Cholamandalam Investment and Finance Company Ltd Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Dhaval Gada - DSP Investment Managers Pvt. Ltd. - Analyst : Just a couple of questions. The first is on the asset quality for VF and CSEL. Could you talk a little bit around both these segments where the the stage three and in CSEL, especially the NCL is also relatively higher in the first half compared to last year. Just how things are progressing in line or better than what you think. The second question relates to the growth. Just with the RBI cautioning companies on growth, how is the company looking at just where we are and our growth trajectory and if you could give some perspective around regulatory interactions around this aspect, that would be useful.

Question: Dhaval Gada - DSP Investment Managers Pvt. Ltd. - Analyst : Vellayan, you were just highlighting that you had discussed at the Board and the disbursement growth is around 13% and that's when we lost here.

Question: Dhaval Gada - DSP Investment Managers Pvt. Ltd. - Analyst : And just one follow-up on the growth with. So, the book is shifting towards a longer duration product. So which is why there is a GAAP between AUM and disbursement. So what we should monitor is disbursement growth or at the Board level, the focuses on disbursement growth or AUM growth because just trying to link the medium term guidance of 25%-plus AUM growth. That's the reason I'm asking.

Question: Raghav Garg - Ambit Capital Private Limited - Analyst : My first question is on the asset quality again, your slippages this quarter around INR930 crore. How much of these would have come from the vehicle finance and the CSEL product, specifically, if you can give these two numbers separately. And how much would these numbers be up on a YoY basis? Unidentified Company Representative It's given in page 29 of the investor presentation. Even I know individual product wise, details are given on the stage three numbers. So there's a slippage of around INR600 crores -- less than INR600 crores. It's around of around INR300 crores-odd come from vehicle finance and the rest of marginally increase.

Question: Raghav Garg - Ambit Capital Private Limited - Analyst : The second thing is that in the last call, you had mentioned about 1.2%, 1.3% credit cost for vehicle finance this year, right? We're already raging about 1.8%, 1.9% in the first half. I think that in the -- in first quarter call, you had mentioned it would come down. Just wanted to understand what has changed between then and now that the credit cost has not come down still elevated? And what gives you the confidence that it will come down in the second half?

Question: Raghav Garg - Ambit Capital Private Limited - Analyst : No, sir, I completely understand Q4 is generally very good in terms of recoveries and collections. But it's just that whatever guidance you had the ask on second half just goes way too high. So wanted to get some confidence on that. But, but yeah, you partly -- Unidentified Company Representative (multiple speakers) 1.3% NCL is what we are seeing now.

Question: Raghav Garg - Ambit Capital Private Limited - Analyst : Thank you. Do I have a room for another question? Unidentified Company Representative Go ahead. Sure.

Question: Avinash Singh - Emkay Global Financial Services Ltd. - Analyst : So questions, I mean related to this employee edit that has also led to the expansion in the OpEx ratios. Now so, if you can help that how has been this breakup of employee addition towards the sales and collections. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 28, 2024 / 4:30AM, CHLA.NS - Q2 2025 Cholamandalam Investment and Finance Company Ltd Earnings Call And also if this to let to jump in OpEx. Now how do you see the ROE trajectory improving? Because I mean in terms of credit cost, yes, I mean, we are expecting some bit of improvement in the second half, but I mean for the full year, it is somewhere toward the upper end of guidance. Now OpEx growth was slightly higher end. And also, you're borrowing just people undone of your growth will be higher. So how do you see that area playing out?

Question: Avinash Singh - Emkay Global Financial Services Ltd. - Analyst : Yeah. And if you can just help that, okay. How much of this 7,000 employees you have done to collection, right?

Question: Abhijit Tibrewal - Motilal Oswal Services Ltd. - Analyst : Sir, I had 2 questions. First thing, if you could comment a little bit on our view on the auto cycle. Sir, if you look at the last fourth quarters, vehicle finance disbursements have been in a tight range to INR1,500 crores to INR13,000 crores. And given that we are already talking about some slowdown that is being seen in PVs how should we look at the autocycle going ahead? This is something I want that Ravi sir to comment on. And the other thing is maybe a related question here is, I mean, you said October this business are looking better than September. If you could also comment a little bit on the festive season demand because from what we are able to gather, invested season is not very good this time around. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 28, 2024 / 4:30AM, CHLA.NS - Q2 2025 Cholamandalam Investment and Finance Company Ltd Earnings Call And sir, the second question that I had is Ravi said that in the month -- in the last quarter, we saw that CV delinquencies were higher small CVs. Last month transportation has got impacted, both on the demand side as well as the delinquency side. So just wanted to understand, if you can throw some nuance around new and new series. Is there a significant difference in behavior that you are seeing between new and new series. Those are the two questions I have. Thank you.

