Satin Creditcare Network Ltd

NSE:SATIN

Earnings Call Transcript

[Operator]

Ladies and gentlemen, good day, and welcome to Satin Creditcare Network Limited Q1 FY '22 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. H.P. Singh, Chairman and Managing Director of Satin Creditcare Network Limited, to give his opening remarks. Over to you, sir.

[Harvinder Pal Singh, Non]

Thank you. Thank you for taking out time to discuss our Q1 FY '22 financial performance. I hope you have received our quarterly results and investor presentation by now. For those who have not, you can view them on our website and stock exchange. I hope you and your family are keeping safe under these ongoing COVID-19 waves. During the second half of the previous financial year, early signs of economic revival became visible with the easing of lockdown restrictions, the recovery of economic activities and vaccination drives in India and throughout the world. However, as the vaccination drive started and the economy saw signs of recovery from the pools of the pandemic are much bigger second wave of COVID-19 struck again in the middle of April '21, bringing back the lockdown restrictions in almost all parts of the country. As guided earlier, Q1 FY '22 was anticipated to be a challenging quarter as rising COVID-19 infections and the resultant economic impact led to a halt in the recovery the sector was witnessing in the last quarter FY '21. The company has adopted a well collaborated and cautious approach for -- in disbursing new loans. Over the years, we have grown steadily and have demonstrated our resilience, even in times of adversely faced -- adversity faced by the business and the industry. Going ahead, we expect this growth momentum to continue, and for the full year FY '22, anticipate an AUM growth of 8% to 10%, along with working towards enhancing the portfolio quality. Additionally, the company is well capitalized with CRAR of 24% and balance sheet liquidity of INR 1,497 crores, which makes us well positioned and agile to achieve the anticipated growth over the medium to long term. On our collection, we faced some challenges on the ground due to regional lockdown restrictions, which led to some drop in our collection efficiency for the quarter. However, as the cases have started to decline and more population is being vaccinated, one big positive is that now these restrictions have been lifted in the major parts of the areas where we operate, and we are seeing a gradual uptick in our collection efficiency on a sequential basis. Overall, the collection efficiency for Q1 FY '22 stood at a reasonable 82%, which was 85% excluding Assam, while collection efficiency for the month of July stood at 87%, 89% excluding Assam. Our nonpaying clients stood at 5.1% as on June 21. The improvement signifieds our robust underwriting and collection framework as well as the resilience of our customer base. As a holistic institution, the company has always envisaged empowering underserved customers throughout our customized financial solutions across the value chain and build progressive opportunities for the lesser privileged sections across India. One such initiative was to disburse 87,000 bicycles to women in association with Hero Cycles. This initiative aims to enhance the mobility and likelihood of these women, which in turn will provide them better access to education, healthcare and employment, thus promoting general equality. In the near term, with the asset quality anticipated to get better with better repayments and collection efficiency getting closer to normalized levels, we expect a significant revival of the sector, and Satin being one of the leading players in the industry, we expect it to bounce back strongly. Let me run through the financial and operational highlights of our company. Our AUM, as of 30th June 2021 stood at INR 7,464 crores. As on June 30, we have a customer base of around INR 30 lakhs, which is one of the highest in the industry. Our disbursement for the quarter stood at INR 282 crores as compared to INR 67 crores in Q1 FY '21 and INR 2,376 crores in Q4 FY '21. Our assigned portfolio stood at INR 1,093 crores. During the quarter, we have adopted a cautious approach in our new disbursements because rising infection and the resultant economic impact due to the second wave of the COVID-19 pandemic. Stand-alone disbursement for the quarter stood at INR 222 crores as compared to INR 54 crores in Q1 FY '21 and INR 2,084 crores in Q4 FY '21. Disbursements for July was INR 260 crores. However, we expect disbursement activity to pick up as more population gets vaccinated and the economy rebounds from the pandemic. As of June 30, 2021, 100% of disbursements are made through cash discount, while cashless collections stood at 9%. We have also adopted website payments options and UPI auto credit. Net interest income for Q1 FY '22 stood at INR 180 crores as against INR 150 crores in Q1 FY '21. For Q1 FY '22, our pre-provisioning operating profit stood at INR 57 crores as compared to INR 50 crores in Q1 FY '21. We have made provisions of INR 434 crores on account of COVID-19 pandemic and other external factors. Our cost-to-income ratio stood at 62.9%, while our OpEx to GLP ratio stood at 5.8%. These ratios are temporarily high due to lower volumes. We hope to reduce our cost-to-income ratio as well as our OpEx to GLP in the coming quarters. Coming to our collection efficiency. Our collection efficiency trends are as follows: April was 93%, May was 75%, June was 80%, July was 87%. August till date is 90%. We are seeing improvement in repayments and collections month-on-month. Collection efficiency for the quarter stood at 82%, and excluding Assam stood at 84%. The Assam development will also bring a lot of relief for the sector and for Assam. 