Q2 FY 24:
Notes from Con call
Macro level- Favorable Environment, resilient GDP Growth, all lead indicators are quite healthy (E-way bill, 2w, 3w sales), Upcoming festive season, so very strong demand in all segments.
Last year advances growth in second half very high. So base effect will be there. But, overall loan growth for year expected 25-30%.
New LOS active in 300 branches.
Deposit Mobilization – Retail Focus (Newly lauched-444 product).
Loan Sourcing Channel- Largely in house, we are not dependent on DSA. So, asset quality good.
NIM to moderate and remain under earlier guidance.
In SBL, focusing on Non-TN. (Telangana, Karnataka, Maharashtra)
Drivers for ROE: We expect the Cost of the funds to move to about 7.5% in the next two Quarter from the current 7.21%. We expect interest cost to go up by 25bps in the second half as older deposits gets repriced.
Benefit of increasing lending rates expected to kick in the next Quarters. Second half will see more disbursements which will increase the fee income.
Credit cycle to remain benign this year.
85% of the book is fixed rate. If we assume the Cost of the funds remains the same for the next 12 months our NIM will expand as our fixed rate books get repriced at higher level as interest rates were raised only in this Q2. So, bottom line will improve.
Opex goes up sharply in the first Quarter because salary hikes are done in this quarter. In Equitas staff costs make up 65% of the Total Opex. So opex, gets reduced in the next 3 Quarters.
In terms of investments, CBS upgrades done, IT upgrade finished, LOS for vehicle finance live now, LOS for retail and home loans started and will complete in next 2 quarters. CRM will go live by 4th quarter. So, no stepping back on any of the investments (Both Tech development and Product Development).
Yield on Disbursements in the latest Quarter is 18.3%. Full benefit of it will come overtime given a largely fixed loan book.
Incremental growth of Deposits compared to loan growth hence Margins decreased despite Spread being constant.
Gross slippage is marginally higher and mostly due to CV. CV collections mostly dull in H1 due to monsoon and will improve drastically in H2.
ROA 2.25% is the long-term guidance. As a business model, sourcing mix, portfolio quality, strong investments in technology we are confident of achieving it.
PCR we look at a 2-year time frame to reach 70%.
MSE finance, we had impact due to COVID customers are still not able to come out of it. So, we are waiting for delinquencies to reduce in MSE, so that we can again concentrate in this area. But MSE finance is very small part of the portfolio.
Plans on Branch opening: We have invested strongly in the last 5-7 years. We need to get operating leverage out of it. Hereafter we will add branches but not aggressively. There is huge potential to grow in the existing branches. In the next 2 years, we will not add much branches. However, we will invest in Technology and products to improve efficiency and customer experience. Credit Cards, AD1 this year we are taking on which will drag profitability. Last year Affordable Housing started, this year it will break even and next year will contribute positively.
Disclousre: Invested and Biased
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