Question: Abhijit Tibrewal - Motilal Oswal Services Ltd. - Analyst : And sir, just I just one more question that I wanted to squeeze in here. In addition to I mean, this festive season demand, how is the festive period turning out? Sir, I think, somewhere you said that manpower increases there across businesses and will continue in the foreseeable future. I just wanted to understand for how long do you expect this to continue? And at what point we will start focusing on improvements in productivity.

Question: Ishaan Srimali - Tara Capital - Analyst : I just wanted a little clarification on the credit cost. Was it 1.3 on the NCL. Or what was it? Is it 1.4 or 1.3?

Question: Ishaan Srimali - Tara Capital - Analyst : Yes, NCL. I was talking about the NCL. It was 1.3 it's 1.4 for this quarter and for the next of the year it was?

Question: Piran Engineer - CLSA India Private Limited - Analyst : My question is really on the home loan business. Firstly, can you just talk a bit about competition? And secondly, when report rates are cut, what happens to our yields? What percentage of our book is -- home loan book is linked to the report rate? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 28, 2024 / 4:30AM, CHLA.NS - Q2 2025 Cholamandalam Investment and Finance Company Ltd Earnings Call Unidentified Company Representative So as far as our concern right now, we are expanding GEOS and our major focus is self construction business. So as of now, we are maintaining the yields. I will not allow the yields to drop because we are going towards the new geographies where the delinquencies will turn off over a period of time. So as far as the yields are concerned, we are trying to maintain that. Of course, going forward, if the rate of interest goes down, there will be a stiff competition. And as we all are aware, this is the affordable segment, there are many new entrants, but over a period of time, it will be those guys who can maintain the delinquency levels as they expected and who can have the team for assessment credit. (multiple speakers)

Question: Piran Engineer - CLSA India Private Limited - Analyst : And just one clarification on what Kundu sir, mentioned, the lower capacity utilization, is that only for LCD or across LCV -- MCV both?

Question: Kunal Shah - Citi India - Analyst : So first is on the borrowing side. So when we look at it, still, the skew is more towards the bank borrowing compared to that of the debt market. But the rate cuts would be following relatively later compared to the benefit, which we are seeing on the debt market side. Would we be tweaking the proportion looking at the opportunities, which are available or we obviously expect the overall mix to continue and within bank borrowings, how much is linked to MCLR and how much is linked to EBLR within that in terms of just to get the price benefit? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 28, 2024 / 4:30AM, CHLA.NS - Q2 2025 Cholamandalam Investment and Finance Company Ltd Earnings Call Unidentified Company Representative Yeah. I think we will continue with the skew more towards banks primarily because of two reasons. So we are right, like more than 50% -- 60% of foreign are connected to EBLR and we are already seeing some amount of benefit coming into that. And the other point is because of the bank borrowings -- in bank borrowings, we we take advantage of the PSL as the lower than the, your market rate. So it continues to be better too this Q1 bank borrowing.

Question: Kunal Shah - Citi India - Analyst : Okay. Got it. And. Unidentified Company Representative The 50% EBLR, around 10% is fixed and the rest are in NCLR.

Question: Kunal Shah - Citi India - Analyst : No, the only thing is in terms of like the quantum, which generally happens, that's quite huge. But the commentary still suggest suggest that it's going to take some time. So would it be fair to us.

Question: Kunal Shah - Citi India - Analyst : Yeah, disbursements. (multiple speakers) REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 28, 2024 / 4:30AM, CHLA.NS - Q2 2025 Cholamandalam Investment and Finance Company Ltd Earnings Call

Question: Kunal Shah - Citi India - Analyst : Yeah, and collections also Q3, you said, like at least in terms of the GS2, GS3, it would be at a similar level to Q2 and the improvement would be from Q4 onwards. So that's the right.

Question: Shubhranshu Mishra - PhillipCapital (India) Pvt. Ltd. - Analyst : Three questions. The first one is on the fee income. Chunky pieces, now coming from our insurance premium. How do we model for the insurance premiums going forward in the fee income? The second question is around the assignment that we used to do in vehicle finance. It's come off drastically versus say six, seven quarters ago. How do we look at that in terms of assignment going forward in vehicle finance business? And third, if you can split these collections teams -- collection employees into various businesses. Thanks. Unidentified Company Representative Insurance, where we were getting from the subsidiaries and which we're taking through dividend. It is not coming. We are already at a fairly decent pace on the insurance. I don't see too much of an option from here. It will go in line with the disbursement trend. On the assignment, actually, we're not doing assignments. We are doing more of the only securitization so far.