95% of our MFI customers have paid at least one installment in June 2021. We are also witnessing consistent improvement in customers that have made full payment. We have a well-diversified customer base, well-penetrated branch network across states and 75% rural exposure. On-book GNPA stands at 9.7%. On account of COVID-19 outbreak, we have made adequate provisioning of 8.4%, bringing our NNPA to 1.2% as compared to 3.3% in Q4 FY '21. As of June 30, 2021, our total branch network count stood at 1,264 branches, which is one of the highest in the industry. Our branch network is spread across 391 districts. We have adopted a very cautious approach in selecting the newer geographies and opening and closing of branches and expanding into new geographies. We have a total state and UTs count of 23, which makes us a well-diversified Indian microfinance player. As of 30 June 2021, 97.7% of our districts have less than 1% of portfolio exposure, which we aim to bring it down further. No district has more than 2% AUM. We have seen a significant reduction in our portfolio risk in terms of average exposure per district, 0.26% in Q1 FY '22 versus 0.45% in FY '17. Exposure to top 10 districts as a percentage of AUM is 13% in Q1 FY '22 versus 21% in FY '17. Exposure to top 4 states contributes 52.6% in Q1 FY '22 from 77.3% in FY '17. Our well-thought diversification strategy has helped us phase through challenging situations and leverage our idea of cross-sell products. We've been able to disburse close to INR 67 crores during FY '21, INR 12 crores during Q1 FY '22 under the products of every category, which includes loans for bicycles, solar products, solar prices, consumer durables and water and sanitation. On liquidity and capitalization, our capital adequacy as of June 30, 2021, stood at 24%, which is well above the regulatory requirements. Till date, the company did a fundraise of INR 396 crores. The company continues to maintain a healthy balance sheet liquidity with INR 1,497 crores of surplus funds as on June 30, 2021, and as undrawn sanctions worth INR 135 crores as on date. To bolster the company's capital position, we successfully raised INR 120 crores. We are the rights issue in August 2020 with an overall win response. Issue was oversubscribed at 123%. Out of this, INR 90 crores have already been received by the company. INR 45 per share out of INR 60. Also, final call of INR 30 crores in this regard has been made, whereby call payment period has begun on 6 August and will end on 20th August 2021. The update on subsidies is the business correspondence services under Taraashna Financial Services has reached an AUM of INR 671 crores. As of 30th June 2021, the company operates through 213 branches, has more than 3.7 lakh active loan clients. Satin Finserv, our MSME arm, reached an AUM of INR 125 crores. Satin Housing Finance Limited has now an AUM of INR 224 crores, including DA of about INR 20 crores, and having presence across 4 states with 2,401 customers. Satin Housing has 100% retail book comprising about 79% affordable housing loans and 21% of LAP. The company has 10 active lenders through -- including NHB refinance, CRAR is 95.8% and gearing of 1.3x. Total equity stands at INR 93 crores. Three consecutive profitable quarters, 0 NNPAs since it's reception and more than 3 years of operations, stable team, a good system and process, strong presence and risk parameters. The Board of Directors of two wholly owned subsidiaries of the company, Taraashna Financial Services Limited and Satin Finserv Limited, at their respective meetings, have considered and approved a draft scheme of arrangement for amalgamation of Taraashna Financial Services Limited, the transferor company, with Satin Finserv Limited, the transferor company, and their respective shareholders and creditors scheme under Section 230 to 232 of the Companies Act, 2013 and other applicable provisions of the Act and rules laid thereunder. The strategic amalgamation will have multiple synergies such as combined entity to efficiently use the capital invested in the two entities and leverage the same. Currently, the revenue sharing arrangement with TFSL and SFL is taxable and the combined entity tax benefits will accrue to the business. Taraashna has significantly wider distribution reach than SFL. The combined entity can leverage on their distribution. There will be cost rationalization post-merger. Post-merger, SFL can introduce new products. Port-merger, merged entity will focus on both on-book lending and BC business. With this, I would like to open the floor for questions. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Rishikesh Oza from RoboCapital.

