Repco Home Finance Ltd
NSE:REPCOHOME
Earnings Call Analysis
Summary
Q2-2024
In Q2 FY'24, Repco Home Finance demonstrated solid performance with continued momentum from last quarter. Implementing structural changes, like better internal delegation and new IT integrations—yielding positive results. Disbursements grew 7% year-over-year (YoY) to INR 797 crores, and sanctions rose by 4% YoY to INR 860 crores. The Asset Under Management (AUM) increased by approximately 7% to INR 12,922 crores. Gross Non-Performing Assets (GNPA) dropped significantly by approx. INR 150 crores YoY to INR 637 crores, now at 4.9% of AUM, with Net NPA at 2.2%. The company's Net Interest Margin (NIM) improved to 5.4% and spreads were sound at 3.4%, driving a 38% YoY rise in net profit to INR 98 crores. The Return on Assets (ROA) and Return on Equity (ROE) also improved, marking a strong profitability indicator despite increased costs. With INR 187 crores profit in H1 and a target of INR 350 crores for FY'24, the focus is on elevating growth numbers in the next year.
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Ladies and gentlemen, good day, and welcome to Repco Home Finance Q2 FY '24 Earnings Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Sanket Chheda from DAM Capital Advisors Limited. Thank you, and over to you, sir.
Good afternoon all. Welcome to the Q2 FY '24 Earnings Call of Repco Home Finance Limited. We have the entire senior management team with us: Mr. K. Swaminathan, MD and CEO; Mr. T. Karunakaran, Chief Operating Officer; and Ms. K. Lakshmi, Chief Financial Officer. Without much further ado, I would like to request Mr. K. Swaminathan for his opening remarks. And post which, we can take the question-and-answer session. Over to you, sir.
Thanks, Mr. Sanket, from DAM Capital. On behalf of Repco Home Finance Limited, we would like to welcome all to this earnings call for the quarter ended September 30, 2023. I wish you all a very happy Diwali. Thank you all for joining us, especially during the festive season today. We are happy to announce that the growth momentum seen in the last quarter continued in Q2 FY '24 as well. The company is progressing on its business parameters and is positive of meeting its pre-laid numbers. The structural changes that have been in process across the organization, which we also mentioned in our previous earnings calls, like delegation of powers, implementation of new IT software, et cetera, are beginning to yield results, and we are confident that we would be able to see the combined effect of all these changes in the coming quarters. We were able to achieve disbursements of INR 797 crores as against INR 746 crores of Q2 FY '23, registering a growth of 7% Y-o-Y. Our sanctions stood at INR 860 crores as compared to INR 830 crores last year, recording a Y-o-Y growth of 4%. Our AUM stands at INR 12,922 crores, an increase by around 7%. The ratio of exposure between non-salaried and salaried segment stood at 51% and 49%, respectively. The share of housing loans is 76% of the book and that of Home Equity is at 24%. During the quarter, we were able to reduce the GNPA significantly from INR 695 crores to INR 637 crores, which is 4.9% of the AUM, and the net NPA stood at INR 272 crores at 2.2%. GNPA numbers have come down by INR 150 crores approximately Y-o-Y, that too organically. We have a total provision of INR 526 crores with a provision coverage ratio of 57.4% exclusively for Stage-3 assets. Our systematic and relentless action on NPA accounts is proving fruitful and would continue. As of September 30, 2023, we hold INR 573 crores of restructured portfolio outstanding, of which approximately INR 183 crores are in Stage 2, Stage 3, and the remaining are in Stage 1 and 2. Profitability parameters. Our NIM for Q2 FY '24 improved to 5.4% from 4.9% in Q2 FY '23 and 5.1% in Q1 FY '24. We have been able to successfully transmit the increase in our borrowing costs and also improve our margins. With a spread of 3.4%, our average yield on loans sanctioned rose to 11.8% in Q2 FY '24 as compared to 11.6% in Q1 FY '24. The net profit grew 10% sequentially and 38% Y-o-Y and amounted to INR 98 crores as against INR 89 crores in Q1 and INR 71 crores last year. Our ROA and ROE improved to 3.1% and 16.1% respectively in Q2 FY '24 as against for Q1 at 2.8% and 15.8%, respectively. We are glad in informing that the company has achieved these numbers despite the increase in establishment costs due to salary revision, an increase in legal costs due to increased recovery efforts. As regards IT, bulk of Phase 1 of Project 1 comprising of LLMS, LOS, and EGL are completely integrated across branches and almost stabilized. A few more applications will get completed shortly under Phase 1. The company has started preliminary work in implementation of Phase 2 applications covering HR, audit, et cetera. And the entire Phase 2 of the project, comprising of department-specific applications, is expected to be completed by first half of next year. A total of approximately INR 20 crores have been spent so far in the -- for the new software. Branch network. As of September 30, 2023, we have 199 touch points across 12 states and 1 union territory, comprising of 166 branches and 33 satellite centers with additional 2 asset-recovery branches. During the first half of the year, we have upgraded 7 sat centers into branches and have also opened 7 new sat centers. Our Board has also approved opening up 8 new branches, upgradation of 1 sat center into branch, and opening of 4 new sat centers.
