Aditya Birla Capital Ltd Q3 2025 Earnings Call Transcript

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

Question: Chintan Shah - ICICI Securities - Analyst : Yeah. Hi. Thank you for the opportunity. A couple of questions. Firstly, ma'am, on the HFC growth, a question to Pankaj, sir, we have seen a robust growth of 62% probably Y-o-Y basis. So what are the potential drivers and so where we should see the growth over the medium term? What could be the sustainable growth? And what are the key drivers for such a robust growth? Firstly, on that, so I'll ask together or separately?

Question: Chintan Shah - ICICI Securities - Analyst : Yes. Secondly, on the PCR in the NBFC segment on Stage 3, it is around 46.5%. So probably it has -- it is stable Q-o-Q, but seems to be declining. So now I think we are moving to the secured segment, so how should we see this PCR going ahead? So any -- what could be the stable number there? And also the Stage 2 has seen some inch up. So any thoughts there? And then it is on the ROA front for the NBFC piece. So it is 2.1% ROA. So if you look at the margins, over the last one year margins have compressed around 90 bps Y-o-Y since probably we are moving to a secured mix versus the unsecured portfolio and running down the secured piece. But then the credit cost has not -- has declined only like around 10 bps Y-o-Y. So the ROA has seen a massive hit. So what are the levers probably to expand? And so apart from starting the growth in the personal consumer segment, any other newer -- how should we see the ROA over the medium term? Yes, that's it from my side. Pankaj Gadgil - Aditya Birla Capital Ltd - Managing Director and Chief Executive Officer of Aditya Birla Housing Finance Limited Chintan, Pankaj here. I'm taking the question on housing finance and then I will leave Rakesh to handle the next question. I think if you see that disbursement. So this is a culmination of several consistent quarters on growth that we've seen in disbursement. So this quarter, we saw 18% Q-o-Q disbursement. But if you see the last six to seven quarters, you will see a similar trajectory. Now of course, the trajectory is even more accelerated. So it's a pretty consistent approach in growing the disbursements. It is coming on the back of three or four important things. I think over the last calls that we've had for the quarters, I've been speaking about it, but I just reemphasize those. I think over the last 18 to 24 months, we have made investments in widening our distribution. So the number of people that are there in sales operations and the entire governance structure. I think that has been strengthened quite meaningfully. That, of course, by creating capacity is leading to high disbursements. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 03, 2025 / 11:00AM, ADTB.NS - Q3 2025 Aditya Birla Capital Ltd Earnings Call Second is we have invested quite significantly in digital platforms, both in terms of our sales processes. And we have the best-in-class customer relationship management that we're using for ensuring that our sales processes are best in class. The second is we were also speaking about

Question: Chintan Shah - ICICI Securities - Analyst : Sure. Thank you for a very detailed one. So probably, but any sense on the product mix, if I may ask, what would be the product mix from 67% to 74%, we have moved to secure, so any ballpark number which we are looking beyond which we won't move the secured mix or it could -- there is no such number in mind, yes.

Question: Chintan Shah - ICICI Securities - Analyst : And so any ballpark number on the margin? So could it decline further from here on? Or should we expect some stability around current levels of 6%? Yes, that's the last one. Thank you.

Question: Chintan Shah - ICICI Securities - Analyst : Sure that that is very helpful. Thank you.

