SBFC Finance Ltd — Q4 FY26

SBFC Finance Ltd Q4 FY2025-26 Earnings Conference Call https://www.youtube.com/watch?v=vcocO-vLyuc Published: 2 weeks ago

0:01 1 second Ladies and gentlemen, good day and welcome to SBFC Limited Q4 FI26 earnings conference call. As a reminder, all 0:10 10 seconds participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance in the conference 0:18 18 seconds call, please signal and operate by pressing star zero on your testing phone. Please note that this conference is being recorded. I now hand the 0:27 27 seconds conference over to Mr. Danish ba from ICIC securities. Thank you and over to you. 0:33 33 seconds Uh thank you. Hi uh good morning everyone and welcome to FBFC Q46 earnings call. On behalf of ICA 0:42 42 seconds securities I would like to thank SBSC management team for giving us the opportunity to host this call. Today we have with us the entire top management 0:51 51 seconds team of SBSC represented by Mr. Aindu executive vice chairman Mr. Mahani managing director and CEO Mr. Nalia CFO 1:01 1 minute, 1 second Mr. Sanitar Chief Secretary Officer and Mr. Rhinel please sir I will now hand over the call to Mr. for his opening 1:09 1 minute, 9 seconds remarks and then we'll open the note on Q&A. Over to you, sir. 1:14 1 minute, 14 seconds Thank you. Thank you, Ran. And uh good morning everyone. Uh this is our 12th earning call since listening. Uh these days with the amount of drama happening 1:23 1 minute, 23 seconds in the world around us. It feels like living a decade in a year. So actually, you know, it does feel like we've been doing this for three decades. Predicting the future at best is a fool's game. 1:33 1 minute, 33 seconds Over the years, I've enjoyed reading expert predictions at the end of the year. You know, and where wise make fools of themselves, being aware of my 1:40 1 minute, 40 seconds own stupidity, that's one area I've dutifully stayed away from. Instead, I have gained from Charlie Mer's latis 1:47 1 minute, 47 seconds work of mental models where one has to create an ability to analyze situations by drawing from diverse interconnected disciplines to make better decisions. If 1:56 1 minute, 56 seconds memory serves me right, it was Carl Richards who said, "Risk is what is left over after you think you have thought of everything." To me this means that it is 2:04 2 minutes, 4 seconds impossible to see all the risks that will come our way. Therefore at SBFC our mental model our philosophy is acceptance of the fact that we do not 2:11 2 minutes, 11 seconds know where the devil call risk will arrive from but we do know that in whatever form he arrives we have to meet him already prepared. Certainty is a 2:19 2 minutes, 19 seconds luxury reality does not offer. The segment we serve, the small business owner in small towns of India is constrained by capital, not totally 2:28 2 minutes, 28 seconds disciplined and vulnerable to external shocks as varied as unavailability of gas cylinders for his small restaurant to a medical emergency in the family. 2:37 2 minutes, 37 seconds Towards this, an attempt has been made to build an antifragile business model. 2:41 2 minutes, 41 seconds As we look at the clouds gathering on the horizon casting the long shadows on the sunshine opportunities in our segment we see that some of the risks 2:49 2 minutes, 49 seconds that are India's actually heal have all materialized growing fiscal deficit plus widening trade deficit forces of the 2:56 2 minutes, 56 seconds current oil shock that is constrain supply and materially changes our import bills forex reserves and right now widening our fiscal deficit and when you 3:05 3 minutes, 5 seconds know and when it is passed onto the pump it will become inflationary crude plays out from plastic to fertilizer results and gas plays out from food to ties. 3:14 3 minutes, 14 seconds Lackluster FDI and negative FIA flows are ensuring the capital account flows cannot make up for the lack of current account flows. In the current situation, 3:21 3 minutes, 21 seconds the Gulf remittances are at risk and with what's happening with AI, Indian IT flows are at risk too. The weather gods may be sending an extra harsh summer as 3:29 3 minutes, 29 seconds we can already see right now uh when followed by an El Nino uh which even today our country performance is driven by performance of the southwest monsoon 3:37 3 minutes, 37 seconds winds. IMF used to publish a forecast for the world. Poor chaps realized that one needs to be an astrologer for that. 3:44 3 minutes, 44 seconds Just being an economist or a statistician doesn't seem to be enough these days. They abandoned it and now publish reference scenarios which range 3:51 3 minutes, 51 seconds from Edwards to Syria. Uh since fools have a tendency to rush into where sphere to trade, I cannot help but say that rising inflation through fuel and 3:59 3 minutes, 59 seconds imported one because of a weakening currency is a certainty. Rising interest rates on sheer demand supply situation the economy is a certainty. uh in a 4:06 4 minutes, 6 seconds softening demand environment due to income growth not keeping pace. I can bet that every company commentary you will read this year uh will be about 4:14 4 minutes, 14 seconds squeezing costs. Now remember that a corporate cost is an MSME revenue. We do we do an annual refresh of our PDG model 4:22 4 minutes, 22 seconds for calculation of EC and towards that there are some inter adjustments that the model threw up. In our earlier stages of operations we had to rely on 4:30 4 minutes, 30 seconds market benchmarks as our data had not matured. Now that we have seen cycles play out, it came across that we are overproviding for stages one and three 4:38 4 minutes, 38 seconds and underproviding for stages two. So that adjustment has been done as per our data. However, this has had no impact on the overall provisions. In fact, it's 4:46 4 minutes, 46 seconds just gone up about two basis points to 1.84%. Which is 2.1 times the Iraq norms that the banks use. We sit on a 4:55 4 minutes, 55 seconds three-legged stool and our principal job is to manage three costs. Cost of funds, cost of operations and cost of credit. 5:01 5 minutes, 1 second Lending is a commodity business and we are all price takers not price setters. 