Cholamandalam Investment and Finance : Call Transcript Q1-FY-2024 Aug 02, 2023

"Cholamandalam Investment and Finance Company

Limited

Q1 FY '24 Earnings Conference Call"

August 02, 2023

MANAGEMENT: MR. VELLAYAN SUBBIAH - CHAIRMAN AND NON-

EXECUTIVE DIRECTOR - CHOLAMANDALAM

INVESTMENT AND FINANCE COMPANY LIMITED

MR. RAVINDRA KUNDU - EXECUTIVE DIRECTOR -

CHOLAMANDALAM INVESTMENT AND FINANCE

COMPANY LIMITED

MR. ARUL SELVAN - PRESIDENT AND CHIEF

FINANCIAL OFFICER - CHOLAMANDALAM

INVESTMENT AND FINANCE COMPANY LIMITED

MODERATOR: MR. NISCHINT - KOTAK SECURITIES LIMITED

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Cholamandalam Investment and Finance Company Limited

August 02, 2023

Moderator:Ladies and gentlemen, good day, and welcome to Cholamandalam Investment and Finance Company Limited Q1 FY '24 Earnings Conference Call hosted by Kotak Securities. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. Nischint from Kotak Securities. Thank you, and over to you, sir.

Nischint Chawathe: Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited. To discuss the 1Q FY '24 performance of Chola and share industry and business updates, we have with us the senior management of Chola represented by Mr. Vellayan Subbiah, Chairman and Non-Executive Director; Mr. Ravindra Kundu, Executive Director; and Mr. Arul Selvan, President and CFO.

I would now like to hand over the call to Vellayan for his opening comments, after which we will take Q&A.

Vellayan Subbiah: Nischint, thank you so much, and good morning, everybody. I just want to go through the unaudited financial results for the quarter ended June 30, 2023. Our disbursements were at INR20,015 crores for the quarter. Total AUM was at INR122,755 crores, which is up by 42% year-on-year. NIM was up at INR2,127 crores, which is up 30% year-on-year, and PBT was at INR968 crores for the quarter, which is up by 27%.

The NBFC retail industry AUM growth is expected to be 18% to 20% in FY '24. Secured NBFC retail loans consisting of Vehicle Finance and other secured business loans is forecasted to grow at 14% to 16%. Chola's growth momentum continues in Q1 FY '24 across its diversified business segment.

In terms of our quick performance highlights, aggregate disbursements are at INR20,015 crores. Vehicle Finance disbursements were at INR11,301 crores as against INR8,562 crores, registering a growth of 32%. Our Loan Against Property disbursements were at INR2,679 crores as against INR2,036 crores, which is a growth of 32%.

Our Home Loan, which includes our affordable home loans and Affordable LAP, dispersed INR1,454 crores in Q1 FY '24 as against INR611 crores in Q1 FY '23, a growth of 138%. Our SME business disbursed INR2,045 crores in Q1 FY '24, which is a 98% growth compared to Q1FY '23. And Consumer and Small Enterprise Loans disbursed INR2,355 crores in Q1 FY '24 as against INR1,055 crores, which is a growth of 123%.

And Secured Business and Personal Loans disbursed INR182 crores in Q1 FY '24. So, like I said, the total Assets Under Management stood at INR122,755 crores compared to INR86,703 crores, which is a growth of 42% year-on-year.

