Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Home First Finance Co India Ltd (BOM:543259, Financial) crossed the critical milestone of INR10,000 crores AUM during the quarter.
- Disbursement in Q1 FY25 reached a new high of INR1,163 crores, growing by 29.9% year-on-year and 5.5% quarter-on-quarter.
- Profit after tax grew by 27.0% year-on-year to INR88 crores, leading to an ROA of 3.6% and an ROE of 16.3%.
- Asset quality remains strong with 1+ DPD at 4.5%, 30+ DPD at 2.9%, and gross stage three NPA at 1.7%.
- Technology adoption is robust with 95% of customers registered on the app and 70% digital fulfillment using digital agreements and e-NACH mandates.
Negative Points
- The PLR increase of 35 basis points from August 1 will have a limited benefit on the portfolio, impacting spreads by 10 to 15 basis points.
- Operating cost to assets is expected to hover around 2.8% to 2.9%, indicating potential cost pressures.
- Credit cost increased to 20 basis points, up 10 basis points quarter-on-quarter.
- The BT Out rate, although moderated, still stands at 6.3%, indicating some customer churn.
- The company's borrowing mix shows a significant reliance on banks and NHB, with 59% combined from private and public sector banks, which could pose risks if borrowing costs rise.
Q & A Highlights
Highlights from Home First Finance Co India Ltd (BOM:543259) Q1 FY25 Earnings Call
Q: Your disbursement volume was strong this quarter. How did you manage to avoid the impact from the RBI circular of April? And how will the PLR increase affect BT Out rates?
A: We primarily use electronic disbursements, which were not impacted by the RBI guidelines. The PLR increase is small and will mostly be transmitted through tenure increases, not EMI increases, so we don't anticipate significant impact on BT Out rates. - Manoj Viswanathan, CEO
Q: Can you comment on the origination yield stability despite a higher share of LAP? Is there scope for increasing origination yields?
A: Origination yields are expected to remain range-bound at 13.4%-13.5%. The LAP share is also stable, operating in the 15%-20% range. - Manoj Viswanathan, CEO
Q: How are you managing the cost of borrowing, given it was stable this quarter?
A: We are negotiating with banks to manage the transmission of rate increases and have seen a slight improvement in our marginal cost of borrowing. - Nutan Patwari, CFO
Q: How do you plan to maintain growth and manage competitive intensity in the affordable housing sector?
A: We have seen the worst-case scenario for BT Outs over the last two years. The current PLR increase is small and should not significantly impact BT Outs. We are also focusing on expanding in new markets and increasing our LAP share. - Manoj Viswanathan, CEO
Q: What is your strategy for the next three years, especially after crossing the INR10,000 crores AUM milestone?
A: We will double down on distribution in existing and new markets, focusing on housing loans and maintaining margins. We aim to improve penetration in Central and Northern India and increase our LAP share. - Manoj Viswanathan, CEO
Q: How do you see operating leverage and return ratios evolving over the next three years?
A: We expect gradual operating leverage improvements, aiming for an OpEx to AUM ratio of around 2.5% and a cost-to-income ratio closer to 30% in the next five years. - Manoj Viswanathan, CEO
Q: When will we start seeing income from the corporate insurance license in the P&L?
A: We should start seeing some income from the next quarter, but it's too early to provide specific figures. - Manoj Viswanathan, CEO
Q: How are you managing the bounce rates, and do you expect them to improve?
A: We have implemented protocols to address BT Outs, and the recency effect of rate increases has faded. While bounce rates have improved, customer behavior post-COVID, especially with UPI, has made it challenging to return to pre-COVID levels. - Manoj Viswanathan, CEO
Q: What is your approach to technology investment as you scale up?
A: We use a scalable, cloud-based Salesforce platform that can handle significant growth without additional core application investment. We will continue to enhance ancillary applications and customer experience. - Manoj Viswanathan, CEO
Q: How do you plan to manage capital adequacy and future capital raises?
A: We have a cushion of 15%-18% in capital adequacy, allowing us to sustain growth for the next 6 to 18 quarters. We aim to maintain a capital adequacy ratio around 20% before considering new capital raises. - Manoj Viswanathan, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