5:05 5 minutes, 5 seconds The most foundational truth of any commodity business from steel, cement, power to finance. The lowest cost producer wins. End FI26 versus end point 5:13 5 minutes, 13 seconds of FI25. Our cost of funds have moved down by 48 basis points. Cost of operations have moved down by 46 basis points and cost of credit moved up by 30 5:22 5 minutes, 22 seconds basis points. We have completed three years since listing and we if you remember we used to guide a 50 basis points opex reduction every year. uh and 5:30 5 minutes, 30 seconds cumulatively against the 150 basis points promised we delivered 161 basis point reduction we had guided that goal 5:37 5 minutes, 37 seconds will be 20% of our book give or take despite the substantial increase last year we are at 21% and on our guided range coordination continued to be 5:46 5 minutes, 46 seconds around our guided range of 20% our spreads and ROA have been consistently higher than guided and last year despite increase in leverage our ROAS have 5:54 5 minutes, 54 seconds expanded last year we grew up our branches by 46 instead of the guidance of 85 uh with most of them coming up in 6:02 6 minutes, 2 seconds the last quarter. So costs are taken, benefits to acrew. On a lighter note, the good thing about being inefficient is you can demonstrate continuous 6:09 6 minutes, 9 seconds improvement. Navigating our little boat in this tumultuous ocean, we have largely managed to deliver slightly better than our guidance and we look at the coming year with the same world 6:18 6 minutes, 18 seconds view. It's going to be noisy. Our eyes are locked into the opportunities we see as we build our next ladder of growth in our segment. At SBC, we aren't afraid of 6:26 6 minutes, 26 seconds storms. We were born in one. In 2017, the company, you know, began on a particularly stormy day as uh stormy night actually with rains lashing the 6:34 6 minutes, 34 seconds windows due to high winds. As always, we remain cautiously optimistic. We know that the lending we do is growing our 6:42 6 minutes, 42 seconds AUM and the storms we navigate is growing us as professionals. So, we can't complain either way. Uh with a CR of 33%, we are extremely well 6:50 6 minutes, 50 seconds capitalized and with a leverage of just 1.9 debt equity, we have a long runway available. 6:56 6 minutes, 56 seconds As has been the norm, we Indians have moved from irrational exuberance to drawing up irrational fear scenarios in our mind. We are aware and prepared for 7:03 7 minutes, 3 seconds the clouds. But we are equally clear that our promise of making loans easy for small businesses in small towns of India is a journey that's just begun. We 7:11 7 minutes, 11 seconds have barely penetrated 30% of the districts in the states we are present in and even where we are present, we have barely scratched the surface of the 7:18 7 minutes, 18 seconds opportunity. My joy comes in going to office every day in getting to spend time with the finest professionals in the business and in our trade and 7:25 7 minutes, 25 seconds intensity, consistency and quality of execution is the holy grail. I now hand over the call to Mahes for his guidance for the quarters ahead and then request 7:33 7 minutes, 33 seconds N take us through the performance numbers for the year that has gone by. Thank you. Thank you. 7:40 7 minutes, 40 seconds While there may be some uncertainty in the short term, our long-term outlook and conviction remains strong. Our 7:48 7 minutes, 48 seconds approach to investing in distribution is guided by our ability to effectively scale and deepen our presence in existing markets. The total addressable 7:57 7 minutes, 57 seconds market estimated at approximately 4 lakh crores continues to expand within acceptable credit risk parameters. At 8:04 8 minutes, 4 seconds the current pace of growth, the segment presents an opportunity to potentially double the book over the next 3 to three and a half years. Importantly, we are 8:14 8 minutes, 14 seconds currently present in only 1/4 of the districts in within operating states which provides us with a significant 8:20 8 minutes, 20 seconds runway for expansion. That said, our focus remains firmly on executing this growth profitably. In line with this, we 8:29 8 minutes, 29 seconds added 46 branches in FI26, taking our total network to 251 branches. We expect to stabilize at 275 branches during the 8:38 8 minutes, 38 seconds year, allowing us to consolidate and evaluate the performance of these investments before scaling further. Our overall guidance remains unchanged at 5 8:47 8 minutes, 47 seconds to 7% on a quarterly basis. Towards this last quarter, we grew above 7 12% for 8:54 8 minutes, 54 seconds the quarter and 29% on a full year basis. 8:59 8 minutes, 59 seconds In terms of a composition of growth, uh we were close to 20 21% in terms of gold and the balance coming from Emmy. Given 9:08 9 minutes, 8 seconds the firm outlook on gold prices and addition in branches, this share of gold may gradually move closer to 25%. 9:16 9 minutes, 16 seconds Importantly, our loan to value ratios remain conservatively below 60% in fact closer to 56 57% providing a strong 9:25 9 minutes, 25 seconds margin of safety. We are fully compliant with the new regulatory circular effective April 1st and our average ticket sizes continue to remain below 2 9:33 9 minutes, 33 seconds and a half lakhs. Coordination disbbursements account for 16% of total dispersals and 18 to 19% of AUM for last 9:42 9 minutes, 42 seconds quarter and we are expected to remain at similar levels all through FI26 or FI27. 9:48 9 minutes, 48 seconds Overall the portfolio mix between MSME and gold is expected to remain stable between 75 and 25. 9:58 9 minutes, 58 seconds In terms of our pricing, the spreads for the last quarters have been at 9%. We are expected to hold the spreads at the 10:06 10 minutes, 6 seconds current level. uh more than 90% of the book is variable and even if in the last call we had penciled in that there we 10:14 10 minutes, 14 seconds could see an increase in interest rates but largely since the book is variable we are expected to hold the spreads at 10:21 10 minutes, 21 seconds the current level cost while we will continue to invest in distribution our opex is expected to decline by 20 to 25 10:30 10 minutes, 30 seconds basis points through the year as newer branches mature and scale up we anticipate further operating 10:37 10 minutes, 37 seconds leverage and efficiency gains. If we were to look at last year, while our AM grew at 28 to 29%, 10:46 10 minutes, 46 seconds our efficiencies came in from finance cost and opex which ensured that our POP grew by almost 37%. 10:54 10 minutes, 54 seconds We used a strong pre-provisioning operating profit to further strengthen our stage two which mentioned and our stage 2 moved up from almost 6% to 16%. 11:07 11 minutes, 7 seconds We will continue to be cautiously optimistic and while we have uh we have 11:14 11 minutes, 14 seconds a credit cost at 1.8 We are expected to remain rangebound all through the year with some marginal 11:21 11 minutes, 21 seconds benefits of five basis points share of air. So if I were to summarize on a humorous note, nothing changed in terms 11:29 11 minutes, 29 seconds of our guidance which we've been giving which we've been giving over the past 12 quarters whether it is in terms of growth or in terms of profitably growing 11:38 11 minutes, 38 seconds from here on. Now I'll request Narang to take us through the quarterly number. Thank you Mish. Good morning everyone. 