Aditya Birla Capital Ltd Q4 2024 Earnings Call Transcript

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

Question: Nischint Chawathe - Kotak Institutional Equities - Analyst : We kind of moved on to the finance business to around 17% of the ROE for this year and now with the merger, again your ROE will come down. So, what kind of ROE guidance would you give us for the next three years?

Question: Nischint Chawathe - Kotak Institutional Equities - Analyst : I know. But if you really go back 3-4 years in time, there was a very strong concerted effort to improve profitability. Take the ROE to sort of 17% to 18% levels and we have actually achieved that. And now you know with this capital coming in probably we will probably take a couple of more years to get back to these levels. And that's where I think the question was.

Question: Nischint Chawathe - Kotak Institutional Equities - Analyst : Just a second small question was essentially of the GS2 and GS3 in the consumer (inaudible - microphone inaccessible) seeing a fairly sharp rise

Question: Nischint Chawathe - Kotak Institutional Equities - Analyst : Yes.

Question: Nischint Chawathe - Kotak Institutional Equities - Analyst : So, if I look at the numbers, your loan book in this segment is down 11% quarter-on-quarter, but your GS2 is up 17% quarter-on-quarter and GS3 is up 13% quarter-on-quarter. So, the point essentially is that are we kind of closer to the (inaudible - microphone inaccessible) these ratios going up when you're really looking at the static pools probably that you have access to?

Question: Nischint Chawathe - Kotak Institutional Equities - Analyst : So, is this like the bottom end or do you expect it to sort of run down a little bit more before the book starts growing and the ratio starts improving?

Question: Nischint Chawathe - Kotak Institutional Equities - Analyst : So, and the final one on the life insurance side if I can see them and the margin compression that we've seen this year, is it purely because of the increase in share of ULIPs or would you also kind of say that payouts to distributors have gone up which is one of the things that some of the other peers in the industry have been talking about?

Question: Avinash Singh - Emkay Global - Analyst : Hi. The first question is on your acquired portfolio. If I see you have almost acquired like consisting of 1.5 lakh accounts over the last one year. If you can just help us understand about some sort of what kind of a loan from -- what kind of lenders you have acquired this portfolio. So that's the question one. The second question would be if you were to look in the housing finance business I mean, of course the AUM is growing but you are still sort of investing in branch and people so that cost ratio also is right. Right now, of course the negative credit cost has kind of driven that ROA is still being is comparable to where it was last year. So, if you can provide clarity or color on how these cost- OpEx ratios are going to behave over FY25.

Question: Avinash Singh - Emkay Global - Analyst : So first one, I mean, if I look at our NBFC disclosures, you have acquired nearly 4.5 thousand crore-odd of loan in the last one year consisting of some 1.5-1.6 lakh number of loan accounts. So just wanted to know what kind of product, customer you are acquiring in these sorts of loan and what kind of lender or originator from which you are acquiring?

Question: Avinash Singh - Emkay Global - Analyst : (technical difficulty) INR 3 lakh-odd and also if I look at the disclosure in terms of the security cover, it suggests less than 100%, that means there's reasonable size of unsecured also, that is where my question was that I mean. If some mix of unsecured and secured then what kind of unsecured book you're acquiring? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 13, 2024 / 11:00AM, ADTB.NS - Q4 2024 Aditya Birla Capital Ltd Earnings Call

Question: Avinash Singh - Emkay Global - Analyst : Okay. And my question on housing finance OpEx? Pankaj Gadgil - Aditya Birla Capital Ltd - Managing Director and Chief Executive Officer of Aditya Birla Housing Finance Limited So, I think the question that you asked was about the ROA and how we've managed the credit cost and how is it going to be like.

Question: Avinash Singh - Emkay Global - Analyst : Okay. So just one follow up on life insurance. So, if you can just help sort of a breakdown of your operating and economic variances which are also changing, and also, I mean your rate of unwinding at 9% plus is relatively higher to your peers. So, if you can shed some color on that? Thanks.

Question: Avinash Singh - Emkay Global - Analyst : Yes, and in operating variance, if you can sort of provide some breakup like how much is coming from cost, persistency and mortality, because it is reasonably a big number?

Question: Avinash Singh - Emkay Global - Analyst : Okay. Thanks.

Question: Manoj Bahety - Carnelian Capital Advisors, LLP - Analyst : Hi. Am I audible ?

