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

Ladies and gentlemen, good day, and welcome to Satin Creditcare Network Limited Q2 H1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Aditi Singh, Head Strategy of Satin Creditcare Network Limited. Thank you and over to you, ma'am.

Thank you, Malcolm. Hello, everyone. Good evening, and thank you so much for taking out time to come and listen to our results highlights for this quarter and half year. One thing I would just like to request is, since we are in the middle of the fund raise activity, it will be not possible for us to give any futuristic guidance or commentary, so I'll request whoever wants to ask a question, please refrain from asking any futuristic comment, guidance or questions. And otherwise, we are happy to clarify on any number or any clarification that you may have. With this, I request Mr. HP Singh, our Chairman and Managing Director, to give the opening remarks for this earnings call. Over to you, sir.

Thank you, Aditi. Good evening, everyone. Thank you for coming on a Friday evening to attend our earnings call for Q2 and H1 FY '24. I trust you've had a chance to review our quarterly results and investor presentation. If you haven't had the opportunity yet, you can access them on our website or through the stock exchanges. I'll start the discussion on our Q2 FY '24 performance with a word of appreciation for our Board of Directors, customers, employees and all stakeholders for their unwavering support, perseverance and confidence in our brand as we complete 33 years of existence. This is the 34th year of our remarkable journey, which thus far has been nothing but a resounding testament to our unwavering commitment to transforming lives and promoting financial inclusion nationwide. The first half of FY '24 reflects our consistent and robust growth momentum and sustained profitability as is evident in our performance across all operational and financial metrics, sustained business momentum and constant improvement in our asset quality. Consequently, we have concluded yet another quarter marked by the highest ever profitability in the past 5 years. We had a healthy disbursement for the quarter of INR 2,403 crores on a consolidated basis, up by 41% year-on-year. We are laying emphasis on acquiring new clients and first cycle clients account for 49% of AUM as on Q2 FY '24. Significant pickup in disbursement led to a 33% year-on-year growth of AUM, which now stands at INR 10,100 crores on a consolidated basis. Coming to standalone numbers, we have been able to make strong net customer additions of 4.1 lakh in H1 FY '24. It stood at 29.7 lakhs in Q2 FY '24 as compared to 25.6 lakhs in Q4 FY '23. It makes me really happy to share that we continue to be one of the most preferred financial partner to a large number of low-income households across rural India. And at the time of disbursement, approximately 31% of clients have Satin as the only lender. We opened 17 branches in the quarter, taking the number of branches to 1,115 as on 30th September 2023. The on-book GNPA of the company stood at INR 157 crores, which is 2.38% of the on-book portfolio, down from 3.96% as of September '22. The company has sufficient on-book provision amounting to INR 124 crores as on Q2 FY '24, which is 1.89% of its on-book AUM. During H1 FY '24, collection against write-offs was around INR 28 crores, this is a result of our field team's persistent effort to collect back our bad loans. Gross cumulative collection efficiency for H1 FY '24 stood at 99%. During the reporting quarter, we maintained the trend of our healthy collection and excellent asset quality. The performance of the new portfolio originated from July 21 onwards is performing impressively, which constitutes about 96% of the on-book MFI portfolio with PAR 1 at 1.5% and PAR 90 at 0.7% as on September 30, 2023. As for the report by CRIF High Mark for the NBFC-MFI, PAR 1 stood at 5.8% as compared to 4.4% in Q1 FY '24. The same trend is seen in PAR 90 with NBFC-MFI's PAR 90 stood at 3.6% as compared to 2.6% in Q1 FY '24. This demonstrates the effectiveness of our underwriting processes. I'm happy to state that the company has raised around INR 33,000 crores in the last 6.6 years with an absolutely clean repayment track record with no delay or default since inception, indicating our financial stability and the confidence of the market in us. Coming to the numbers of H1 for this year, we raised INR 4,848 crores, which is up by 93% year-on-year. Of the total funds raised during the period around 76% was on-book borrowings. Further, the company has a healthy CRAR of 25.7% and sufficient liquidity of around INR 1,400 crores as on September 30, 2023. Our consolidated book value stands at INR 191 per share. Our PAT grew 