MAS Financial Services Ltd
NSE:MASFIN
MAS Financial Services Ltd
NSE:MASFIN
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Ladies and gentlemen, good day, and welcome to the MAS Financial Services Q4 FY '24 Earnings Conference Call hosted by DAM Capital Advisors. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Sanket Chheda from DAM Capital Advisors. Thank you, and over to you, sir.
Yes. [indiscernible] Q4. We have with us [indiscernible] Mr. Kamlesh Gandhi, who is our Chairman and Managing Director; Ms. Darshana Pandya, who is Director and CEO; Mr. Ankit Jain, CFO; and other senior management as well. So without further ado, I'll hand the call over to Mr. Kamlesh Gandhi for their opening remarks, which we will follow up by question and answer.
Over to you, sir.
Thank you, Sanket, and good day to everyone. Happy to [ commit ] to all of you once again to discuss the 116th quarter of our consistent financial performance. So 116 quarters is a very long time, and happy to share with you that we have been in a position [indiscernible] year and what we will continue to be in the future also.
Just to the information, important milestones that we crossed in this year. So while you can hear we're satisfied, but we are quite happy to cross certain milestones. Many has shared with all of you, we cross a very important milestone of crossing INR 10,000 crores last year. We got upgraded to [ rate ] AA from CARE. [indiscernible] milestone, we [indiscernible] in credited profit after tax. So results of the important milestone we cross, which will lay a very strong foundation for the [ detail ].
All of you know that when we make -- we always share with all of you, that at MAS, for us, a medium-term view. And we never take a short-term view and hence, we are in a position to concentrate on the fundamentals and have demonstrated this rather financial performance over all this year. While my colleagues will take you through the detailing numbers, if I just take you through a few of the strategic things for this quarter, is that the growth translates to 26% in AUM and 23.4 PAT in consolidated basis. On a stand-alone basis also, we grew at around close to 23% in AUM and PAT.
As far as our housing finance is concerned, I think all of you might remember that we were have been giving the guidance, but this company is now on growth path of delivering robust results. I'm very happy to share that we can grow this quarter at a very robust 44% this quarter. Having it back, we got good opportunity to grow at 44% this quarter. but the guidance remains in the range of 30% to 35% growth, which we'll try to surpass. So from the housing front also, we could register a very robust growth, a robust growth on profitability.
Very importantly on the [ quality ] of assets. As I talk to you a quality of asset in our parent company is a broad Phase 3 assets of around [ 1.5 ] holding on a buffer provisioning of another 0.24%. In our housing finance company also, the quality of asset is very benign. That is net Stage 3 of close to 0.6%. Capital adequacy at a very comfortable or at a very fundamentally strong level of lending capital adequate. It's close to 21% in Tier 1 and the rest in Tier 2. Housing finance coupled also with a very robust capital adequacy of more than 38% that we get the advantage of a lower risk weightage being in the affordable space.
The other way to look at it is the leverage. We were it remains at a very comfortable leverage and around [ 4 ] in our parent company and the same in the case, less than 4, in our housing finance company. So all in all, the development for the entire year has been in sync with our understanding of all these years of running the business, of making a fundamental long business. If I talk about ROEs, ROE on a yearly basis is around 15.5%. Last quarter registered an ROE of 13.98%. So we have been advocating that we are a company which we endeavor to grow anywhere between 20% to 25%, maintain ROEs in the range of 15% to 17%, a very strong profiting capital model.
Having said that, even managing resolution to raise capital whenever we require. As I shared with you last time, we had leverage of INR 700 crores. We have met -- I met with investors in the last quarter. We'll be making [indiscernible] this quarter also. But we will take our own time and will decide and select the right set of investors who can align with our objective of consistent performance [indiscernible] that consistency. And steadiness is the best way to reach our destination.
In terms of our distribution, I think we are concentrating -- or we have contemplated on our direct distribution substantially. Our distribution is also consolidated. While, as I've said a number of times that our direct distribution will grow at a faster pace as compared to our indirect distribution and hence this, as I talked to you, we are at around 68-32 ratio in favor of our direct distribution. Going forward, we see that getting in there between 70% to 75% in favor of our direct distribution, this is in line with the guidance we have been giving since few quarters.
