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Fedbank Financial Services Limited Q1 FY '25 Earnings Conference Call Summary
Date and Submission • Date of Call: July 19, 2024 • Transcript Submission: July 26, 2024, to National Stock Exchange of India and BSE Limited
Key Management Participants • MD and CEO: Anil Kothuri • CFO: C.V. Ganesh
Financial Performance Highlights • Assets Under Management (AUM): • 8% quarter-on-quarter growth • Total AUM reached INR 13,188 crores (40% year-on-year increase) • Gold loans contributed 59% of AUM growth • Profit After Tax (PAT): • INR 70.23 crores (30% year-on-year increase) • Cost-to-Income Ratio: Improved • Gross Non-Performing Assets (GNPA): Increased by 30 basis points
Gold Loans and Disbursements • Gold Loan Growth: • 15% increase in gold loans • 39% quarter-on-quarter and 73% year-on-year rise in gold loan disbursements • Total Disbursements: Exceeded INR 5,000 crores
Operational Changes • Electronic Disbursals: Transitioned to 100% electronic for gold loans per RBI regulations • Branch Expansion Plans: • 50 new gold loan branches • 30 small mortgage branches
Borrowing and Cost Insights • Cost of Borrowing: • Increased to 9.3%, with stabilization expected around 9% • Provision Coverage Ratio (PCR): Stable at 1.2%
Asset Quality and Challenges • Delinquencies: Broad increase noted, with no specific geographical issues • Gross Stage III Assets: Increased from 2.2% to 3% in the mortgage segment
Future Guidance • AUM Growth Target: 25% for FY '25 • Return on Assets (ROA): Target of 2.7% to 2.75% • Return on Equity (ROE): Target of over 14%
Closing Remarks • Management Commitment: Addressing asset quality issues and maintaining operational efficiency.
Fedbank Financial Services Limited Q4 FY 2024 Earnings Call Summary
Key Highlights • Date of Call: April 29, 2024 • Management Present: MD & CEO Anil Kothuri, CFO C.V. Ganesh • Assets Under Management (AUM): Increased by 14% to Rs. 12,191 crores • Disbursals: Rs. 4,337 crores, with notable growth in gold loans • Net Profit: Rs. 244.7 crores, a 36% year-on-year increase • Asset Quality: Gross Non-Performing Asset (GNPA) ratio improved to 1.66% • Growth Outlook: Management confident in achieving over 25% growth in the next fiscal year
Analyst Inquiries and Management Responses • Disbursement Yields: Declined by 40-50 basis points; stable yields per product attributed to product mix changes and co-lending introduction. • Direct Assignment Losses: Recent losses linked to unwinding previous gains, not asset quality deterioration. • Cost of Borrowing: Slight increase noted; confidence in future decreases. • Regulatory Compliance: Strong compliance in the gold loan sector; proactive measures in place. • Seasonality in Gold Loans: Q1 typically weaker; potential for good performance due to rising gold prices and reduced competition.
Financial Metrics and Expectations • Slippage and Write-offs: Detailed figures provided; Rs. 284 crores in direct assignments completed. • Operating Expenses (OPEX): Improvements noted; expenses tied to loan originations. • Branch Expansion: Plans to open 50 gold loan branches and 30 small mortgage locations; focus on efficient growth. • Cost-to-AUM Ratio: Expected improvement by 30-40 basis points from current 5.2%.
Strategic Initiatives • Salesforce Transition: Piloted in 20 branches; linked to OPEX improvements. • Higher Ticket Sizes: Policy change allowing larger loans; strategy to retain higher-yielding assets. • Future Growth Plans: Credit growth guidance of 25%; potential for higher growth under favorable conditions.
Conclusion • The call concluded with expressions of gratitude from management and the moderator, highlighting the company's positive outlook and strategic focus for the upcoming fiscal year.
Fedbank Financial Services Limited Earnings Conference Call Summary
Key Financial Highlights • Profit After Tax: INR 654 million for Q3, 28% year-on-year growth. • Assets Under Management (AUM): Increased by 34% to INR 107.1 billion, driven by INR 33 billion in disbursements. • Asset Quality: Gross non-performing assets (GNPAs) declined to 2.2%. • Credit Rating: Upgraded to AA+ by CARE ratings.
Management Insights • Interest Margins: • Influenced by enriched product mix, co-lending strategies, and credit rating upgrade. • Potential impact from increased risk weights due to RBI circular. • Borrowing Rates: Discussions suggest lower-than-expected increases, supported by strong liquidity and MSME focus.
Loan Strategies • Unsecured vs. Gold Loans: Skepticism about significant shifts from unsecured loans to gold loans due to differing customer profiles. • Leverage Strategy: Potential leverage of 6.5x to 7x equity, with a focus on maintaining strong margins.
Credit Card Segment • Expected Credit Loss (ECL): Write-off of INR 17 crores; steady-state credit cost expected around 80 basis points. • AUM Mix: Confidence in stable or improving net interest margins (NIM) due to favorable product mix.
Competitive Landscape • Small Mortgage Segment: Low competition; company operates in 17 states with only 3% of AUM in this segment. • Unsecured Loans: Aiming to keep below 15% of portfolio, currently at 13%.
Provisioning and Operational Efficiency • Provisioning Coverage Ratios (PCR): Adequate levels for Stage 2 and Stage 3 loans, with plans for adjustments. • Cost-to-Income Ratio: Recent drop to 56% expected to be sustainable due to IPO funds and branch expansions.
Branch Expansion and Growth Projections • Branch Increase: Small mortgage branches increased from 130 to approximately 180. • Growth Rate Projection: Compounded growth rate of 25% anticipated, focusing on optimizing existing products.
Conclusion • Management's Outlook: Optimistic about financial positioning and risk management, with a focus on gradual improvements and strategic growth.
Earnings Performance • Date of Call: December 11, 2023 • AUM Achievement: Rs. 10,000 crores, 38% YoY growth • Profit After Tax: Rs. 57.8 crores, 25% increase • Branch Expansion: Opened 23 new branches focusing on small-ticket mortgages • Asset Quality: Improved metrics, slight increase in issues stabilized post-September
Strategic Focus • Target Market: Underbanked segments with personalized loan offerings • Co-lending Partnerships: Collaborations with a large private bank and a foreign bank • Growth Strategy: Continued growth expected from gold loans and small-ticket mortgages
Financial Projections • Future AUM Growth: Target of 25-30% for FY24-25 • ROA Projections: Consistent ROA of 2.3-2.4%, expected to exceed 2.5% by year-end • Cost of Funds: Potential increase of 25-50 basis points due to RBI norm changes
Borrowing and Compliance • PSL Compliance: Under 10% of bank borrowings are PSL compliant • Average Spread: Around 8% over the last two quarters • Cost-to-Income Ratio: Expected improvement as income growth outpaces expense growth
Asset Quality and Loan Products • Performance of Small Mortgage Customers: Stable post-COVID • Unsecured Business Loans: No signs of stress • Loan Yield Increase: Yields on various products have improved compared to the previous year
Off-Book AUM Strategy • Current Off-Book AUM: 14%, aiming to increase to 18-19% • Loan Growth Guidance: Target of 25% to 30% AUM growth for FY25
Closing Remarks • Participants: Anil Kothuri (CEO), Equirus Securities, and other stakeholders • Conclusion: Thanked participants and management for their contributions.