Satin Creditcare Network Limited (SATIN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Satin Creditcare Network Limited FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. H.P. Singh. Chairman and Managing Director of Satin Creditcare Network Limited. Thank you, and over to you, sir. .

Thank you so much. Good morning, everyone. Thank you for taking the time to discuss our financial performance in Q4 and FY '22. I hope you and your family are safe and keeping healthy. I'm hoping you've already got our quarterly results and investor presentation. Those who haven't seen them yet can do so via our website and stock exchange. Early signs of economic recovery were visible in the second half of the year with the complete lifting of lockdown restrictions and significantly larger vaccination programs across the country. As previously stated, the company has taken a well-calibrated and careful approach in disbursing new loans with a strong emphasis on collection. We took the correct steps at the right time to reduce the risk of portfolio delinquency while maintaining asset quality. Our GNPA for the year stood at 8% with an adequate provision of 6.7%. Our well-thought-out business acumen, combined with robust underwriting measures have enabled us to remain resilient even in times of adversity faced by the business and the industry. Our AUM for the year ended 31st March 2022 stood at INR 7,617 crores. Going forward, as the economy returns to normalcy, we estimate steady-state AUM growth of 20% to 25% for micro finance, allowing us to reclaim lost ground. Housing and MSME will grow at a much faster pace. To achieve this topline growth over the medium to long term, the company is very capitalized with the CRAR of 27.8% and a balance sheet liquidity of INR 1,291 crores. The company has successfully raised INR 225 crores by way of allotment of equity shares and fully convertible warrants to the promoter and non-promoter entities in January 2022. The company has repaid INR 75 crores against allotment of shares in Q4 FY '22. As cases have begun to decline and more people are being vaccinated, our collections are gradually returning to pre-COVID levels. One big positive is that most restrictions have now been lifted in the major parts of the country where we operate and we are seeing a significant uptick in our collection efficiency on a sequential basis. Overall, the collection efficiency for Q4 FY '22 stood at 100%. This improvement signifies our robust underwriting and collection framework as well as the resilience of our customer base. In the near term, the RBI new regulations will provide a more strengthened and stronger framework with a level playing field for all lenders. This directive along with the framework such as scale-based regulation, income recognition and asset classification, prompt corrective action and information security will ensure the industry has healthy growth in our risk-adjusted manner. And we, as one of the industry's leading players are expected to rebound strongly. Now going through the financial and operational highlights of the company. Our AUM on 31 March 2022 stood at INR 7,617 crores. Our average ticket size of MFI lending for the quarter stood at INR 40,000. As of 31st March, we have a customer base of more than 28 lakhs. Our disbursement for the quarter stood at INR 1,900 crores as compared to INR 1,348 crores in Q3 FY '22 and INR 2,376 crores in Q4 FY '21. Our assigned portfolio stood at INR 1,204 crores. Stand-alone disbursement for the quarter stood at INR 1,622 crores as compared to INR 1,085 crores in Q3 FY '22 and [INR 2,084 crores] in Q4 FY '21. We are seeing disbursement activity to pick up as more population is now vaccinated and other economic activities returning to normalcy. As of 31st March 2022, 100% of our disbursements are made through cashless mode, while cashless collections stood at 6%. We have also adopted website payment option at UPI auto debit. NII for FY '22 stood at INR 755 crores as against INR 742 crores in FY '21. For Q4 FY '22, our pre-provisioning operating profit stood at INR 76 crores as compared to INR 110 crores in Q4 FY '21. PAT for FY '22 stood at INR 21 crores against a loss of INR 14 crores in FY '21. We have made provisions of INR 345 crores on account of the COVID-19 Pandemic and other external factors. Our cost-to-income ratio stood at 67.6%, while our OpEx to AUM stood at 6.4% for FY '22. We hope to reduce our cost-to-income ratio as well as OpEx to GLP in the coming quarters. Coming to our collection efficiency, our collection