Question: Shubhranshu Mishra - PhillipCapital (India) Pvt. Ltd. - Analyst : But, but how many people do we deploy in collections -- Unidentified Company Representative Again, product to product is the largest, almost like 20,000 people will be in the --(multiple speakers)

Question: Shubhranshu Mishra - PhillipCapital (India) Pvt. Ltd. - Analyst : And what portion would be in a vehicle finance and lab.

Question: Viral Shah - IIFL Securities - Analyst : Let me ask the question. So I wanted to check on the new businesses since last three quarters now we are seeing broadly flattish disbursements. So what is the outlook over there or is it more of a conscious call? And also you can, if you can share the percentage of the CSEL book now being sourced through Spintec partnerships.

Question: Viral Shah - IIFL Securities - Analyst : And when you say you'll cap it at, say at max 10% is it like say more 6 months, 12 months thing or more from a medium term perspective, say three years out also it will be like that.

Question: Viral Shah - IIFL Securities - Analyst : Got it. And secondly, I wanted to check if there would be say any impact of the RBIs directive on doing with the foreclosure charges on the floating rate MSME book, which would be a lab book in our case. Do you foresee any impact not just from say the fees perspective or I would say more from a competitive perspective as well as the exit barrier goes away.

Question: Viral Shah - IIFL Securities - Analyst : Okay. So you are saying only the BT -- sorry, the non-BT portion will be impacted on the lab book.

Question: Viral Shah - IIFL Securities - Analyst : And that does not change with this director to your understanding.

Question: Viral Shah - IIFL Securities - Analyst : Okay. Got it. Thank you. And do I have a chance for one more question?

Question: Viral Shah - IIFL Securities - Analyst : With respect to the Nims. If you can see, let us know how it will trend in the second half. And more importantly, also in this quarter, was there any effect of averaging or timing impact? Because we saw 10, this increase in cost of fund, did it have anything to do with the ACB that we raised? Unidentified Company Representative So we did some tab to 3,000 floor. ,That the marginal impact. But it is more a case of some of the old loans, old borrowings which were at lower rates. Also running off the same river story of what we talk about in vehicle finance, but we are able to manage it there and we hope to keep it.

Question: Pranuj Shah - J.P. Morgan India Private Limited - Analyst : Two question. One is on your fee income, it is sustaining at a pretty decent level of INR400 crores-plus your insurance income has not increased that much quarter-on-quarter. So what actually led to the strength over here? And second is your OpEx should sustain at that 3%, 3.1% level even if you see that disbursement -- internal disbursement growth coming off from this year next year?

Question: Pranuj Shah - J.P. Morgan India Private Limited - Analyst : And just to clarify OpEx, you said 3% to 3.1% should sustain going forward also, right?

Question: Hardik Shah - Goldman Sachs - Analyst : Yeah, I had two questions. One is specifically on yields, what would be your incremental yields versus outstanding. And if you've taken any interest rate hikes across portfolios.

Question: Hardik Shah - Goldman Sachs - Analyst : Overall. Unidentified Company Representative In this, in this scenario, we will not be taking interest rate hikes on the floating rate book, which has already been hiked, which is the lab (inaudible). In the rest of the books, where is the fixed rate, we have progressively been increasing marginally two components to it. One is the increase as well as the risk, most business, giving an impact on the year. So you'll see that more in vehicle finance. And season and you won't see much because it's already a high rate book. So you may not see that much impact, but in vehicle finance, you will see progressive over the next two quarters.

Question: Hardik Shah - Goldman Sachs - Analyst : And sir, second question is broadly on the customer overlap with MFI if you could share some color, especially for our two Wheeler and affordable housing business. If you're seeing any impact on those portfolios from the stress that we are seeing in MFI.

Question: Nidhesh Jain - Investec Bank Ltd - Analyst : Two questions. Firstly, are there any growth and as a quality divergence between new CV and used CV? And secondly, in the SME book, there is almost 30 basis points sequential increase in GNP, GS3 and the book is also growing at a healthy pace. So that looks a bit a bit high increase on the GS3. So any comment or color on that.

Question: Nidhesh Jain - Investec Bank Ltd - Analyst : And on the asset quality trends, the GS3 increase that we have seen. Is it uniform across used the new or there are advances?

