been the repayment rates and the competitive intensity. Last 2, 3 years, what we've observed is, there were a large number of BT outs. And even in your opening remarks, you had mentioned that BT outs -- you're trying to contain the BT outs. So how does this balance going forward as you are -- that you see, maintaining BT outs versus maintaining [Indiscernible] and also high disbursements and growing AUM.

See, the BT outs have been one of the reasons why we could not grow in the last 2 years, okay? We have been able to contain to a large extent. See, last year -- the whole of last year, there were -- the total BT outs were INR 367 crores. But you should also see that we have also got a BT in of around INR 270 crores. So these BT out have been more or less [Indiscernible]. This is one. Second one, the BT outs are also being controlled by our repeated touch with the products from civil. That way we are able to advise the branches about the likelihood of a particular customer going out of our fold. Our branches are able to talk to the customer, meet their requirement, maybe they want some interest reduction or something. If it matches our expectation, then we were able to do that. Because of such things, we were able to contain BT outs to a large extent, especially in the last 2 quarters.

The falling book, and if I were to look at the opening book plus disbursements minus your closing book, BT out is not a big portion, but regular amortization of those has caused the loan book to grow only by 4%, whereas your disbursement has grown by almost 25% as a percentage of your opening book for the year.

Yes, Aviral. See, this [Indiscernible]. This company is now 23 years old. So naturally, the normal repayments also -- normal repayments also going up year after year. This cannot be avoided. But what we can do is to match this, we need to increase our disbursements so that this is overshadowed, that is what we are planning. And the month after month, we are seeing that the increased disbursement vis-a-vis the previous months or previous quarters are always on the higher side so that we are able to match the AUM. I assure that in 2024, this AUM growth will be more than asset by the likelihood of repayment, normal repayment or some prepayments. Some prepayments also cannot be avoided. So with all this, we will be able -- we are confident that we will be able to increase our AUM.

And sir, this is very heartening to hear about the BT in, you mentioned some INR 200 crores of BT in that your team has been able to garner. Is there a separate product? How is that being achieved? And if you can give us some understanding of are these high-yield loans from some of the NBFCs or housing finance companies which are chasing high-yield housing loans? Or where are you getting in from? Could this be a bigger number? Could you make a bigger play because some of the higher yield housing finance companies are also reporting very, very strong asset performance. So there would be a lot of seasoned loans, which they would have given out 2, 3 years back. Which could be chased. I'm just -- I wanted to understand how is this being achieved? And it's a tremendous achievement on part of your team on this regard.

Okay. Thank you, Aviral. See, the point is, one, our interest rates are really competitive compared to this in the industry. And sometimes, during the course of last year, we found that our interest rates are one of the cheapest. This is one of the main reasons why people are coming from maybe a slightly high priced NBFA to our fold. This is one main reason. We also have a product whereby a customer with a better credit score, we will be able to offer a cheaper interest rate vis-a-vis that in the industry. For these reasons, we are seeing a good amount of BT in the last 2 quarters.

Is there a focused team who is only focusing on BT in, and how do you see that going forward?

The fact is, we don't have a specific team. We have a sales team, but we are [filling up our field] saying that this is one opportunity we should not lose. So our people have been able to take care and whenever such customers are there, we are able to get the momentum.

And one last, again, would you expect the trend to continue increase going forward? The BT in.

Definitely. Because our pricing is slightly competitive compared to the many of the players in the housing finance industry. So this is the main reason of BT ins coming. We will try to maintain the same competitive pricing, so that going forward too, we will have a similar [drive to assess].

And sir, as you mentioned, the interest rates are among the lowest in the industry, so who do we see as immediate competition from a segmental perspective, because -- is it more Can Fin Homes, which is very, very going after prime borrowers and not so much like an [Indiscernible] or some of the other affordable housing finance players.

I don't want to name any specific corporate in this particular call. But in the housing finance industry, I think you know very well, there are players who are giving the cheaper, and there are lots of players who are costlier. So we are somewhere in between. So definitely, customers who have got a track record in other housing finance companies, they are ready to switch over to us. The same way as some of our corporates -- or some of our customers are going to others. So our pricing becomes attractive for those customers who are being priced on a higher scale in some of the [Indiscernible].

Okay. And going forward...

Sorry to interrupt, Mr. Jain, may we request that you return to the question queue for any follow-up questions? The next question is from the line of Renish from ICICI Securities.

Congrats on a good set of numbers. Sir, just 2 questions from my side; again, on the growth side. So does our 12% AUM assumption would require any investment in branches. I mean, we have not yet sort of opening branches in the last 2 years. So with this assumption of 20% disbursement growth and 12% AUM growth, does it require any aggressive branch expansion? Or do you feel that the current branches are capable enough to drive this growth?