I'm very happy to share that we will [ add ] guidance. In terms of the assets we sell, we [indiscernible] driven [indiscernible] around 80% of our business coming from SME and the rest coming from wheels and less than 6% coming from our SPL business. Housing contributes a modest 6% currently. Going forward with the type of growth rate we are anticipating it should also contribute very meaningfully to the overall success of the company.
On the liability side, as I said, and Ankit will share in detail, we are well capitalized. As usual, we have a very strong back line, almost we have tied up for Q1 or, to an extent, for Q2 also as I talk to you. And with rating upgrade, we'll have more opportunities to tap more avenues and also in the long -- in the medium term, reduce our cost of borrowings.
On operations, we continue to embed technology adequately. We are a company which is having our own technology to mainhouse. We have one of the -- one of the most strongest talents as far as LMS is concerned, We have developed [ LMS ] for all our systems. And we are embarking on core banking also. We have put up a team at MAS to look after core banking. And within a few quarters, I think we can build in a position to share the process on that also.
And our team remains a strong 3,700 people with a big team of collectors succeeding and sailing together has held us in a new state with more than 550 people now with us for more than 5 years. And obviously, the owners of discussing the [indiscernible] team, which has been the company for profit to 25 years. So that forms a very formidable certain line of action -- certain line of teeth. We [indiscernible] from the promoter group quite active, and we will be completing his details July in [indiscernible].
For this remarks, rather than giving much of your time on this commentary, which many of you know, I will hand over to my colleague, Darshana, who will take this through detailing number. And then to Ankit and then we will be open to our Q&A. Thank you.
Thank you, sir. Good afternoon, everyone. So we are very happy to share that in the last quarter, we crossed a very important milestone of INR 10,000 crores on consolidated basis in this quarter, We have crossed this milestone on a stand-alone basis.
So if we look firstly look at the consolidated numbers Our completed AUM as on March '24 is now INR 10,222 crores as compared to INR 8,506 crores, and PAT for the year is INR 254 crores as compared to INR 205 crores, which is 26% growth in AUM and 23.7% growth in PAT. If you look at the stand-alone numbers, starting with the breakup of the AUM. Our MSME portfolio is contributing 80% INR 4,385 [indiscernible] microenterprise loan, SME loan is INR 3,734 crores. These loans are contributing around 14%, INR 670 crores is 2-wheeler loans. And INR 748 crores is commercial vehicle loans. And finally the salary personal loan is INR 588 crores, which is 5.8% of the total AUM. That is 25.12% growth in stand-alone AUM.
If you look at the total income on a quarterly basis, it has -- it is now in INR 329 crores. Last year, it was INR 268 crores. This is 23.04% increase in total income on a quarterly basis. Profit before tax has increased by 29.37% on a quarterly basis. Last quarter, Q4 '23, it was INR 70 crores 31 lakh. And this Q4 is INR 91 crores. Profit after tax has increased by 22.50% from INR 55 crores to INR 68 crores this quarter. If you look at the yearly number on an annual basis, total income has increased by 30.29% from INR [ 94 ] crores to INR 125 crores. Profit before tax has increased by 25.21% from INR 265 crores to INR 331 crores, and profit after tax has increased by 23.28% from INR 201 crores to INR 248 crores.
So this is the financial numbers. If you look at the portfolio quality as shared by sir. Our gross Stage 3 is 2.5% net stage seed 1.51%. In December quarter, it was 2.23% for gross Stage 3 and [ 1.4% ] net Stage 3.
Now coming to our housing finance performance. Now our portfolio in housing finance is INR [ 596 ] crores, that is 44.6% rise in 1. Last year, it was INR 413 crores. Total income has increased by 42.58% on a quarterly basis from INR 12 crores 40 lakh to INR 17 crores 68 lakh. Profit before taxes increased by 64.21% from INR 1 crores 70 lakh to INR 2 crores, 62 lakhs. Profit after tax says 51.5%, right, from INR 1 crores 37 lakh to INR 2 crores 8 lakh.