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	The PBT growth is at 27% as compared to our overall asset growth of 42%. This is primarily
	due to two reasons; one is the fact that the cost of funds was lowest in Q1 of FY '23 and
	progressively increased over the quarter of the last year. So, on a quarter-to-quarter comparison,
	that swing is fairly significant. And then, the second is that Vehicle Finance book is a fixed rate
	book. So, repricing of that portfolio happens progressively as the proportion of new book is
	replaced with higher yields. So, we're beginning to see that. And so, I think that this will begin
	to adjust in upcoming quarters.
	The PBT ROA for Q1 FY '24 was at 3.3%, PBT and ROE was at 19.9%. The company continues
	to hold a strong liquidity position with INR7,069 crores as cash balance at the end of June
	2023(including INR1,500 crores/ INR1,600 crores invested in Gsec and T Bill, which is shown
	under investments), with a total liquidity position of INR9,479 crores (including undrawn
	sanctioned metrics). The ALM is comfortable with no cumulative negative mismatches across
	all time buckets.
	Our consolidated PBT was at INR956 crores as against INR764 crores, reporting a growth of
	25%. Asset quality wise, Stage 3 levels have marginally increased to 3.06% in June '23 from
	3.01% in March '23. GNPA as per RBI norms has reduced to 4.3% as against 4.63%. And NNPA
	has also dropped to 2.82% as against 3.11%. NNPA is below the 6% threshold prescribed by
	RBI for PCA. The details, we will basically share with you. The capital adequacy ratio for the
	company was at 17.44% as against regulatory requirement of 15%. Tier 1 capital was at 15.14%,
	and Tier 2 capital was at 2.3%.
	The Board of Directors at the meeting, which held yesterday afternoon have subject to the
	approval of shareholders, approved a proposal for Capital raising by way of QIP (equity and/or
	CCD) at a price to be determined under the SEBI Regulations 2018. We are targeting to raise
	INR4,000 crores by way of these instruments, subject to necessary approvals.
	I will stop with that Nischint, and then we'll be happy to turn it over to the audience for Q&A
Moderator:	Thank you very much. We will now begin the question-and-answer session. The first question
	is from the line of Suresh Ganapathy from Macquarie Capital.
Suresh Ganapathy:	I have question on the credit cycle itself. I mean, that is, how do you read this? You have grown
	at 40% and growth across all categories, whether it is banks, NBFCs is so strong. How do you
	see the situation on the ground? What explains such strong demand and asset quality outcomes?
Vellayan Subbiah:	Yes. So, Suresh, I mean, I'd say it's a good question. So, if we take the different businesses the
	kind of advantage, we've had in some of the smaller businesses, at least for us is that our starting
	position is very small. So let me take Vehicle Finance. If you see Vehicle Finance overall,
	obviously, kind of there, it's a more mature product. It's also a product where we have larger
	penetration. And we do see strong demand still kind of across segments in that business as well.
	But obviously, growth for us is limited compared to the growth we've seen in some of the other
	segments.