[Rishikesh Oza]

I have two questions from my side. So first one is that what would be the credit cost for the full year? And second one is when can we expect the AUM to grow back to kind of 20% to 25% kind of leverage?

[Harvinder Pal Singh, Non]

So what we are advertising for the whole year the credit cost to be around 4% odd, this is what we are looking at the ground situation, and that is what is coming out to be in terms of our numbers. In terms of our growth of about 20% in double digits, technically, would be from FY '23 onwards because what we feel is post the pandemic, I think, whatever has happened is all over now. So if you're looking at the past 4 to 5 years track record, I think the demonetization, the Assam problem and then pandemic 1 and pandemic 2. Technically, we feel that now the ground and we are all ready for the growth, which is going to come in. FY '23 is going to be our full blown growth year. We are still looking at about -- close to about 7% to 8% growth this year also as the disbursement has started picking up. So we feel that the numbers of about 20% to 25% would probably be achievable in FY '23.

[Operator]

[Operator Instructions] The next question is from the line of [ Duaneet ] Chawla, an individual investor.

[Unknown Shareholder]

Sir, I have -- my first question was with regards to the kind of distribution of collection and business case. Is there some kind of a pattern we can see that there are certain states where there is a low condition efficiency and which have been more COVID hit kind of the others where it is being better? Because I can see that like our UP has had a relatively better than compared to like Bihar or MP collection efficiency. And my second question is with regards to our future outlook. I mean, are we looking at increasing our AUM more than -- I mean, more than double digits? I think currently it's double-digit growth in AUM for this current year.

[Harvinder Pal Singh, Non]

So I think, let me answer the first question to you first. If you look at the whole topography, I think the top 4 states technically, which is UP, Bihar, Punjab, and Madhya Pradesh. UP, our collection efficiency for July 96%. The collection efficiency for what you said Bihar was also at 96%. Punjab was at 92%. The only little bit dampener was in July was Madhya Pradesh, which was at about 84%. And that was -- had a reason technically because Madhya Pradesh, the lockdown started first and ended up the last amongst all these states. So if you look at the configuration of our collection efficiency, probably in the larger states, which all these 4 states constitute close to about 53% our AUM, it is on an average about 94% all 4 states put together. The second dampness where it slightly was at Assam. So if you take out -- and that's the reason why we gave you some metrics on the Assam figures also. If Assam starts coming back, which we think it will be because of whatever is there by the -- announced by the state government in terms of the budget provisions, which are going to come in, I think the collection efficiency will also rise further. The second question of yours, we are anticipating a single-digit growth. And that's why I said it will be close to about 7% to 8% for this year. But having gone through this whole trials and tribulations and whatever the pandemic has probably shown us, I think we are probably now ready to look at FY '23 on a double-digit growth. As we will prepare our budgets once we close FY '22, but definitely, yes, it is going to be in double digits probably for FY '23. But this year, we're looking at about a 7% to 8% growth.

[Operator]

[Operator Instructions] The next question is from the line of Nidhesh Jain from Investec.

[Nidhesh Jain, Research Analyst]

Sir, two questions, sir. Firstly, in Assam, sir, can you share some data, how is the collection efficiency trend is panning out after the announcement of that resolution plan by the state government? And how we -- by when we expect that production efficiency or money to be received from the government and waiting to an improvement in asset quality in Assam portfolio? And second is, sir, what was the rationale of merging the entities, which I think we have created these entities -- some of the entities for business cost and then purpose? So do we think that the nature of the business that we were doing those two entities was that impacted of the merger? And what was the rationale of the merger?