89% year-on-year to INR 103 crores during Q2 FY '24, marking the highest ever profitability in the second quarter. This has resulted in an ROA of 4.7% and ROE of 19.7%. Overall, looking at our H1 FY '24 financial performance, we are in line with our annual performance guidance for financial year 2024. Along with the strong performance of the company, I would like to share a key development that took place this quarter. Under the Category III of Assam Microfinance Incentive and Relief Scheme 2021, AMFIRS scheme, the company received the first tranche of INR 10.70 crores from the Assam government, reflecting the government support and their promise of ensuring creditworthiness among lakhs of people. We would also like to inform that our inherent adherence to ESG, Environmental, Social and Governance principles and our strong compliance standards have helped us to secure AA rating, the highest grade rating from ESG Risk Assessments and Insights Limited, a subsidiary of Acuité Ratings. We are the top company in the industry, securing the highest rating. This highlights our dedication to sustainable and responsible business practices which is increasingly important in today's business landscape. Over the years, our IT team has been giving us relentless support, enabling us to establish sustainable and innovative solutions that champion eco-friendly practices. Our digital solutions streamline processes from customer onboarding to loan completion, eliminating the necessity for physical paperwork, and I take pride in sharing that the company has gone paperless in its operation across the nation. Moving further, our company has garnered several prestigious awards and accolades that acknowledge our commitment to excellence across diverse domains. Notably, we received the Corporate Excellence Award at Making India Employable Awards and Conference, recognizing our significant contribution in employment generation in India, notably for the unskilled or lesser skilled labors. In addition, the company also got recognition by the Indian CSR Awards under the category, Most Impactful Scholarship Program Initiative of the Year 2023, underscoring a positive impact on multiple student lives. 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. Giving you the financial operational highlights of our company. Starting with the consolidated highlights. Our AUM as on September 30, 2023 stood at INR 10,100 crores. We have a customer base of 32.1 lakhs as on September 30, 2023, with presence across 1,335 branches in 96,000 villages and 412 districts of India. Our top 4 states contribute to 54% of total AUM in Q2 FY '24 and the states are UP, Bihar, West Bengal and Punjab. Our disbursement for Q2 FY '24 stood at INR 2,403 as compared to INR 1,709 in Q2 FY '23. The total revenue for the quarter stood at INR 530 crores, up by 49% year-on-year. PAT for the quarter stood at INR 107 crores, ROA of 4.8% and ROE of 23.6%. Coming to stand-alone highlights. Our AUM on September 30, 2023 stood at INR 8,894 crores. Our standalone disbursement for the quarter stood at INR 2,202 crores as compared to INR 1,564 crores in Q2 FY '23. Our average ticket size of MFI lending for H1 FY '24 stood at INR 45,000. We have a well-diversified customer base of approximately 29.7 lakh clients with 76% rural exposure. On-book GNPA reduced to 2.38% as on September '23 from 3.96% as on September '22, in absolute terms reduced from INR 198 crores to INR 157 crores. As on 30th September 2023, 96.4% of our districts have less than 1% of our portfolio exposure. Our well-thought-out diversification strategy has enabled us to sail through difficult situation and capitalize on our idea of enriching our clients' lives through financing our various products. We have disbursed around INR 80 crores during H1 FY '24 under the product finance category, which includes loans for bicycles, solar products, home appliances, consumer durables and water and sanitation. An update on subsidiaries. Satin Housing Finance Limited has now reached an AUM of INR 567 crores, which grew by 57% year-on-year and having a presence across 4 states with 6,028 customers. SHFL has 100% retail book. The quality of portfolio remains intact with GNPA of 0.79% as of September '23. The company has 22 active lenders, including NHB Refinance. CRAR of 51.5% and gearing of 2.2x. PAT for Q2 FY '24 stood at INR 1.9 crores. Satin Finserv Limited, the company's MSME and BC lending arm has reached an AUM of INR 638 crores, CRAR of 51.6% and gearing of 0.9x. PAT for Q2 FY '24 stood at INR 1.4 crores. In conclusion, as we journey along the path of expansion, we stand ready to embrace increased profitability while maintaining cost efficiency. With this, I would like to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Sameer Bhise.

