Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SBFC Finance Ltd (BOM:543959, Financial) reported a 35% year-over-year growth in AUM, reaching INR 7,001.67 crore.
- The company added three new branches during the quarter, expanding its reach.
- SBFC Finance Ltd received a rating upgrade from A-plus positive to double A-minus stable, reflecting improved creditworthiness.
- The company's return on average AUM remained stable at 4.6%, while return on average tangible equity increased to 12.3%.
- The cost of funds increased by only one basis point quarter-on-quarter, indicating effective cost management in a rising interest rate environment.
Negative Points
- The company's AUM growth of 5% quarter-on-quarter was at the lower end of its guided range, impacted by a long electoral process and climate challenges.
- Gross NPAs increased to 2.6% as of June 2024, indicating a rise in asset quality issues.
- Credit costs increased by one basis point quarter-on-quarter, reflecting higher provisioning needs.
- The average ticket size of MSME loans decreased to about INR 9.29 lakh, which could impact profitability.
- Collection efficiencies were muted during the quarter, leading to an increase in the 1% DPD portfolio.
Q & A Highlights
Q: What are the pitfalls in technology on board and across various functions that will come?
A: (Aseem Dhru, CEO & MD) Technology, while enabling, also creates risks. Outages and data protection are significant concerns. We have measures like data duplication and backup systems to mitigate these risks. We also diversify our dependencies to manage these risks effectively.
Q: The ticket size is falling consistently. What is happening there?
A: (Aseem Dhru, CEO & MD) As we expand into Tier 3 towns, ticket sizes naturally decrease. We expect ticket sizes to remain between 9 to 11 lakhs. This shift helps maintain our spreads due to better yields on lower ticket sizes.
Q: The 1% DPD portfolio is increasing. How do you explain this?
A: (Unidentified Company Representative) Q1 saw muted collection efficiencies, impacting portfolio improvement. We expect stabilization in coming quarters and do not foresee a significant impact on our credit cost range.
Q: How do you see the next three quarters, especially with the RTGS rule change?
A: (Aseem Dhru, CEO & MD) The RTGS rule change impacted disbursals for about a month. We expect business as usual from the current quarter onwards and maintain our growth guidance.
Q: How does the push to reduce rates to end customers affect you?
A: (Aseem Dhru, CEO & MD) We balance fair interest rates with business needs. Our rates are not unreasonable, and we continuously ensure they are sustainable and fair for customers.
Q: What are your branch expansion plans?
A: (Aseem Dhru, CEO & MD) We plan to open around 20 branches this year, focusing on deeper penetration in existing states. Branches typically break even within 12 to 18 months.
Q: What is your long-term plan and dividend policy?
A: (Aseem Dhru, CEO & MD) We aim for 5% to 7% quarterly growth. Currently, we prefer reinvesting profits into growth rather than paying dividends to delay the need for additional capital.
Q: What is the status of your IBC license application?
A: (Aseem Dhru, CEO & MD) We have applied for the license and await the regulator's response. We will update on specific plans once we hear back.
Q: Can you provide details on your gold loan segment?
A: (Aseem Dhru, CEO & MD) The average ticket size is slightly above 1 lakh, with most customers being self-employed. The average tenure is between three to four months. We follow a daily MTM process to manage fluctuations in gold prices.
Q: What is your IT budget and future investment plans?
A: (Aseem Dhru, CEO & MD) Last year, we upgraded our IT infrastructure significantly. Going forward, we expect business as usual with no major investments planned, focusing on maintenance and health investments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