efficiency trends excluding Assam are as follows: Q1 FY '22, 84%, Q2 90%, Q3, 97%; and Q4, 100%. We are seeing improvement in repayment and collections month-on-month. Collection efficiency for the quarter stood at 100%. We have a well-diversified customer base, well-penetrated branch network across states at 73% rural exposure. Our on-book GNP stands at 8% and provisions of 6.7%. Our restructured book stands at INR 925 crores, which is approximately 18% of the AUM, out of which approximately 70% clients are paying [indiscernible]. Our total operating cost has remained consistent since FY '20 at about INR 400 crores -- the elevated cost-to-income ratio is because we follow a calibrated approach of not chasing high growth during the pandemic. So it is safe to assume that we should achieve the planned growth with the same cost as the ratios will come down with increase in efficiency and productivity. During the quarter ended March 31, 2022, the company has sold certain NPA loan assets amounting to INR 53.14 crores to an Asset Reconstruction Company, ARC at the sale price of INR 53 crores, wherein company is holding 85% of the security received under the trust incorporated by the ARC. As with the provisions of [indiscernible] 109, the said sale is not meeting the criteria of the [indiscernible] recognition, and will continue to be shown as financial assets of the company. As of 31st March 2022, our total branch network count stood at 1,224 branches, which is spread across 404 districts. We have a total state and UT count of 23, which makes us a well-diversified pan-India microfinance player. As of 31 March 2022, 97.3% of our district has less than 1% of portfolio exposure. We have seen a significant reduction in our portfolio risk in terms of average exposure per district, 0.25% FY '22 versus 0.45 for [FY '17]. Exposure to top 10 districts as a percentage of AUM, 14% in Q4 FY '22 versus 21% in FY '17. Exposure to top 4 states contribute 0.25% in Q4 FY '22 from 77.3% in [FY '17]. Our well-thought-out diversification strategy has enabled us to sail through difficult situations and capitalize on our ideas of enriching our clients lives through financing of various products. We were able to disburse nearly INR 83 crores during FY '22 under the product finance category, which includes loans for bicycles, solar products, home appliances, consumer durables and water and sanitation. An update on subsidiary. Business corresponding services under Taraashna Financial Services Limited has reached an AUM of INR 724 crores. As of 31st March 2022, the company operates through 158 branches and has more than 3.5 lacs active loan clients. Satin Finserv Limited, our MSME arm reached an AUM of INR 166 crores with 3 consecutive profitable years. Satin Housing Finance Limited has now reached an AUM of INR 318 crores, including DA of INR 26 crores. Having presence across 4 states with 3,585 customers. SHFL has a 100% retail book comprising 68% affordable housing loans and 32% of LAP. The company has 15 active lenders including NHB refinance. CRAR of 60.19% and gearing of 2.1x. Total equity stands at INR 101 crores. The company has nil GNPA after more than 4 years of operation, including the pandemic. SHFL has 2 consecutive profitable years in the challenging business environment. At their respective meetings, the Board of Directors of companies of 2 wholly owned subsidiaries Taraashna Financial Services Limited and Satin Finserv Limited considered and approved our draft scheme of arrangement for amalgamation of Taraashna Financial Services Limited transferor company with Satin Finserv Limited transferee company under respective shareholders and creditors. The scheme under section 230 to 232 of the companies 2013. The company has signed the first joint motion application before the Honorable NCLT branch Chandigarh in January '22. The set first motion application reserved and allowed by the said Hon'ble NCLT on hearing dated April 6, 2022. Before we begin taking questions and answer, I would want to emphasize that as a responsible company, we are always working to enhance the lives of our stakeholders by encouraging financial inclusion. We are guided by our long-standing commitment to help the underprivileged in society. We are well positioned to achieve growth and recoup lost ground in the next quarter, propelled by our sincerity, compassion and long-term mission of delivering assistance where it is most needed. With this, I would like to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Rajiv Mehta from YES Securities.