11:45 11 minutes, 45 seconds Uh in terms of business, our AUM for the March 26 is 11,270 cr with a growth of 11:52 11 minutes, 52 seconds 29% on a Yw basis and 8% on a Q basis which is the book is almost 100% secured 12:00 12 minutes either by property or by gold. Our MSME AUM is at 8,873 cr which is 79% of AUM 12:08 12 minutes, 8 seconds as Mahis was talking about with a growth of 22% on a Y basis and 4% on a QQ basis. Our MSME dispersal for the 12:16 12 minutes, 16 seconds quarter stands at 785 crores. The loans against gold AUM is now 2374 cr which is 12:24 12 minutes, 24 seconds 21% of AUM as M mentioned with a growth of 63% on a Y basis and 22% on a QQ 12:31 12 minutes, 31 seconds basis. We added 21 branch during this quarter bringing the total branch count to 251 as of March 2026. 12:40 12 minutes, 40 seconds In terms of ease and margin, our ease for the quarter is at 17.61%. 12:45 12 minutes, 45 seconds Uh our cost of borrowing for the quarter is at 8.52%. 12:49 12 minutes, 49 seconds Uh the cost of borrowing has seen a sharp reduction of 83 basis point on a y basis uh given the favorable repo environment in the country. 12:59 12 minutes, 59 seconds Consequently, our spreads for the quarter is at 9.09% with a growth of 56 basis point on a Y basis and a five 13:07 13 minutes, 7 seconds basis point on a QQ basis. In terms of cost, our opex for the quarter is 3.93%. 13:13 13 minutes, 13 seconds Which is a 69 basis point reduction on a Y basis and almost same uh as on a QQ 13:20 13 minutes, 20 seconds basis. In terms of asset quality, our G&P is at 2.61% 61% which has seen a reduction of 10 basis point on a QQ 13:28 13 minutes, 28 seconds basis and almost 13 basis point on a Y basis. Our PCR stands at 41.64%. 13:35 13 minutes, 35 seconds Our credit cost for the quarter is 1.38%. 13:38 13 minutes, 38 seconds In terms of business and return ratio, our capital is sufficient at 32.8% as mentioning with a tangible net worth of 13:46 13 minutes, 46 seconds 3,465 cr as of March 26. Our uh return on average AUM is 4.57% 13:55 13 minutes, 55 seconds uh with a return on average tangible equity of 14.48% for the quarter. Our PAT for the quarter is 123 cring by 30% 14:04 14 minutes, 4 seconds on a Y basis and 4% on basis. Our PA for the full year is 451 cr which has grown 14:12 14 minutes, 12 seconds by 31% on a Y basis. With this we open the floor for question and answer. 14:20 14 minutes, 20 seconds Thank you. 14:22 14 minutes, 22 seconds We will now begin the question and answer session. Anyone who wishes to ask a question that was star and one on the touchstone telephone. If you wish to 14:29 14 minutes, 29 seconds remove yourself from the question, you have a star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the questions. 14:44 14 minutes, 44 seconds The first question comes from the line of secret tea party with eyesight fra private limited. Please go ahead. 14:51 14 minutes, 51 seconds Good morning to the team. I have two questions. My first question to Mr. Dani is what are uh your pre priorities uh for the company in the coming quarters? 15:00 15 minutes Specifically, how do you plan to expand lending reach uh strengthen customer acquisition in tier 2 and tier three 15:08 15 minutes, 8 seconds markets and uh leverage digital platforms to improve efficiency and customer experience? That's the first question. I'll ask my second question after this. Thank you. 15:18 15 minutes, 18 seconds Thanks. So I think uh you know what I articulated in my opening remark was that uh in the first phase of SBFC's 15:27 15 minutes, 27 seconds growth we had charted out key select states where we would like to be present we are operating at 15 of those states 15:36 15 minutes, 36 seconds and in the first phase the proof of the model had to play out and the proof was largely in terms of acquisition and 15:45 15 minutes, 45 seconds whatever investments that we made whether they delivering the required results. I think after almost probably five to six years 15:54 15 minutes, 54 seconds because we are spread across the country, it was important that we had a more uh uniform outcomes across all the 16:02 16 minutes, 2 seconds states and we weren't very very region specific. Now having experienced that in the first 7 to 8 years of our journey 16:11 16 minutes, 11 seconds where now we have good amount of visibility on product profitability and our distribution profitability and the 16:18 16 minutes, 18 seconds respected outcomes that come in from the respective states. Our second phase starts where we'll we will now deepen 16:26 16 minutes, 26 seconds our presence in each of these operating states. I guess we've made enough mistakes and I think probably we've got a little wiser in the second phase that 16:34 16 minutes, 34 seconds we won't probably be repeating them. So you will see us now growing a lot more in geographies and taking significant market share in some of these states. 16:45 16 minutes, 45 seconds Towards this what you've seen is that this year we've added significant number of branches probably the highest that we've done ever and that comes in only 16:53 16 minutes, 53 seconds from the confidence in terms of outcomes that have come in from each of these markets. uh we have uh in terms of our 17:01 17 minutes, 1 second acquisition almost 3/4 of our customers borrow for the first time in fact borrow against their property for the first 17:09 17 minutes, 9 seconds time and hence incrementally also we will be expanding the market and a lot of unorganized form of finance is going to move to an organized form of finance. 17:19 17 minutes, 19 seconds So, so that's one that's the physical reach. We are largely a direct model. We will continue to be a direct model in all the branch in all the states that we 17:27 17 minutes, 27 seconds operate in in terms of digitally ensuring that we reach out to the customer. So whether it is origination, 17:35 17 minutes, 35 seconds whether it is moving the files digitally or whether it is collection or whether it is customer service, all of it moves 17:44 17 minutes, 44 seconds digitally. What doesn't move digitally is ensuring that the personal discussion with the customer or originating the 17:51 17 minutes, 51 seconds customer. These are two legs which unfortunately we can't digitize that. We would like to have in touch and feel of 17:58 17 minutes, 58 seconds the customers that we meet. Other than that every other piece of the process can be digitized which in some form you 18:07 18 minutes, 7 seconds will see efficiency come in in terms of cost. 18:11 18 minutes, 11 seconds So I think that's largely you know the key uh the key theme for us over the next two to three years that how do we 18:19 18 minutes, 19 seconds keep on increasing but you will not see an increase in cost despite our increase in reach to the customers and the geography in where we are present. 