Question: Manoj Bahety - Carnelian Capital Advisors, LLP - Analyst : Hello. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 13, 2024 / 11:00AM, ADTB.NS - Q4 2024 Aditya Birla Capital Ltd Earnings Call

Question: Manoj Bahety - Carnelian Capital Advisors, LLP - Analyst : Hi Vishakha. First of all, congratulations on a good set of numbers and as well as good asset quality. So, I have two questions. First question is if I see like the last four, five quarters, the kind of acceleration which we have seen in our overall loan growth and especially a large portion of the loan growth is coming from retail, personal, SMEs and as well as the unsecured portion. So just wanted to get some understanding, like when -- with this phase of growth, obviously you need to introduce new risk controls, whether it may be technology-driven, whether it may be like some other measures of control. So, if you can help us understand what kind of additional risk controls at a corporate level you have introduced which will tackle your balance sheet, which will be like 3x of its size in the next few years?

Question: Manoj Bahety - Carnelian Capital Advisors, LLP - Analyst : Great that is very insightful Vishakha and Rakesh. I have two more questions. First one is a quick one. For our health insurance, what is the path to profitability? Already I think we are at almost INR3600 crore , INR3700 crore kind of GWP. So, when can we expect this to start contributing on a bottom-line basis? Mayank Bathwal - Aditya Birla Capital Ltd - Chief Executive Officer and Whole Time Director of Aditya Birla Health Insurance Co. Limited Yes, so as I have mentioned earlier and even Vijay mentioned that we're looking at 100% COR by FY26, the next 24 months. The fact that like in the last quarter of FY23, we had a marginal loss, in the last quarter FY24 we had a profit of INR88 crore, clearly showing that our unit economics are working very well, which should put us well on course for this guidance that I've just given.

Question: Manoj Bahety - Carnelian Capital Advisors, LLP - Analyst : Okay. And the last question is on our distribution strategy on the especially personal loans or BNPL or SMEs. So earlier I think everybody in the system was aggressively using fintech partners. With RBI tightening norms on fintech partners, is there a significant change in our strategy and how we are dealing with the situation. So if you can help me some insights into this? Thank you.

Question: Manoj Bahety - Carnelian Capital Advisors, LLP - Analyst : Great. Thank you so much for taking my questions.

Question: Anuj Singla - Bank of America Corporation - Analyst : Thank You. Good evening, everyone. So, I think a couple of questions on the lending business first. So, I don't recall if I missed the growth target for NBFC and HFC side for the next year. Have you articulated any numbers there?

Question: Anuj Singla - Bank of America Corporation - Analyst : Yes, AUM growth for FY25.

Question: Anuj Singla - Bank of America Corporation - Analyst : Okay, got it. And Rakesh sir, second question on the personal and consumer loan, obviously you have managed the book well on the small ticket size loans and these now constitute 17%. How should we look at the growth trajectory from here ? Is this -- should the proportion stabilize here in terms of the percentage of the AUM? And secondly, what does that imply for NIMs because this is obviously the higher lending book and we also have seen some cost of funding pressure. So how should we see the NIM trajectory maybe for FY25?

Question: Anuj Singla - Bank of America Corporation - Analyst : Okay got it. Secondly, on the health side, so just one question. You have guided for 100% combined ratio by FY26. Can you also give some more details, is there some kind of price hikes we are building in this guidance or this is more driven by gaining sale and operating leverage? Thank you. Mayank Bathwal - Aditya Birla Capital Ltd - Chief Executive Officer and Whole Time Director of Aditya Birla Health Insurance Co. Limited No, I mean our growth has been consistent. As I said we've had a growth of about 42% CAGR in the last three years, that growth will continue given the opportunity. Price hike is the subject of regular action that insurance companies take and like all other health insurance companies, if the medical inflation does demand, the claims ratios are going up and we need to reprice, which has always been in line with market. So we will do that. So, it's not something unusual. All insurance companies do. In fact, our price hikes have been generally slightly below what you see in the industry, which means that we have managed our portfolio and the quality of it and the related loss ratios reasonably well. In fact, this year also our retail claims ratio has trended very well because of all the actions that we have taken.

Question: Anuj Singla - Bank of America Corporation - Analyst : Okay got it. Thank You.