Congrats team on a strong set of numbers. As I can see, sir, our OpEx is probably at a multiyear low as a percentage of AUM. Can you just elaborate what is driving these efficiencies and productivity in the business?

So I think what we are trying to actually re-engineer post our COVID debacle, whatever happened is that we got ample time to look at optimum efficiency in terms of our loan officers. We re-engineered our processes through metrics of various scorecards, various processes in terms of acquisition of our customers, collection of our customer as well as disbursement to a customer. I think that probably is also bringing in the required efficiency in terms of the growth as well as disbursements. Also, we are looking at various other metrics in terms of center efficiencies, in terms of increasing our additional clients, which are getting attached to the centers to improve the number of borrowers per center. I think that is one of the key calls which we are trying to take in and various other underwriting capabilities, which are probably now emerging out once all this re-engineering has started to happen. Just to add, I think we are also focusing a lot on our in-house built software, so the technology capabilities probably also give us a lot of impetus in actually looking at data analytics to take calls much more faster than we are able to do in terms of having not this kind of a capability process. So all these probably lead practically to whatever operational efficiencies are probably kicking in for the institution.

So when I look at GLP per branch, where do you think probably the metric stabilizes from an 18 to 24 months perspective? We are at roughly INR 7.7 crores of AUM or GLP per branch.

Sameer, it's again, I think, futuristic. We probably will not be able to give you a perspective or guidance on that. But I think what we are trying to look at is, I think to improve our efficiency, that is what generally from here on in terms of even the branch metrics also. So it is the complete parameter, the center efficiencies, the loan officer efficiency, the branch efficiencies. So all this is combined into one in terms of driving that optimum efficiency.

Okay. And what is the quantum of amount remaining from the Assam Relief Scheme?

I think our guess is that we've got still about INR 100-odd crores, which probably will be coming in the future tranches. This is the first tranche which has come in. The balance 3 tranches have to still come in. There are a total of 4 tranches, which is in there. And this was probably the lowest one because this was overdue, sorry, in terms of the ticket, I think it was about INR 25,000, which was the first go. I think there's going to be an increase from now for the further tranches which will come in.

The next question is from the line of Nidhesh from Investec.

So first question is on the customer acquisition. The incremental customers that we are acquiring, what percentage of those -- what percentage of those customers are new to credit, new to microfinance sector?

New to credit, I think technically would be about 20-odd percent, which is going to be there, which we technically call a no-hit customer. That will be close to about 20-odd percent. And I think that is probably the ballpark figure which is there. We don't have the exact number, but this is closer to what we think is the ballpark acquisition of a no-hit customer.

Sure, sure. And secondly, the entire sector is seeing pretty strong growth. Most of the companies are seeing asset quality to -- quite stable asset quality. But are there any steps that we are taking to prepare for further shock events in microfinance which may happen in future? So in terms of provision buildup or in terms of some processes or cutting down on some geographies. Are we taking some steps to prepare ourselves for further shock events whenever it happens in the sector?

Well, I think it's a combination of both geography as well as the metrics of financial portfolio, the ECL mechanism, which we are trying to create a buffer as we had said earlier that we will create a buffer, we started to create a buffer. I think that buffer has been created in this quarter in itself. Besides looking at the way we are looking at the acquisition of our customers. So it's not I think the mantra is not just to disburse, but the mantra is to collect. I think that is probably our prime focus and not leaving the growth to chance. So I think whatever steps we've taken in terms of our underwriting capabilities, whatever steps we've taken in terms of the geography where we are present, whatever steps we are taking in terms of our deep diving into the existing geographies, all that put together, including creating the buffer into our financial accounting system basically to do that. I think that probably is going forward in that direction where we are building a buffer for ourselves in terms of both the portfolio quality as well as the accounting treatment as such.

Sure, sure. And last question is that we have incubated 2 subsidiaries, one is SME loans for our graduating customer and housing loans -- affordable housing loans. So are there any plans to launch -- add any more lending products in future?

No, I think our hands are full. We want to now focus on these 2 subsidiaries of us and build up those subsidiaries, as we said, this is where we are looking at and this is our focus. So the holding company and 2 subsidiaries basically this is what our focus is. No further this thing for us to look at into any other products.

The next question is from the line of [ Suryansh from Bizx Enterprise LLP ].

Congratulations on stellar results, sir. It might be naive to ask these question, as I'm new to this company. Having said that, after going through presentation, it seems you have implemented best-in-class compliance system and processes in place. So like my question is like as it said that you are disbursing loans 100% digitally. So like do we turn off the customers who don't have bank account or like we try to help them opening those bank accounts?

We try and help them by opening the bank accounts, but no disbursement is made in cash. It is 100% into the bank account. So wherever if a customer doesn't have a bank account, we facilitate them to open up a bank account.

Okay. So -- and one question is that like seeing the trend, like the whole microfinance industry is in upcycle, but like do we see our cost of borrowing going down? I'm not asking for guidance, but like in trend, can that happen?

It's again futuristic.

We can't answer that.

We can't answer that. Yes.

And one last question is that, sir, like we are seeing that the PM scheme like SVANidhi schemes like the public sector banks are financing through those channels. Are we also doing that? Or are we using like those data to finance the customer?

No. Our microfinance customers is a huge base for ourselves. I think for us to look at any other possible segment, I think, doesn't hold good. So for us, it's a huge base, which we cater to. So I think they probably do not have to look at the other segments.

The next question is from the line of Prabhu Sharma from Lakhoda Investors.

Hello?