18:29 18 minutes, 29 seconds Thank you. My second question to Mr. 18:31 18 minutes, 31 seconds Naran is uh how are how do you approach risks such as uh rising funding costs uh 18:38 18 minutes, 38 seconds regulatory uh compliances and uh credit defaults while ensuring profitability 18:46 18 minutes, 46 seconds remains steady and growth remains uh constant for the company. Thank you. 18:52 18 minutes, 52 seconds So uh uh so fortunately for us uh the the repo has been reducing uh uh other 18:59 18 minutes, 59 seconds than the last few months uh when when the global uh tensions have emerged uh RBA has been reducing repo. So so which 19:08 19 minutes, 8 seconds has been in our favor that we have been also been able to reduce our cost of borrowing. The second point on the cost of boring is that as the organization 19:15 19 minutes, 15 seconds matures does better and better in performance metrics etc. uh rating upgrade happens etc. The cost of borrowing should keep on reducing uh 19:24 19 minutes, 24 seconds irrespective of what the market does. Uh what we are seeing today is there is slight volatility in the GC rate. 19:31 19 minutes, 31 seconds Obviously there's a kind of liquidity crisis as of now in the market but this is very very temporary. Uh and we don't see any risk on the cost of borrowing as 19:38 19 minutes, 38 seconds we go along into the year. Uh the other question was on uh your uh credit quality isn't it? So you like to take this? 19:48 19 minutes, 48 seconds See on the credit risk which you were talking about uh some of the things which now we are addressing uh of course as Mahish was telling that you cannot uh 19:56 19 minutes, 56 seconds digitize the personal discussion because you have to have the ground at the ground touch and feel but what now we have done is that because there is 20:04 20 minutes, 4 seconds dependence on the managers across the branches we have digitized the way they do personal decisions. So there is a app 20:12 20 minutes, 12 seconds which we have uh which we are using wherein the customer PDS are done uh through this app and it is a 20:19 20 minutes, 19 seconds multilingual app wherein there is a nudge to the trade manager so that there is standardization across uh the board uh when the personal decisions are done. 20:30 20 minutes, 30 seconds These personal discussions are rated. 20:32 20 minutes, 32 seconds These personal decisions then later the quality of the personal discussions helps help us to uh gauge wherever we need uh trainings for the credit 20:41 20 minutes, 41 seconds managers because all these these are rated. Apart from this uh we have sent in a lot of uh fraud risk uh aspects so 20:50 20 minutes, 50 seconds that because uh these are all distributed uh branches. So there are a lot of filters wherein we have tightened 20:58 20 minutes, 58 seconds the fraud risk filters. So uh these are the additional things which we have done on the risk. Apart from this there is also uh see earlier we had uh planning 21:08 21 minutes, 8 seconds their policy. But now what we have also done is that of late since last six to seven months we have started rating the branches based on the performances. So 21:16 21 minutes, 16 seconds all the branches are rated on the performance and based on the risk categorization of the branches there are actions defined. Uh so this is one of 21:24 21 minutes, 24 seconds the additional thing which uh is also helping us from the uh risk management. 21:31 21 minutes, 31 seconds Thank you and best wishes. Thank you. 21:37 21 minutes, 37 seconds Thank you. Next question comes from the line of Ragav with Amit Capital. Please go ahead. 21:43 21 minutes, 43 seconds Uh hi. Thanks for the opportunity. Am I audible? 21:48 21 minutes, 48 seconds Okay. Uh so so see I have a few questions. one your salary levels have not increased since last 9 10th quarters 21:56 21 minutes, 56 seconds when I look at employee opex by the average employee count that number has not really increased uh for a long period of time and then even your other 22:04 22 minutes, 4 seconds opex per branch has not increased can you help me understand how has this been possible um and uh till what time uh 22:12 22 minutes, 12 seconds such negligible growth in per unit cost can continue uh that is my first question so you know in terms probably if 22:21 22 minutes, 21 seconds would have looked at our opex uh a couple of years back. I guess the question would have got reversed. So what happened was that significant 22:30 22 minutes, 30 seconds amount of investments had poured in at an initial level because that was the large investments that we did uh at a 22:37 22 minutes, 37 seconds state and at uh regional offices and above across all supervisors. 22:43 22 minutes, 43 seconds Thereby as we keep growing the incremental cost is not a significant incremental cost that we have. The 22:50 22 minutes, 50 seconds incremental cost is fairly u you know to to the front end teams where the unit 22:57 22 minutes, 57 seconds cost is fairly low. So you will not see a big spike coming through although there is going to be an uh employee cost 23:05 23 minutes, 5 seconds which will move up on an absolute basis but at the unit economics level obviously the increase is not going to 23:11 23 minutes, 11 seconds be large. Uh that was what we also said is that as we get deeper into market so just look at it if you are probably in a 23:19 23 minutes, 19 seconds metro and you go down to tier one tier 2 and tier three your marginal cost is only expected to go down rather than 23:26 23 minutes, 26 seconds going up. So I think that explains that why we are trying to uh you know uh you know call out saying that despite 23:35 23 minutes, 35 seconds delivering an opex optimization over the last 3 years we are still calling out that we will reduce our opex by 20 to 25 basis largely on the same principle. 23:46 23 minutes, 46 seconds Understood. Uh my second question is uh see I see that your dispersement volumes are not really growing uh they are in 23:55 23 minutes, 55 seconds fact down y uh and yet you're building up the manpower. Uh what I wanted to understand uh is your thought process 24:02 24 minutes, 2 seconds behind this that you know despite the resources coming down in volume terms uh you're investing in employees. So just 24:11 24 minutes, 11 seconds want to understand that better how should I read this? Uh yeah so uh yeah so through the year some bit of addition 24:19 24 minutes, 19 seconds of branches that happened were largely on account of gold uh in in some of these branches uh these were not largely 24:27 24 minutes, 27 seconds ME branches but these were largely driven on uh gold on on account of gold but uh you know as I said in my opening 24:36 24 minutes, 36 seconds remarks there is never a perfect time where you can actually sit down and decide how your distribution is going to unfold over the next three years. Uh so 24:44 24 minutes, 44 seconds in terms of the absolute judgment that we get from lending in some of the