The company is on track on its profitability and GNPA figures. We have planned a reduction of INR 100 crores in GNPA for the entire financial year. Against which, we have already reduced INR 82 crores in a span of 6 months. Our profit guidance was INR 350 crores for the whole year, and we have achieved INR 187 crores in the first half. In the remaining 2 quarters, our focus would be on taking the growth numbers to the next year level, and we are quite positive on this. To summarize, I will summarize the key financial highlights for the quarter before opening the floor. The loan book stood at INR 12,922 crores, registering about 7% Y-o-Y growth, PAT for the year 38% to INR 98 crores Y-o-Y. ROA and ROE stood at 3.1% and 16.1%, respectively. The core profitability has remained strong with a solid spread with a margin of 3.4% and 5.4%, respectively. The gross NPA has shrunk to 4.9% with Stage 3 coverage of 57.4%, and net NPA is at 2.2%. Once again, I thank DAM Capital and all the people who are participating, and we would welcome all your calls.
[Operator Instructions] The first question is from the line of Mr. Rajiv Mehta from Yes Securities.
Congrats on very strong set of numbers. Firstly, sir, you said that you were very confident about achieving your growth number for the year, which is around 12-odd percent. So when I look at our first half's growth and/or, otherwise, when I look at our first-half disbursement growth, we need to achieve much more in the second half. Mathematically, we need to achieve 30% growth Y-on-Y in the second-half disbursements as well as in terms of AUM, we need to grow AUM by 4% Q-on-Q for the next 2 quarters. Are we very confident about it that we'll do it?
And also, going into the next year in FY '25, how do you see growth? Because you spoke about the focus now will be on the next level growth. How would we see growth in FY '25? And what is the plan to achieve that growth?
Rajiv, thanks for bringing the particular issue in focus. See, I do agree that maybe the first half we did not do as much as we were originally planning as figures disbursement numbers. But what are the issues that we are facing now in the second quarter is festive season that is already ahead. And normally, our second half will always be better than the first half. These are all the factors, which give me some confidence that...
Hello, sir.
Yes, I'm there. I think his line has dropped.
Yes. Participants, please continue to hold. We have disconnected -- we have got the management line disconnected. Please hold on. Participants, we have the management line. Sir, you can proceed with the answer.
Yes, I would like to answer Mr. Rajiv's query. Mr. Rajiv, you are right that maybe the first half numbers, especially on disbursements are not as per our target. But we are more positive as regards second half, for the simple reason that the festive season is ahead. And historically, this company has been doing very well in the second half compared to the first half. So with all these numbers, Rajiv, for the present, we do not want to revise our numbers on disbursement for the whole year. Maybe we will take a view at the end of the third quarter, then we'll take a call. But as regard the other numbers, as I told in the initial speech itself, as regards recovery and profitability, we are on track. We are confident that the growth numbers also will pick up in the coming months.
Sure, sir. Part of the question was about how do you look at growth in FY '25 because we've been emphasizing about the next level growth. So if you can just kind of more spell out whether can we go to 15% plus growth in the next year, is that a part of our plan?
Okay. See, today, I'm unable to give you a specific number because I've not got any Board approval for as I say it. But we -- as a management, we would like to have an increased number, maybe 15% to 20%, like any other housing finance company in the next year.
Got it, sir. And on Stage 2, if you can tell us how was the movement in Stage 2 because initial market collection, collection team was also strengthened by that, and whether are you seeing any benefits in the form of any reduction in Stage 2 assets?
Stage 2 numbers -- though we have not given, Stage 2 numbers are steadily coming down. As of now, it is around 12%. But we are quite confident that by the year-end -- by the quarter end, we will be reaching 10%. So going forward, the Stage 2 numbers will come down quarter-on-quarter, that is for sure.
Sure. Just one last question is on the spread and NIMs. Sir, the portfolio yield seems to have gone up by 30 basis points sequentially. If you can elucidate what are the factors behind this sharp increase in portfolio yield? And is there any one-off related to a very significant NPL reduction that we saw? I mean, did we recover any interest on the NPLs and which is why there could be some one-offs or lumpy interest recognition in the quarter? Is there anything of such item in the portfolio yield?