Renish, this year, that is '23, '24, we plan to open some 10 branches and 10 satellite centers, okay? This is excluding some of the existing satellite centers. We have around 33 satellite centers now. Some of the existing satellite centers will get upgraded to a branch. When they reach a critical level, we upgrade them to a branch. So excluding such upgradation, we plan to open some 10 branches and 10 new satellites. Any disbursements in these new branches and the satellite centers, we directly lead an [Indiscernible].

Sir, second, on the credit cost side. So this quarter, credit cost has been still lower. So on a steady state basis in '24, considering our coverage ratio is already at 50%, and if asset quality remains up fresh slippages were to remain at the current level, what sort of a credit cost you are assuming in '24?

Maximum of INR 25 crores. This is what we are planning. A maximum of INR 25 crores of credit cost in '23, '24. Okay, and we would like to continue it still lesser. Hopefully, if slippages are maintained, we will be able to contain, but we plan to have a maximum of INR 25 crores credit costs.

In '24?

In '24, yes.

The next question is from the line of Paras Pandit from Nirmal Bang.

I was checking through the presentation. I could not find the borrowing profile given this time. So if you could shed some light on the split between the banks and -- yes.

Yes. I'm sorry, actually, we only removed because the presentation happened to be a bit lengthy that's why we fairly removed. Anyhow, I will tell you, see the borrowing remained more or less the same. That is why we thought we did not do. But I'll tell you the issue is, see, we had [INR 9,688] crores of borrowings in the previous quarter -- the previous year. Now it has moved to INR 9,914 crores. In that, the borrowing from NHB has come down by around INR 500 crores -- from around INR 2,000 crores in '22 to around INR 1,500 crores in '23. But that has been offset by an increase in borrowings from banks from around INR 6,600 crores to INR 7,300 crores. And our borrowing from our parent Repco Bank remained more or less stable at around 1100 crores. So net to net from INR 9,700 crores approximately to INR 9,900 crores, borrowing in FY '23, which means INR 200 crores increase in borrowings. I'm sorry that we have omitted, it was only because we found that the presentation was becoming a bit lengthy. And we will see to it that from next presentation onwards, these particular numbers are included. Sorry for that.

Could you also provide the incremental cost of borrowing?

Weighted average cost that is -- incremental is 8.1%.

8.1%. And segment-wise, that would be?

Segment wise, I do not have immediately. I will -- Segment wise means, housing loans and [Indiscernible] you're saying, right?

Yes.

Yes. So my cumulative borrowing cost -- my cumulative borrowing cost is at 8.08% as of March '23.

All right. I would....

I think it's 7% in March '22. So 1% increase is there. In the past, we have more than that. From 8.15, our borrowing -- our lending cost has gone up to 9.6% as on March 31.

[Operator Instructions] The next question is from the line of Himanshu Taluja from Aditya Birla Sun Life AMC.

Just few questions at my end. Firstly, when you're giving a disbursement guidance of 20%. If you can also talk about qualitatively that another new LOS in [Indiscernible] software. How you are seeing the -- have you started seeing the normalized trend in terms of the disbursement in the month of April and May? Secondly, in terms of the mix composition given, we have made last year a lot more cleanup on the asset quality and now we are comfortable on our credit cost as well for going ahead, what should be the mix between the portfolio between home loan and LAP? Do you expect any change in this?

The software has been implemented only from February. So some stabilization is going on. But definitely, this new software is going to be an enabler in making us reach 30%, that is for sure. Because it has got added features go to give...

Sir, your voice is breaking.

This new software is going to be a definite enabler in increasing our disbursement. That is for sure. And I can tell you that in the 2 months or 3 months of implementation in the branches, this has been accepted well by our fee. [Indiscernible] basic question, there so many ad on features that is going to be there, including mobile lending and all. So going forward, all these things will help us in improving our disbursement. That is for sure. Second, as far as home loan -- I don't -- we don't want to like call -- we would like to call it as home equity because it also includes some of the commercial and other products in this -- so this home loan equity portion will remain more or less at 50-50.

Okay, sure. Sir, second question is around your asset quality. If you can just talk about your restructured book, what is the outstanding, how much provision coverage you are holding, and where is this breakup of the restructured book sitting on the between Phase 2 and Phase 3? And how much you expect to any adverse outcome in your restructured book?

As far as restructured book is concerned, I can tell you the worst is over. See, we had around INR 700 crores of book -- restructured book during the year -- hitting us during the year, out of which around INR 200 crores has already slipped.

INR 200 crore, sorry?

So the remaining -- the remaining INR 400 crores, out of approximately INR 150 crores to INR 200 crores is in Stage 2. This -- even though it is in Stage 2, we are seeing some acceleration in repayments. So while I'm not ruling out some slippages from this restructured book, we do not feel that there will be going to be a big hit because of restructured book in the current year. I do admit that this is going to be an issue in the current year if at all there are going to be slippages in the current year. This restructured book will be an issue, but we don't foresee any big hit because of restructured book. Because in our view, the worst is over as far as restructured book is concerned. Given all these Stage 2 accounts, we are seeing repayment. The only thing is, they are paying every month with some lag. We would like to see that some acceleration happens in such restructured books. Hopefully, or this current year, this restructured book will also become normal.