markets we see that you know we are 24:52 24 minutes, 52 seconds doing well in some of the pockets we have a reasonable market share we have an early mover advantage and we will continue to deepen our presence. markets 25:01 25 minutes, 1 second where we are not very confident of uh some pockets in south, some pockets in east and and some pockets in uh in west where we are not very confident of. 25:11 25 minutes, 11 seconds We've not shunned away those branches but we've paused the momentum in some of these markets. As things tend to get 25:19 25 minutes, 19 seconds better, can we accelerate? The answer is yes. Uh can we move back to a number of roughly on an average of 300 crores a 25:27 25 minutes, 27 seconds month? The answer is yes. So I guess what we want to be really really clear is that we have a distribution in place 25:34 25 minutes, 34 seconds whether it is respect to branches or whether it is in respect to people that as and when things get better on an 25:42 25 minutes, 42 seconds external basis where we feel that we have the ability to accelerate we will go ahead and accelerate. 25:49 25 minutes, 49 seconds So I think the view is more long-term rather than very very short term as to what's going to happen next quarter uh or so. 25:58 25 minutes, 58 seconds Uh can you also give me the total number of collection staff? I think last quarter you had given this was 550 uh as of third quarter. Uh what is that number 26:07 26 minutes, 7 seconds as of uh March? The the the number is largely the same. I mean some four or five here or there but largely the same. 26:17 26 minutes, 17 seconds Sure. I have one more question. Can I uh Yes, please go ahead. Please go ahead. 26:24 26 minutes, 24 seconds Okay. Sure. So see I think just now you mentioned that you would largely uh remain on a direct sourcing model uh if 26:31 26 minutes, 31 seconds I heard that correctly. Um I'm sure you've thought it out uh you know in terms of your strategy. But what we've seen with some of these other affordable 26:39 26 minutes, 39 seconds housing finance companies and even the you know the the small scale NBS is that uh uh depending uh largely on indirect 26:49 26 minutes, 49 seconds has scalability challenges you know when your size grows larger uh and eventually what we've also seen is that some of these affordable housing finance 26:57 26 minutes, 57 seconds companies uh uh start to increase their dependence on external sourcing models such as GFAs and connectors. So uh when 27:06 27 minutes, 6 seconds you say that you're going to remain largely uh direct uh do you also kind of bake in the possibility that at some 27:14 27 minutes, 14 seconds point in time you will have to start outsourcing uh uh you know sales or you know start depending on DFAS or 27:21 27 minutes, 21 seconds connectors or or what is your thought process here because I believe that that just at a larger scale it just ends up 27:28 27 minutes, 28 seconds being uh it ends up adding to your efficiency sourcing efficiency uh but uh but but happy to have your thoughts on this 27:37 27 minutes, 37 seconds there's no uh right or wrong answer whether we go indirect or direct. So what has happened is that over a period of time uh when we when we grew and grew 27:46 27 minutes, 46 seconds our distribution across uh the country we realized that uh we there is a lot of opportunity and like we said that it's 27:54 27 minutes, 54 seconds only 30% of the districts we have gone in and a lot of these infos within those districts that we have gone in we've not covered the entire 30 kilometers. So uh 28:02 28 minutes, 2 seconds from a from a distribution perspective uh the idea is to have a right quality of uh credit and getting the growth that 28:10 28 minutes, 10 seconds you can uh actually absorb. Uh to that effect we have actually not felt the need to go out to the DSA or a connector 28:17 28 minutes, 17 seconds um uh in in chase of growth because that is available as far as our distribution is concerned. So from from our point of 28:25 28 minutes, 25 seconds view at this point in time we don't see the need to go in we we see that uh to achieve a run rate of say a 20% 28:32 28 minutes, 32 seconds disbustal growth for next year we would not really need uh need a really uh to go out what we'll need is a good credit 28:40 28 minutes, 40 seconds environment to continue to penetrate continue to disbbur uh and over a long period of time if eventually we realize 28:47 28 minutes, 47 seconds that there is a need of a connector or or there is a need of diversifying the distribution in different man we will do 28:54 28 minutes, 54 seconds it but for at least for the next two years we don't uh seem to have that need to uh go and chase growth through uh 29:02 29 minutes, 2 seconds through other channels so you know if you if I would probably answer it slightly differently just look 29:10 29 minutes, 10 seconds at it what's the ask the ask is that you know if we have to grow uh at if we have to double our book over the next 3 to 29:18 29 minutes, 18 seconds four years uh the ask is anything that you would grow at say 20 to 24 odd%. 29:24 29 minutes, 24 seconds That translates to a dispersal say of 300 crores a month uh for the full year uh you know on an average. Now given the 29:33 29 minutes, 33 seconds distribution number of people that we have and the ticket sizes plus the coordination benefit uh you know that we 29:40 29 minutes, 40 seconds have along with ICI uh I think there's enough and more to be done in the distribution pinpoints that 29:46 29 minutes, 46 seconds we've created. uh we don't feel the need to actually divert and focus our attention because that's a very 29:54 29 minutes, 54 seconds different model. The costs are very different. The productivity asks are very different. The attrition levels are different. So you have to pencil in a 30:03 30 minutes, 3 seconds lot more. So it comes and distorts your core profitability that you've built or the core unit economics that you in the 30:10 30 minutes, 10 seconds current stage of the cycle where we are where SBSC is. I think we will continue to do what we've been doing so far as 30:18 30 minutes, 18 seconds and when there is any change we will definitely call out but so far we will continue executing what we've been doing. 