Sir, I just wanted to understand the performance a little better. So in terms of PAR disclosure, if you can tell me what was the PAR 30, 90 bucket as of March and how that bucket has moved between December and March?

So PAR 30 was around 10% end of December, which has improved to about 9% now.

Okay. 9%, okay, of which 8% is PAR 90, right?

Yes.

And this PAR 90 being 8%, could you give us a split because we used to report nonpaying clients, nonpaying customers in last quarter, which was about 3-odd percent as of December. So this PAR 98%, how much is nonpaying?

The nonpaying technically would be around the same range because what we have really looked at is that in terms of our restructured book, about 70% are regular and about 30% are irregular. Now irregular would also probably have somebody who would be nonpaying, but nonpaying remains in the same page of the total AUM of about 2% to 3%, because that is what remains within the range-bound in that.

Okay. And sir, this restructuring, I mean, it's a large number of 18%. So if you can -- so where is this 18% lying between -- one is that we have a PAR 90 portfolio of, say, PAR 30 of 9%. So this restructuring will have significant overlap with this number, right? Or structuring is below PAR 30?

That's what I said -- when I said that 70% of paying regular that probably does not come into the [indiscernible] part.

Yes, understood. And also on the fact that we have -- we did not choose to make an incremental provision in the quarter, right? And we would have also some write-off, right? So how are we looking at adequacy of current provisions that we are holding? And then whether -- how would incremental provisions play out -- for credit costs play out in the next few quarters given our current PAR mix?

So I think Rajiv it has to be looked in totality of the disbursements too along with the AUM. So our sense is that -- the P&L doesn't get affected further on now from here. I think the provisioning I think is still adequate enough for us, barring the write-off and all which will come in the due course of time from the balance sheet, the thing across over there. But if I give you an overall picture, the bigger pain is probably now behind us -- for us to concentrate more on growth rather than continuously for the last 2 years concentrating and talking about portfolio quality and this thing. These numbers, probably I think, my sense is -- are behind us. So it's only a question of time before the disbursement and the growth kicks in. The moment that starts kicking in and which has happened positively in the last quarter as such. I think all these numbers will become technically far more irrelevant as what they were relevant in the last 2 years.

Okay. So sir, you've given us some sense about how are you looking at growth, which is about 20-odd percent in MFI and much faster in other products. From a credit cost perspective, would you want to kind of anchor our expectations for FY '23 to a sort of number or a certain range?

I would not like to bet on our numbers to be very honest, with constraints of being listed entities and all. But I can probably give you that the GNPA numbers will be significantly lower than what they are right now. So FY '23 would probably be, that's what we should really look at.

And for the cost, and you also spoke about cost-to-income improving. So I would assume that we have got all the capacity already built for growth, right? So -- do you think that a 20% growth for the next 2 years will not require much of an incremental investment, and that is why the numbers will swing on the cost metrics?

Absolutely. So Rajiv, bang on, what you said is absolutely right. So that's what we've also stated. That with the infrastructure already being there, it was already there, but the infrastructure was maybe inclined more towards collections rather than disbursing and which we rightfully wanted to do also. Now for us, since everything is behind us. The cost remains the same practically, but the income levels and the asset quality starts improving. So the cost to income will definitely have. [Technical Difficulty] The regulation is also now kicking in with the RBI circular. I think the yield will also probably prop up because of this and pricing now being enforced.

And we would have raised our yield by lending rates by?

About 1%, 1.5% -- 1.5%, kind of 1.5%.

Rajiv, what we have done is we have now come to a range of yields, the lending rates. So wherein the lower rate of lending is also reduced by 25 bps. And then we have, we can go up to 25%. So that is what the range here we have -- we will have a -- so net-net, we will have 100 to 150 bps of increase in our overall mix.

Sure, got it Aditi. Just one last thing. If you can share credit cost trajectory for housing finance subsidiary in the last 2, 3 years, how the credit cost has moved, I understand the NPA is nil, but could you also share how the credit cost is moving there?

We have made broadly a little less than 1% provision on the entire [indiscernible] and it is now almost [indiscernible] full year of operations and with nil GLPA -- so it's a very, very granular retail book, and we are focusing totally on quality. So 1% still is provided for in the books.

[Operator Instructions] The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. .