Definitely, there is no any one-off either in the income side or in the expenditure side. There is no such a one-off event. Maybe in some of these recoveries, maybe we would have got some interest -- extra interest, but that is the only thing. But there is nothing special. One thing, maybe because we have started repricing on our book every quarter -- every third month, instead of every 6th month earlier, maybe that is giving an effect on the increase to profitability.
The next question is from the line of Mr. Abhijit Tibrewal from Motilal Oswal Financial Services.
Sir, first things first, if you could just explain this trade-off between NIMs and growth that we are seeing very clearly? Sir, congratulations to you and your team, a very good expansion in margins, almost 30 basis points expansion in margins that you've reported. But at the same time, sir, I mean there is -- I mean, muted loan growth that we are seeing in the book. And at the same time, you said there are no one-offs in the yields, but if you look at the entire mortgage space, right, incrementally, everyone has reported or is talking about yields to come down because they are trying to retain good customers by offering attractive interest rates, the new business that happens, happens at lower rates than the existing customers. So, sir, will it be kind of fair to say that -- I mean, the payouts, which can be stemmed by offering attractive interest rate or top-up loans to customers, you are not doing at this point in time? So either you are not retaining your good customers, or another way to think of it is maybe you lend to customers who do not come to you for BT or because there is no one else higher up in the pecking order who lends to them. So how should we think about this whole NIM versus loan growth kind of a color we do?
Okay. Thanks, Abhijit. See, as far as BTOs is concerned, I am confident that the BTO is not an issue -- not the issue for our loan growth. You can see BTOs in the last quarter was only INR 38 crores as against BTOs in INR 68 crores. So BTOs is not a major issue. Once we've seen, we must also take into account, see, this is because of our increased effort, our EMI is also coming down. So our net growth should also take into account the reduction because of NPAs. So that is one of the reasons which is differentiating factor between our company and the others in the sector because of our higher NPAs, and the recoveries are also bringing down our good growth. This is one thing. And your point on NIM versus growth, yes, that is well taken. We will also discuss internally. If there is an issue, we will definitely take a view and go -- going forward. But only thing is see, we -- our mix of salaried and non-salaried, our documented and non-documented thing, it's slightly different from the other HFCs. So we are somewhere in between. And neither we should yield too much or we should charge too much, this is our predicament. Definitely, we will take a view going forward.
Got it, sir. This is useful. Sir, the second question that I had was -- I mean, how should we look at home loans and LAP, these 2 products that you do? Sir, I think I remember I asked this question last time as well. If I look at the Y-o-Y growth, 1% growth in AUMs, 30% -- 3-0, 30% growth in LAP, look at the 2-year CAGR, again, 1% growth in home loans, 18%, 2-year kind of a CAGR in LAP. So you yourself, I mean, have been around as the MD, CEO of Repco for almost a little less than 2 years now. So even under your tenure, sir, you would have seen, right? I mean home loans have not really grown. Whatever growth that we are seeing has largely been on LAP. Sir, why I asked this is -- I mean, we gave out product wise asset quality as well. There also, if you see in the past also, it is actually LAP or non-mortgages which have been a bigger pain point for us in the past as well.
Thanks, Abhijit. Let me be very clear. I think I told last call also. It is not only LAP, we call it as a home equity. It consists of CRE residential, CRE commercial, and LAP. For your information, in Q2 FY '24, our home loans did 76.2%, but LAP is only 13%, 13.9% to be exact. CRE residential is 6.8%. Suppose a person is having more than 3 criteria, it is taken as CRE residential. Then, the CRE commercial is 1.4%. See, all these are taken into consideration, and it is purely LAP which is growing. So home equity, which is more or less -- I mean, some of the things are more or less linked to your home loan, this is how it is -- the percentage is growing. And I would like to assure you that as far as the new book is concerned, including those which have been sanctioned in the last 1 year, quality of the advance is quite good. See, we would have sanctioned approximately around INR 500 crores to INR 700 crores in the last nearly 2 years, okay? And our actual NPA we have worked out is less than INR 10 crores. So to that extent, the new book is performing quite well. And the -- only the legacy accounts are there either in Stage 3 or Stage 2. The two we are attacking vigorously, and we are quite confident that the numbers will speak in the coming quarters.
And sir, just one last follow-up to that.
Sorry, Mr. Abhijit, I would like add. See, as far as our underwriting standards are concerned, see, now that the new platform is also with us, we are slightly more vigorous in selecting a customer, in appraising a product, and all that.
