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

Ladies and gentlemen, good day, and welcome to Repco Home Finance Q4 and Full Year Earnings Conference Call 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. Thank you, Michelle. Good evening, everyone. Welcome to the fourth quarter full year results call of Repco Home Finance. We thank the management for giving us the opportunity to host them once again. From the company, we are joined by Mr. K. Swaminathan, MD and CEO; Mr. T. Karunakaran, Chief Operating Officer; Mr. P.K. Vaidyanathan, Chief Development Officer; Mr. M. Raja, Chief Business Officer; and Ms. K. Lakshmi, Chief Financial Officer. I would request Mr. Swaminathan to give us an overview of the company's performance, post which we'll open the call for Q&A. Over to you, sir.

Thank you, Michelle. Thank you, Rajiv, from Yes Securities. Good evening, everybody. We would like to welcome you all to the earnings call of Repco Home Finance Limited for the quarter and year ended March 31, 2024. Thank you all for taking you off and joining us in this call. We are happy to announce that we have been able to maintain the growth trend seen in the last few quarters in Q4, 2024 as well. The company is steadily progressing on its business parameters, the structural changes that have been made are getting strengthened across the organization and are yielding results. This will be an ongoing process and we shall adapt the changes as and when the business demands. Business updates. We were able to achieve disbursements of INR 895 crores against INR 835 crores in Q4 '23. Our sanctions stood at INR 978 crores as compared to INR 966 crores in Q4 '23. Excluding the DA pool buyout transaction we did in Q4 '23, the growth in sanctions and disbursements are 9% and 16% Y-o-Y. After taking that account GMP reduction of INR 168 crores, our AUM stands at INR 13,513 crores, an increase of 9% Y-o-Y. Our disbursements for FY '24 was a record high of INR 3,135 crores as against INR 2,919 crores of FY '23. On a comparative basis, we have registered a growth of 12.7%, excluding the DA pool buyouts done in FY '23 for INR 136 crores. Loan sanctions stood at INR 3,340 crores as against INR 3,232 crores of FY '23, with a growth of 7.9% on a comparative basis. The ratio of exposure between non-salaried and salaried segment stood at 51.4% and 48.6%, respectively. The share of nonhousing loan that we call as home equity, stood at 25% -- 25.3% of loan book and housing loans contributed to about 74.8% of the loan book. All of our loans are to individuals and there is no corporate book. Book quality. We were able to reduce the GNPA from INR 618 crores in Q3 FY '24 to INR 552 crores, which is 4.1% of the AUM. Net GNPA stood at INR 192 crores at 1.5%. We have reduced the NPA by INR 168 crores for the full year. For the NPLs, we have a total provision of INR 518 crores with a provision coverage ratio of 65.2% for Stage 3 assets. Our systematic and relentless action on NPA accounts is proving fruitful and would continue. As of March 31, 2024, we hold INR 528 crores of restructured portfolio outstanding in our book, of which approximately INR 158 crores are in Stage 3 and remaining in Stage 1 and 2. Profitability. Our NIM for FY '24 was at 5.23%, up from 4.84% in FY '23. The company has been able to maintain a spread of 3.38% for FY '24 by raising ease to 11.75% despite facing stiff competition at our pricing levels. The net profit grew 8.7% Q-o-Q and 32% Y-o-Y and amount to INR 108 crores for Q4 as against INR 99 crores and INR 82 crores for Q4 '23, respectively. For the whole year, we have earned a net profit of INR 395 crores against INR 296 crores for FY '23. Our ROA and ROE stood at 3% and 15.8%, respectively, for FY '24 as against the respective figures for FY '23 at 2.5% and 13.5%. New software. Phase 1 of the project comprising of LLMS and EGL are completely integrated and fully functional. Applications planned for Phase 2 are under progress. We have so far spent INR 24 crores, of these, INR 13.5 crores have already been capitalized. As of March 31, 2024, we have 212 touch points across 12 states and 1 UT comprising of 168 branches and 44 satellite centers with additional 2 asset recovery benches. We plan to reach a number of 250 by the year-end. The future. Deal all, we would like to recall the roadmap of the company presented in our last call that is INR 20,000 crores of AUM and GNPA below 2% by 2027. With the problems, which are plaguing the company, like negative growth, high NPA, technology backwardness, et cetera, having been overcome. The company is well and truly on its way to reach these numbers. For the current year, the company plans to strengthen its resources in sales, collection and underwriting verticals by market recruitments. We will be adding another 40 outlets in FY '25 to make the number of outlets to 250. Two more regions would be added to our present 9 to make deliveries faster. Taking the current year agenda are growth acceleration and overdue reductions. With the momentum gained in the just concluded year and the learnings, the company is confident of reaching a disbursement of INR 3,600 crores to INR 3,800 crores, an AUM of INR 15,000 crores, Stage 2 numbers between 7% and 9% and GNPA below 3% by March '25. While there may be a dip in our NIM and spread percentages as we plan to move a relatively price-demanding client deal, we are confident of maintaining our profitability growth of 20% to 25%. The credit cost for this year is expected to be minimal. To summarize, the key financial highlights of FY '23, '24. The loan book stood at INR 13,513 crores, registering a 9% Y-o-Y growth. PAT for the quarter was INR 108 crores, and INR 395 crores for the full year, with a 32% increase Y-o-Y. ROA and ROE for the quarter at 3.2% and 16.5%, respectively. The core profitability has remained strong with a solid spread and margin of 3.3% and 5.1%, respectively. The gross NPA has shrunk to 4.1%, with a stage 3 coverage of 65% and net NPA at 1.5%. We thank each and every one of you for evincing interest and being part of our turnaround strategy. We now open the session to Q&A.

