Release Date: April 29, 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 its highest ever quarterly disbursement of INR9,688 crores, up 52% year on year and 11% quarter on quarter.
- The company's asset under management (AUM) grew by 55% year on year to INR25,003 crore.
- Gross NPA stands at 1.16%, down by 28 bps year on year, reflecting strong asset quality.
- Net interest margin (NIM) stood healthy at 11.06%, up by 4 bps quarter on quarter.
- Operating profit for the quarter increased by 93% year on year to INR409 crore, showcasing strong profitability.
Negative Points
- Cost of borrowing increased by 18 basis points quarter-on-quarter to 8.17%, reflecting a tighter interest rate environment.
- The company's net worth saw a complex adjustment due to ESOP trust accounting, which might confuse some investors.
- Despite strong performance, the company faces external challenges such as volatile crude oil prices and geopolitical tensions.
- The transition of the Managing Director role might raise concerns about continuity in leadership.
- Increased regulatory scrutiny in the NBFC sector could pose future compliance challenges.
Q & A Highlights
Q: What still remains as the fundamental pillars with respect to Poonawalla Fincorp after you move ahead? And would there be any scope for improvement with respect to some easy pickings in the business?
A: Abhay Bhutada, Managing Director, explained that the transformation involved changes in product range, target market segment, and customer choice. The company has enhanced employee productivity, shifted to a branch-lite model, and improved operational expenses. The focus remains on customer service and better turnaround times. The strategy and execution will continue to drive the company's success.
Q: Given the increased regulatory scrutiny and stringent actions in the space as a whole, how is Poonawalla Fincorp placed?
A: Bhutada emphasized that regulatory changes historically benefit the industry in the long run. Poonawalla Fincorp is well-positioned with a strong capital base, credit rating, and prudent risk management practices. The company focuses on compliance, governance, and risk culture, which will be advantageous in a tightening regulatory environment.
Q: Can you explain the difference in net worth from the last quarter to this quarter?
A: Bhutada detailed that the opening net worth as of December 31, 2023, was INR 8,075 crore. Adjustments included ESOP conversion (INR 50 crore), quarterly profit (INR 332 crore), interim dividend payment (INR 154 crore), and ESOP trust accounting adjustment (INR 187 crore), resulting in a closing net worth of INR 8,116 crore.
Q: What has contributed to the industry-leading growth numbers in the last three to four years, and how do you see the growth path from here on?
A: Bhutada attributed the growth to leadership in key product segments, focus on urban and semi-urban markets, and building scalable digital processes. The company targets risk-adjusted returns and maintains a low operational expense model. The guidance for future growth remains strong.
Q: How do you see the asset quality playing out over the next few quarters, especially in the context of some peer NBFCs seeing higher credit costs?
A: Bhutada stated that the company focuses on a credit-led model rather than a collection-led model. The GNPA and NNPA are among the best in the industry, and further improvements are expected. The new book is performing better than expected, and the company is confident in maintaining its guidance on asset quality.
Q: How do you see the interest rate environment going forward, particularly for Poonawalla Fincorp, and can we expect similar performance next year?
A: Sunil Samdani, Additional Whole-Time Director, mentioned that the company has one of the lowest costs of funds in the industry. The focus will be on maintaining NIM above 10%, with potential improvements in cost of funds from Q3 onwards. The company targets risk-adjusted returns and maintains a low operational expense model.
Q: Where have you reached in the transformation journey so far, and what would be the focus going ahead, especially in the context of RBI tightening its regulatory reach?
A: Bhutada highlighted the unique business model combining digital and traditional NBFC approaches. The company follows the highest level of corporate governance and compliance. The regulatory environment is seen as beneficial, and the company is well-positioned to take advantage of it.
Q: What is the update on the co-branded credit card announced a quarter ago, and are there any changes to the current team?
A: Bhutada confirmed that regulatory approval for the co-branded credit card has been received, and the launch is expected in May. The company has a strong management team with relevant industry experience and will continue to invest in team and technology as needed.
Q: How do you see the operational expense (OpEx) ratios moving in the next few quarters?
A: Bhutada stated that the company has consistently reduced OpEx and expects further improvements as AUM increases. The current OpEx ratio, excluding ESOP charges, is one of the best in the industry.
Q: What prompted the change in the MD position when the company is seeing a good turnaround?
A: Bhutada explained that it was a well-thought-out decision to focus on strategic roles at the group level. The transformation is complete, and the platform is set for the next level of growth. The company has a strong team in place to continue the success.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