And if you look at the annual numbers, increase in income is 42.75% from INR 43 crores, 75 lakh to INR 52 crores 46 lakh. PAT has increased by 18.3% from INR 8 crores to INR 9 crores 58 lakh. That was PBT. NPAT has increased by 19.48% from INR 6 crores 34 lakh to INR 7 crores 58 lakh. Here also, the portfolio quality is very stable. So the graph page [indiscernible] 3.90% and net Stage 3 asset is 1.6%. In the last quarter, it was 0.1% Stage 3 and 1.58% net Stage 3 for the performance in a housing finance company.
Now I will request Ankit to teach you about the liability management.
Thank you, madam. Good afternoon, all. To update on the liability capacity management, the company through its liability management was able to maintain average liquidity of around INR 800 crores during the quarter and unutilized capital facility of INR [ 575 ] crores. In addition, the company thanks on hand to the tune of around INR [ 100 ] crores to [indiscernible] requirement in the coming quarter. .
In the March quarter, company did around INR 600 crores direct [indiscernible]. The company further had around INR 1,000 crores on hand, which will be like by quarter and next year. The gross book portfolio is around 22% of the total. [indiscernible] strategy is to maintain around 20%, 25% of the year as our book for direct assignment and around 5% to 10% of book as a [ cool ] lending.
The company has available capital facility of around INR 1,700 crores out of which we maintain utilizing level of 70% to 80% exports capital equity profile. We reached around INR 890 crores from loan during the quarter with average maturity of 3 to 5 years. This helped us to further strengthen asset liberated maturity pattern. We are strongly placed with respect to structural liquidity for the period at end March and whereby liquidity is very liquid and cash flow in all of [indiscernible] bucket is positive.
In terms of capital efficiency, the Tier 1 capital was 40.3% with a total [indiscernible] of 24.5%. Our debt equity is around 4x. In terms of cost of borrowing, the cost of borrowing for the quarter was 9.82%. The cost of borrowing for March quarter last year was [ 93%. ] But the better part is the cost -- the cost of borrowing has remained stable if you compare with the last quarter. We expect cost of borrowing to be around this level in the coming quarter also.
In terms of credit rating update where the company long-term bank facility and NPD-rating have been updated to AA- [indiscernible] from the [indiscernible]. This update in rating will help us to drive by our source mix and back to you at a competitive person. Thank you. So now we are open for Q&A round. Thank you.
[Operator Instructions] The first question is from Hardik Doshi from White Whale Partners.
I wanted to just understand on the operating expenses side, the operations we had gone up as a percentage of AUM and as a percentage of NII in FY '23 because we were investing more in the branch, you are people and moving more of the sourcing through our distribution. But since then, it was kind of gladly trending down, where it seems like in the fourth quarter, it is again kind of gone back up on a year-on-year basis. Can you just maybe talk a bit about whether any particular investments or any one-offs there? .
On cost of operations, as I've been sharing that the right way to look at it is maintaining our ROA. So the cost of operations, once we have our retail at around 7% to 8% in terms of percentage we still increase, but at the same will be compensated by the deal that we will get. And hence our ROA is [indiscernible]. If you see, our ROA has been stable at around 80%. -- reflecting on the fact that the overall ROA guidance is [indiscernible]. And in terms of operations to NII and operations -- the cost of operation to AUM. I still believe that we are at quite efficient safe with the fact that many of the branches are yet to pick up on volumes. Once the branches access on volume, but at the same time, that attrition to an excess that we offset the offering of new branches, investment in technology and all. So we see this operational cost at this level are maybe a little higher without [indiscernible] others. .
Okay. And so, I guess, that is also the reason why our NIMs have gone up is related to this [indiscernible].
Yes.
Okay. The other question that I had is related to [indiscernible] indicators and any concerns? And second part, how much of this is being done through our partnerships with fintech and how much is being done through our own distribution?