30:27 30 minutes, 27 seconds Understood. So, so when you guide for uh say a 26% growth for the next two three years, uh I uh so what I'm given to 30:36 30 minutes, 36 seconds understand is that that probably assumes that you're building in some level of improved productivity uh uh for your employees right because when I see it 30:44 30 minutes, 44 seconds here your number of files per employee has come down but uh you think that uh with a better environment uh in next one 30:52 30 minutes, 52 seconds two years that should that productivity level should improve right and so hence the for not going out uh and you know timing up DSAs and connectors also. 31:01 31 minutes, 1 second Yeah, absolutely. So you know if you look at uh and what we had called out in a couple of quarters or last quarter is 31:08 31 minutes, 8 seconds that we felt that the leverage at the family household level in certain pockets certain states uh you know have 31:16 31 minutes, 16 seconds gone up. Uh so the decision to go slow uh was clearly ours. So the who sales 31:23 31 minutes, 23 seconds manager on the ground uh you know is not to be blamed for it. So this was a conscious decision that we took some of 31:30 31 minutes, 30 seconds the states that we decided to move out uh you know couple of them in east and you know one in north uh the decision 31:39 31 minutes, 39 seconds was largely uh you know ours. So uh so clearly I think the the pace and the 31:45 31 minutes, 45 seconds momentum uh what we would like to drive obviously uh the productivity count at a 31:52 31 minutes, 52 seconds at a at a sales manager level is just an outcome of it. We feel the environment is better. We feel the leverage levels at household level are beginning to 32:01 32 minutes, 1 second improve, beginning to change. You will see a collateral benefit of it. 32:08 32 minutes, 8 seconds Understood. Thanks a lot for all the example. Thank you. 32:14 32 minutes, 14 seconds Thank you. Next question comes from the line of Christian Chawati with Kota. Please go ahead. 32:21 32 minutes, 21 seconds Hi, thanks for taking my question. Uh if I look at the book growth this year, you know purely gold has done heavy lifting. 32:32 32 minutes, 32 seconds Uh you know uh you know how should we think about next year? I know you you you gave your growth targets. you mentioned the mix of 7525 32:40 32 minutes, 40 seconds but uh is this kind of considering flat gold prices uh if not a not a sharp decline I mean I'm sure if there is a 32:48 32 minutes, 48 seconds there is a sharp rise then then it's it's much easier to achieve this so how should one think about the sensitivity of gold to the growth guidance and 32:55 32 minutes, 55 seconds growth mix that you have shared yeah certainly since uh you've hit the nail on the head so clearly uh gold 33:03 33 minutes, 3 seconds prices uh you know most of the gold growth which has happened not only for us but I think across the industry is 33:11 33 minutes, 11 seconds largely price driven uh I don't think the volume or the tonnage uh you know is going up uh so most of the growth that's 33:19 33 minutes, 19 seconds even come for us is largely on account of price are the prices expected to go down the view is very unlikely but it's 33:28 33 minutes, 28 seconds expected to be rangebound or adverb stay where it is uh so largely the growth is going to come in from the volume uh of 33:37 33 minutes, 37 seconds branches that we've added and hence that growth is what is got pencled in for gold this year uh and that's what you 33:46 33 minutes, 46 seconds know I had uh mentioned in my opening remark saying that if the percentage uh what we've penciled in is largely 33:53 33 minutes, 53 seconds assuming that all the branch additions that we've done in gold through the year will give you a full year benefit in uh FI2. 34:04 34 minutes, 4 seconds Sure. Sure. Got it. And uh you know just on the credit cost side uh you know you clearly shown uh started to show improvement in the early delinquency 34:12 34 minutes, 12 seconds numbers uh and and you still kind of guided for credit cost remaining you know five basis points kind of 34:19 34 minutes, 19 seconds rangebound. So uh is it something that uh probably the uh the older vintages need to be cleared out and and you think 34:27 34 minutes, 27 seconds there was or it's just a positive sidence given the way the macro is. 34:32 34 minutes, 32 seconds Yeah. So, so you know miss the if you look at the overall macro and the commentary uh and I think AI uh you know 34:40 34 minutes, 40 seconds beautifully articulated that you know you don't know which way the fuel prices are going to go if what happens if it goes up what happens if there's a you 34:49 34 minutes, 49 seconds deficient rainfall you have a you have a hard summer so it's very difficult to pencil in what that impact is going to 34:57 34 minutes, 57 seconds be uh so the just to be on the side of caution what we've right is that we will continue to probably maintain the credit 35:06 35 minutes, 6 seconds cost in case whatever we've pencled out the exingencies don't play out the way we think then probably we'll surprise it 35:14 35 minutes, 14 seconds but I mean the way we see it as of now we would like to uh you know maintain the same credit cost moving forward just 35:22 35 minutes, 22 seconds to [clears throat] add what man told see uh so very early but uh based on our record numbers we don't see any uh 35:30 35 minutes, 30 seconds stress emanating from whatever filters which are showing some stress because of the LPG and fertilizers. So there's 35:39 35 minutes, 39 seconds nothing which is uh showing a color over there on a negative trajectory. In fact, our bounces are marginally dead but it's 35:46 35 minutes, 46 seconds too early to and based on the current plans uh you know assuming that that growth kind of 35:55 35 minutes, 55 seconds rolls out the way we are looking at uh your sufficient on capital where 36:02 36 minutes, 2 seconds so we are at 33% C uh if you just extrapolate on 11,000 cr we can easily 36:10 36 minutes, 10 seconds move uh two full year to around 18 to 19,000 cr uh 20% of it also comes from core emission. So to that extent your 36:19 36 minutes, 19 seconds capital at equals will be around 24 to 26% at that point in time which is when you would want to go out and uh see the 36:28 36 minutes, 28 seconds market. So uh at the moment um I think around 2 years from now is at a minimum that you can use up the capital and the approval of profits. 36:39 36 minutes, 39 seconds Got it. Got it. Thank you very much and all of this. 36:44 36 minutes, 44 seconds Thank you. Next question comes from the line of Raj Pat. Please go ahead. 36:55 36 minutes, 55 seconds Mr. Patel please go ahead. Hi Mr. 36:59 36 minutes, 59 seconds Yeah. Hi. Thanks for the opportunity. So I just wanted to know uh like what what is the thought process behind laying down the branch infrastructure and is 37:07 37 minutes, 7 seconds there any up and spoke model or what's the model in which we grow the branches? 