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	Now what's interesting in the other segments is that I would say kind of first off, Home Loans
	continues to kind of see very strong potential for growth, because the segments we're going into,
	we see as significantly underserved, and we're seeing a lot of good demand in those segments.
	Theone area where obviously kind of there are concerns, actually kind of like once you get to
	the smaller loans, right, kind of both unsecured and secured loans. There are certain pockets
	where we are seeing a certain caution that we're developing because in certain pockets, we are
	seeing kind of a bit of over lending and therefore, we are getting more cautious.
	So, we're taking the same micro market view that we used to take with vehicle finance and
	bringing it out to these other segments. And so, taking a fairly cautious view in areas where
	we're beginning to see a little stress. The stress is actually there's not really a demand slowdown,
	but we're seeing kind of a bit of oversupply into a couple of areas to, let me put it that way.
Suresh Ganapathy:	Okay. But coinciding with this, we have also seen your other business NPLs actually having
	gone up. I mean, I know it's a small day, 0.7% that's gone to 1.1%. Anything that we should read
	into it or just a seasonal thing or will you slow down this segment which will be going forward
	how to be read into it?
Vellayan Subbiah:	So, Suresh, I'll give my commentary and then I'll have Ravi add with his comments as well. See,
	basically, the other businesses, like you know kind of at least the ones that I mean, the newer
	book is just building, right? So, we've always said that which is like kind of having an extremely
	small NPA is not going to be kind of sustainable in that business. Some of it is just the book
	building. We continue to kind of have a high degree of confidence in terms of the segments and
	our ability to kind of grow in them. So, we don't see any concern from what we're seeing as like
	you said, a movement from 0.7% to 1.1%. And Ravi, why don't you add your thoughts and
	comments.
Arul Selvan:	Yes, it's Arul here, Sir. So here, we expect, and we have also articulated that it will be in the
	range of around 1.2% to 1.5%. And I think we are still well within that figure, in the new
	businesses. They will tend to have slightly higher NCLs as compared to other major businesses,
	because they are of a slightly risky nature, which is more than adequately compensated by the
	FLDG.
	But we are still running them at a much tighter levels and even lower than existing products
	because we are being very selective about the customer profile right now, we are working on.
Moderator:	Next question is from the line of Abhijit Tibrewal from Motilal Oswal.
Abhijit Tibrewal:	Sir, even a bit of next quarter, which is where, there are two or three points that I need your help
	to understand why they happened. Can you just touch upon NCLs in the newer businesses being
	higher but being compensated by higher yields. Sir, again, when we look at the reported
	numbers, the gross credit cost in the newer businesses works out to somewhere around 5%.
	Again, this is your overall credit cost, and have removed the Vehicle, Home Loan and LAP
	credit cost and divide it by the average loans outstanding order book, outstanding new loans. It
	works out to about 5%.
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	So are these gross credit costs and are there some recoveries from your partners under some
	FLDG arrangements, because of which the net credit cost in the newer businesses was lower
	than what they are looking like.
	And sir, a related question here, I mean, in the newer businesses, particularly CSEL, what is the
	collection efficiency that you're seeing today? What is the bounce rate that you are seeing in the
	CSEL business growth? Sir, why I asked this is, in the past, you have articulated that we will
	not shy away from slowing down in the newer businesses if the delinquencies are higher than
	what you have budgeted for.
	So are you seeing some early signs of stress and also given the fact that we simply around some
	of the peers acknowledging, stressing rural personal loans. Sir, are we as Vellayan Sir was
	explaining, taking a cautious in personal loans now and concentrating more on professional
	loans, business loans? Or how are you thinking about the CSEL business?
Arul Selvan:	You're right. In the extent what I think I did in the NCL, what is happening is, there are two parts
	in the NCL. One is we have a FLDG recovery of around INR35-odd crores, which is shown at
	the gross level in NCL and FLDG recovery comes in as income line. So, this is under the IndAS.
	So, around INR35 crores. It should be lower in the NCL numbers for the new businesses.
	The second part is as the new businesses scale, they need to be also provided with standard assets
	provisioning equivalent of standard assets provisioning under the PD, LGD norm. So that would
	also add up to the overall number.
	So, between both this, your provisioning number will look higher when you see these numbers,
	as a reduction of the total NCL minus 3 businesses we have reported. But for it, we are not seeing
	any significant increase in our credit risk and from that angle, we're not slowing down in any of
	the new businesses.
Vellayan Subbiah:	I think I don't know if you interpret it as kind of, we are going cautious on the new business.
	What I said is that this is true always in kind of vehicle or any other businesses we're in, like we
	said, there are always some micro markets, which we will be cautious on. But overall, so we
	continue to be very optimistic and see a lot of growth potential, and we will see kind of growth
	in new businesses, absolutely. So, I don't think that they should be interpreted as kind of turning
	overly cautious, right, which could be one of those.
Abhijit Tibrewal:	Got it. Got it, sir. Sir, I mean, just a follow-up question before I ask my next question to Ravi
	sir. So basically, what I inferred is, we are not seeing any higher delinquencies in the newer
	businesses, which will kind of make us cautious. And at the same time, what Arul sir was
	explaining, there is that component of FLDG recovery standard asset provisioning. So, nothing
	outright alarming in the newer businesses is what you are seeing is, is what I'm referring here.
Vellayan Subbiah:	Correct.
Abhijit Tibrewal:	Hope for that is correct. Sir the next question, and the last question that I have is for Ravi sir.
	Sir, how should we look at the yield trajectory in Vehicle Finance, the fact that we are not seeing
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