[indiscernible] is a new product, a very low base. We continue to maintain back this is by less than 10% of our total AUM going forward. We can do even before the RBI raised the [indiscernible] for this particular [indiscernible]. So we continue to maintain that it will be less than 10%. And in terms of our contribution from fintech, I think that around 25% of the business on [indiscernible] fintech. .
Sorry, 25% to 40%, you mentioned?
Yes.
[Technical Difficulty]
[indiscernible] to INR 2,000crores. We thought that some increasing capital [indiscernible]. So it is absolutely open and quarter-on-quarter, look at the right set of valuations and the investment and take decision. .
The next question is Shreepal Doshi from Equirus. .
Congrats on a great set of numbers. Sir, my first question was pertained to the credit rating upgrade, so congrats on that as well. So how do you see that benefiting us on the cost side going ahead? And while there was this risk weights increased by the RBI, while that doesn't impact us significantly. But with this -- so point number one, that impact, and point number two, this benefit. How should we see the cost going ahead because of these 2 reasons playing out?
So credit rating are will definitely help us in the medium term, majority of our loans are backed. So we will take this opportunity to renegotiate loans with all our lenders as and when these are [ LCL ] research, including our negotiation on rates when we take a new borrowing. So that will take in guidance this quarter. But the overall impact on the cost of fund will take around 2 quarters to be [ repairing ] the balance sheet. .
In terms of credit fees, I think if -- in fact, if you take it in the right perspective, RBI for companies like us who are [indiscernible] funding and growing cautiously are not against lending companies like us. Even the [indiscernible] banks, they are more than happy to align to the company who are very consistent in their efforts going in a calibrated manner. And secondly, all the business, what we do [indiscernible] the priority of the lending as the bank is concerned. So for us, there was no impact of any of the liquidity. I said there is no liquidity fee or credit fee that there is no impact on the RBI commentary from time to time on rates. .
Secondly is with our credit upgrade -- rating upgrade, we will look at diversification of [indiscernible]. We might like to have more capital market partition going forward. So if we decrease our dependence early on. In full year I think capital market, which is currently around 8% to 10%, can be anywhere between 15% to 20%, depending upon the overall market situation. But that will give us an opportunity to have multiple sources offers.
Funding right, right. Got it. Sir, point number 2 was like I was looking at the number of NBFC tie-ups that we've added during this quarter. while we continue to add organic branches, so we've added some 89 branches. We have been correctly on adding NBFC partners as well. But if you look at the split of this NBFC partner-driven book has come off or has been coming off. So is it fair to assume that our organic lending is at a relatively higher ticket size versus the NBFC partner-driven business? .
Not at the higher business sense. Our organic lending in absolute amount, as I said, which is now 67-33 or 68-32 will be around 70, 75 the next few years. And we -- as I've told a number of times that we have a fantastic experience is our NBFC lending partners, too. So we don't mind adding on to new lending NBFC partners. as we go forward. Because in absolute terms, that amount will increase in relative the percentage is a shift from our direct retail to indirect retail. But in absolute terms [indiscernible] to increase. So it is a cautious decision on the part of the company to have more and more partnership, to have limited exposure on each one of them and have a well-diversified asset base there also. .
Got it. And sir, the organic business that you're building or which you've already done commendable job on, so is the average ticket size relatively higher than the partner-driven business? Like is it fair to assume that way?
Yes . . In certain products, if you say, for example, products like [indiscernible] products like SME, it will be higher in terms of 2-wheeler and [ SRT ], it is almost same. .
Got it. Got it. And if you look at last couple of quarters, the calculated yields have come off. So what explains that?
I think what to go on a product basis because as ever calculated is -- will not always be the right picture because there's so many variations, there are so many dynamics in that. If you talk on an overall basis, I think on a content basis, we maintain of 7% at an overall combined yield of around close 16%. And then we are left after the credit cost and operational cost, we're left with around 3.75% to 8% of profit before tax and 3.8% after tax. .
Next question is from the line of Sudhanshu Mishra from PhilipCapital. .