37:11 37 minutes, 11 seconds So is there any tier one branch, tier two branch like how do we look at the branch infrastructure that we have? 37:18 37 minutes, 18 seconds Yeah. So I think our decision to invest uh in branches or more number of branches depends largely on one on how 37:26 37 minutes, 26 seconds the state has been uh you know delivering. So if you probably look at our investor slides you'll see almost 37:33 37 minutes, 33 seconds 60% of our branches which are more than 3 years with an average AUM of 66 crores and above. uh so which demonstrates that 37:42 37 minutes, 42 seconds there has been some aging in that particular geography. There has been a credit outcome. There has been a profitability matrix that we are 37:51 37 minutes, 51 seconds comfortable with and when we are comfortable with that distribution and those outcomes that's when we start implementing more branches and start 37:59 37 minutes, 59 seconds going deeper in those states. Uh the philosophy is very simple that we would like to if it's a new state we would 38:06 38 minutes, 6 seconds like to go slow for at least 18 to 24 months. Uh we would like to see how the profitability pans out because uh the 38:16 38 minutes, 16 seconds credit costs tend to give you some sort of color after 18 to 24 months. So clearly post credit cost how is that 38:23 38 minutes, 23 seconds state behaving or how are those cluster of branches behaving and that's how the branch strategy gets played out. What we 38:31 38 minutes, 31 seconds tend to do is that we tend to originate anything uh you know within 30 odd kilometers. We have a cluster approach 38:38 38 minutes, 38 seconds where you have a hub or you have a senior supervisor managing a cluster of five or six odd branches in that 38:46 38 minutes, 46 seconds particular state. And uh you know we we keep expanding based on the profitability outcomes in each and every 38:53 38 minutes, 53 seconds geography and state. Add to it what we also top it up is our bureau scores. uh the bureau scores get refreshed every 39:01 39 minutes, 1 second quarter and uh that is done at a pin code level. So that's a good alert that comes in and we try and triangulate the 39:08 39 minutes, 8 seconds bureau scores with our own portfolio performance to determine whether we should expand in those geographies or 39:16 39 minutes, 16 seconds you know continue to be at the same pace or reduce the momentum in some of these markets. 39:25 39 minutes, 25 seconds Sure. So just a follow-up question on the profitability side. So we've already reached a 15% ro. So uh uh over the next 39:34 39 minutes, 34 seconds 3 years uh like is it is it reasonable to assume that we'll reach 18% and are we looking at adding 39:42 39 minutes, 42 seconds any other products other than MSN gold over the next couple of years? 39:46 39 minutes, 46 seconds See it will be very optimistic for us to go and say out that we'll reach 18% RO. 39:52 39 minutes, 52 seconds uh what we've done over the years is just to ensure that the metrics uh that are that are important continue 40:00 40 minutes to deliver and roe then becomes an outcome. So just to lay out numbers, we are at around 3.17 of leverage and 4.57 40:11 40 minutes, 11 seconds of ROA. If you multiply that, you're closer to 14 and a half% of ROE. Uh going forward, you are at 11,000 cray 40:20 40 minutes, 20 seconds you go at 25%. And your uh because this is entirely funded through borrowing. If 40:26 40 minutes, 26 seconds your uh ROA compresses say at 25 basis point and your leverage goes up by 30 to 40:33 40 minutes, 33 seconds 40 basis point just on the on funding the growth you will effectively uh get a full year of more than 15% which is 40:42 40 minutes, 42 seconds currently at 14.18 if you go further you can just extrapolate it to another 40 basis point of um of leverage and the 40:51 40 minutes, 51 seconds ROI compresses further. So uh ro is an outcome. What we continue to maintain is that the growth has to be uh in the 40:58 40 minutes, 58 seconds range that we that we lay out. Uh the the cost matrices has to be consistent and we and we we control the 41:05 41 minutes, 5 seconds controllable. So uh if opex is there we we as management want to control those numbers and and for the last three years 41:13 41 minutes, 13 seconds we have done that we want to continue doing it for another two to three years. 41:18 41 minutes, 18 seconds uh cost of borrowing again uh is a is a function of negotiation and also the function of what happens in the market. 41:24 41 minutes, 24 seconds So that's something that the good news we don't pencil in. So that uh continues to remain uh flat in our guidance uh and 41:32 41 minutes, 32 seconds and of course cost of credit right now is unpredictable and therefore we give a flat guidance. So all those matrices if 41:39 41 minutes, 39 seconds if things are stable uh should give us uh an outcome that is favorable from where we are. Sure. 41:51 41 minutes, 51 seconds That's it from my side. Thank you. Thank you. 41:56 41 minutes, 56 seconds Thank you. A reminder to all the participants that you must have star and one to ask a question. Next question comes on the line of Malutra with incorrect equities. Please go ahead. 42:08 42 minutes, 8 seconds Yeah. Hi, thank you sir for the opportunity to ask a question. I have two quality questions and two data. one 42:15 42 minutes, 15 seconds is there's a slight increase in the AUM share from the western regions uh from 42:21 42 minutes, 21 seconds 15% uh to 23% within the quarter. So can you please throw some light on that? 42:29 42 minutes, 29 seconds So uh in so all through the year uh so so what's optically happened is that 42:36 42 minutes, 36 seconds south the dispersals in south uh and the resultant amum in south grew a little softer uh last year uh which was more 42:46 42 minutes, 46 seconds than made up uh in some of the key markets in west and that's the reason you see uh that mix changing uh the 42:54 42 minutes, 54 seconds south markets are beginning to turn for the But still yet to reach to their peak levels. 43:02 43 minutes, 2 seconds So the mix largely is going to remain the same at least for the next two quarters. 43:09 43 minutes, 9 seconds Okay. Because last quarter to this quarter I mean it's a a little bit of a sharp movement from 15% to 23%. 43:18 43 minutes, 18 seconds AUM on western region. So you think the map recap, right? A1 region Y. 43:27 43 minutes, 27 seconds Uh unlikely, but let's uh probably clarify to you offline on this one versus here. But you unlikely, but let's clarify this. 43:37 43 minutes, 37 seconds Okay. And so uh you mentioned that uh in the newer geographies that we are moving into, we plan to increase uh market 43:46 43 minutes, 46 seconds share in a similar manner that we have demonstrated in the past. So can you give some more color on how do we plan to go about in that besides the acquisition of the new customer? 43:58 43 minutes, 58 seconds No, without acquisition of new customer need to get it. I'm interested to get it. Sorry for my uh yeah so obviously uh 44:06 44 minutes, 6 seconds you know when you are getting into the smaller towns in you know tier 2 tier three uh by design uh you would have 44:15 44 minutes, 15 seconds customers who are new to credit uh or new to borrowing against uh their asset for the first time. So, so nothing 44:23 44 minutes, 23 seconds really changes. It's just that probably the geography and the pin codes that we aren't present uh that gets taken and as 44:31 44 minutes, 31 seconds you get deeper by design uh your share in the overall mix or the share in the overall market is uh is bound to improve and is bound to get better. 