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

Ladies and gentlemen, good day, and welcome to Satin Creditcare Network Limited Q2 and H1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. HP Singh, Chairman and Managing Director of Satin Creditcare Network Limited. Thank you, and over to you, sir.

Thank you so much. Good evening, everyone. Thank you all for taking the time to join us and discuss our financial results for Q2 and H1 FY '23. I hope you and your family had a great time during the Diwali festivities. I'm hoping that you could get a chance to go through our quarterly results and investor presentation. Those who have not seen them yet can access the same via our website [ as for the same ]. During the first half of FY '23, we are delighted to share that -- with you all that we have addressed all the asset quality concerns, which emanated due to COVID-19 pandemic and the high inflationary environment. This was possible because of the resilience of the people we serve as well as the dedication and innovation of our team, supported by [ onsite ] and economic activity. The restructured book has reduced from INR 1,151 crore as on September '21 to INR 318 crore as on September '22. In percentage terms, reduced from 21.4% to 6.4% of on-book portfolio as of September '22. The reduction in restructured book is a result of INR 495 crore of collections and INR 338 crore of write-off done from this book. As on September '22, 62% of the book amounting to INR 197 crore out of the INR 318 crore is 0 dpd; 22% is in 1 to 90 bucket, which is INR 70 crore; and the balance, 16%, is PAR 90, that is INR 51 crore. The company has created provisions amounting to INR 76 crore on this portfolio. We do not expect any further stress in this portfolio. The on-book GNPA of the company stood at INR 198 crore, that is 3.96% of on-book portfolio, down from 8.71% as on September '21. Assam constitutes 70% of on-book GNPA. And excluding Assam's GNPA as on September '22, the GNPA stood at 1.2%. The successful completion of disbursement to category 1 and category 2 borrowers under AMFIRS, we believe that the relief to category 3 borrowers will come in as per MOU signed. In fact, the government has released relief under category 2 yesterday. To give you more -- some more sense on the asset quality of new disbursement, PAR 90 addition of portfolio originated from loans disbursed from July '21 onwards is just a mere 0.2%, representing 84% of on-book MFI AUM as on September '22. The company has maintained sufficient on-book provision amounting to INR 148 crore as on September '22, which is 3% of on-book AUM. The company has written off loans amounting to INR 209 crore during Q2 FY '23, totaling to INR 483 crore during H1 FY '23. The write-offs done during Q2 FY '23 were primarily from the provision, hence, no hit to the P&L. Further, during H1 FY '23, we have collected INR 16 crore from written-off loans. On the operations front, we are experiencing an uptick in our disbursement. For the period under review, our disbursement was at INR 1,709 crore on a consolidated basis, up by 30% from INR 1,315 crore in Q2 FY '22. With the disbursement back on track, we expect growth to come in, in the coming quarters. The company has started acquiring new clients. And as a result, 37% stand-alone disbursement in Q2 FY '23 was to the first cycle clients. Gradual pickup in the disbursement led to 3% growth in consolidated AUM, which now stands at INR 7,575 crore. The stand-alone AUM stood at INR 6,417 crore. It grew by 2% on a year-on-year basis. This growth is despite a write-off of INR 483 crore done in H1 FY '23. Pre write-off growth stood at 9% on a year-on-year basis for stand-alone AUM. As of 30th September 2022, the company has a CRAR of 24.1%, up from 22.6% as of 30 June 2022. During the quarter under review, the promoters infused INR 25 crore against conversion of warrants. Till then, the company has received INR 100 crore out of INR 235 crore of preferential allotment via issue of equity shares and fully convertible warrants. The company continues to maintain a healthy balance sheet liquidity of INR 700 crore of surplus funds and has undrawn sanctions worth INR 445 crore. Out of the undrawn sanction, the company received INR 140 crore on 3rd October 2022. We have constantly evolved over the year by putting a significant emphasis on customer-centric technology. The driving force behind this is to bring technological solutions that enable seamless experiences as well as to work at the grassroots level to empower our clients. With this intent, the organization moved towards a more robust, scalable, secure and completely paperless technological journey with the advent of AWS and E-KYC into the system. The microfinance industry stands for financial improvement while also contributing to impact on sustainability, which is the basis of all-around growth and the economic development of any society. Our work is a reflection of our commitment to this first principle thinking. We put all energies towards creating social impact by way of serving the unreached population and