Question: Anuj Singla - Bank of America Merrill Lynch - Analyst : Yes, thank you. Good evening everyone. So I'll start with the housing finance business. So a question for Pankaj, please. Firstly, if I look at the Y-o-Y growth, a lot of that has been driven by the nonhousing segment LAP and construction finance, housing is down by around 850 basis points as per my calculations to 57%. Can you give us some sense of where this can settle down and you also have that criteria for the principal business. Where are we in that? And how much scope we have for reducing the housing proportion in the overall mix? Pankaj Gadgil - Aditya Birla Capital Ltd - Managing Director and Chief Executive Officer of Aditya Birla Housing Finance Limited Anuj, Pankaj here. At the end of Q3 FY24, if you look at what we have also listed in the slide, we had a 65%, which is showing on the housing in the bar graph, that is there on the slide. It is now showing at around 58%. So the observation is -- you're right on that side. Having said that, I think like we also maintained -- we are a full stack player, who is operating in the housing, HL and also developer finance portfolio, all the three. So I think opportunities existing in all the 3, and we've been able to successfully ensure that we filled a presence across all the three segments. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 03, 2025 / 11:00AM, ADTB.NS - Q3 2025 Aditya Birla Capital Ltd Earnings Call Having said that, there are two things that we'll have to keep them in mind is, first, the quality mix across segments, which is appropriate. I think the numbers speak for themselves on the portfolio quality that we have been able to get to. So we are very, very conscious and while the earlier question was being asked, disbursements have grown. But I think we are very focused that we use analytics right across the team, right from onboarding, we look at the onboarding labor force and also because (inaudible), gives us a very good indication of no-go, go criteria. Also, we use data analytics also on preliquency management and also on flows, which is keeping us in the right set now to manage the tab of the -- I think your question on regulatory, what are the percentages for housing loans, the minimum threshold is 50%. Overall, housing, the 60% criteria is the criteria. On both the criteria, I think we are comfortable right now. In housing loans, we are in that range of about 53 to 54 kind of range and well above the 60% mark. So I think the opportunities are still there. But at the same time, we have to keep looking at both HL and LAP and across all the segments to see the growth trajectory.

Question: Anuj Singla - Bank of America Merrill Lynch - Analyst : And secondly, can -- sorry. Secondly, can you give us some sense of the margin risk from the rate cut, if it comes through on the liability side, what kind of flexibility you have on the variable costing and on the asset side as well? Pankaj Gadgil - Aditya Birla Capital Ltd - Managing Director and Chief Executive Officer of Aditya Birla Housing Finance Limited So overall, if you see on the side of the asset side, 95% is variable, 5% is fixed on the side of liability side, 39% is fixed and 61% is variable. 9% -- broadly 6% in NHB and 33% in NCD. That is the broad breakup of the liability. But currently, if you see and you are there in the market, you will know that there is a wide spread between the term loans and the NCDs. So there is clearly a factoring rates at which we are borrowing on NCD versus the term loans, a significant difference. That's not with us, but with the market. So I think we are fully placed on that side, and we've been able to factor that when we are managing our assets.

Question: Anuj Singla - Bank of America Merrill Lynch - Analyst : So is it possible to quantify the independent impacts like for the surrender value, if it were not to be there, what could be margins for 3Q would have been higher by, let's say, 15, 20 basis points or whatever the number is. And similarly, for the repricing impact on the non-par side, is it possible to quantify, these two in independent buckets?

Question: Anuj Singla - Bank of America Merrill Lynch - Analyst : Sure. Sure. Thank you very much.

Question: Abhijit Tibrewal - Motilal Oswal - Analyst : Yeah, good evening for taking my question.First question is on NBFCs. Two sub questions there. First one is, if I look at our presentation, there has been a deceleration in the disbursements in this quarter. So I remember hearing in my opening remarks, we've been talking about calibration in our unsecured business areas and growing our secured business. So -- but if I look at the segments and presentation, I see there is really broad-based deceleration in this quarter. So how should we read that? And the related question here on NBFCs again is that there have been NBFCs who reported earlier during the quarter, and we've been talking about completely dialing down their partnership businesses. So I mean, I just wanted to understand how are we thinking about our basically consumer loan business that we do through partnerships. That is on NBFCs. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 03, 2025 / 11:00AM, ADTB.NS - Q3 2025 Aditya Birla Capital Ltd Earnings Call I have one more question. The second one is on the ABCD app. Again, I see on your slides, you've talked about introducing credit line and UPI from the next quarter. So I just wanted to understand if you can give some color of how we are thinking about that product? And lastly, out of our disbursements in the HFC in the third quarter and nine months, what proportion of disbursements came from BTs? Those are my questions. Thank you.