[Operator Instructions] We have the first question from the line of Megha Agarwal from AM Capital.

My question is regarding the asset quality in the home equity segment. From the latter half, GNPA of this segment is at a 7-year low, which is likely due to the commendable work this management has done and also due to the increase in denominator effect. With regards to the home equity segment, likely to go up to 25% to 26% of AUM. While you have spoken about like steps to keep the asset quality in check, my question is, do you have a certain metric like where GNPA target in mind for this segment? Like there is a below 2% overall GNPA target? Will you have a specific target for the home equity segment?

See, 2% is for FY '27 and the 3% is for the current year that is our expectation. Home equity is slightly -- the NPA numbers of home equity slightly larger, see, out of the 3%, maybe it will be around 4% for home equity and 2% for home loan.

[Operator Instructions] We have the next question from the line of Kaustav Bubna from BMSPL Capital.

Could you please speak about disbursement growth targets for FY '25 and -- mainly FY '25? And how do we plan to achieve this?

Okay. See, as I told in the initial speech itself, we are targeting something between INR 3,600 crores to INR 3,800 crores. This is our normal target, which we are planning because somewhere round INR 3,100 what we are targeting. On a conservative basis, it's between INR 3,600 crore crores INR 3,800 crores. If there are some tailwinds, like I said in the last con call, like government support or a new scheme or some improvement, we may even reach a number of around INR 4,000 crores. But for the present, I would like to hold around INR 3,600 crores to INR 3,800 crores. And thanks Kaustav.

You said FY '24 was INR 3,100 crores, right?

Yes.

So you're targeting 15% plus growth in disbursement for the year?

3,000 -- up to INR 3,800 crores. It can go anywhere between INR 3,600 crores to INR 3,800 crores.

And will this be balance back -- and will this growth be back-ended towards the second half? Or do you think it will be equally spread across the quarters?

First quarter will be slightly dull, let me admit. But going forward, yes, it will pick up. Normally for this company second and fourth quarters are peak quarters.

But why will the first 2 quarters be...

See, the first 2 quarter normally because of the change because of the transfer, new branches opening and all that invariably the first quarter is relatively dull but second quarter being a peak quarter, especially for the business, second quarter is small. Third quarter, again, because of the local holidays, February month being there. Because of these reasons third quarter is relatively less compared to the second quarter. Fourth quarter, of course, people will run on that. So what I request all of you people is maybe -- there may be a slight dip in some quarters but at the year-end, we are quite confident INR 3,600 crores to INR 3,800 crores is achievable one.

Okay. Sir, and one more question on your provision front. I mean, for FY '25, what type of credit cost can we see, what type of write-backs are expected? Could you please go into detail in this and explain us?