Question: Bhaskar Basu - Jefferies LLC - Analyst : I just had one question on the credit cost side. So you seem to be indicating that these three -- that quality would broadly be stable sequentially. While the ask on the credit cost for the second half to meet your full year guidance is still fairly high. So do you expect credit cost to go down next quarter onwards like it we have seen in the past or it's going to be largely back ended.

Question: Bhaskar Basu - Jefferies LLC - Analyst : Right. So, so the entire improvement is likely to be in the fourth quarter is what you're indicating?

Question: Bhaskar Basu - Jefferies LLC - Analyst : And when you're talking about reduction in GS3, it's going to be across the Board or specifically on the vehicle finance side where you see a correction from where you are?

Question: Ankush Agrawal - Surge Capital - Analyst : Firstly, sir, our capital adequacy has increased sequentially. So can you explain why did that happen?

Question: Ankush Agrawal - Surge Capital - Analyst : Yeah. On what --

Question: Ankush Agrawal - Surge Capital - Analyst : So sorry, can you repeat of what goes into Taiwan?

Question: Ankush Agrawal - Surge Capital - Analyst : The second question was about growth. I mean, since quarter, first phone call, we made this comment that, Q1 growth and disbursement were much higher than what we had expected because of elections. And that is due to one what we expect it to increase further, but obviously, we have not seen that happen. So what changed between these two periods that the overall growth outlook is now much lower than what was there in Q1?

Question: Kaitav Shah - Anand Rathi Financial Services Ltd. - Analyst : So just one question was on the improvement in the rota. So with the growth perhaps slightly slowing down, does that change the ROA trajectory for you or? I mean, with the trajectory in a medium term perspective? I mean, does it postpone the ROA improvement or it's still on track, do you think, or a medium term?

Question: Raghav Garg - Ambit Capital Private Limited - Analyst : So thanks to my questions have been answered.

Question: Sonal Gandhi - Asian Markets Securities Private Limited - Analyst : Just there was a previous question on PBT-ROA. So in 1H, we are closer to about 3.1%. So how do we reach to 3.5% by the end of the year? Because what I understand there would be 10 bps improvement from credit cost. (multiple speakers)

Question: Sonal Gandhi - Asian Markets Securities Private Limited - Analyst : Sure. And just another question on CSEL. So our provision coverage ratio is at 50.5%. Now given that the book is unsecured, any thought of increasing the provision coverage ratio?

Question: Sonal Gandhi - Asian Markets Securities Private Limited - Analyst : (multiple speakers)

Question: Sonal Gandhi - Asian Markets Securities Private Limited - Analyst : So I mean pre-COVID levels when our book was secured book, we were maintaining about 1.75% of PCR. With unsecured book, being close to about 8%, are we comfortable with 1.83% PCR on the total book.

Question: Sonal Gandhi - Asian Markets Securities Private Limited - Analyst : So, we don't see anything to change here over the next four, five quarters?

Question: Dhaval Gada - DSP Investment Managers Pvt. Ltd. - Analyst : I just, one question relating to the business model. So like we added these new businesses to reduce cyclicality and that's what is playing out with VF being lower -- relatively lower growth, but the overall business sustaining. Any part of the business model that you think as you've added these three or four segments, anything that can become much more bigger in the next, let's say, five, six years from where we are today. Any of the businesses, just any thoughts around that? Thanks.

Question: Dhaval Gada - DSP Investment Managers Pvt. Ltd. - Analyst : And so, well, medium term, should one be thinking that this 50% we have today and maybe eventually 40% to 50% directionally, it can be far more diversified, maybe many years down the line, but it can be far more diversified business than what it is today. So that should be a broad hypothesis or do you think at some point, we will still flatten at a particular elevated person. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 28, 2024 / 4:30AM, CHLA.NS - Q2 2025 Cholamandalam Investment and Finance Company Ltd Earnings Call

Question: Nischint Chawathe - Kotak Securities Ltd. - Analyst : This is just a clarification when you mentioned, credit cost of 1.3 versus 1.4 in the second quarter. Is 1.3 for the second half or is 1.3 for the entire year.

Question: Nischint Chawathe - Kotak Securities Ltd. - Analyst : For the full year. So probably second half should be like whatever, 1.1, 1.2 or there or maybe fourth quarter should be like whatever, 1.1 or so.

Question: Nischint Chawathe - Kotak Securities Ltd. - Analyst : Got it. Thank you very much. This was the last question for the call. So thank you everyone for joining this call. Happy Diwali to all of you. And thank you very much to the management for giving us an opportunity to host the call.