Release Date: July 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Poonawalla Fincorp Ltd (BOM:524000, Financial) reported a significant year-on-year growth in asset under management (AUM) by 52%, reaching INR26,972 crores.
- The company has maintained a balanced secured to unsecured loan mix of 49% to 51%, indicating a diversified risk profile.
- Net interest income, including fees and other income, increased by 42% year-on-year to INR676 crores, showcasing strong revenue growth.
- The company has a robust capital adequacy ratio of 31.57%, with Tier-1 capital at 30.09%, indicating strong financial health.
- Poonawalla Fincorp Ltd (BOM:524000) has introduced new management team members with extensive experience, which is expected to drive future growth and strategic direction.
Negative Points
- The company's debt-equity ratio increased from 1.9 to 2.1 times quarter-on-quarter, indicating higher leverage.
- Profit after tax decreased by 12% quarter-on-quarter to INR292 crores, mainly due to a one-time tax benefit in the previous quarter.
- The company has identified the need to strengthen its collection and infrastructure framework, indicating potential weaknesses in current processes.
- There is a focus on consolidating existing businesses and reviewing processes, which may slow down immediate growth.
- The STP portfolio, launched in the previous financial year, is unseasoned and requires close monitoring, indicating potential risks.
Q & A Highlights
Q: Arvind, sir, I mean, I had one question for you. You come from HDFC Bank close to 25 years, and they've always prided themselves on distribution focus, collection focus, and something similar we are looking to do here as well. So I mean, 40 days into the organization, while you acknowledged a couple of times that you're still taking a transfer, trying to pick things up, what are the weaknesses that we identified during those last 40 days which is where we are now talking about strengthening the distribution, strengthening collections?
A: Sure. I think, first of all, excellent question, I must confess. But I think you've touched on multiple things. Let me make an effort, if I miss something, you could repeat it, and I could cover it, okay? I just jot it down. First and foremost, I would not like to look at it as a weakness when I mentioned about collections. My collections, infrastructure, technology, AI is focused, as having an eye on building a 5- to 10-year franchise. I think when you want to make it as a machine, which probably, let me take you back in history, if you remember, HDFC Bank at Aditya's time, for 20 years. That's the pedigree with which I have come. Those are my learning grounds. So I've seen a very high sustainable profit for many years. I've seen that happening because they were planned well in advance. The foundations were run well in advance. A lot of homework was done in much initial years in a thorough, ground way. Also, I think a new management -- the reason I started with a new management team is, it's different having capabilities, and it's very different having a seasoned management team combined with an existing brilliant team that was here. So I think all of us are building it as a long-term franchise. When you build a long-term franchise, I'm very clear, it's not an experiment for us. We come with that kind of scale. We are very clear on what should be the next building steps. These are not something which are new for us. So I think from existing strengths, we are going to build step by step. Now a very precise answer to your question, if you notice, I've also put it on in my sheet already, I think there's one business, STP, that we want to closely review and closely measure. I think it's an interesting business. But I think we want to, for a quarter or two, both on credit and collections, I will ask my team to review it more closely. I think that could be just a minor area where we need to tighten ourselves and work on it closely with credit and collections. But overall, I think most of my comments should be viewed in the context of 5- to 10-year building blocks of a larger organization. And that's what I specified. It's a long term in nature. And there are multiple small, small strengths I see at Poonawalla Fincorp today. And those strengths I'm going to calibrate. And over the first two quarters, like I specified, we want to consolidate. And that's what it's gonna be. As a matter of fact, we're gonna go into each strength that they have. We want to optimize those strengths and add that digital fragrance. On your physical distribution, if you notice, there are two or three businesses I've added. Consumer durable because it kind of really accelerates my customer franchise and starts building a solid entry into, is the fastest, surest way to enter into a large customer base of middle class India. And that's really the foundation for a prosperous India for the next 5 years or 10 years. So I want to accelerate that as an investment because you are well aware that investment in the first two years actually multiplies your returns in a more consistent manner in a much more bullwink effect. That's exactly our aim to do it because you're creating a compounding energy by creating the building blocks now instead of trying to play it very safe. And because this whole management team is fully well versed, it's not an experiment for us. We are very clear on what we want to do, and we are very clear on the risk management philosophy we want to live with. We are in a lending business where we will lend where we can manage risk. Wherever we think we don't have expertise to manage risk, we will accordingly fine tune the product mix and build what we can sustain because end of the day, we are responsible to all stakeholders. We have our own reputation very clearly on the line, and we truly respect that ourselves. So I hope I gave you a sense. So if building blocks are the branches, I won't like to look at it previous versus now. This management depth has substantial experience. We've seen all the strengths. If you remember, I have personally launched cutting-edge digital products, which have worked. But despite that, I fully respect the physical infrastructure which can make business sense because it's in India we're talking about, which probably has multiple demographics, multiple lines of opportunity and business, and I'm not going to leave any opportunity without the margins because we are in a business. My aim end result is to make business with healthy margins and which stays sustainable for many years post I'm gone. I'm very clear on that, and that's what I'm here for. For me, reputation of mine comes first. Management team, Poonawalla Fincorp needs to become a preferred choice for customers. And our credibility will come first. So I hope I give you a quick sense, my friend.
Q: Yes, sir. Thank you so much, and this is very, very reassuring. And just one follow-up there. While you talked about, I mean, building distribution, if you can also throw some color on how we are looking to ramp up our physical presence. And another think, sir, that you spoke about in your opening remarks was predictability. So I mean, if I just look at our, I mean, our margins today or NII to be more precise, I mean, this quarter, despite cost of borrowings not going up, they were stable Q-o-Q. This is probably, I would say in the last maybe seven, eight quarters, the smallest, our Q-o-Q growth that we saw. So I'm just trying to understand, how do we bring more predictability in our earnings given that you yourself spoke about that STP is one product, short-term loans is one product that maybe we might be doing a little less or closely monitoring? That is the second question, sir.
A: I can say, first of all, fundamentally, I'll explain to you the fundamental concern that I understand, which will throw some light into what the thinking is, and then I'll hand over to Sunil and our CFO, Miranka, to probably add value to your precise question. First, let's understand if you have three, four businesses and you know in that if you're trying to play with one business contributing bulk to your ROE, I think the first step which I see is that I think it's very important, we'll launch tried, tested, stable, sensible, margin-oriented businesses between digital and physical. And that's what I covered in my starting speech. So you are
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