See, as of now, for this INR 515 crores, we have around INR 350 crores of provision. Okay. Going forward, we expect a reduction of around max minimum of INR 60 crores up to INR 100 crores of NPA reduction. So this will help us in releasing a provision anywhere between INR 40 crores to INR 50 crores.

Okay. But there's no -- you're not expecting any additional provision you're expecting write-backs. You're not expecting any incremental provisions to like to add on.

Not much, not much because of the provisions we have already made. So for any likely slippages that may happen, which are bound to happen. I think -- the provision coverage that we already hold, I think that will take care of these slippages.

And did I hear right that you're guiding for 20% growth in PAT in FY '25? Is that what you said? Did I hear that right?

Anywhere between INR 450 crores to INR 475 crores.

And this is taking into account the possibility that interest rates could fall in this year. Is that correct?

Even if interest falls, anyway that did passed on also. So what we are taking is there may be a slight dip in my spread and NIM. But we -- I have an advantage of the additional provision that we have. So that will help us in meeting this 20% to 25% of profit target.

The next question is from the line of Shubhranshu Mishra from PhillipCapital.

So given the fact that we are so confident about the disbursement growth...

Sorry to interrupt you. Sir, your voice is muffled. May we request you can you use your handset, please?

Is this better?

Yes, sir, please continue.

Right. So given the fact that we are so confident about the disbursement growth, what would be the split of the disbursement between LAP and home loans in FY '25, what would -- and what kind of credit costs are we forecasting for FY '25. And again, if there is a split between the credit cost for LAP and home loan? And also, there's a disbursement mix, one can give in terms of states that would be contributing to the disbursement.

See, as of now, the ratio between home loan and nonhome loan is 75% and 25%. Under nonhome loan, LAP constitutes only around 15%. So going forward as well, we will be maintaining the same ratios. Maybe some -- instead of 75%, 25%, it may become 74% or 73%, 27% and all that. But more or less, it will be within this range. Regulatory requirement is we cannot exceed 40% of nonhome loan. And internally, we ourselves have fixed not more than 30%. So definitely, we will maintain these ratios. Second question on your credit cost, as I all told you, net credit cost will be marginal because of the provisions that we hold. So even for any slippages that we have, our existing provisions may take care of the likely slippages. So net credit cost like what was there in '23, '24, net credit cost to the company may not be much. This is second. Third one you asked about the state-wise distribution. Gradually, of course, 56% of our loan book is from Tamil Nadu because of the effect -- base effect. So Tamil Nadu may slow -- may come down slightly, maybe from 56%, it may come to 55% or 54%. We will be increasing our exposure in non-Tamil Nadu, especially in the southern regions of Karnataka, Telangana, Andhra and all that which is our plan of action.

No, that is on the AUM, sir. I get that point. We have been on that path for some time. What will be the split of disbursements between Tamil Nadu, Karnataka and Maharashtra, our 3 large states?

Okay. See, that's what I'm saying. See, going forward, if you see the percentage of growth, percentage of growth in Tamil Nadu may slightly tamper down. And the non-Tamil Nadu regions, especially the states that you were talking definitely, it will go percentage-wise. But quantum wise, we do not have the exact number, I cannot give you. But percentage wise, I can tell you that growth will be slightly muted in Tamil Nadu compared to the other states.

We'll take the next question from the line of Gaurav Agrawal from Nine One Capital.

Sir, my apologies I joined the call a bit late. So 1 or 2 questions that I'll ask might be repetitive. So we would request your patience on that front. Sir, first of all, did we hear right on the loan growth I heard about the disbursement growth that we are targeting in the range of INR 3,500 crores to INR 3,800 crores. In terms of, sir, AUM growth, what kind of number are we guiding for in FY '25?

Okay. You have one more question or this is the only one?

Sir, I have a couple of more. And then on the NIMs, I wanted to ask from FY '24 levels that our NIMs that we had in FY '24, how do we see those NIMs spanning out in FY '25.

Okay. See, loan growth from INR 13,500 crores, we are anticipating something around INR 15,000 crores by March '25. For about INR 3,600 crores to INR 3,800 crores net of repayments. We expect a net growth of around INR 1,500 crores. So we will be reaching around INR 15,000 crores. As far as NIM is concerned, yes, we now have a NIM of around 5.2%. But going forward, it may not be 5.2%. It may be anywhere between 4.8% to 5.2%. As I told, we may be slightly aggressive in pricing our products, especially for home loan to salaried segment. So to that extent, my NIM may come down.