contributing to social development goals, or SDG 1, 5, 8 and 10, as the core of our business. Year over the years comes across as one of the largest NBSC MFIs in terms of number of customers and our presence across India. As a progressive institution, we have always employed innovative approaches to secure the interest of all our key stakeholders. It makes us happy to share that our CSR initiative contributed to women empowerment while promoting education and equal opportunities. We also tried to support the community during [ this time ]. We are committed to ESG as our guiding principle. We believe our conviction, passionate workforce, experienced Board and healthy asset quality will help us achieve sustained growth and ensure the overall development of all our stakeholders. Going forward, the solid ground in business, we anticipate strong growth momentum in terms of disbursement collection and steady AUM progress quarter-on-quarter. Now let me run you through the financial and operational highlights of our company. Starting with the consolidated operational highlights. Our AUM 30th September stood at -- '22 stood at INR 7,575 crores. We have a customer base of 26.8 lakhs as of 30th September 2022. Our disbursement for the quarter stood at INR 1,709 crore as compared to INR 1,315 crore around in Q2 FY '22. Our assigned portfolio stood at INR 1,413 crore. As of 30th September 2022, 100% of our disbursement is based from cash flow while cashless collections stood at 5%. We have also adopted website payment options and UPI auto debit. Standalone operational highlights. Our standalone disbursement for the quarter stood at INR 1,564 crore as compared to INR 1,103 crore. With a gradual tick in the disbursement, we expect growth in the coming quarters. Our average ticket price for MFI lending for the quarter stood at INR 43,000. Talking about our collection efficiency, our collection efficiency trends are as follows: Q1 FY '23, 97%; Q2 FY '23, 100%. The collection efficiency of Q1 and Q2 FY '23 is excluding restructured portfolio. The collection efficiency on restructured portfolio H1 to FY '23 stood at 77.6%. We have a well-diversified customer base, a well-penetrated [indiscernible] of customers and 76% rural exposure. On-book GNPA reduced from 8.71% as of Q2 FY '22 to 3.96% as on Q2 FY '23, INR 466 crores to INR 190 crore. Out of this, INR 137 crore pertains to Assam. Our restructured books stands at INR 318 crore, which is approximately 6.4% of the on-book AUM. As of 30th September 2022, our total branch network count stood at 1,237 branches, which is spread across 397 districts. We have a total state and UTs count of 23, which makes us a well-diversified pan-India microfinance player. As of 30th September 2022, 96.5% of our districts have less than 1% of portfolio exposure. We have seen a significant reduction in our portfolio risk in terms of exposure to top portion, which contributes 54% in Q2 FY '23 versus 77.3%, FY '17. Our well-thought out diversification strategy has enabled us to sail through difficult situations and capitalize on our idea of enriching our client lives through financing our various program products. We have disbursed around INR 23 crores during H1 FY '23 under the project finance category, which includes loans for bicycles, solar products, home appliances, consumer durables and water and sanitation. Now an update on subsidiaries. The business correspondent services under Taraashna Financial Services has an AUM of INR 612 crores. As of 30th September 2022, the company operates through 157 branches and has more than 3.3 lakh active loan clients. Satin Finserv, our MSME arm, has an AUM of INR 184 crore, 3 consecutive profitable years, CRAR of 58.8% and gearing of 0.8x. Total net worth stands INR 111 crore. Satin Housing Finance Limited has now reached an AUM of INR 362 crores, including a DA of INR 24 crores, having a presence across 4 states with 4,291 customers. Satin Housing has a 100% retail book comprising 64% affordable housing loans at 36% of LAP. The company has 17 active lenders, including NHB refinance, CRAR of 59.5% and gearing of 2x. Total net worth stands at INR 122 crores. The quality of portfolio remains intact with GNPA of 0.4% as on September '22. Just to update you on the amalgamation of the 2 wholly owned subsidies, Taraashna Financial Services Limited and Satin Finserv Limited. The order against the first motion application was announced on hearing date in May 17, 2022 by the honorable NCLT. Further, both the companies have filed joint second motion application honorable NCLT on May 25, 2022. The said joint second motion application was admitted by honorable NCLT in its hearing dated July 8, 2022 and issued necessary direction of serving notices and newspaper advertisement. The company has served the notices to government authority and completed publication requisite needs as per order. The next hearing is on November 25, 2022. Lastly, with the worst behind us, we are poised to embark on the path of growth and profitability. With this, I would like to open the floor for questions. Thank you so much.

