Sammaan Capital Limited (SAMMAANCAP) Earnings Call Transcript & Summary

Good evening, everyone. Speaking on behalf of Indiabulls Housing Finance Limited, I am Salman Shiras from Concept PR and your moderator for this virtual brokers and analyst meeting. I will take this opportunity to thank you for taking out time from your busy schedule to join us. We appreciate your presence and extend a very warm welcome to all of you. The objective of today's live session is to understand Indiabulls Housing Finance's interest in raising finance via an issuance of secured redeemable non-convertible debentures and what they do as a business organization. We are all increasingly getting accustomed to online meetings with a safer and more convenient format of attending and conducting the roadshow. We hope you gather the same or better experience from the comfort of your home or office. Before I review the functionality of the Webinar, I would like to bring to life that Indiabulls Housing Finance Limited is one of the largest housing finance companies in India in terms of assets under management. The company has been in business for more than 15 years and its geographical reach within India is across Tier 1, 2 and 3 cities, where it will result a target client basis of salaries, self-fund individuals, and MSMEs. [Operator Instructions] If we missed answering your questions, don't worry, you can e-mail us at [email protected], and we will try to be swift in responding back to you. It's a great pleasure to introduce our speakers for today. From the company, we have Mr. Ashwini Kumar Hooda, Deputy Managing Director. Represent of the bankers, we have Mr. Pawan Kumar Jain, AVP, IIFL Securities Limited; and Ms. Meghana Saini, Senior Vice President, Trust Investment Advisors Private Limited. On behalf of the company and the lead managers to the issue, and we thank all participants for being a part of this session. I now invite Ms. Meghana Saini, Trust Investment Advisors Private Limited to deliver the opening remarks and commence this [ brokers ] and analyst conference.

Good evening, ladies and gentlemen. We welcome you on behalf of Indiabulls Housing and the lead managers to the conference of IHFL public issue of secured variable non-convertible debentures that opens for subscriptions on Friday, October 7, 2022, that is tomorrow. Let me first introduce you to the dignitaries on the dais. And representing IHFL, we have amongst us Mr. Ashwini Kumar Hooda. And from the lead manager side, we have Pawan Kumar Jain from IIFL; and myself, Meghana Saini, representing Trust Group. The lead managers to the issues are Edelweiss Financial Services Limited, A.K. Capital Services Limited, IIFL Securities Limited, and Trust Investment Advisors Private Limited. As Salman has rightly pointed out, IHFL is one of the largest housing finance company. We will now move to the NCD issue of briefing. So the key features of the issue is the instruments are secured, renewable non-convertible debentures. The base issue is INR 100 crores plus an oversubscription of INR 700 crores. Total issue size is INR 800 crores. NCDs are of the tenure of 24 months, 36 months, 60 months. Open payments are monthly, annual, cumulative. HNI retail category open range is from 9.05% to 9.55% and QIB corporate ranges from 8.65% to 9.05%. CRISIL and ICRA have both rated in AA/Stable. NCDs are listed on stock exchanges, which is BSE and NSE. BSE will be a designated stock exchange. Depositories are [ NSE and NCDSL ]. There will be no PVS applicable for this particular NCD. And there -- they can be applied and they materialize more. The proceeds will be used for the purpose of forward lending finance and for prepayment of interest and principal of the borrowing of the company and general corporate purpose. This Tranche III will open tomorrow, which is the 7th of October 2022 and closes on 28th October 2022, and allotment will be on first come first basis. The eligible investors are of Category I, Category II, Category III, Category IV. Category I will be compromising of institution investors, which are mainly PSUs, mutual fund, et cetera. And Category II will be non-institutional investors, which will be more of corporate and cooperative banks, et cetera. Category III will be your HNIs, which will be above INR 10 lakhs. And Category IV will be retail investors, which will be up to 10 lakhs, including 10 lakhs and [ up to ] 10 lakhs. So as mentioned earlier, there are 8 series, and the frequency of the interest payments are for 24 months annual, cumulative and monthly. For 36 months also, we have annual, cumulative and monthly. And for 60 months, we have annual and monthly. The coupon ranges for the Category I and II is 8.65% to 9.05%, and open for ranges from Category III and IV are 9.05% to 9.55%. Next, please. Securities are 1.25x security coverage, so 1.25x of the principal amount and interest thereon. At all times, it will be maintained during the tenure of the NCD. Additional incentives are being offered to Category III and IV investors, but the condition is that the primary holder should be having that particular of our stock and on the deemed date of [ allot ] unit, that is the eligibility for the additional incentive. Next, please. So the allocation ratio is institutions have 30% allocation. Non-institutions have 10%. HNIs are 30%, retail individuals are 30%. But the priority, in this case, will be given to retail investors first, HNIs second, third will be non-institutional investors, and the fourth priority will be institutional investors. Thank you. I now hand over to Salman to take it forward, please.