Yes, Yes, we can hear you.

[Foreign Language] sir, last 4 quarters [Foreign Language] INR 350 crores PAT generate [Foreign Language] okay? Since 2008 [Foreign Language] equity capital raised [Foreign Language] INR 1,287 crores, okay? And the net worth as on date around INR 1,900 crores, okay. So sir, [Foreign Language] INR 263 crores net worth add [Foreign Language] by profit [Foreign Language].

[Foreign Language]

Second question, sir, MSME [Foreign Language] last investor meet guidance [Foreign Language] 50% growth [Foreign Language] quarter [Foreign Language] degrowth [Foreign Language] growth guidance [Foreign Language].

So Prabhu Ji, [Foreign Language] presentation [Foreign Language] So SME portfolio [Foreign Language] and the reason is that now when the company has become an NBFC, it cannot have too much of noninterest fees, noninterest revenue. So BC revenue is noninterest revenue. So for the principal business criteria, meaning you have to have 50% or more as interest income. That's why we are running down the BC book, but retail MSME is growing.

[Foreign Language] madam, quarter-on-quarter?

So quarter-on-quarter, we have grown by around 25%, 30% because we are stabilizing the infrastructure first.

The next question is from the line of Bhuvnesh Garg from Investec Capital.

Congratulations for good set of numbers. And just one question from my side. So I was looking at the presentation. So though our GNPA has increased -- I mean, improved Q-o-Q, but our PAR 1 that seems to have increased from -- by 20 bps from 3% to 3.2%. So if you can throw some color on this that what led to this increase? And in which states you are seeing this trend? So some color on PAR 0 trend, yes.

Bhuvnesh, there is just a marginal increase. And if you look at industry, industry has -- PAR 1 has grown by 100 bps. So looking at that, it is a natural phenomenon of marginal, and it is not state specific as such, it is just the more the portfolio is getting seasoned. Any which way we have in past also, if you look at the commentary on microfinance, you can see that everyone is commenting about 1.5% to 2% kind of an overall credit cost. And while we are not in a position to comment, but we will try to overachieve on this, do better than that. So 20 bps is a normal...

The baseline technically is that the industry is talking of about 1.5% to 2% credit cost. So I think the natural phenomena, as you grow alongside basically, I think this is what the credit cost is going to materialize. The idea is to overachieve what the industry is performing at.

The next question is from the line of Punit Daga from VT Capital.

Hello. Am I audible?

Yes, yes, you are.

Sir, so I have a few questions. I wanted to understand like I can see like cost of funds rising by around 1.13% on a sequential expansion basis. So could you just throw some light on why it rose by such high quantum?

So please do not see the finance cost on a standalone basis. Probably, NIM is a better reflection of margins. Because cost of fund does not take care of the cost on the direct assignment transaction. But if you see our NIMs, which are consistently being constant and improving quarter-on-quarter. So for the half year, the NIMs are broadly at 12.81% is the right reflection of margin rather than seeing only the cost of fund.

And sir, my next question is on this component of other income, net income, derecognition of financial instruments. I have seen this component on a sequential basis rising by around INR 22 crores. So over the past few quarters also, I have seen this being very volatile. So could you just explain what the component is and why is it being so volatile?

So as per Ind AS, when we do the direct assignment transaction, which means we sell some part of our portfolio to an investor and we transfer the entire risk and reward to the investor, so as per the standard, we have to book the income at that point in time. So depending upon the quantum of direct assignment done during a particular period, there's a little bit of up and down. But if you see the number on a half year basis or 9-month basis, that will give you an average kind of income. But quarter-on-quarter or period-on-period movement is not depending upon the number of or the volume of direct assignment transaction that we do.

Okay. So next further on, also are we expecting it to be volatile like in a similar manner or like the way it is or it would keep stabilizing around current levels?

So again, we may not want to give a futuristic guidance, but our direct assignment portfolio is broadly 25% of the total AUM for the last few quarters. So this is where we are.

Okay. And sir, my last question is on the Assam write-off, we have written off around INR 1,000 crore and previously I read that there was a guidance that on a yearly basis we would be recovering around INR 50 crores on a yearly basis. And now like during the call, you were mentioning that we are expecting around INR 100 more crores from the Assam government. So sir, I was not able to understand this, but could you just throw some light on the same?

So for this quarter, we have received net INR 10.7 crores from Assam government. And this was a clear cut to whosoever was there less than overall INR 25,000 indebtedness, government has paid the entire amount. Going forward, depending upon how the government will decide, et cetera, it is slightly challenging to very accurately estimate the payout from government. But this is the kind of money that we have to get for that period. So depending upon how the government will decide the amount will come.

