Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Star Housing Finance Ltd (BOM:539017, Financial) reported a significant year-on-year growth of 74% in assets under management (AUM), reaching INR471.41 crores.
- The company achieved a 76.61% year-on-year increase in disbursements, totaling INR61.23 crores for the quarter.
- Total income for Q1 FY25 rose by 70.54% year-on-year, reaching INR20.96 crores.
- Profit after tax for the period ending June 30, 2024, increased by 94.83% year-on-year.
- The company has a robust liability pipeline and strong relationships with banks and financial institutions, aiding its loan book growth.
Negative Points
- The portfolio at risk stands at 3.38% for accounts that are plus zero days past due, indicating some level of credit risk.
- Gross non-performing assets (GNPA) and net non-performing assets (NNPA) ratios are at 1.57% and 1.12% respectively, which, while managed, still represent potential risk.
- The company faces challenges in maintaining high asset quality as it scales up its operations.
- There is a potential dilution of return on equity (ROE) due to regular capital infusions.
- The company is exposed to fluctuations in borrowing costs, which have increased from around 9.75% to 11.50%, impacting the bottom line.
Q & A Highlights
Q: How does your ALM profile look like other than mismatches? And how do you assess the creditworthiness of rural new-to-credit customers?
A: (Natesh Narayanan, CFO) Our inflow receipts, including borrowings, are more than enough to cover all payments and disbursements. We have diversified our borrowing profile with six banks and 11 financial institutions, and we plan to explore more instruments like NCDs.
A: (Anoop Saxena, COO) For rural customers, we assess repayment capacity and intent. We use local references and credit bureaus to gauge intent, even if formal credit history is lacking.
Q: What is the update on the warrant outstanding and when do we expect to receive the remaining amount?
A: (Unidentified Company Representative) The warrants issued in December 2023 have an 18-month subscription period. Around 25-26% has been subscribed, and the remaining amount is expected over the next 12 months, adding approximately INR44 crores to our net worth.
Q: What is your target for achieving INR1,000 crores of AUM?
A: (Unidentified Company Representative) We aim to achieve INR1,000 crores of AUM over the next four to six quarters, targeting December 31, 2025, provided all plans go well.
Q: Could you share some guidelines on the AUM front and explain the factors contributing to your company's effectiveness in managing gross and net NPAs compared to the industry?
A: (Unidentified Company Representative) We aim to reach INR500 crores of AUM soon and target INR1,000 crores by December 2025. Our effectiveness in managing NPAs is due to our focus on basics, comprehensive credit policy, and strong collection processes.
Q: What are your expansion plans for the company, and how do you manage the asset quality of the PO book?
A: (Unidentified Company Representative) We plan to expand to over 50 branches by the end of the financial year and aim for 100 branches to achieve INR2,000 crores of AUM. We prioritize quality over growth and have strong credit and collection processes to maintain asset quality.
Q: What is your target for the current financial year, and is there any plan to raise more capital?
A: (Unidentified Company Representative) We target an AUM of around INR700 crores for the current year. We are exploring raising additional capital, depending on the subscription of existing warrants and interest from HNIs and family offices.
Q: What are your immediate targets for branch expansion, and how do you manage asset quality in the current sector outlook?
A: (Unidentified Company Representative) We focus on markets with significant housing shortages like Maharashtra, Tamil Nadu, and Rajasthan. We plan to expand into new geographies like Chhattisgarh. Our focus remains on building a quality loan book and maintaining favorable financial metrics.
Q: What is your branch AUM target, and how do you decide on branch splits?
A: (Unidentified Company Representative) We aim for a steady state run rate of around INR1.5 crores per branch. For larger branches, we consider splitting once they reach INR2.5 crores to INR3 crores to maintain quality.
Q: What is your due diligence process for customers with existing loans?
A: (Anoop Saxena, COO) We assess both formal and informal credits. We use credit bureaus for formal credit and local references for informal credit. We calculate debt burden ratio to ensure customers can manage additional loans.
Q: Can you provide guidance on ROE and ROA for the next year and the potential for a credit rating upgrade?
A: (Unidentified Company Representative) We aim for double-digit ROE by the end of the current financial year and target 18%+ ROE in the long term. We expect a credit rating upgrade once we cross INR650 crores to INR700 crores of AUM.
Q: Could you describe the typical customer profile and how asset assessment differs between salaried and self-employed customers?
A: (Anoop Saxena, COO) Our typical customers are those without formal income documentation, often from rural or semi-urban areas. We assess cash flows through in-house developed spreadsheets and focus on economically active customers using the property for self-residence.
Q: How should we anticipate the spreads between yield and cost of borrowing for FY25?
A: (Natesh Narayanan, CFO) We expect to maintain a spread of around 500 to 550 basis points on a sustainable basis, with portfolio yields steady at around 17% and borrowing costs around 12.4%.
Q: What impact would a slight increase in yield or borrowing cost have on demand?
A: (Unidentified Company Representative) We do not plan to increase yields beyond 15-15.5% for current customer segments. An increase in borrowing costs has previously reduced our bottom line by 18-20%, but high growth rates have compensated for this.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