[Harvinder Pal Singh, Non]

So let me give you a perspective on Assam the announcement was not there. The collection efficiency had dipped down to about 30-odd percent post the announcement, which has been announced probably been about 1.5 to 2 months before since all this activity has taken a I think somebody will have to mute it. So from a 30% collection efficiency before the announcement -- post the announcement, the collection efficiency is inching up to now it has reached close to about 2% odd. And this I'm talking about practically the last week as such. So it is inching up slowly. In terms of when this is going to be -- it gets formalized the last are getting ready. I think the preparations are there. what time will say it will think we probably do not have a fair idea about it. But what we can say is on the ground and whatever we are looking at in terms of the engagement, which is happening with the state government, I think is going to be happening sooner than later. So that is on the -- this is on the Assam front. In terms of the reason why we wanted to merge for these entities. See, one thing which we really want to now state out is that I think it's been very difficult for I think a lot of people to really understand the monetization aspect of our subsidiaries. And I think that is probably 1 of the reasons. It's not because there was any challenge in terms of this. The AUM for Taraashna was INR 643 crores at some point of time. And also -- and this was before the pandemic. And also as a -- BC as a model, we feel that it has done adequate justice to what we had brought in about 4 to 5 years back when we started this whole model event. We feel that the leverage of capital by both the merge entities and also a platform of being an NBFC when the both entities merge, will bode very well for the merged entity, technically rather than splitting that across the. So capital leverage in terms of verticals, leverage in terms of products, leverage in terms of being the entity, which will become an NBFC rather than splitting into two entities, which was a non-NBFC and an NBFC, I think all these factors will bode very well for the merged entities to do business together. The merged entity will have -- will also have the BC business as well as its own book business of MSME retail lending. So the synergies, which we'll probably bring in and the revenue and -- as well as the baseline profitability, which will probably emerge after both the merged entities is going to be far more better than what it was when we're looking at both these entities separately.

[Nidhesh Jain, Research Analyst]

Sure, sir. Sure. And so in post-merger, we will not have any problem in having a qualifying asset criteria of 85% mixed to be -- the MSME retail business will also be part of the MFI book, right?

[Harvinder Pal Singh, Non]

No, no, no. So this is separate. This is a separate subsidiary, which doesn't have anything to do with the qualifying asset of the microfinance parent company does. So no qualifying asset challenges over there.

[Nidhesh Jain, Research Analyst]

Sure. And lastly, what is the interest rate that we are charging on the microfinance loans? Just from a harmonization of guidelines perspective, if there is -- if the spread cap is removed, do we see a potential of improvement in our spreads?

[Harvinder Pal Singh, Non]

See, I think we are looking at it from a very positive angle. I cannot really comment on what the interest rates would be. But definitely, yes, that whole negatively about a margin cap of about 10%, which was employed earlier into the microfinance book, will be probably be taken away. So once that is taken away, I think the market dynamics work. And we feel that if the market dynamics work, I think the interest rate, whatever we are subject to right now because of the margin cap, it will have maybe some enhancement somewhere or the other, which will take care of our credit cost in the near future. That is what we are looking at from a positive side right now, which is difficult because you have a margin cap, which is imposed. So we're looking at from an angle where we feel that there's going to be positivity in terms of our bottom line as well as our revenue coming in.

[Operator]

[Operator Instructions] The next question is from the line of Aditi Sawant from ADM Advisors.

[Unknown Analyst]

Sir, I have one question. Are we planning any further capital raise going in, I mean, knowing the fact that we have raised INR 120 crores via rights issue? So if yes, what kind of capital raise is that?

[Harvinder Pal Singh, Non]

See, Aditi, to be very honest, we're just finishing off our last call of our rights issue. So if we really look at the near term, which is a question of about a couple of months from now, I think we have sufficient capital to really look at if we are looking at the budgeted base of increasing our growth to about 8% this year. So that way, we are fully capitalized to take care of the growth for this year. I really have no handle right now to give you a very clear answer as to why -- if we are looking at the capital raise in the near future. It could be possibly be, yes, but nothing which is [indiscernible] anywhere in the CRAR. We want to first bring stability into our collections as well as start disbursements the way we used to before the pandemic. Once that comes in, I think we will take a call at one time, but definitely, it's capital adequately enough for us to look at an 8% growth this year.

[Operator]

[Operator Instructions]The next question is from the line of Amit Shah from Ace Securities.

[Unknown Analyst]

Sir, I have a couple of questions, sir. Sir, we have disbursement close to INR 282 crores in this quarter. So sir, how are the disbursement activities in the current quarter?