And more than 75 -- all of our CIBIL scores are almost above 750 in almost all the new cases, average. So with that, I feel that the asset quality of the new book is not an issue. The old ones, especially those people who are used to paying late and all that, maybe it is a mindset change that is to happen in the customer's mind that we are focusing, and we are confident that going forward, this will also change. Yes, sorry, I interrupted. Yes.
Got it, sir. This is reassuring. So just a follow-up, sir. I mean, so essentially, from what you just said -- I mean is it right to then conclude that maybe in the next 1 or 2 quarters we should now start seeing growth in your individual home loans as well? I mean your point against -- I mean non-mortgage loans, which the spirit that you give is well received. But -- I mean, these individual home loans that you report, should we start expecting that now we should start seeing some growth in individual home loans?
Yes, yes, definitely. We are focusing on those things. Definitely, we are focusing on those things. But the only thing is I would like to take new people into consideration that, see, this company is around 23 years old compared to many others who are recent -- of recent origin. So that is sort of a normal closure in addition to the BTOs. So that is there, which is a differentiating factor for this company vis-a-vis the others.
But as you rightly pointed out, yes, we are more -- focusing more and more on home loans. In fact, for some good quality customers, we have even reduced the interest rates in the festive season just for improving the numbers in the home loan portfolio.
The next question is from the line of Mr. Akash Jain from MoneyCurves Investment Analytics.
I think we have done a great work in -- on especially the recovery side. I think the kind of recovery you had in the first half, my sense is probably we'll end up doing much better than what we have added of INR 100 crores for the full year. I think, again, the question is on similar lines to the earlier 2 participants in terms of growth. I think what I wanted to understand a little was, sir, if the BT out is not so high, like the number you just said, then why is the book rundown so strong? So I'm not able to understand how our book rundown is so high when the BT out number is so low. I think you did mention a little bit about the fact that we have a much more legacy book, which obviously naturally runs down more. But I think the rundown number is a little bit perplexing given the BT out is not so high. Connected to that question, sir, is that -- if we -- so we were guided for INR 3,500 crores of disbursements for FY '24. But given the rundown of the book currently, I don't see us getting to INR 14,000 crore AUM on INR 3,500 crores disbursement. So I just also want you to please share your thoughts in terms of how do we get to INR 14,000 crores AUM with INR 3,500 crores disbursement given the current rundown on the book. So I think that is the first question.
The -- as far as the run down is concerned, see, there are 2 aspects in it. One is the BTOs that I told. And second one is on the normal closures or pre-closures that is also happening. See, we have a data which says that the pre-closures are also around INR 40 crores to INR 50 crores, pre-closures. See, our average book size, even though we give it for 15 years or 20 years, average home loan is only around 8 years. So people who are nearing 8 years or 9 years, they tend to close the loans with -- so they're a normal closure thing. That is one of the reasons why our book growth is not to that extent of our disbursement.
BTOs are under control, but the pre-closures or the foreclosures are not in our control. And I'm very confident as regards the numbers. As I told in the initial remarks itself, today -- till November, I do not want to change the disbursement. Maybe during January or February, we may have a reset as regards the numbers. Book growth, let us see -- see, there is also an inorganic way of achieving the numbers. Maybe we will take a view if the factors are favorable. We will see whether we will be able to achieve the numbers, that is something as per AUM is concerned. But the organic disbursement growth, let us see the festive season that is arriving, and we are focusing on our sales vertical, therefore, really on each and every fight, and hopefully and positively, we feel that the third and fourth quarters will be better as far as growth is concerned.
Sir, is our prepayment rates higher than other HFCs? Because we have looked at rundown numbers for others as well, and a lot of them also report their BT out numbers. So if I do that, our prepayment or rundown is higher than the other HFCs. So in your opinion, is there a reason why our prepayments are higher than other HFCs? Is there something that you think is there in our particular either customer set or our legacy customers or whatever?
Okay. Akash, I have not studied. Normally, see, our total repayments are around INR 500 crores, including the normal repayments, prepayments, BTOs, and all that. But we have not studied the other HFCs. Definitely, you have given a clue. Let us see if we are different vis-a-vis the others, but it's normal thing that is happening.
Okay. Yes, the other question is, sir, on the strong recovery we had, yet you had -- you have already done recoveries of INR 82 crores like you said in the first half itself. So do you see us overachieving the INR 100 crore guidance you gave given what is happening -- what has happened in the first half and whatever processes you are following in terms of surpasses and recoveries?
Yes. On that score, yes, I'm pretty confident that we will surpass our cadence.
The next question is from the line of Mr. Bunty Chawla from IDBI Capital.