44:44 44 minutes, 44 seconds Um have I understood your question uh or was it something else that you were seeking? I was just trying to understand how is it that we uh get market share. 44:55 44 minutes, 55 seconds How do we get Yeah. Yeah. How do you add acquirement? 44:58 44 minutes, 58 seconds Oh. Oh, okay. Okay. Okay. So, the way it works is that you know you have a bureau data that's available to you and that 45:06 45 minutes, 6 seconds defines that what is the lending uh say for example we are in a ticket size between five and 30 lakhs. uh so they uh 45:15 45 minutes, 15 seconds box the entire market opportunity or the lending which has happened in that category across states and that's done at a pin code level. So when I enter a 45:24 45 minutes, 24 seconds state or I'm at a particular state let's assume that the total lending in that state is 100 and if I lend five so then I say that 45:33 45 minutes, 33 seconds the total share my my share in that particular state is 5%. 45:38 45 minutes, 38 seconds uh as I keep getting deeper and the overall denominator keeps improving I get to see how my market share is improving over a period of time or 45:47 45 minutes, 47 seconds probably I'm losing out on the market share whatever but the benchmark is that you get a bureau score on the market 45:54 45 minutes, 54 seconds sizing and the tan uh for the segment that you're operating in and then you measure your performance market 46:02 46 minutes, 2 seconds okay and on the data point what are the colon branches I mean we have purely branches. 46:10 46 minutes, 10 seconds It's close to 220 odd branches out of 251. 46:14 46 minutes, 14 seconds That would be purely gold. And lastly, what is the management overlay that we have for provisions over the uh the regulatory requirement? 46:24 46 minutes, 24 seconds So, we don't have any additional overlay. It's just the refresh of the model happens in March and that refresh 46:31 46 minutes, 31 seconds is reflecting on stage wise provisioning. There's no additional overlay there. Oh, thank you so much. 46:41 46 minutes, 41 seconds Thank you. Next question comes from the line of Mi Sha with Meritage Capital. 46:48 46 minutes, 48 seconds So am I. Yes. Yeah. Yeah. Please go ahead. 46:54 46 minutes, 54 seconds I just have a question on the um ARC bell down. I know that this is um um you know like a business as usual activity 47:02 47 minutes, 2 seconds but if you can provide some color on how you use um PRC sellowns what type of loan are you typically selling down 47:11 47 minutes, 11 seconds versus choosing to um you know try and connect yourself and really how should we read this number because I think the 47:18 47 minutes, 18 seconds GMPA number can look different depending on this or not. So this would be helpful to get your thoughts on on how we think about this. 47:28 47 minutes, 28 seconds over a period when the portfolio matures you uh do various measures on the way it needs to be collected. So over the last 47:36 47 minutes, 36 seconds 3 years we've seen the overleveraging to the customer the maturity of the portfolio and all of it plays out and therefore at uh at times you feel uh 47:46 47 minutes, 46 seconds that there is a clean up of the portfolio required where you don't really see collection beefing up in certain assets. So those asset classes 47:53 47 minutes, 53 seconds then we play it out to ARC's at a certain commercials and then see if those recoveries can better happen under 48:02 48 minutes, 2 seconds the surfacey route that they they can use. Uh so that's the idea the the cleanup happens uh for assets that you 48:10 48 minutes, 10 seconds generally uh are facing problems to collect easily or that the time value of money is uh so much that you don't want 48:17 48 minutes, 17 seconds to invest so much uh yourself. So that's the idea on selling down to ARC then if the benefit comes from that side that 48:25 48 minutes, 25 seconds acrews and gives you a boost in the P& 48:35 48 minutes, 35 seconds focus around [clears throat] sorry for interrupting Mr. SH your voice is breaking. Can you come in the R and talk? 48:46 48 minutes, 46 seconds Is this any better? Yes, please go ahead. Yeah, I was just saying that I know that um you know you uh think in 48:54 48 minutes, 54 seconds terms of credit costs, but if you were to talk about slippage rates, is there a range that you would be comfortable with either on a gross or a net basis that you that you could talk about? 49:06 49 minutes, 6 seconds uh we uh like we said earlier in the call that we focus on that oneplus numbers and those oneplus gets derived 49:14 49 minutes, 14 seconds from what flows from stage 0 to one and one to two and those resolution percentages are are something that we 49:21 49 minutes, 21 seconds hold on very tight internally and those are the numbers that we uh continue to track and those numbers over period will 49:28 49 minutes, 28 seconds give you a resultant uh cost of credit which is which is the eventuality. So we uh so all those ratios we we track it in 49:37 49 minutes, 37 seconds the in the form of OnePlus being in the range of say 7 to 9% a credit cost being in the range right now at say 1.2 to 49:45 49 minutes, 45 seconds 1.4%. Those are the numbers internally we benchmark those are the numbers that we give give out to the team uh to give us the performance. 49:54 49 minutes, 54 seconds Understood. Thanks a lot. 50:00 50 minutes Thank you. Next question comes from the line of man of Sha with spiral well please go ahead. 50:11 50 minutes, 11 seconds Mr. Sha please go ahead with the question. 50:17 50 minutes, 17 seconds Mr. Sha please unmute yourself and go ahead with the question. Am I audible? Yes please go ahead. 50:26 50 minutes, 26 seconds Yeah. So actually my question was regarding your rating. So can we expect a credit rating upgrade that can come up in coming quarters? 50:41 50 minutes, 41 seconds Oh I cannot I mean we cannot comment on what is not in our hands. Uh I mean that that is a function of what the rating agencies evaluate. So it would not be 50:49 50 minutes, 49 seconds fair on us to comment on that. Would we would we hope for it? You know you know yes but uh you know can we comment on it? No. 50:57 50 minutes, 57 seconds Yeah. Okay. Thank you. 51:03 51 minutes, 3 seconds Thank you ladies and gentlemen. That is the last question for today. We have reached the end of question and answer session. I'll now end the conference over to the management for closing comments. 51:12 51 minutes, 12 seconds Thank you for taking out the time early in the morning. Thank you so much. 51:19 51 minutes, 19 seconds Thank you on behalf of SBFC that concludes this conference. Thank you to journalists. You may now disconnect this.