Okay. But sir, if I reverse calculate it, I take that, let's say, 20 bps lower NIMs for FY '25, I take 0 credit cost, assuming there will be zero credit cost because of excess provisions that we are holding. And also, I take, let's say, the loan growth we're targeting is INR 15,000 crores. So if I do all those numbers, I get to around INR 430 crores kind of PAT while we are targeting around INR 450 crores to INR 475 crores kind of PAT. So where will be upside come from in [ '25. ]

Gaurav, there will be -- what we are anticipating is that could be a reversal in provision because of our net NPA reduction.

There is a scenario of having a negative credit cost to, let's say, INR 30 crores, INR 40 crores kind of negative number for the provisions be fair in FY '25, is there a possibility?

Definitely. There is a possibility.

Okay. So sir, INR 20 crores, INR 30 crores is a strong possibility, right, negative INR 20 crores, INR 30 crores kind of a negative provision for FY '25.

There is a possibility. In fact, even in the last year, there was a small reversal of provisions.

But that was only for negative [indiscernible] hardly anything. So but for FY '25, we expect the quantum to be much bigger. Is it?

Yes. Hopefully, that is.

Okay. And sir, any levers on your cost of funding side because in my understanding, there were some approvals that you were getting from NHB once we get those approvals our cost of funding can meaningfully change. Will you be able to describe some on this?

It's definitely possible because now that our net NPA has come down, we become definitely eligible for our NHB funding. Of course, that can happen only post the AGM because NHB normally expect the AGM to be over. That is one. Second one, even if with the NHB funding, well, there may be a reduction in cost of funds. It may not be all that much. That much I can tell you. Of course, NHB funding is definitely cheaper than bank funding.

Right. But sir, as of now it's only about, 10%, 11% of our overall borrowings. So over a 2-year, 3-year period, can we still scale up meaningfully from these 10%, 11% level. It used to be for 15% last year.

See, NHB funding, we do not know how much we will get because normally, it is allotted by NHB. Definitely, whatever is getting allotted, we will avail.

[Operator Instructions] We'll take the next question from the line of Bunty Chawla from IDBI.

Just one data point, if you can share. Last quarter, we have seen for the 9 months FY '24, the recoveries were around INR 100 crores versus our guidance for the full year was INR 100 crores. So if you can share what was the recovery for the full year FY '24? And similarly, what you will be guiding for recoveries for FY '25?

See, for the full year of FY '24. Okay. Netting any recoveries made during the quarter let us assume in a month, particular slippage happen, and we were able to recover within that year, those things have been netted off. So the actual recovery is around INR 316 crores for the whole year. So INR 150 crores was the slippage for the whole year, INR 360 crores for the -- INR 316 crores for the recoveries for the whole year. For the last quarter alone, if you want, one minute -- it is INR 37 crores of slippages and INR 101 crores of recovery.

Okay. And sir, what will be the guidance for FY '25?

Okay. See, we had given a guidance of less than 3%, assuming that INR 15,000 crores is the book. So we should definitely go below for INR 450 crores.

The next question is from the line of Devendra Chawla, from Prasun Exponentials.

What is the operational challenges being faced in growing disbursements faster?

There is nothing like challenge, the only thing is since we are making so many changes within the organization, like verticalization, decentralization and all that. So it is taking some time for the people to understand to change themselves to the circumstances. That is the only thing. Otherwise, comparatively, we are better off if you see compared to the previous years, the company has done fairly well in a disbursement of around INR 3,100 crores. So going forward, since that these verticalization and all have more or less stabilized, we will be improving -- the increasing the numbers, improving the -- increasing the number of outlets and all that. So these challenges will be met. We will be in a position to take care of the whatever is the budgeted numbers.

Understood. And what are the number of outlets the organization is trying to add in the coming year?

See, today, we have around 210 as of March '24. So by March '25, we want to reach a number of around 250.

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

Congratulations to team Repco for excellent results.

I'm sorry to interrupt, sir, there is a static on the line. May I request you to kindly use your handset, please?

I'm using a handset, Mam.

Okay, sir, this is fine now. Please continue.