Question: Abhijit Tibrewal - Motilal Oswal - Analyst : The balance transfer, BTs, what proportion of disbursements came from BT?

Question: Abhijit Tibrewal - Motilal Oswal - Analyst : Can you repeat that, please? What was UPI? Pankaj Gadgil - Aditya Birla Capital Ltd - Managing Director and Chief Executive Officer of Aditya Birla Housing Finance Limited The credit disbursement that we do, that proportion is between 8% to 10% of BT in that we do.

Question: Abhijit Tibrewal - Motilal Oswal - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 03, 2025 / 11:00AM, ADTB.NS - Q3 2025 Aditya Birla Capital Ltd Earnings Call

Question: Avinash Singh - Emkay Global Financial Services Ltd - Analyst : Yes, thanks for the opportunity. A couple of questions. A couple of questions. The first one on your lending businesses against what I want to understand I mean if I look from the profitability perspective and go back, say, 4 quarters. In the NBFC, you were kind of delivering nearly 2.4 odd percent kind of ROA. Now at this juncture, of course, that unsecured business winding down that had an impact. But today, kind of you are at a 2.1-odd percent ROA. Now from here to, say, 2.5% because I recall even at 2.4-odd percent the ambition was to further improve eventually, I mean, more towards 3%. But now from this 2.1%, if you are aiming for, say, 2.5-odd percent, I mean, how this road is going to be because if I look from interest rate perspective, by and large, I mean, on the asset and liability side, fixed and floating are matched. So I mean, the rate cut cycle is also if at all not going to help there. So rather improvement has to come from, I mean, largely, I would expect from the margins because on the OpEx side, you are already reasonably good. So how is this journey and how long will this take again, say, maybe 2.1% to 2.5% journey. That's on the NBFC side. On HFC side now, of course, I mean you have been investing a lot in capacity building, and that is delivering growth, but that is also leading to sort of a currently OpEx ratio being elevated. So at what scale, what time line, I mean, you would expect and what is that optimal your OpEx to AUM or cost to income. I mean, currently, you are running more closer 2.9% kind of OpEx to AUM and for HFC to be kind of a reasonably, I would say, respectable profitable or you need to significantly lower it down. So what could be the time line, at what scale probably you would be hitting that and what is that desire sort of OpEx to AUM? These are sort of a question for lending. And just one data keeping kind of a question, if you can just provide some color on the ARC transactions that you have done in this quarter in NBFC. I mean what was the underlying asset, what sort of recoveries, cash or like what the structure with ARC based?

Question: Punit Bahlani - Macquarie Capital - Analyst : Mainly on the PCR bit, you said that because you are going to -- sorry, since you're going to secured mode, PCR is low. But as we plan to expand our personal loan business, is it fair to assume we'll be adding back towards the 50% PCR level? Or what's the plan there? And accordingly, should we bake in maybe some 10 to 12 bps at our credit cost? Also on -- when I look at the unsecured business, the Stage 2 and Stage 3 has increased by around 30, 20 bps. So what's -- like -- are there any forward flows? Is there any cause of concern here in this business? And thirdly, on the overall Stage 2 -- like Stage 2 has increased, but the Stage 3 has declined. So while you clarified that then Stage 2, you have managed to pull it off in January. But is the Stage 3 decline because of higher write-offs? Or is it any other reason? Yes, those are my 3 questions. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 03, 2025 / 11:00AM, ADTB.NS - Q3 2025 Aditya Birla Capital Ltd Earnings Call

Question: Punit Bahlani - Macquarie Capital - Analyst : Got it, got it. And since this is credit guaranteed like what is the timeline? I think last quarter, we had highlighted that 12 to 15 months, we get the recoveries and all. Is that also may be a reason that the recoveries once they come in, then you account and the number swings down, something like that?

Question: Punit Bahlani - Macquarie Capital - Analyst : Got it, got it.