Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Five-Star Business Finance Ltd (BOM:543663, Financial) achieved its highest ever asset under management (AUM) of INR 10,344 crores, marking a significant milestone.
- The company recorded its highest ever quarterly profit after tax (PAT) of INR 252 crores, reflecting a 37% year-on-year growth.
- Return on Equity (ROE) reached an all-time high of 18.95% for the quarter, with expectations to comfortably cross 19% for the full year.
- The company opened 27 new branches in the June quarter, bringing the total branch count to 547, indicating expansion and growth.
- Digital payment penetration improved significantly, with non-cash payments rising to 65%, moving towards the target of 70% by year-end.
Negative Points
- Collection efficiency dropped slightly from 99.5% in March to 98.5% in June, attributed to the heat wave and election season.
- The cost of funds remained high at 9.6%, with only a marginal decrease in the incremental cost of borrowing.
- Net Interest Margins (NIMs) compressed to 16.72% from 17.74% in the same quarter last year due to increased debt and leverage.
- There was a slight increase in Stage-3 assets from 1.38% in March to 1.41% in June, indicating a small rise in non-performing assets.
- Disbursement growth showed a deceleration, with a year-on-year increase of only 16%, down from previous higher growth rates.
Q & A Highlights
Q: Do you see yourself maintaining such excess liquidity for a long period of time?
A: Our intention is to maintain around 15% to 17% of our AUM in the form of liquidity. We are currently a bit higher but expect this to normalize as we balance sanctions and disbursements. (Srikanth Gopalakrishnan, CFO)
Q: How did you manage to maintain good collections despite the heat wave impacting others?
A: We anticipated the challenges and implemented a strong collection strategy. Our ground-level infrastructure and proactive measures helped mitigate the impact. (Lakshmipathy Deenadayalan, Chairman and MD)
Q: Why was there no significant addition of business officers this quarter?
A: We are focusing on splitting larger branches into smaller ones, transferring officers from existing branches to new ones. This strategy helps manage operational costs and risks better. (Rangarajan Krishnan, CEO)
Q: What is the outlook for the number of new loans disbursed in FY25?
A: We expect the number of new loans to grow by about 20%-22%, driven by branch additions, officer additions, and an increase in ticket size. (Srikanth Gopalakrishnan, CFO)
Q: Why has the disbursement growth rate been decelerating?
A: The slowdown is due to a cautious approach considering regulatory perspectives and ensuring asset quality. We expect growth to pick up in the coming quarters. (Lakshmipathy Deenadayalan, Chairman and MD)
Q: How are you managing the cost of funds given the diversification into NCDs?
A: While our cost of funds has not increased significantly yet, we expect it to rise as we engage more with capital markets. We are also in discussions with rating agencies for potential upgrades. (Srikanth Gopalakrishnan, CFO)
Q: What efforts have led to the improvement in digital payment collections?
A: We introduced multiple digital payment options, including UPI autopay, and made it mandatory for new disbursements. This structural change has significantly improved digital collections. (Rangarajan Krishnan, CEO)
Q: What is the strategy for branch expansion and officer additions?
A: We plan to add 70-90 new branches and convert collection officers to business roles. This will be done gradually to manage operational costs effectively. (Lakshmipathy Deenadayalan, Chairman and MD)
Q: How do you plan to manage the impact of potential rate cuts on your borrowing costs?
A: About 65% of our borrowings are floating rate, with 70% linked to MCLR and 30% to external benchmarks like the repo rate. We expect to benefit from rate cuts over the next 12 months. (Srikanth Gopalakrishnan, CFO)
Q: What is the expected impact of the credit cost guidance on provisioning?
A: We maintain a credit cost guidance of 70-80 basis points and are comfortable with our current provision coverage. We will continue to build buffers to protect against unforeseen risks. (Srikanth Gopalakrishnan, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
