Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- L&T Finance Ltd (BOM:533519, Financial) achieved its highest-ever quarterly consolidated PAT of INR686 crores, marking a 29% year-on-year growth.
- The company reported a 33% year-on-year growth in retail disbursements, reaching INR14,839 crores.
- Retail book grew by 31% year-on-year, standing at INR84,444 crores.
- Consolidated return on assets (ROA) improved to 2.68%, up 55 basis points year-on-year.
- The company has successfully implemented its five-pillar execution strategy, contributing to its robust performance and growth.
Negative Points
- Concerns remain around ongoing weakness in rural demand, which could impact future performance.
- Access to funding at competitive rates and tight liquidity conditions pose challenges for the NBFC sector.
- Elevated competitive pressure, especially from banks, could affect market share and profitability.
- The company's cost-to-income ratio remains a focus area, with efforts needed to maintain or reduce it further.
- The resolution of SR assets is expected to be a long-drawn process, potentially taking 10 to 14 quarters for full realization.
Q & A Highlights
Q: How did you incentivize your collection team to achieve better outcomes in the NFI business despite challenges like elections and heat waves?
A: Sudipta Roy, CEO: Our disciplined collections culture and prudent credit assessment have been key. We maintain high collection efficiency through disciplined execution and granular efforts on the ground. Our collection efficiency held at around 99.6-99.7% last quarter. Improved monsoon prospects should further support rural credit demand and incomes, maintaining our portfolio quality.
Q: Can you provide some color on the realization of security receipts (SR) assets?
A: Sudipta Roy, CEO: Resolution pathways for SR assets are visible, with construction and secondary sales of apartments in under-construction projects progressing. This is a long process, expected to take 10-14 quarters for granular realization. We remain hopeful for a net gain once the process is complete.
Q: Can you explain the discrepancy between reported borrowings and interest costs?
A: Sachinn Joshi, CFO: The average borrowing for the quarter was INR69,100 crores, lower than the closing book of INR80,295 crores due to portfolio growth over time. This explains the difference in interest costs.
Q: What are your top state exposures in microfinance, and are you tightening screening in the personal loan business?
A: Sudipta Roy, CEO: Our top states are Tamil Nadu, Karnataka, and Bihar. We are expanding into less penetrated areas to reduce overdependence. For personal loans, we focus on prime and near-prime salaried segments, tightening underwriting standards and introducing manual checks for higher ticket sizes.
Q: How do you expect to sustain growth in the two-wheeler segment given the sector's single-digit sales growth?
A: Sudipta Roy, CEO: We focus on prime and near-prime segments, increasing dealer penetration, and reducing approved-but-not-disbursed cases. Our new credit engine and loyalty programs for dealers will help sustain growth. We also expect demand to rise with a good monsoon.
Q: How do the new MFI guardrails impact your business?
A: Sudipta Roy, CEO: The new guardrails do not impact us as we already follow stringent credit norms, including association and leverage norms. Our disciplined collections and prudent credit assessment practices remain unchanged.
Q: What are the yields on prime and near-prime two-wheeler loans?
A: Sudipta Roy, CEO: Prime IRRs are around 15%, non-prime IRRs around 19%, with an overall mix yield of about 17.5%. Despite lower yields, prime portfolios have lower collection costs and loss rates, maintaining satisfactory ROAs.
Q: How do you view cost-to-income ratio and provisioning going forward?
A: Sudipta Roy, CEO: Our cost-to-income ratio for the quarter is about 40%. We are running several cost control initiatives and remain committed to maintaining a credit cost plus OpEx ratio of around 7%. Our provision coverage ratio is comfortable at 75%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
