Can Fin Homes conducted a conference call 20 July 2023 to discuss its financial results for the quarter ended June 2023. Suresh Iyer. MD and CEO of the company addressed the call:

Highlights:

The company has maintained healthy in growth in disbursements and sanctions which has led to strong 18% growth in the loan book end June 2023.

The company has improved spreads by 16 bps and margins by 11 bps in Q1FY24 driven by repricing of loan book.

The NPAs of the company have increased by Rs 30 crore in Q1FY24, of which Rs 19.5 crore came from the restructured loan book of Rs 250 crore which came of out of moratorium in February and March 2023.

The slippages from the restructured loan book amount to 8.67% which is lower than the estimate of 10%.

The company has not reversed the management overlay provisions of Rs 17 crore despite part of the restructured loan book coming out of the moratorium.

The company has also continued to hold Rs 67.69 crore of provisions on restructured loan book.

The company still has Rs 12500 crore of advances yet to witness repricing of 35 bps, which is expected to lead to 3-5 bps improvement in NIM going forward.

The complete repricing of the loan book is expected to be completed by December 2023

The company has witnessed decline in the cost of funds on account of raising of CPs and some reduction in interest rate from few banks.

The loan book has increased by Rs 1000 crore, while the borrowings have remain steady contributing to the decline in cost of funds.

Majority of the borrowings of the company are repo linked and the company is in talk with the banks to reduce the spreads.

The company is comfortable to maintain the mix between salaried and non salaried segment at current level.

About Rs 475 crore of restructured loan book has come out of moratorium, of Rs 250 crore has completed 3 months on the balance book the company is expecting 10% fresh slippages.

The company has Rs 216.62 crore of restructure loan book which is expected to come out of moratorium by November 2023

However, the company does not expect gross NPAs to cross 0.7% mark.

The company plan to open 15 branches in FY 2024 of which the company has completed surveys for 12 branches out of that 4 are expected to be opened in Q2 and 8 in Q3 and the balance 3 would be opened in Q4.

Out of the 15 branches proposed to be opened in FY24, 4 branches are to be added in South, 9 in West and North and 2 in East. All these branches would be added in urban towns and none in the metros.

The new business at lower yield and interest income de-recognition on fresh NPAs of Rs 30 crore have impacted the yields of the company in Q1FY24.

The company is expecting to maintain cost income ratio at 17- 18% with the continued investment in expansion and technology.

The company aims to maintain spreads of 2.5% and NIMs of 3.5%.

About 25% of the long term borrowing has to come from the market, so the company has approved Rs 4500 crore of NCD raising.

The company has maintained the guidance of 18-20% growth in disbursements and loan book.

The company expects internal accruals to be sufficient to fund growth of 18%. If the growth picks up, the company may consider the capital raising.

A company is comfortable with the gearing ratio of 8 times.

The inflation is expected to contribute 3-4% of the growth, while increasing ticket size would contribute 5% of the growth and improving branch efficiencies serve 10% of the growth. The average ticket size is expected to increase to Rs 25-27 lakh from 22 lakh.

The borrowings of the company stood at Rs 29700 crore end June 2023.

The quarterly balance transfer would be Rs 100-125 crore.

The credit cost which would not be recovered stands at 10 bps.

The company pays 0.40% commission for DSA sourcing of loans. DSAs contribute 80% of overall loan sourced.

The company has accelerated the process of tying up with the builders and expects results from Q2 onwards.

The company aims to reduce the share of DSAs to 60% in next three years. Thus the company expects builder tie-ups to contribute 20% of the sourcing, digital sourcing 10% and direct sourcing 10%.