Thank you, Ms. Saini, for taking us through the NCD issue details. We will now open the floor for Q&A session. All right. So the first question is what is the growth in advances in retail in Q2 year-on-year and on a yearly and quarter-quarter basis?

So on a Q-on-Q basis, company is now touching almost INR 1,000 crores of monthly disbursement, which is almost a 20% plus growth compared last year, this would have been around INR 500 to INR 600. So compared to that, it is a much bigger growth. As year [ progress ], the company now would grow more through the [ year ] rather than on balance sheet. So while there is retail loans, we are originating but we are also, at the same time, selling it down to banks through co-lending partnership that we have for securitization route. So while retained AUM keeps increasing at a rate of around 10%, the balance sheet growth will not be much.

All right. The next question is, what is the current average spread after the rate hike by RBI last week?

So while I can't talk about results of this quarter as we would not be able to share. But we have maintained our 2.6% spread last quarter. And we -- whatever interest rate increase is happening on our loans, we are able to pass that on as we increase rates on our book side. So they might marginally expand as some of our borrowings are fixed-rate bonds. To that extent, there is a lag in the effect on the liability side, but on the asset side, there is a path through on the first of every month. So in short term, short to medium term, the spread will increase. Ultimately, we will try and manage our spread between 2.5% to 3%.

All right. The next question is in the Q4 financial year '22 earnings call, it was told that RBI regulations disallow dividend distribution if there is a [ debt ] into the receives during the financial year. During Q1 FY '23, the company provided INR 525 crores through reserves. Would it prevent our company from distributing dividend even through -- even during the FY '23 -- even if the company posts profits and areas distribute dividend?

So it's difficult to comment at this point in time. But so far, our profitability the way it's shaping up, we hope that our profits will be sufficient to distribute some dividend in the current financial year, and we will not have the situation that we had in the last year.

All right. The next question is, can you share when the ratings will be upgraded of Indiabulls Housing Finance? You're making [ sincere ] efforts for a AAA rating to lower borrowing costs. Any comments on that?

So rating is something that follows up as part of performance of the company. So we are in touch with all our rating agencies, and we've demonstrated the stability, the fundraising from equity market that they were looking for. While the rating agencies take their own time, we don't aspire to become a AAA-rated non-bank as the strategy is not to get the highest rating and build the balance sheet. The strategy is an asset-light model where we will keep originating retail loans and selling it down to make a good spread on those loans and continue to earn the servicing fees and insurance fees. So that's the objective. So we would not require a AAA rating like we had done in the past, where we built up a very large huge balance sheet. There is cyclicity in India in terms of liquidity and interest rate, which impact this ability to build very large balance sheet and incur risk, which you can actually make much higher returns on a risk-adjustable basis by keeping your balance sheet asset-light. So that's how we are looking at the situation and hence, the company is very comfortable. And while it seeks one notch higher [ than A+ ] rating, but the company is able to do prime home loan through the core lending and securitization model.

The next question is could you please comment on the onboarding of directors from Blackstone and other foreign investors? This has been delayed for [ about ] 6 months. Are there any pending issues?