Congrats on a good set of numbers. Sir, as you said, as we have seen the margins almost at 5.4%, which is almost a decadal high for you. And you said you will be focusing now on the growth path, specifically on the individual loans. So how one should see the margins going for the next half of the year? And if there is any revision in the margin guidance which you earlier said, 4.7%, 4.8%, which is comfortable for you, so how one should see the margin in the second half? And similarly, are there any still pressure on the cost of funds in the second half?
See, as far as margin is concerned, yes, 4.7%, I think it should be easily achievable. That is not a big issue for us. Please also see whether we can sacrifice EBITDA margin from the present level to see that the growth numbers happen. That is one thing. As far as cost of funds is concerned, today, it is slightly higher compared to 1 year back. Hopefully -- see some things are not in our hands. Hopefully, this cost will be maintained in the second half itself. Even if it goes up, we will be able to pass on to a certain extent without compromising on our growth.
Okay, sir. And sir, lastly, from -- on the restructured assets, you said it's approximately INR 570 crores, out of which INR 180 crores in Stage 2 and Stage 3 assets. So can you give currently what is the repayment and all? How this book is panning out? And any specific Stage 2 assets, if you can give the amount?
I do not -- see, let us be very clear, it was INR 770 crores, INR 700 crores of principal and INR 70 crores of interest capitalized. So at the time of restructure, it was taken. One year back, it was around INR 770 crores of the total book. Now, it has come down to INR 570 crores, okay? Of which, I would like to give a clarification that the NPA is INR 170 crores. NPA was -- once upon a time, it was around INR 230 crores. It has now come down to INR 170 crores as of now. As far as Stage 2 is concerned, it is around INR 200-odd crores, which was there even last year also -- last quarter also. But the Stage 3 number is getting maintained, slowly it is coming down. See, I can't have a magic wand to bring down the Stage 2, especially in a restructured book. It is slowly coming down, and we are focusing more and more. And the numbers will come down only gradually because the person who has not paid for 2 or 3 years, he is slowly recovering from COVID. And so he has started payment, okay? It is coming down. And the flow from restructured book is not at an alarming level, that is one thing. Otherwise, our NPA should have shot up like anything. So it is -- some of the accounts are still maintained at Stage 2 level, but only thing is the overdue number of days are coming down. I do not have the exact numbers for each and every account, but the Stage 2 numbers in restructured book is also coming down gradually.
[Operator Instructions] The next question is from the line of Mr. Amish Thakkar from Siguler Guff India Advisors Private Limited.
Congratulations, sir, on the continued recovery and delivering on your guidance so far on both asset quality and AUM growth. What I want to understand is I was just looking at a couple of slides in your presentation, which talk about the branch count and AUM by state. And maybe, let's say, there are 2 core focus areas I want to understand. One is your home market, which is Tamil Nadu, and the next is the next 4 states, which is Maharashtra and Karnataka and AP/Telangana. Who are your main competition in terms of the people in the pecking order? You are competing with private sector banks and maybe even small finance banks on the BT outside where you are losing customers to. But given the ticket size and the cost of funds advantage that you may be having from some of the other new aides, affordable housing finance companies like Aadhar, Aavas, HFFC. I don't want to take names, but there are a bunch of them in these micromarkets. So I just want to understand who is your real competition in your home market, who is your real competition in the next 3, 4 states that are focus areas. And -- maybe the last part, if you want to talk about, the other segment that you have reported seems to be growing much faster compared to the top 4, 5 states to you, 17% Q-o-Q growth in any other state, so we have a few areas where we think the competition is limited, and hence, your focus area will be going forward in terms of AUM growth, adding more branches, and there you got cost of funds advantage and your understanding of the target customer is better than the competition and the strategy going forward.
Okay. See, I do not want to -- Amish, I do not want to give specific names, especially on competition or thing. See, as far as the new loans are concerned, yes, there are so many other HFCs also because they are in the same area where -- geographies where we are operating. So, in the new loans, the HFCs are our competitors. Whereas in BTOs, it is mostly the bank, especially both with a 2- or 3-year vintage. And their scores have -- CIBIL scores have improved, the banks or the competitors are who take over from us, okay? But in the new proposals, it is like any other HFC. All other HFCs are also our competitors. And we are -- and the banks are not in competition as far as the new loans are concerned, because our segment of customers is totally different from the banks.
And what is happening in your core market, which is Tamil Nadu, and your strategy in some of the other non-core markets and the new states where you're growing 17% Q-o-Q? What is happening right? Are you adding more branches in these states? Which are these focused states if you can just highlight 1 or 2 states?