Congrats on a good set of numbers. My first question is partly answered. I just want to understand the NBFC partner sourcing. We've always focused on sourcing [ MAL ] and two-wheeler. And I thought that we source most of our SME loans on our own. I just wanted that clarity as to how we have structured the new partner sourcing now in each of the products. And if we are doing higher ticket sizes organically, what would be the credit risk and risk management in our own versus partner sourcing? That's my first. I'll come to the second after this one.
So in terms of our NBFC partnership, I mean, they contribute very meaningfully as far as annual is concerned, [indiscernible] , say, around 40% to 45%. In SME, they contribute anywhere around, say, around 25% to 30%. I mean, [indiscernible] exactly in line with our overall mix of revenue 20% to 30%. So that's for anyone. They no less contribute equally. .
In terms of going on our organic growth and in terms of the risk [indiscernible], as you know that we have been a company who believed in growing very cautiously, putting the credit risk and the profitability to defer just the growth. So you see our SME portfolio, whereby we have increased our ticket price to an average of 20 lakh [indiscernible]. The quality of the portfolio has been maintain in the most satisfactory manner. And as and when we increase our ticket size that will be the end got that, but how the project quality will maintain and then go on the growth part on those high ticket. So that fundamental -- the fundamentals will be observed as far as operations are concerned.
Understood, sir. And in terms of borrowing, you still have a select portion of cash payment overdraft, which comes as an expensive way of borrowing. Of course, we might be keeping that to a rollover of various loans maybe for working capital. But this rating upgrade, would you want to retire some of this cash credit overdraft to and can be of that have more of CPs and this more of money market instruments than a cash payment?
Practically cash credit for us is going to be the most cost-effective borrowing as of now. Because is the latest -- guidance for 3 years where cash [indiscernible] to be held off in the 60% WPD limit, which has rolled over every 90 days to 120 days, depending upon our relation to the bank. And we get the rate depending upon the reversal tenure, that is 90 to 120 days. So in fact, the majority of our cash credit is in terms of WCDL, which is rolled over every 90 to 120 days without putting any stress on ALM because that is a [ tower ] of our main credit.
Having said that, the other thing why over a period of time, cash credit will remain constant is because of the fact that RBI and banks are of the opinion that NBFC is more or less in terms of cash credit. But in our case, even if you take cash credit at only as a 1-year tenor loan, we don't have any negative [indiscernible]. So we're in a position to maintain or in terms of percentage reduce the cash credit on overall AUM. Because if you see, the INR 1,700 crores is constant in last 2, 3 years, that is reducing the percentage of cash credit to overall borrowing.
But that is because of the reason that it is more of a mandate that cash credits should be limited to a certain portion. So it's not to reattain the point of view of disadvantage. On the contrary, you have 2 advantages that in cash credit being a floating limit, I can partner from any time in the cash credit account and use it. So I don't have any negative carry by investing outside the limit. And secondly, as I say that the advantage of [indiscernible].
Understood, sir. And the new geography -- just last question, sir. On the new geography we have entered, what projects are you doing? And what would be your aspiration to do future products, which probably a margin in the new geography. .
We are a multiproduct company and any new geographies where we really explore, We take back that has the potentiality of the previous product to operate in. And then with the way we built up of our team and the way we have the business plan, a few of the products are introduced there. For example, in [indiscernible] we opened Hyderabad with a new to cater to the SME borrowers first. And then we will be introducing other products. Maybe in North also, we started with asset product and now fully introduced commercial vehicle and will be doing 2-wheeler also resuming. So whenever we open new geographies, we think that have -- what is the potentiality of the various products we operate in. And then we start with 1 or 2 of the product depending upon the to build and then [indiscernible] products actually.
The next question is from the line of Ankit Gupta from Bamboo Capital. .
Congratulations for a good set of numbers. My question was on during the current environment where on the credit segment, good growth and environment [indiscernible]. Do you think we can drive for higher growth in by, let's say, 30%, 35%? Or do we continue to focus on 20%, 25% kind of growth over the next year or so?