[Operator Instructions] The first question is from the line of Himanshu Taluja from Aditya Birla Sun Life Asset Management.

Just a couple of questions at my end, and congrats for the quarter. Firstly, out of the total restructured pool of INR 318 crores, which you have, where you have mentioned in the presentation that around INR 197 crore is out of the dpd, within the 0 dpd category, what is your expectations of the remaining pool of around INR 120 crore? How much you expect this to slip out, converting to an end?

Yes, Himanshu, see, this is seen technically about -- if you look at it, about 6 months of repayments, which is about [ fairly standard ], which has come in. That is the reason why the 0 dpd technically will not slip. That is what our understanding is, that INR 197 crores will remain over there. PAR 1 to 90 is close to about INR 69 crores. Own sense is, as per the ECL formula, which we do technically about 30% to 40% risk less from there, basically, so if you even look at that happening across over there, which we feel is also probably a high number, we have about, let's say, about 30-odd percent, which is about INR 18 crore to INR 20 crore, which we move from there. On the PAR 90 plus, we again have where about 45% to 50% is recovered in terms of our collection efficiency. That's what the numbers have indicated for the last 4 to 5 years. So our sense is that we still have just maybe about INR 20 crores to INR 25-odd crores, which will probably be there in the PAR 90 book across over there. And we have provisioned worth INR 72 crores for both these categories. So our sense is, we are, in fact, over provided in terms of the restructured book, which stands right now.

Okay. Sure. Now sir, given that most of the restructured book are now, I think, come to an end and most of the asset quality [ things ] over with our collection efficiencies also now back to the pre-pandemic, so what sort of credit cost that you expect basically now incrementally on a steady-state basis for the business now? And how do you expect this FY, the remaining second half, to pan out?

See, whatever pain we had, we've taken it to a large extent. So what we don't expect any further cost -- credit cost to probably come in, in this year and such. Our own sense is if you look at the dynamics of the new portfolio which we are making from July '21 till date, our PAR 90 is just 0.2%. So even if I extrapolate that into maybe double, triple or whatever you call it, the credit cost in the further years, my sense is, is close to about 1%, 1.25%. That is where it is. And that's what my guess is looking at the portfolio quality, which is happening now, post the pandemic, the way we have disbursed. . So our sense is just to be on a very conservative side, it has to be around 1.25% to about 1.50%, which, again, if you really ask me personally on a one-to-one basis, I will not adhere to that because our old thought process is to bring these NPL numbers down to the levels where -- which is there. And in fact, if you look at the numbers which are there at 2%, probably state stack, which is there of the new portfolio, which is being now made.

Okay. And what's your loan growth? How you are seeing the loan growth now? Given the second half to be better for the MFI business, what are the loan growth that you expect to end the year with?

See, normally, what happens is most of the disbursement technically happens during the H2 of every year. So our sense is -- and whatever write-offs we had to do so -- now what we've written is that we had a pre write-off growth of about 9%. Our sense is if now the write-offs have taken place to a large extent, we don't have any further write-offs which we feel would probably come in. I think we still stand by about 10% to 15% growth, which is going to be there for sure. The rest of the year remaining the same.