Okay. See, we have already opened few sat centers. We call it a sat center, that is the home branches that we are calling, core home branches. We have already done something in Karnataka. We will be opening 2 or 3 more branches in Andhra and Telangana. We have plans to open 1 or 2 branches in our Ahmedabad region, comprising of Gujarat, Madhya Pradesh, and all that, we will be opening. So another 7 centers we will be opening in the second year in non-Tamil Nadu areas. Tamil Nadu is where we are having core operations. We will be doing actually 6 or 7 in the second half.
And one last question, sir, before I go is just from what I understand at the branch level operating model, has same significant difference since you have taken over where because of the new IT systems and everything, you are able to do a lot more things like some of the other new-age companies, which is having more salespeople who are going out into the market instead of waiting for people to walk into the branch and being more aggressive by working with DSAs and focusing on LAP and whichever other fastest-growing areas in every micro market that we are operating in at a branch level.
But who are -- when you're going to a new market or you're in an existing market, we are looking to hire the best salespeople, the best performing employees of our relevant competition. Who are -- what is our quest to a potential DSA or an employee who could be working on our own payroll where we are opening new branches?
What is our quest to these people that, okay, what does Repco offer compared to newest competition or banks? What is the best hunting ground for us to find the best talent in these markets? And what's that strategy on basically hiring the best talent for existing branches as well as new branches wherever we're going?
Amish, sorry, there was a break in your thing, but I could understand the context. See, let me admit we have still a long way to go as far as the new vertical, especially the sales vertical is concerned compared to those in the industry.
We have just started the vertical. We are slowly training them and all that. It is not that we have taken so many people from the market. It is more our own people who are sitting inside the branch. Now, we are slowly training them, asking them to go out and start canvasing and getting business. And slowly, steadily, the numbers are improving. And last 2 months, at least 20-and-odd percent of our total business of our new business came from this new sales vertical. So we are focusing more, training them more. Hopefully, these numbers will increase. We will also not be averse to recruiting more people from -- on the sales line in the coming quarters. So we are confident, may not be in the current year, but at least in the next year onwards, our sales vertical, that is our own people will get more and more business compared to the other segments like a DSA.
Okay. And any KPIs that you are tracking in terms of, okay, where we are in terms of the new disbursement for sales employee and -- versus where the competition is and if you can start communicating that in your investor presentation going forward.
We don't want to know -- like we can find out where the competition is, the listed players are, but at least where you are today and what is your medium-term target in terms of employee productivity over the next 2, 3 years and how you're tracking quarter-on-quarter on that. That will be very useful to understand, okay? How does the management think about some of these things? And what are the medium-term targets?
Okay. See, this -- as I said, the sales vertical itself is a new concept for the company. So slowly, they are graduating. I think it will be pretty premature if I start giving the numbers straight away. Let us gradually to a particular level, and we will not be hesitating to give the numbers in the coming quarters once we reach a particular level. Today, we are too really -- too small as far as the sales vertical is concerned.
The next question is from the line of Chandra from Fidelity Investments.
I had a few questions. One is the average ticket size seems to be still at INR 12 lakhs. This time last year, I was looking, it was at INR 15 lakhs, and the idea was that over a period of time, ticket sizes may gradually move up because there is any some level of house price inflation, but it's actually not moved up for now 12 months now. So just what's happening out there and your thoughts around that? Second is, just going back to some of your starting questions, I'm just struggling to see how you'll end up actually at 12% even if the second half is going to be strong just given the current repayment. Do you actually think that you are going to do some portfolio buyouts or something like that to get to that 12% number? Is that part and parcel of that? That's question two.
Third is just -- maybe just as of today, you could just help us with what the sourcing mix is. How much is getting sourced by DSAs now and other channels? And then last is, it seems that the borrowing costs have peaked the last 3 months. The numbers which you have put out has been at 8.3-ish. Have the yields or so -- is it safe to assume right now that our yields on origination and our borrowing costs should be similar for maybe the next 6 to 9 months?
Okay. One by one I will try to answer you. See, average ticket size of INR 12 lakhs is for the entire book. The incremental book is around INR 17 lakhs, which is there -- which was there even last quarter. So the incremental book is around INR 17 lakhs.
Portfolio buyout, today, I do not have any proposals. But going forward, if the -- what are the factors that are expected, if everything mesh, we will not hesitate to go for a portfolio buyout, subject, of course, approvals by the authority is concerned. Sourcing mix as of now it is 30-and-odd percent of DSA. And remaining is -- 30 -- 33% DSA, today, as of now, and 33% for our DSA, which was around 30% earlier. It is now around 33% now. And the remaining is both from the -- our sales vertical as well as the walking thing that is happening. This whole thing is now.