[Harvinder Pal Singh, Non]

So I just give you in my remarks, so it was INR 222 crores for the whole quarter -- sorry, INR 282 crores for the whole quarter. And in July, we did disburse close to about INR 260-odd crores. So the way it is picking on the whole quarter was probably done in one month, and the disbursements have started picking up. And I think I said in CNBC today morning also, we're looking at probably a good quarter coming in from September onward, once all these restrictions coming back into the efficiency livelihoods coming back into full scale [indiscernible]. Disbursal, see, I think, pre-COVID level sometime in September onwards.

[Unknown Analyst]

Okay. So when can we expect these two to pre-COVID levels?

[Harvinder Pal Singh, Non]

I said, September.

[Operator]

The next question is from the line of Devendra Pandey from DP Financial Advisers.

[Unknown Analyst]

Sir, my first question is on the restructuring. So we have restructured around INR 43 crores of assets in 2.0. So how much further we are expecting to restructure the portfolio in 2.0?

[Harvinder Pal Singh, Non]

See, we've done 18,000, which was close to about INR 40 crores when the first won. We're still looking at it. Technically, we have additionally deployed a lot of human resources on the field to reach out to customers and get our installments back. But normally, what happens is once you have a backlog of about 4 to 8 installments, it becomes kind of challenging for customers to really repay the whole installments in one go. The target is slightly bigger. But we are aware of the situation, and let's see how much we would like to restructure again in September. But right now, we are giving it a shot that as the collection efficiency improves, I think we'll see how the numbers will probably come around sometime in September or so.

[Unknown Analyst]

Okay. Okay. And a few states are under stricter lockdown compared to other states. So how is the collection efficiency in those states?

[Harvinder Pal Singh, Non]

The collection efficiency, all of us is better. So just to give you maybe an added cover on to that. If you look at -- and this is related to the earlier question which you asked in terms of the further restructuring. See the benchmark figures, which we've stated out earlier is nonpaying clients are just 5.1% in June '21, which is a very heartening sign, technically 5% of the people, where there might be an issue of maybe an ability not to pay or maybe of a -- I probably should not be saying it, but maybe of and intent not to pay. But 5.1% of the total AUM is pretty let as compared to what we've gone through in this space. So our own sense is that I think technically, this is there, then I think collection efficiency, all of us has been picked up to a large extent. And we definitely will try and look at that comes back to the -- as I said, back to the pre-COVID levels in September.

[Unknown Analyst]

Okay. And sir, nonpaying customers have increased from 1% in March to 5% in June. So how do we see that? Is it going to increase? Is it going to stabilize? Is it going to reduce going forward? What's your view on that?

[Harvinder Pal Singh, Non]

So it's going to reduce definitely. It will not increase.

[Unknown Analyst]

Okay. And sir, there is a certain expectation of third wave probably, and we all hope that it doesn't come. But in the worst state it comes, how positioned are we? What different -- what are we going to do different this time if at all it comes?

[Harvinder Pal Singh, Non]

See, our own indications on the ground is I think the whole front came in the second wave. We have a feeling and a very strong figure because since we are closer to the ground, we don't adequately work on the data figures, what the government of India is prescribed. But definitely on the ground, there is no probable indication of a third way. And don't hold me against probably to be very honest, but we are feeling that, that is not going to be there. And even if it comes, it's going to be very, very -- it's going to be very mild, which does not affect the way it has probably affected us in the second wave. And secondly, we have fully provided for technically, third wave, even if it comes, even if it's a mild one, we probably do not have much to really lose about in terms of the way we've actually structured and put in additional manpower and looking at the complete way we are handling all the DPD buckets. We feel, I think this probably is not going to affect us in the coming few quarters.

[Operator]

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

[Aditi Singh]

Good morning, again. I take this opportunity to thank everyone for joining on this call, and I hope we've been able to address all your queries. For any further information, kindly get in touch with me. My name is Aditi Singh. I handle the Investor Relations for Satin, or you can also get in touch with Strategic Growth Advisers, or SGA, who are our Investor Relations adviser. Thank you. Stay healthy, stay safe. Bye-bye.

[Operator]

Thank you very much. Ladies and gentlemen, on behalf of Satin Creditcare Network Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.