Yes. So clearly, one of the largest shareholders since LIC has already appointed one director. So we are -- we have Mr. B. C. Patnaik, who is the Managing Director of LIC on our Board. As to the timing of one of the director coming from Blackstone or other large institutional investors in the company, that debt is under descriptions. And while I can't commit a timeline, but as from [ promoter ] step-down, we would love to have more representation of shareholders on our Board. Meanwhile, the Board is fairly independent if we have the Board led by one of the most honored banker and an ex-RBI government, Mr. Subhash, S.S. Mundra. And we have another 6 independent -- I mean, including Mr. Mundra, 6 independent directors for Executive Directors. So clearly, the goal is getting -- is autonomous and very well represented by mix of bankers, Supreme Court lawyers, they're the highest administrative position in police legal [indiscernible]. So the Board clearly is already enjoying the benefit of high governments. We hope that for investors also quickly nominate their person on board. Most -- the way it works typically is they would like to put a person on board once they increase their shareholding further. So some of these investors are looking to invest in the company and in the impact potentially [indiscernible].

Next question is, could you please comment on what's the expected ROE the company starting for the current financial year? Will it be 11% as highlighted in the conference call? And will it increase 15% by FY '24?

You're asking about ROE or ROA?

ROE.

So in ROE is a function of a few things, how the full credit banks out during the rest of the year. There are some headwinds, but there are a lot of payments. The payments, especially the real estate market is doing very well. There is price appreciation that we are witnessing in most of the micro markets that we operate in. So with those payments, we hope that our credit costs are contained between [ 1% to 1.5% ], and in which we should look at double-digit ROE. But as a conservative balance sheet, we would look to provide well before we start growing in terms of balance sheet and profit growth. So right now, we continue to be conservative.

Right. Can you please explain what is the current ROA of 3% as mentioned in the latest quarterly report? Is this 3% and on the entire AUM?

So typically, for calculating the spread, we will look at what is on the book. So it is more of on book, what is the spread we are earning. From the off-balance sheet asset, the home loans that we had or LAP loans we have securitized sold down. There is a positive spread that we earn in terms of service increase and the spread that we earn over and above what we pay to the banks. So those are in addition, but the spread that we talk about is on balance sheet assets.

The next question is, is the stock prices trading at around 0.3 book value? And on the last [ issues subscribed ] at around INR 103 crores. What is the management's current plan of reinstalling [ faith ] of investors?

So clearly, the resolution has taken a hit in recent times because the company was in consolidation mode, where we were running down high-risk wholesale real estate lending business. And then while growing in an asset-light model by doing incremental business through core lending and securitization. So all that we've done and we are on part of growth, we have very good partnerships, several partnerships on the core lending side, while they securitize to almost 15 lenders as we speak. So there is good visibility in terms of retail AUM growth while we continue to downscale our wholesale lending business. Valuation typically are a function of growth. As soon as we start demonstrating the growth on the balance sheet side also, market will take cognizance of that and start rewarding the shareholder. But we do not want to rush into anything. Everything is getting executed as per the strategy, a fundamental shift in the balance sheet has already taken place. So we are very hopeful that India [ was hosting ] is a part of growth going forward.

The next question is, could you provide us an update on the AIF segment? Are you on track for the [indiscernible] INR 5,000 crore by FY '23?

Sorry, INR 5,000 crores for what?

Of the AIF segment. Alternative investment funds.

Yes. So AIF platform is ready. We have looked at some of the [ foundations ] right now presents a very good opportunity as there are a lot of consolidation happening in real estate, and the large developers are seeing that all their demands cannot be met by the price lending and in absence of a debt to capital market for their bonds. Clearly, AIF is the preferred route while [ Europe ] transitions are under due diligence and the progress. We will update you probably by December as to what kind of quantum we can look at for this year.

We will wait for some time for the questions to be lined up.

I think [ somewhat ] we are done. So thank you. Thank you for taking your time [indiscernible] meeting us and then [ leasing ] these questions. I give back the space back to [indiscernible]. Then we can continue with the presentation.

So I would like to request Mr. Pawan Kumar Jain to make a closing speech.

Good evening, everyone. I would like to reiterate the issue terms wherein the base issue size is INR 100 crores with an option to retain oversubscription up to INR 700 crores, aggregating up to INR 800 crores. Effective annual yield for NCDs having fixed interest rate increased from 9.04% to 9.54% for Category III and IV investors. Effective annual yield for NCDs having fixed interest rate range from 8.64% to 9.05%.

Thank you, everyone. We have now come to an end of the webinar. We look forward to your first participation and support in making this NCD offering a great success. Wishing you all a great day and keep safe. Thank you.