The borrowing cost, to my knowledge, I think almost all the banks have repriced their lending to us. We do not foresee any increase, sudden increase based on the current levels. We do not see any current increase based on the current levels, average borrowing cost of all the borrowings. But even if there is a small blip, I think we will be able to pass on to our customers, that picture we are confident. But future, we are not aware of. And depending on the market, depending on the treasury and everything, in the future it may happen, okay? But we will be -- as far as margin is concerned, I think we will be able to maintain this 3.5% spread that we told. I think that we'll be able to maintain.
Right. Okay. So at least going back to the -- on the ticket size, you've been giving out this ticket size number for a while now, and the average ticket size of a loan book has actually gone down. The incremental you've been giving the sanction. So the incremental number has been higher every time, but the average is actually going down in size. So it really couldn't make the entire sense about that.
I'm sorry, Mr. Chandra, I think we have -- I think it is not that way. I think it is actually going up. Maybe we can send you the thing separately. We ask our people also to see that this rate is also included in the coming thing. Okay.
Sorry, just to clarify, when you said the 12%, you're -- as of now, the thought process is still this is going to be organic. You're not really thinking of getting a buyout to get that 12% number. The thought process is that this can be organic right now.
That is as of now, let me be very clear. As of now, we want to grow organically.
The next question is from the line of Mr. Anand Mundra from Soar Wealth Managers LLP.
Congratulations, sir, on the good set of results. Sir, my first question was, what is the reason for deduction of loans from National Housing Bank? That is the first question. So let's do one by one, sir. It would be easier for you.
Okay. See, NHB, we have not availed any facility for the last 1.5 years, 2 years. So simple reason, some of the covenants we could not meet last year. But now, we become eligible, we have applied. Hopefully, if we get, the NHB numbers will go up. It is coming down for the simple reason we have been repaying their debts.
Okay. So going forward, you may see increase in loan from NHB because we would have met some conditions or we would have applied the loan.
We have applied, sir. We have applied. And I can't say about sanctions. Once the sanction comes, we will be availing, and the numbers will start going up.
Sir, you have mentioned in the previous calls that you have put up team for sales and collection, both, in most of the branches. So I just wanted to understand how many people you have put for sales? And how many people you have put for collection?
See, sales, around 200 people are there; collection, around 80-and-odd people are there as of now. Going forward, I think the sales numbers have to go up. We are also contemplating maybe we will increase.
And these 200 people you have put from which month, sir, April, or from this particular financial year?
No. I should say it started from July, August sequentially. And they are all -- let may be very clear, they are all drawn from our own system. We did not recruit from outside. And slowly, we are graduating.
And these 80 people in collection team also have been put up in July and August only, sir?
Collection team is fairly old. I think they are now at least 6 months old. It is slightly well-oiled, I should say, compared to the sales team. But the collection...
Benefit of the people, for the sales team will accrue in the next 2, 3 quarters now because they are just put up in the last quarter.
Yes. That's why I'm saying it will take some time for the sales team to move forward and the numbers to go up and all. As I said, it's still very new. But collection team is good. Maybe one of the reasons why we are able to contain our NPAs a bit.
Okay. Sir, what was our BT in for this quarter?
1 minute, sir. BT ins were INR 68.7 crores; BT outs, INR 38.9 crores.
Okay. And sir, what is the slippage for this quarter, sir?
INR 21 crores, sir, quarter -- this quarter, it's INR 28 crores -- INR 23 crores.
INR 25 crores. Last question, sir, I have compared the numbers of other housing finance companies. And Stage 2 is quite high for our company, as you all already know, sir. How do you see this panning out, sir, just whatever the number we have on Stage 2 over the next 2, 3 years? What is your target, sir?
See, Stage 2 is quite high because of some legacy reasons. I should not say maybe because in the previous year, the company computated more on prevention of slippages as well as on growth. Now that we are focusing equally on the Stage 2 control as well, we are confident that at least immediate future should be less than 10%. We should bring it to single-digit, that is our immediate thing. By '24 or at least -- or by '25, we should be on par with the market as far as Stage 2 is concerned.
Okay. And sir, before this 80 people you have put in collection, what was happening in collection? There were no people -- specific people for collection before that?
That's what. See, this company was organized more on a bank-based model. It was more a general model. There was no specific vertical extreme that happened -- that was happening in this particular company -- in this company. So slowly, we have started bringing in that culture. So it is taking some time. Even before that, everybody was doing. It's not that collection was not focused -- it was not focused. I should say it was our focus. It was happening. Maybe the branch head as well as some of the staff were calling it. But now, we have brought in some sort of a systemized way of follow-up as regards the Stage 2.