So as I told you, a 10-year is a medium-term view. And just to share with you, to do a 30%, 35% growth, there were [indiscernible] on the part of our market size and macro headwinds from time to time. But being in the industry for more than 28 years now, I personally believe that even growing at around 20% to 25% is doubling your AUM every 3.5 to 4 years. And that is a tall order in a lending business if you want to prioritize quality and profitability growth. And with companies like us who use a self-providing capital requirement model, I think this is an ideal mix for us irrespective of the qualities the positive environment. So what we have done over all these years is that we have not got overexcited by the headwinds, nor have we brought down substantially when there has to help. So a 20%, 25% growth augurs well for a company in my view, especially in the lending space. And that also is a tall order and a very different growth we get by doubling your AUM and macro too 3 to 4 years. .
And sir, on the rating upgrade given [indiscernible]. So what the agent mix side, how do you see this shifting over the next 2 years? Currently, the term loan is around 4%, [indiscernible] around 12%. So how do you -- and the direct funding on the rest of the -- so how do you think over the next year or 2? What mix -- what ideal mix would you like to have on the liability profile? And how is that expected to impact our cost of borrowing for the next year or 2?
I think rating upgrade, the major advantage would be in terms of pushing the capital market. So our borrowing from capital markets from currently around 10% to 12% to between 15% to 20% in next 2 to 3 years, depending upon the overall environment and the competitive reps we get, and plus adding on other institutes where we now start qualifying, financial institutes. Now we start qualifying for getting [indiscernible] from them. So in short, the idea will be to be less dependent on banks, increase our capital market exposure, to try and explore other financial institutes. We can now take exposures we have given our credit outbreak accompanied by reduction in rates. So very difficult to predict the exact consideration, but this is the line of recent direction, which we'll be going. .
Sure. And on the bank loan side, given our rating or how much reduction in our interest cost do you see on terms loan whenever the concourse renewable over the year?
So for our backlog in [indiscernible]. And the path renewal happens once in a year or where we ask for a test in [indiscernible]. So we see that the impact of the cost of borrowing there is in a coming in the next 3 to 6 months, depending on the impact of ancillary -- on the cost of bank. .
By how much can you expect...
So we -- so expect our spreads to be reduced between 15 basis point of concern in fine in a 3- to 6-month period. .
[Operator Instructions] Next question is from Rajiv from [indiscernible] Securities.
First question is on the [indiscernible] plan that we have and the market in [indiscernible] for FY '25. Second question is on if you can share separately the [ DPD ] bucket of PM as well as in CV ,other CV book that we have.
So if we talk about the geographical plan, so as we have communicated earlier that we are pretty sure with almost 60 branches in Gujarat and 14 in Rajasthan and around 30 branches in Maharashtra. So we'll be penetrating deeper into Maharashtra, Rajasthan, MP, number one. And number two, that we are planning -- we have already started putting up our feet on the ground in North and South. So you expect that the incremental 20, 30 branches that you are planning to add within next 6 to 9 months, the [ 45% ] of them will be from the North and South. So in South, Telangana, Karnataka, [ Tamil Nadu ], these are the 3 states we are focusing upon. And in North, NCR and geographies about that. So going forward, I think incrementally, you can expect on West MP, Rajasthan, Maharashtra and [indiscernible].
And on the DPD bucket in [indiscernible] PL and CV book. .
So salaried PL is around 3.38 Stage 3. 92% is Stage 1. And CV is 4.12% Stage 3 and 91% current portfolio -- Stage 1 portfolio.
Okay. Sure. And if you can, just lastly, [indiscernible] separate lead for CV book and [ salaried ]. .
The SPL yield is around 20%, 21%, and [ SIP ] also ranging from 19% to 21%.
The next question is from Sarvesh Gupta from Maximal Capital. .
Congratulations on a good set of numbers. Sir, on the housing finance side, we have seen a strong growth, but at the same time, I think the NPA numbers have been going up steadily as well. So how do we see this sort of phenomenon to get normalized? And at what levels we should sort of see stable numbers in Stage 3?