I have 2 questions. One is a follow-up to the previous question. You had mentioned GNP of 8% and then 3% of the customers are not paying. And so -- and you are also projecting that the GNP will come down. Of course, one would be the denominator effect. But on the numerator itself, would you expect that balance 5% would be in a position to pay going forward? Or is there -- this is still very, very high amongst our customer base is question number one. The question number 2 is in terms of the sales to the ARC. Given the fact that there are retail loans, would you still be -- would the collection efforts still be done by you because the ARC might not have the ability to reach out to those customers and collect the money, that's all.

So Vivek, what -- I'll answer the second question first. So for us, the pandemic as well as maybe before the pandemic, we had taken a very conscious call to have a separate collection team, which actually focuses on larger DPDs. And we've got a very strong force, which actually goes and collects from the delinquent customers. Delinquent, which I mean to say is anything which is a GNPA for us or an NPA for us -- and we've had good results in the past also and in the current phase also, which probably led us -- lead us to believe that we will be able to still be able to manage to get a large number of these orders back into the fold and get our collection efficiency back. And this probably also gives you a particular answer to the first question also. We are trying a level best, we are not somebody that once we write off, in fact, we've gone down to about 600 days DPD also to get money from those clients. So our efforts will keep on continuing at least for the next 3 to 4 years, even with all these GNPAs being there across it. And that's what the basic resilience in our whole system is there. A complete force, which really looks after the collections, and we don't leave it even until the time it is 5 years past due. So for us, that will give us probably an answer to the nonpaying and the paying clients. Our [indiscernible] force is specifically targeting these nonpaying customers as well as those partial paying customers, even those who are moving to NPA, and we hope to get very positive results for this in the near future. And I cannot give you a time line, but it's a slow process of bringing these customers back and the collection in their efficiencies in these buckets back into the fold as well.

Understand, sir. I guess -- in terms of the economic health of the customer itself, do you see an improvement that their cash flows and their core business and so on. Because they've all gone through tremendous distance, I presume?

Whatever had happened was the first year of the pandemic. I think the second year probably is the bounce back in terms of the economic activity even in the rural areas. So technically, the income levels are back to normal. The only thing is how we are able to really comprehend and get the money collection back into our system, and it's a slow process. Once you've had overdue installment of about, let's say, 15 or 20 you can't expect the borrower at that level of the society to probably give you those 15 or 20 in one go. It'll happen slowly and steadily. That's the only pain which will get elongated a little bit, which will keep on ordering us for some more time, that will be taken care of in the next couple of quarters for sure.

[Operator Instructions] The next question is from the line of Shiva, a retail Investor.

One question regarding the sale of 13,000 accounts to asset reconstruction company. For how much it was done sir. We have sold 13,000 accounts to asset reconstruction company for [INR 53,000] crores has been disbursed to the asset reconstruction company. So how much it sold up sir?

So there are some interest which has to come in future also now. The regulation has changed so we have sold it for INR 53 crores, we have received upfront of around INR 8-odd crores, and balance based on the portfolio performance, we will get over a period of time, but we have not derecognized those portfolio out of our book.

Okay. Okay, sir. And another question from my side is that what's the initiative statement from our side to increase our employees and our customers for cash less UPI payments.

Sir, we have all the tools which are there, so we have website payment, we have a QR code on our loan card. We have UPI. We have our customer service app where you can actually make a payment from there. So we have all the tools which are there to make a cashless collection.

Yes, I should appreciate you, but we were first one to initiate that UPI. [indiscernible] HDFC bank, but to initiate our customers so that our cash flow gets improved by quarter-on-quarter. Any initiatives different from our side.

Yes. So we've got a separate team which is working on the customer behavior. So you know it's very difficult for the rural customer to actually get into cashless collection more because -- the banks are far away for them to deposit money in the bank and then for us to do cashless collection through -- that is something which is a bit challenging. But we want a separate team in the head office as well in the regional offices, which is working solely on improving the collection efficiency -- the cashless collection. So our sense is that it is at 6%, we will keep on increasing slightly a bit by bit in the near future, but it's a change in the customer behavior, which will take some amount of time, which is going to be there.