Question: Bhaskar N. Basu - Jefferies Financial Group Inc. - Analyst : Yes thanks. Good evening. I had three questions. So firstly, just dwelling back on one of the questions in the past. One of the earlier questions essentially around the portfolio acquired. This quarter, it seems you've acquired about INR2,300 crore, works out to average ticket size of about INR6.5 lakh with an average tenure of about 12 years. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 13, 2024 / 11:00AM, ADTB.NS - Q4 2024 Aditya Birla Capital Ltd Earnings Call So just wanted to understand and this seems to be almost 50% of the sequential growth if I assume this is all secured and coming from SME. So, if you could give a little more texture around these loans. What kind of yields do they generate because at the ABFL level there seems to be a yield compression on a sequential basis? So that is my question one.

Question: Bhaskar N. Basu - Jefferies Financial Group Inc. - Analyst : Yes. Secondly, in the same context, what is the product mix or loan mix in the next three years, given that you're dialling down on the personal side? And third was just a housekeeping question on the write-off number for the quarter.

Question: Bhaskar N. Basu - Jefferies Financial Group Inc. - Analyst : Okay and just the write-off number, please?

Question: Bhaskar N. Basu - Jefferies Financial Group Inc. - Analyst : Okay thanks. That's all from my side.

Question: Sameer Bhise - JM Financial Institutional Securities Limited - Analyst : Hi. Thanks for the opportunity and congrats on the good quarter. I just wanted to make sense on the coverage levels at ABFL. How do you see it moving ahead? We've stabilized at around 50% level. So, some direction here would be helpful. And also, if you could share Stage-1 and Stage-2 coverage on an overall basis?

Question: Sameer Bhise - JM Financial Institutional Securities Limited - Analyst : So fair to assume that 50% is a good threshold to have over the medium-term?

Question: Sameer Bhise - JM Financial Institutional Securities Limited - Analyst : Okay. That's helpful. That's it from my side. Thank You.

Question: Pranuj Shah - JPMorgan Chase & Co. - Analyst : Thank you for the presentation. So, three questions here. First one is on construction finance. That book has grown very sharply quarter-on-quarter and year-over-year. So, could you give a sense of the average ticket size over here and what kind of vintage of the developers that you look at when you finance? And also, is there any difference in the customer profile between the NBFC construction finance and the housing finance book?

Question: Pranuj Shah - JPMorgan Chase & Co. - Analyst : Is there a vintage of developers that you also look at like they need to have minimum x number of years of development experience and then you sort of lend to them or there's no such criteria? Pankaj Gadgil - Aditya Birla Capital Ltd - Managing Director and Chief Executive Officer of Aditya Birla Housing Finance Limited So, there are two things. One, we've kind of created a proprietary model which has both qualitative as well as quantitative aspects when we look at the developer, and we look at it from both the dimensions. One is the developer profile, which includes the vintage, which includes the number of square feet that they have already built in the market. We also can type of projects that they have also undertaken, the quantum of residential units that they have done, the experience in commercial versus residential that the experience that they have in a particular catchment. I think all of the things that we anyways look at and then we also look at the viability of individual projects. So, it's going to be underwriting, which is two dimensional. One it is developer profile and second, it is to do with the project viability. And I think both those dimensions are considered and extensive interactions happen. And the basis of the model that we kind of have created, we actually rate these developers internally and then we appropriately take calls on the developers.

Question: Pranuj Shah - JPMorgan Chase & Co. - Analyst : Thanks a lot for that. Second one was on the yields like assuming (inaudible) correct the RBI guidelines are implemented as it is, as there is no relaxation over here. And if you pass it on 100% to the developers, what could be the rise in yields from there on, if there is some sort of a calculation that's already done?

Question: Pranuj Shah - JPMorgan Chase & Co. - Analyst : Pranuj Shah: But there would still be a capital requirement if I am not wrong?

Question: Pranuj Shah - JPMorgan Chase & Co. - Analyst : Okay. And one last on the unsecured business loans, your disbursals have moderated a bit quarter-on-quarter and year-on-year is also 6%. So, is there a call that you're making at a company level just to stay away from unsecured loans and gentle be it business or personal?

Question: Pranuj Shah - JPMorgan Chase & Co. - Analyst : I was looking more from an unsecured business loan perspective. Consumer, I think you well explained it even earlier. Just on the unsecured business loans. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 13, 2024 / 11:00AM, ADTB.NS - Q4 2024 Aditya Birla Capital Ltd Earnings Call

Question: Pranuj Shah - JPMorgan Chase & Co. - Analyst : Understood. Thank you so much for answering the question. That's it from my side. Moderator:

Question: Kunal Shah - Carnelian Asset Advisors - Analyst : No, my questions have been answered.