Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong PAT growth of 45% year over year, reaching INR 513 crores.
- Continued AUM growth of 23% YoY, maintaining strong levels.
- Income growth remained steady at 20% YoY.
- Lower credit cost at 1.5% compared to 2.1% in the same quarter last fiscal.
- Corporate agency license received, enabling augmentation of fee-based income with six active tie-ups.
Negative Points
- Disbursement growth was moderate at 5% YoY, impacted by election disruptions, heat waves, and flooding.
- GS3 numbers increased slightly from 3.4% to 3.56%, indicating some asset quality concerns.
- NIMs were slightly lower than the previous quarter and last year's same time due to elevated cost of funds.
- Pre-owned vehicle growth was below expectations for the quarter.
- Tractor segment experienced a degrowth, reflecting industry cooling off.
Q & A Highlights
Q: What would be a fair estimate of ECL coverage on a steady-state basis for the next four to five quarters?
A: Vivek Karve, CFO: We are guided by a model reflecting past NPA behavior. There is no specific target, but we ensure prudent provisions that cover probable losses in the GS3 portfolio. Raul Rebello, CEO: The model reflects our collection actions, and we are confident that loss given defaults (LGDs) will continue to decrease due to strong collections.
Q: Last year, you indicated a positive rollover post-COVID by Q2 this year. Does that still hold?
A: Vivek Karve, CFO: Some of the positive effects have advanced to Q1 due to strong collections and lower credit losses. However, we would not like to hazard a guess as we stand today.
Q: How do you see the 1.8% ROA improving given the current product offering and customer profile?
A: Raul Rebello, CEO: Our aspirational ROA for the year is 2.2%, not 2.5%. We are focusing on improving NIMs, OpEx, and credit costs. The NIM side is challenging, but we have room to influence it over the next three quarters.
Q: Can you explain the decline in Stage 1 coverage and the impact on PD estimates?
A: Vivek Karve, CFO: The decline in Stage 1 coverage is due to improved LGDs and PDs, reflecting better early bucket collections. This improvement is expected to sustain over time.
Q: What is the strategy for delivering growth given the volume decline in Q1?
A: Raul Rebello, CEO: The decline in Q1 was influenced by external factors like election disruptions and weather conditions. We are focusing on high-value vehicle loans and other segments to drive growth for the rest of the fiscal year.
Q: How often do you revisit the ECL and LGD models?
A: Vivek Karve, CFO: We refresh the ECL methodology annually, typically in Q3, but PD and LGD are refreshed every quarter.
Q: What is the guidance for PPOP growth given the current trends in margins and loan growth?
A: Raul Rebello, CEO: We aim for high-teens to 20% PPOP growth for the year. Despite moderate disbursement growth in Q1, we expect book growth to be in the high teens to 20%.
Q: How do you plan to manage yields and cost of funds given the current market conditions?
A: Raul Rebello, CEO: We are focusing on increasing the share of high-yield segments like pre-owned vehicles and leveraging fee-based income to improve yields. Cost of funds remains elevated, but we are exploring all levers to moderate it.
Q: What is the incremental cost of borrowing for this quarter?
A: Vivek Karve, CFO: The incremental cost of borrowing remains in the corridor of 7.8% to 8%.
Q: What is the outlook for margins this year?
A: Raul Rebello, CEO: Our medium-term aspiration is to achieve a 7% margin. We are focusing on augmenting income to average assets to reach this target, despite the challenging cost of funds environment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