[Operator Instructions] The next question is from the line of [ Ritesh Ratrana ], an individual investor.

Yes. Actually, I have a question with regard to optimization of the equity in the company. So for example, if I see the equity statement for the [ standard ] financial segment, it's higher as compared to control financial segment. So what I understand is because the company has done the fair valuation of the subsidies as a result of profit is coming from a forward perspective also, while the concern is in the historical perspective. And then when I see further the additional investment done in the housing finance company, it has a premium of 198%. So like what are the steps you eventually want to take across? So basically, because the market is discounting the share whereas compared to the book value. While when you see that additional investments being done, for example, housing finance company, it's at premium to the PAR value. So what are the steps being taken by the management to take care of this?

So I think, [ Ritesh ], our sense is, I think if you look at the history of or 4 years of the housing book, technically, whatever premium which has been fair valued by SEBI, one category registered value, probably looks at what an investment would do in terms of even if you go to the other method of not having an opportunity cost to it or the opportunity income to it, that is only the fair value, which is practically being taken across over there. And for a young organization which has got so much of capital and a 0.4% GNPA, I don't think so. The fair valuation probably has somewhere, which can be discounted by the investors in terms of the share price. In fact, my view is completely the opposite. I think for people to really understand the value of what the subsidiaries are creating, I think just looking at the share price or maybe by looking at other factors probably does not give you the right sense. But our sense is the way we've invested into these 2 subsidiary of ours and the way they are shaping up in terms of both portfolio quality as well as disbursement as well as the category which they serve in, my sense is, I think that monetization will happen at some point of time. And it's only for, I think, the real values to really understand the value of both these subsidiaries but across [ together ]. That's my limited answer to this.

Yes. So Mr. Chairperson, going forward on this. So for example, what are the steps do you think can be taken from the directors and management perspective to basically upscale the interpretation of the stakeholders and the valuation of the company? For example, do you contemplate to come across with a bonus issue or something different in that respect? So -- because if I see the [indiscernible] is very less as compared to total equity side of the company, given the standalone financial segments. So are there pipelines, any thoughts on that on bonus? Secondly, are there thoughts with regard to the dividend distribution policy because there's no dividend distributed for the company for quite a long time? So what are your thoughts on those areas?

[ Ritesh ], my sense is, I think you have to do your homework a little bit more in terms of understanding how an MFI operates and how the subsidy related to the MFI operates. Technically, I haven't seen any MFI technically giving out a dividend or somebody giving out a bonus. So I think these are theoretical questions which we are talking about. Our own sense is, our own sense is, what you have to understand, and I think for the overall thought process, which is there, I think it's the business which we focus upon. The way we are focusing on the business, post the pandemic, I think that's one statement which is given out across [ wherever each state ], that our July '21 disbursement has a portfolio quality of 0.2% of GNPA. I think that's a very big statement which we made. In terms of our GNPA, which is there, post the pandemic, you've taken care of all the write-offs which has happened, all the payment which has happened. And today, if I exclude Assam -- Assam is a separate category of thing which is happening across within [indiscernible], with the Assam government, we have no qualms that we will not get the money back from the Assam government, which will come in the category 1 and 2 has already come in. My sense is if you look at the GNPA post the pandemic, after all write-offs and everything which has happened, it's just 1.2%. I think it's probably one of the best in the entire industry. That is what we want to focus upon. I think for us, I think bonus shares dividend, I think ASP results speak for themselves and the quarter speak for themselves and the business volumes speak for themselves. I think that's the sufficient ground for us to look at, how this probably has to be looked at.

I have one follow-up question on this. So with regard to the additional wallets being introduced by RBI, so is the company trying to do something on that front also?