Okay, sir. And the last question is [indiscernible] financial services? Last quarter, we have the write-off of INR 10 crores. And this quarter, we have write-off of INR 7 crores. What is the situation [indiscernible]. Is it over or is it still?

It's akin to what Satin is going through. I think it's the majority of the pain over now, and we don't have any much more pain, which is left even in Taraashna Financial services.

The next question is from the line of Ronak Singhvi, retail investor.

Congratulations on a fantastic sort of turnaround in this quarter. And just a couple of questions primarily around the strategic initiatives, which I guess you guys have taken specifically around this investment you have made in our Fintech company called Jay Kay Financials as well as Rupyo, so how is it aligned to Satin's future strategy, it will be helpful to understand that. And second question is around the subsidiaries, the housing finance or MSME lending business. How we are looking to monetize it because I see this reference that it is not getting valued in the market. But how do you intend to sort of get valuation. Are we looking at raising funds at the subsidiary levels? Or we will continue to sort of increase capital from the holding company level.

So Ronak, I can -- let me answer the second question first. Because for us, I think the holding company right now is looking at infusing capital in these companies only. Because, one, they are well capitalized right now. And we've seen that probably, I think I can say at point blank -- and I think it's not been well monetized, not by us, but by the entire investor community -- who have not been able to really see the value, which we've been able to bring across even during the hard days of pandemic as well as the demonetization, and we actually started [indiscernible] . Our own sense is once they reach a critical mass, which probably they are reaching faster than anything because housing is about INR 320 crores, with the percentages of growth, which we are looking at as well as the MSME company, which is finally going to be merged with the -- with our [indiscernible] company, which is going to be at least in the range of about INR 724 crores and INR 166 crores, you can add those together. So the balance sheet becomes fairly large enough for both these subsidiaries to be really looked at. Our own sense is we are just waiting for a critical time where we will actually be able to realize fully the potential value of these 2 subsidiaries, I think that is when we would really look at monetizing that. But now it is ultimately for everybody else to probably give it up because we've been giving this commentary for a long period of time for people to really understand the value of these 2 subsidiaries. Now moving on to the first question. Fintech, for us is probably a play, which we are more interested in terms of looking at digitizing our operations, both front end as well as back end for the operations as such for the parent company -- a parent company as well as the subsidiaries. And that is what we are more interested. Today, for us, an acquisition of our customer is completely digitized working process for the back end, completely from our cash book and branches to various other forms of DHR, software, the expense management software and various other softwares which are working in the companies, but clearly a digital operation. Our last piece, which is probably going to take us some more time in terms of actually delivering the Fintech value to the outside world from our side is the cashless collection part. So the acquisition is getting completely digitized. And it is about 70%, 80% digitized. The backend operations are 70%, 80% digitized. It's only the cashless collection, which is the third form of our intervention as an organization, which has to probably go through that process of getting completely cashless. The moment that is done. I think we will be the fintech player by ourselves to be looked at a complete digitization process, where the added advantage which your normal fintech player does not have its feet on street. So we have that added advantage also attached with us along with the fintech business. This acquisition or this investment in Rupyo was just to see our product basically, which is advance against salary, we just wanted to invest a minor investment [indiscernible]. And we actually fund them in terms of giving out loans to customers for the salary partners. So that's just a business play, nothing in terms of how we look at it because we look at it our own company to probably see how fintech really works out.

Sure. So have you sort of disclosed any product, any loans through Rupyo.

A couple of loans, a few loans in a year.

So we're trying to scale it from more from a business perspective?

Yes, from the business perspective.

Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to Ms. Aditi Singh, Head Strategy for closing comments.

Yes. Hi, good morning, everyone. And I thank everyone for joining this call this morning, and thank you for your words of encouragement. I hope we've been able to address all your queries. So for any further information, you can get in touch with me. My name is Aditi Singh. I head strategy for Satin Creditcare. Or you can also reach out to Ms. Shweta Bansal [indiscernible] working in my team. Thank you all. Stay healthy, stay safe. Bye.

Thank you. Ladies and gentlemen, on behalf of Satin Creditcare Network Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you. .