Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AAVAS Financiers Ltd (BOM:541988, Financial) reported a robust growth of 22% YoY in AUM, reaching INR178 billion.
- Net profit for Q1 FY25 stands at INR1.26 billion, registering a growth of 15% YoY.
- The company opened four new branches during Q1 FY25 to deepen its reach.
- AAVAS Financiers Ltd (BOM:541988) has completed the adoption and stabilization of Salesforce, processing over 1.9 lakh loan applications.
- The company's OpEx to asset ratio improved by 52 bps to 3.27% in Q1 FY25 from 3.79% in Q1 FY24.
Negative Points
- Incremental borrowing costs increased by 30 bps YoY and 17 bps QoQ to 8.31%, indicating rising cost pressures.
- The sanction-to-disbursement ratio was lower at 77% compared to the normal range of 85%-87%, leading to muted disbursement growth.
- There was a decline in disbursement yields despite a rate hike in previous quarters.
- The company's NIM for Q1 FY25 stood at 7.31%, showing a decline from the previous year's 7.91%.
- Credit costs increased to 20 bps in Q1 FY25 from 16 bps in Q1 FY24 and Q4 FY24.
Q & A Highlights
Q: So my first question was on business momentum and particularly on disbursements. So the run rate has come off materially from the 4Q levels. And within housing, the degrowth is even higher. While I understand that 1Q tends to be soft, but what is it that led to this lower disbursements during the quarter?
A: Thanks, Shreepal. As you really appreciated and you highlighted, you always have a muted quarter one. But here, I would like to highlight on against robust sanctioned growth of about 25%, we had sanction to disbursement around 78%, which led to the growth being muted on the lower side actually. But as really pointed out, on a 25% sanction growth, we expect the momentum to come back in the coming quarters.
Q: So, sir, for -- if you have to look at it from a different angle on a yearly basis, what sort of a disbursement that we are targeting? And how do you see it shaping up over the quarters?
A: I see, as I said that the one parameter on which is that the sanction growth is there on the clients. And I said that we are at around 77% on this quarter. And in the coming quarters, we'll have the sanction to disbursement ratio really covering up to the normal levels of 85%, 87%, that's a normal range, which will remain. So we are confident of bouncing back on the quarter numbers. So what gives -- instills confidence is one is the log-in growth, and second is the sanction growth. These are the two parameters which really help us give that confidence of -- there. So unlike a normal one, we have a sanction growth, which is already available with us, actually. And that will translate in the coming quarters.
Q: So are you saying that there was no, I mean, material momentum decline in terms of the number of log-ins during the quarter?
A: No. As you reflect, as I highlighted, there is a growth in log-in and there is a growth in sanction and both of them have given the numbers out. So there's no momentum growth, if I were to really poke across. There's a decrease in the sanction-to-disbursement ratio, which has resulted into the disbursement bake on the little muted side.
Q: Okay. And sir, the second part was pertaining to the end use of the other mortgage category that we have classified this quarter. So what would be the end use there? And -- yes.
A: So other mortgage, if you really look at it, it is the MSME side of the part, which is the micro MSME, where it is typically the uncertain , which we really focus on as a specialized HFC, which is very unique to Aavas on -- which really helps in building the capital creation for the working capital customers on the micro MSME side. And you've seen the degrowth on the LAP and the top-up side, and it really has gone into the capital consumption on the MSME side, and that's around [180] on -- that's around 22%.
Q: Okay. So the end users for the MSME -- micro MSME products?
A: to the micro MSME, right, if I have to get it.
Q: No, I was talking about the other mortgages. So.
A: These are typically the loan against property and the top-up loans, which are home loans, which you have the top-up loans, which gets classified as the loan against property and the loan against property which is for the personal consumption. These are all backed by self-occupied residential properties.
Q: Okay. Okay. So the last question was on pricing. So we had done rate hike a couple of quarters back. So I think -- so why has there not been any improvement on the yield side during the quarter? -- Which -- so that was the question, sir.
A: So I think if you see the disbursement yield, there is an improvement on the disbursement yield on quarter-on-quarter and compared to the previous quarter. But on the overall yield side, I think you've seen not that kind of compression which is -- which was normally there in the earlier time, so -- and maintaining a consistent spread of about 5%.
Q: Sir, congrats on a good set of numbers during an extremely challenging environment. Sir, just two questions from my side. One on the spread in the big side again. So when we look at the incremental cost of borrowing at around 8.3% versus blended cost 8.7%, which has essentially been going ahead, the blended cost will converse to what the incremental cost. And when we look at the yield of -- it's trending -- down trending since last many quarters; so how confident we are about sort of maintaining this 5% spread for the full year? I mean though we know that we've increased our PLR by 40 basis points, I think, in April, but that doesn't reflect in this quarter. Maybe it should reflect in -- from second quarter. But what is your internal assessment?
A: So I have the -- there are two parts of the question. The second part, I will have Ghanshyam Ji to respond. On the first part, we've been giving a guidance. Our endeavor is to maintain 5%. And as you will really appreciate that there has been a spike in the incremental cost of borrowing, and the same transmission has not been possible at the ground. So as a result of which, you do not see this incremental increase in the cost of borrowing being able to pass on to the existing set of disbursement customers. And on the yield side, on the placement, I'll have Ghanshyam Ji to really respond on the second part.
Q: Thank you, Sachinder. This quarter, when we borrow fund, NHB contribution has always remained low than what we borrow for full-year basis. So this year, new limit will come once we complete this quarter. Then the contribution of NHB borrowing will increase in overall borrowing. So we are confident that now cost of borrowing is almost peaking out at this level, basically. And we borrowed a good amount of money as a T-Bill link, repo-link money. So whenever the rate has come, it will have a positive impact to Aavas' overall cost of borrowing basically. And inside, if you see, last quarter to this quarter, we have almost a 17 basis points, 18 basis points higher yield on the new business we got in this quarter. So we are quite hopeful that we are going more [to gain], more smaller ticket going forward in our business strategy. So I hope that, that will also
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