See, technically, we are technologically very sound in terms of creating our own wallet, our own websites as well as our own mechanism of actually doing transactions through cashless collection mode as well as the cashless disbursement, which we are doing. I haven't had too much of a look into what the RBI wallet is all about. But if it is significant for us to probably encompass into our own technology level, I think we have all the expertise in our technology levels to probably look at it. But I -- clearly, to be very honest, I don't have an idea too much about what the RBI wallet is all about because we have our own customer service apps. We have our own app. We have UPI 2 0. We have various other mechanisms in which we can actually make a digital payment for our borrowers for collection, et cetera.

We'll take the next question from the line of [ Ronak Sindi ], a retail investor.

Sir, a few questions. Specifically on Assam portfolio, just wanted to get some sense of the GNPA of INR 137 crores.

[Operator Instructions]

Am I audible now? Clearly?

Yes, clearer.

Sir, my first question is basically on the Assam portfolio on this INR 137 crores of GNPA. You mentioned that -- and also in the presentation, the category 1 and category 2 relief has been given by the government. So this INR 137 crores, out of which, how much we are expecting in category 2, as you mentioned, has been released yesterday? And is the balance we'll recover everything in category 3? Or do we have eventually any write-offs in this INR 137 crores?

I think some numbers, I think, Jugal will probably be able to give you. But just to give you an insight. So category 2 is the overdue amounts based on a certain cutoff date in which the government paid. It's not much in terms of, I think, I can't -- don't have the exact figure, but it's a very less amount technically, which has been released by the government. The underlying position is that since there are 3 categories, the more I think volume is and being a category 3 borrower, in which all the overdue, I think, amounts will be repaid by the state government to us, basically. So that is the main one. But the fact of the matter is that once the category 1 and 2 have been released in probably a good time, I think category 3 is also there. I think we're getting feelers of giving our data to the state government now. So I think that work is also starting now, which indicates that we'll probably be there. In terms of numbers, I think it would [indiscernible] in time.

So just to give you for what our sense is. For the MOU signed, the cutoff date was March '21, which after due discussion and the time elapsed, that changed now to July '22. So a lot of borrowers have moved from category 1 and category 2 to category 3. So most of the relief now is expected in the category 3. And then based on our best estimate, we have already provided for a large part of INR 137 crores. So we do not anticipate any further [ states ] coming and coming from Assam. So we have provided for almost INR 70-odd crore on the Assam portfolio. And our best estimate is that the relief in category 3 will be much more than the unprovided portion of this INR 137 crore.

Sure. So out of this INR 137 crores, how much is -- from the policy perspective, how much is recoverable, if everything goes well, that will give us a sense of the -- of whether there is an over-provisioning or there is a cushion in there?

So I can probably say that. So our sense is that out of that INR 137 crores, we are expecting close to about a 75% to 80%. 80% is what our belief is that we will get back from the state government. And that's the reason why we are, on a conservative basis, we've taken a 50% provision on to that. So we are hoping at least or whatever we get from the Assam government, it would be close to about 75% to 80%. So that's the reason why we provided about 50% of that. So in any case, we are overly provided also in terms of what we depart from the each other.

That helps. And we are expecting this in a best case scenario by end of the financial year.

Yes. I could tell you also yes.

Yes. Yes. Okay. So one question on -- so you -- the promoters have converted the warrants and paid up their share. So there was also the venture capital investor in Florintree, which had also subscribed to the warrants. So when is the management planning to call that money because the debt equity ratio is relatively higher compared to the peers in the industry? So that capital will just help you propel the next level of growth. So if you can indicate any time line, it will be helpful.

As you know, both promoters and the investor has time till July of next year. So it's not our call. It's basically the call of either the promoter who are the subscriber to warrants or the investor. It is their choice when they want to get it converted. And the locking will start from the time we allow them and those shares are -- we get the permission to trade them. The investor call when they want to put in the balance money, but essentially, they have time until next July.