See, on a smaller portfolio and the less seasoned portfolio, we are around 0.5% and right now we are at 0.6%. I think in the long run, we will see next set [indiscernible], especially in the borrowers we are working in solving, that is in the affordable space. We will see this housing finance NBFC cycle anywhere between 0.8% to 1.2% going forward. And that has been same with our expectation on borrowing. And just to add to that, that in NPA, where does not necessarily mean credit loss as far as the housing is concerned because we operate at a very competitive LTV. So ultimately, our credit cost will be at a 1% level in our housing finance company. .
And in this sort of low ticket lending in the affordable segment, while there is security, but in terms of the capability to possess it back and sort of sell to recover your loan, is that -- on a practical basis, how does that work? And do you see any sort of challenges on that front?
So there are 2 aspects. We don't work on any compromised titles. So the titles in our sales are very clear. That is what I was sharing that we took some time to develop our housing finance business because we wanted to understand the title dynamics in each of the geographies we operate in. So given that fact, the propensity to sell the property fast increases. But having said that, we never finance any of the properties with a view that we can repossess and sell it. So at the first instance, the credit is quite conservative, second is once we refi [indiscernible] 6-year title, it might take time, but we are in a position to sell it depending upon the geographies we work at. But quite sellable. .
Okay, okay. And on this, the expansion of the branches, so almost 40%, 45% was coming from your noncore sort of an area. Now increasing the geography -- I mean, the economy is getting bigger every year because of the growth and I think West itself seems to be a large enough market for you at your size to be able to generate that 20%, 25% growth. So I mean, what is leading us to sort of grow more in geographies? Is the current core geographies of, let's say, Maharashtra, Gujarat, is that not enough to satisfy additional INR 1,000 crores, INR 1,500 crores that we need -- or sorry, INR 2,000-odd crores that we need for growth?
So as we said, yes, I think West has good potential. I think we are working with states in West, lucky to be present here. What the strategy in expanding in North and South is planning for the next 3 to 4 years. So we take our own time of developing the geography and penetrating them more deeper in terms of Tier 2, Tier 3 cities. We take our time. If you look at our progression in MP, Rajasthan 3 years ago versus now, you will see the majority of the branches, 3 to 4 years as the majority of the branches almost -- say, around 50% of the branches would have opened up in the last 2 to 3 years. But we were present in MP Rajasthan since more than 5 years now. .
So next, so this is preparation for next 3 to 4 years. And we think that having a good diversified geographical mix also will help us going from INR 10,000 crore to INR 20,000 crores. So I'm trying to understand the demographic, customer profile, business segments, So just readying ourselves for the future, and that is the reason that we are trying to penetrate and expand more into unknown territories, potentially unknown territories for us or where we have not operated .
Okay. On the rating upgrade, this 15, 20 basis points that we may gain in terms of our cost of funds, my assumption is that you will be passing it on, right? So keeping your ROA guidance probably in the same area. Is that true? Or is it going to be appropriated by us? So how should we look at your 2.75% to 3.25% ROA guidance? Will that get -- will that see an upward revision with each rating upgrade? Because we are going to gain size with every few years, and that can also lead to some more rating upgrades a few years down the line. .
I think when I talk about 2.75 to 3% are always [indiscernible]. So when you forecast the 2.75 in a particular case, and then we talk about 3% aspiration, the range will narrow we built in all these aspects that the rating upgrade will happen, economies of scale [indiscernible] distribution can add on to more percentage to basis points more in terms of ROE. So you are right in your assumption that we will be consolidating our position that take 2.75 on to 3% ROA, so rating is correct it. .
And finally, right now, we are at a 4x debt to 80 broadly. While we may not have an immediate need of raising funds, but given that our core engine is churning out 16% ROE, plus there is some dividend, and then we aspire for maybe around closer to 25% growth. So to what leverage are we comfortable at a consol level? So this 14 max move out to what leverage level? And hence, by when we necessarily will need rates or the timing?