And Punit, I think you are confusing 2 things. INR 1,000 crore write-off was not on account of Assam, neither was the INR 50 crores recovery against write-off. That was the overall write-off of the organization. Assam was a part of it, but not this huge. The INR 100 crores that we say is Assam specific number.

Okay. So just like what was that INR 1,000 crores write-off including what all things, I just didn't get you, can you just repeat it once again?

So that's the complete write-off of the organization for the COVID period.

COVID, COVID. That was the COVID hit. COVID hit for Satin was almost INR 1,000 crores. Assam, we are expecting around INR 100 crores, which is the Assam specific hit.

Okay. So we have basically written-off Assam book for worth INR 100 crores, that's what you are trying to say, right?

You are confusing yourself. It is not that. We have to recover from the government technically about INR 100-odd crores. That is what we are saying.

The next question is from the line of [ CA Kanwaljit Singh from Balaji Finvestment ].

Congratulations for the good set of numbers. As we have updated on BSE that you increased your authorized capital and preference share capital also. So what is the thought process on this? Is there any QIP insight or any rights issue?

So we have not done any change in the preference share capital, that was already part of our existing authorized capital. We have increased our equity capital by adding INR 2 crore more shares, so that is a change in the authorized share capital. Our Board has approved and we have already informed the exchange that Board has given us authority to raise up to INR 300 crores through various channels, and we are evaluating our options and then we'll keep through the stock exchange informed everybody about our progress there. So this was an enabling resolution in our 19th October Board meeting, and Board has given us power to raise up to INR 300 crores of equity or equity-related instruments. So whichever channel we want to, so we are evaluating our options.

Okay. So the capital adequacy is already at 25.7%. So is there any need at this juncture to increase any capital? You can increase that capital when you get a good price on that. And having that kind of a capital adequacy should not go for a new capital at this stage?

Well, let me -- that's a business call which we take technically. I think that is what we feel that right now, we feel it's probably the right time to raise growth capital process. And I think that's the call which the business demands it and that's the call which we're taking.

So you are going for a QIP.

As Jugal mentioned, we are not -- we are still evaluating our thought process.

Okay. Okay. So even that will be a good thumbs up from the market.

I can't comment on that.

The next question is from the line of Pranav Gupta, who's a retail investor.

So I say congratulations on a great quarter, first of all. And I was wondering, you guys mentioned that we're doing a fundraise. So how do we -- what is going to be the use of these funds? Is it for growth? Is it for working capital? And how do we see this impacting the top line?

So this is a growth capital we are sort of say, want to evaluate and raise at an appropriate time. As we have seen our performance for the last 5, 6 quarters, the business was coming back on track. So we feel that we should evaluate the capital at this point in time. Of course, better capital will have a better impact on the overall performance of the company on rating, cost of fund, et cetera. So those things will happen in due course of time.

The next question is from Rishikesh Oza from RoboCapital.

Sir, my first question is, we have seen a spike in revenues for this quarter. Is there some one-off in this? Or is it sustainable?

So there's no exception item. We keep doing the direct assignment, which is a regular part of our fundraising strategy. But there is no exceptional item.

Okay. So we can see a quarter-on-quarter growth on this base?

So again, talking about futuristic is slightly challenging at this point in time. But you can see the past trend and then we can clarify that in case there is any question around that.

Okay. Also, my next question is on credit cost. Currently, as said 1.5% to 2% credit cost at industry level, just wanted to get a sense of what sort of sustainable credit cost do you see for next 1 to 2 years?

Again futuristic, Rishikesh.

There is a slide where we have talked about the guidance that we gave in September during our Analyst Day for the FY '24 estimated, you may refer to those. But again, we will not be able to comment on another 2 years or so.

For the sake of repetition, just wanted to emphasize that the resolution does not permit us to speak about futuristic at this point in time and that is why we are not clarifying some of these issues. But in the past, we have done that, it's a regulatory challenge to replicate that.

As there are no further questions, I would now like to hand the conference over to Ms. Aditi Singh, Head Strategy, for closing comments. Please go ahead.

Yes. So thank you, everyone, you took out time and came to our call, listened to us. Thank you so much. I wish you all have a great weekend. We have tried to answer whatever we could limited by the regulations that we cannot comment on futuristic any views. But still, if you want to discuss anything, you can reach out to me or to my colleague, Ms. Shweta Bansal from the Investor Relations team. I wish you great festivity, Diwali is around the corner. So I will say enjoy and may you and your family have a great festive season. Thank you.

Thank you.

Thank you very much. On behalf of Satin Creditcare Network Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.