And the other thing, I think what is there, we technically have a capital adequacy of about 24%. I think we are in no hurry probably to look at. Once the growth starts hitting it, and I think it can be done, then both of us are probably ready enough to bring in the required desired capital for growth.

Okay. Okay. So one more question on this, the write-offs there. As you have mentioned, that there have been recoveries of INR 16 crores in this quarter. So what is the -- what are we expecting from a future write-off recoveries' perspective? Do we expect a similar run rate because we have written a huge amount over the last few quarters? So are we expecting a similar run rate? Or do we expect better recoveries? Or do we expect the recovery to be much leaner from the write-off book?

So don't ask me for -- this is -- if it's a one-to-one question, I can probably give you a much optimistic figure. But since I think I've got a bit of a thought process to it. Let's keep it conservative that dpd will practically be the same amount which probably will come in. But our endeavor is always to bring in much more what we can do and God willing, I think we probably will be successful in doing that.

We'll take our next question from the line of Rishikesh Oza from RoboCapital.

Am I audible?

Yes, yes. Loud and clear.

Okay. Great. Sir, my first question is, why was our loan book flat quarter-on-quarter? And when can we start seeing the growth here? Maybe from Q2, would it be fair to assume?

Yes. [Foreign Language]. But I think for us, I think that the pain is over. I think we were more focused towards that rather than looking at disbursing during the -- and probably the first 2 quarters are always kind of easy on the -- in terms of our disbursement. But yes, I think the last 2 quarters will be pretty good. So we're looking at growth from there on. And we don't have any further steps which is left in the -- in our books. So I think we'll probably now focus on disbursement going forward.

Okay. Okay. Also, sir, the interest expense has actually dipped this quarter, while your interest incomes are increased. So could you please throw some light here?

So one that we have done some direct [ attainment ] transaction where the net income goes to the top line. But just to give you an overall perspective, because of the risk-based pricing, et cetera, [ branded yield ] is expected to slowly go up. We have already started seeing some upside in our interest revenue. We feel that on a slightly stable basis, this will go up by at least 1.5% or so over a period of time. On the cost of funding side, from us, the fourth quarter to this first half, the cost of fund has gone up by 60, 70 bps. So effect will be benefited with the free pricing and [ may even ] improve over a period of time.

Okay. Okay. And I think management gave a guidance of around 1.25% to 1.5% credit cost. So is it for H2 on an annualized basis?

See, guidance, I just said it that look at the numbers, and that is what I said. Extrapolated, that is what it is, but after the write-off. But our sense is that I think it was just repeating it again. We look forward. I don't know we'll be able to manage our current book, which is now 84% of our portfolio. I think we're working towards asset quality to a large extent. I think we will maintain that. And hopefully, the credit cost will be within the range, what we mentioned.

Okay. Okay. And sir, could you please indicate what levels of cost-to-income ratio are you looking ahead?

See, I think until the time we are looking at maybe extra manpower to look at write-backs and other various things from where we can get bottom line significance in terms of numbers, through these write-backs, I think it'll be slightly elevated, but we've brought it down. I think our own sense is that once the AUM denominator starts increasing, I think our OpEx in terms of percentages will also start decreasing from there. Cost to income will also probably have the same because of the increase now our pricing, which is there, I think, will probably have some favorable impact on that also. My sense is whatever the cost-to-income ratios are now, that will start dipping down from the quarters now ahead.

Thank you. Ladies and gentlemen, that was the last question. I now hand the floor back to Ms. Aditi Singh, Head of Strategy, for closing comments. Over to you.

Hi, good evening, everyone, and thank you for coming on this call, taking out time on a Friday evening. I thank each one of you, and I hope we have addressed all your queries through our presentation through the speech and the question-and-answer that followed. In case there is some other information or clarification you wish to seek, you may reach out to me. My name is Aditi Singh. I head strategy for Satin. You can also reach out to my colleague, Ms. Shweta Bansal, DGM, Investor Relations. Our details are there on the website. So that said for today, stay healthy, stay safe, and bye-bye.

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