Okay. And sir, any particular incentive scheme you have designed for collection team so that...
Yes, yes. Each, whether it is a sales team or the collection team or the pure recovery team, see, the incentives are all given based on the numbers, target achievement. So that what takes them to reach the numbers.
The next question is from the line of Mr. Rajiv Mehta from Yes Securities.
So, sir, what is the thought process on the Stage 3 coverage? So I see -- I mean, we have been resolving a lot of NPLs, and it seems that we are not releasing the provisions on them, and we are retaining provisions, and which is why the Stage 3 coverage on the remaining NPLs has been going up significantly in the last 4, 5 quarters. . Now, it is at 57%. So what is the thought process of holding high coverage? And now, incrementally, also, as you said that the new slippages are lower and then further resolutions of NPLs will happen and the NPL number will actually come down, you may have incremental reversals of provisions as well now. So would you take it back to P&L then, the incremental reversals of releases of provision there? Or you will keep on adding? And until what level of PCR you would want to add?
Rajiv, we do not have any specific target as far as provision coverage issue is concerned. But at least the present thought process is to retain these provisions that are getting released so that, one, our net NPA will start coming down. And at least up to March 2024, and as of now that is the idea, maybe if our recoveries accelerate and all that, yes, definitely, as you say, maybe some of the provisions will go for write-backs.
Okay. So maybe till March '24, you are saying that you will keep on retaining the provisions from the in-built, the...
That is the present thought process, let me be very clear, okay? Presently, I can say. Because you asked this question, presently, this is the thought process. Maybe we will take a view going forward.
And sir, can you quote the incremental lending yields for home loan, LAP, and CRE residential and CRE commercial?
Okay. See, approximately it is around 11.5%, the total yield. And it is around 10% and under for housing loan and around 13% to 14% for non-housing loan. So average is around 11%, 11.5%.
Perfect. And incremental cost of fund, what's the number?
Incremental cost of fund is actually -- again, I do not have the numbers exactly. Maybe our CFO can give separately. It is around 8.5%, approximately 8.5%, 8.6%, that is the borrowing cost.
[Operator Instructions] The next question is from the line of Mr. Abhijit Tibrewal from Motilal Oswal Financial Services.
Sir, just one question. Sir, you have kind of covered everything very impressively, but I think if I remember correctly, during the opening remarks, you have said that you have incurred close to INR 20 crores until now on the technology or the platform transformation that you are doing. Sir, how should we look at OpEx and any particular -- the tech expenses that you have budgeted? I mean, not necessarily the next 6 months, but over -- including the Phase 2 as well that you guided will be completed over the next 1 year?
See, our budget is around INR 50 crores, pure software costs and the hardware costs for the technology upgradations. This is excluding the other costs like AMCs and all that. Out of these INR 40 crores, INR 50 crores, we have so far spent INR 20 crores on the Phase 1, okay? Still some amount to be spent on Phase 1, some small amount. And Phase 2 is going to be implemented. And we have already taken it to our balance sheet the software costs, and the impact, I feel, may not be much because the profit growth that we are experiencing, I think that will be able to take care of the cost, the depreciation cost of the software.
Sir, if I heard you right, what you meant is you have budgeted INR 50 crores for this tech transformation for Phase 1 alone. And then for Phase 2, it will be separate.
Let me clarify, sir, it is further INR 50 crores for the entire thing. INR 40 crores for the software and hardware for both the phases. Plus INR 10 crores for our security's operations center. So INR 50 crores is for -- on the Phase 1, Phase 2, and SOC, all put together.
Sir, just one last follow-up. So then how should we think about overall OpEx given that you're thinking about adding branches, you're thinking about this tech transformation, like you said, there's another INR 30 crore, which will be spent over a course of time? I mean, will we see some volatility on the OpEx side? Or do you think it will be run rate as usual?
See, today, my cost-to-income ratio is around 23%, 24%, okay? I think we will also gain by way of reduction in our reversal of interest income and all that. So going forward, I think we should be able to maintain the same 23%, 24%. I think that should not be a big issue. It should be around the same level.
In the interest of time, that was the last question for this session. I would now like to hand the conference over to the management for closing comments.
Okay. Thank you, DAM Capital for arranging, and thank you for all the investors, analysts, who took time off that too on a Dhanteras Day to be here with us. I wish to reassure you all that the company is growing steadily, and whatever is little pitfalls, especially on the growth front and all, we are confident, we are positive that we will be able to do something at least in the second half. We will keep talking to you, maybe in the next conference call. It will present a still better picture. I once again thank you all for taking time off for being in the meeting. Thank you.
Thank you so much, sir. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.