In terms to leverage, we'll be comfortable at around 4.5 or 4.6 in our parent company, which is well accepted given our track record in the market. And in the housing finance, it will be anywhere between 4.5% to 5%. And on the capital requirement, it was 15% -- close to 16% ROE is missing at around between 20% to 25% to a [indiscernible] 5% to [ coal ] lending and all. I think a growth of around 20%, 25% take a mean of around 22.5% will be a self-propelling. But having said that, as I shared, we already an enabling resolution and even an opportunity in terms of valuation and the right set of investors. We are -- we might increase capital to further pontificate the balance sheet. .
The next question is from Hardik Doshi from White Whale Partners.
Yes. Just a quick follow-up to the previous question on geographic expansion, where you mentioned you want to get into new areas but it takes a long time to unite market. Similarly, are you looking and maybe entering any other newer products and trying them out? Or these are the products that you're going to stick to for, let's say, 3 to 5 years .
[indiscernible] our current lead portfolio will be the used car division. So if you start something that we are piloting with right now. And as we do in next 3, 4 quarters, it should start picking up shape and that will be one more product which gets added to our lease portfolio. We have already started deploying some in piloting and we are trying to understand the market. And scaling -- gradually, we'll scale it up once we have the confidence and the full understanding. And as a subset of our SME business, so we can call it a soft product, if we fall under the [indiscernible] is the supply chain finance. So that is also a very good opportunity which we are seeing, both in our existing customers and acquisition of new customers as well. So supply chain as a subset, but it that combined with our SME presently, but those are the 2 pieces which we are working on right now. .
Got it, got it. And maybe from a geographic perspective, let say, 3 to 5 years, how big do you see the North and South as a percentage of our loan book .
I think in the next 2, 3 years, I think it should contribute meaningfully at anywhere between 20% to 30%. That is what we anticipate within the next 2 to 3 years. .
And this would mainly be Rajasthan MP because that's where we entered first? Or you talking outside of that?
No, I'm talking about South. I'm talking about South and North, so 20% to 30% if the new geographies that we are currently working. That will contribute around 20% to 30% in terms of the overall even in next 2 to 3 years. Last I think the [ draft ] will leave the pack with around of 40%. And Maharashtra, MP, Rajasthan will be equally divided at around 10% to 12% each. .
Okay. So then that's a pretty meaningful growth in 3 years if you want to get to that level suggest North and South, it is outside of our core, which is Gujarat, Rajasthan and Maharashtra, right?
Yes. So I think that is what we are setting up early, getting our feet on the ground there, And we anticipate that -- the markets are good from our limited experience and from the peer reviews that we have done, I think the markets are huge for the products that we are operating in. So we can't ignore those markets. And I think for retail distribution keeps on growing at the pace which is growing at right now I think that number is achievable. .
Yes. I just asking the question that the previous participant asked that risk on that, right, this context, are you hitting any kind of constraints of growth in Gujarat -- I mean, a INR 10,000 crore is nothing compared to the products that we're in, right? So again, why not -- you know the geographies, the very large market, addressable market, why going to newer areas when there is so much room in our existing areas?
So I think that there is good opportunity in the West, and that is why our expansion in the West is also happening at a good pace. So as I had earlier mentioned, the number of branches that we opened up in Western states other than Gujarat, the number has gone up in the last [indiscernible]. But we are anticipating that the geographical diversification will be good. And getting ready for it early will be helpful rather, say, than 2 years an underlying increase in the portfolio very actively in other spaces is something which has not been our way of working. So we feel that going a little early -- and if you would have noticed, that we had a very minor presence in South around since [indiscernible]. But we were not going . So now we see that the opportunities by the portfolio and also [indiscernible] on the next. But [indiscernible] contributions in terms of the major contribution still for this year and next year will be from the Western part.
Thank you very much. That was the last question in queue. I would now like to hand the conference back to the management team for closing comments. .
So thank you, everyone. And as said by me and the team, that we are very confident going forward and in consistence of the belief of -- in consistent belief of being fundamentally, we will do it -- we'll continue to work on the same line and we'll be [indiscernible].
Thank you very much. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.