Okay, sure. Sir, in your credit cost guidance for FY '24, you are considering the movement of your restructured book, some slip of the restructured book in your estimate?

Yes. But see, please also understand that we will be having some recoveries. To that extent, there will be a saving in provision. So the additional credit cut that we may require because of the slippages is likely to be offset by the recovery that we may make from our core NPA portfolio.

Sure. And sir, just my last...

We plan to have additional INR 35 crores.

Okay, sure. And sir, just my last few questions. On the Slide 13, your margins have improved by 40 bps during the quarter. The spread is compressed by 20 bps, can you give some clarification how triggered this basically -- how this triggered this?

I'm unable to get you. Actually, our margins have increased. There's no second opinion that the margins have increased quarter-on-quarter. Because of our increasing MLR that is a minimum lending rate that we charge our customers, the margins are increasing quarter-on-quarter. But I could not get your question on the...

Sir, my question is when the MLR has increased, as you mentioned, your margins have improved. Why there's a spread compression of 20 bps during the quarter?

Because there may be an increase in costs. So please understand. See, there may be an increase in borrowing cost during the quarter, but we would not have passed on that particular increase to all the customers. The MLR increase has happened only for the new customers. The resetting is happening only once in 6 months. So during January to March, only those accounts which sell for reset only would have got the increased interest rates. That's why I said in the initial remarks that going forward, since we are going to have the reset every quarter instead of every 6 months, this passing on of this interest -- any cost increases from our borrowings will definitely happen in the faster pace from the current quarter onwards.

Okay, sure. Thank you, sir. Thanks a lot.

The next question is from the line of Sushil Choksey from Indus Equity Advisors.

Congratulations to the team Repco for a stable number, and best wishes for all the growth. Sir, my first question is average ticket, which is approximately INR 12 lakh with the housing prices and line prices on upswing. In the geography where we are -- we have spent, do you see that average ticket size growing?

Thanks, Sushil, for coming to the conference. See, the average ticket size as well as is for the entire book. But actually, if you see only the ticket size for the current year, that is '23, the average ticket size is INR 17.8 lakhs. This is as against INR 15.33 lakh in the previous year, which means the average ticket size is, in fact, going up. But when we see 105,000 accounts, the average ticket size remains at [Indiscernible].

But do you see that further going up or stable around INR 17 lakhs, INR 18 lakhs?

Yes, definitely. It is going up. It is going up.

Second thing, sir, in competition where the growth is visible between 30% to 40%, and I'm sure your digital and software spend would be stabilizing in this quarter. If so, is the aspiration internally for growth higher?

I would not like to spill the secret, Mr. Sushil, let me be very clear. I want to be very conservative when I'm talking to people like you.

Conservative is fine, sir. But is organization geared up if there is demand at your existing offices, and remote locations where you have spoken hub or whatever. If the demand is higher than your origination -- origination capability need support. That's what my question is more or less.

Definite, sir. Definite. We are seeing some momentum, and we trying to fill any gaps, whether it is in human resources, or in technology or in other requirements, wherever such gaps we are finding, we are trying to fill up immediately. And definitely, we are confident that we will be able to even surpass our own estimates.

So does it mean that your current staff strength is capable of handling much bigger and larger volume than what you're processing today?

May be, if at all there is requirement, current staff requirement is enough, especially in some pockets. Maybe in some geographies, we may require more people, especially where we are not all that popular, we are finding it slightly difficult to get people and some attrition also happening in such geographies. So going forward, maybe we may have to seek our HR policies so that we get the best talent in these geographies as well. But as of now, in our main southern markets, especially in Tamil Nadu, I think our staff strength is [Indiscernible].

Where do you see your cost to income?

Cost to income should go down. It's slightly on the higher side, and that can be offset by productivity -- improving productivity. That is our expectation.

Last 5 year average is around 20%, 21%.

Yes, I understand. I understand that. Maybe see, please understand, in the last year, we had added approximately around 200 people, including some trainees and all we have added. So that is one of the reasons why our cost to income ratio went up, and there was also cost due to this technology change. These things may continue also. See, for example, this year, we are planning to have some staffing cost increases because of the salary revision and all to be given to employees. Because it is long overdue. But all these things may be an initial cost. But going forward, this will be more than offset by an increasing revenue in the coming quarter. That much we are confident.

Any view on the parent company's holding in Repco Home Finance?

They are already having [37%]. I don't think there will be any change in that.

But they are in need of capital, that's what I hear.

Repco Bank is in need of capital?

Yes.

I'm not aware, sir. I'm not aware. Let me be very clear.

The next question is from the line of Praveen Kumar from Equitas Capital Advisors.