Earnings call transcript: SBFC Finance Q1 2025 sees 28% PAT growth

SBFC Finance Limited reported a strong financial performance for the first quarter of fiscal year 2026, with a notable 28% year-on-year growth in profit after tax (PAT) to INR 101 crores. The company’s assets under management (AUM) also saw a significant increase, rising 30% year-on-year to INR 9,351 crores. According to InvestingPro data, the company maintains impressive margins with a gross profit margin of nearly 100%, while trading at a P/E ratio of 32.17. Based on InvestingPro’s Fair Value analysis, the stock currently appears slightly overvalued.

Key Takeaways

• SBFC Finance’s PAT grew by 28% year-on-year and 7% quarter-on-quarter.
• AUM increased by 30% year-on-year, with a focus on MSME and gold loans.
• Operational expenses were reduced by 25 basis points from the previous year.
• The company plans to continue its branch expansion strategy.

Company Performance

SBFC Finance demonstrated robust growth in Q1 FY26, with a strong emphasis on expanding its footprint in semi-urban and rural markets. The company added 10 new branches this quarter, bringing the total to 215, with 175 branches now offering gold loans. This expansion aligns with SBFC’s strategy to cater to small businesses in smaller towns, maintaining a balanced portfolio mix between MSME and gold loans.

Financial Highlights

• Profit After Tax (PAT): INR 101 crores, a 28% increase year-on-year
• Assets Under Management (AUM): INR 9,351 crores, up 30% year-on-year
• Return on Average AUM: 4.5%
• Return on Average Tangible Equity: 13.53%
• Operational Expenses: Reduced by 25 basis points to 4.59%

Outlook & Guidance

Looking forward, SBFC Finance aims for a 5-7% quarter-on-quarter growth in AUM and plans to reduce operational expenses by 50 basis points. The company also anticipates a 15-20 basis point increase in credit costs while maintaining a return on equity (ROE) target of 15%. Continued branch expansion remains a key strategic focus. Analyst consensus from InvestingPro strongly supports this outlook, with price targets ranging from $1.19 to $1.48, suggesting potential upside. The company’s Financial Health Score of 2.45 (FAIR) reflects its balanced growth approach.

Executive Commentary

CEO Singh Dhru emphasized the company’s strategic direction, stating, "At least you know you’re well on your path and headed in the right direction." He also highlighted the company’s preparedness for market challenges, noting, "We are prepared for the worst and batting for the best."

Risks and Challenges

• Weak private consumption with a 2% slowdown could impact loan demand.
• Urban consumption stagnation may affect growth in urban-focused products.
• A potential increase in credit costs by 15-20 basis points could impact profitability.
• Educated unemployment trends could affect borrower repayment capacity.

SBFC Finance’s Q1 2025 earnings call reflected a strong performance and a strategic focus on growth in underserved markets. The company remains cautious yet optimistic about its future trajectory, balancing expansion with prudent risk management. For deeper insights into SBFC’s financial health, growth prospects, and detailed valuation analysis, access the comprehensive Pro Research Report available exclusively on InvestingPro, along with expert analysis of 1,400+ other top stocks.

Full transcript - SBFC Finance Ltd (SBFC) Q1 2026:

Conference Operator: Ladies and gentlemen, good day, and welcome to the SBFC Finance Limited Q1 FY ’twenty six Earnings Conference Call. As a reminder, all participant lines will be in a listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star since you’re on your touch tone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr.

Ranish from ICP Securities. Thank you, and over to you, sir.

Ranish, Host from ICP Securities, ICICI Securities: Thank you, Shubhie. Good afternoon, everyone, and welcome to ICICI Finance q one FY twenty six earnings call. On behalf of ICICI Securities, I would like to thank ICICI management team for giving us the opportunity to host this call. Today, we have with us the entire top management team of SBFC represented by Mr. Singh Dhru, Managing Director and CEO Mr.

Mahesh Dayanil, Executive Director Mr. Narayan Dhruv, CFO Mr. Sanket Agrawal, Chief Strategy Officer and Mr. Rajiv Prakhar, Chief Risk Officer. Will now hand over the call to Mr.

Singh for his opening remarks and then we’ll open the floor for Q and A. Over to you sir.

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: Thank you, Ranish. So good afternoon ladies and gentlemen and thank you for taking the time out to be on our earnings call. For those listening to this call, it’s just a number, INR101 crores of profit after tax this quarter. But for all of us on this side of the call, it is the validation of a dream coming true, a number that sat on our excel sheets as we submitted our projections to investors, banks. As you know, every number is achievable on excel, but to see it actually on a quarterly P and L, our heart is filled with gratitude.

It is a combination of human effort, the trust of our investors and lenders and divine grace. I still remember how it felt to see INR100 crores of profit in a year, then in half a year and now in a quarter. On a long journey to infinity, it’s reassuring to see milestones go by. At least you know you’re well on your path and headed in the right direction. If you look at the economy right now, it tells us that there are four good things that have been enablers to what tailwinds we are seeing.

One is that there has been extremely good monsoons. So this is I mean if you see the last almost two to three years, it’s been a continuous good cycle of both Ravi and Karif and even this time the Karif sowing has been very good. It’s been in the slightly early onset of monsoons. So we have had good monsoons, no income tax on income up to R12 lakhs, reduction in borrowing rates and falling inflation. These are enablers which are increasing disposable income.

On the other side, there are headwinds of stagnating income, job creation falling, both are leading to weak urban consumption. Banks, IT services, the large employers are in a cost of more and educated unemployment is a concerning trend. And it is not just that this is a trend only in India. Across the world, educated unemployment is a huge trend. Reasons are different.

Some where it is because of AI, some where it is because of a slowing economy, some where it is because of uncertainty on tariffs. Reasons are different, but everywhere this is a trend that one sees. So we have a situation that while rural consumption is showing growth, the urban ones are accelerating. I would venture to say that India is growing outside of its metros. In the last quarter, I was on the road through states of Karnataka, Andhra, Telangana, Maharashtra, Uttar Pradesh, Bihar and can validate that semi urban and rural does seem to be doing better than urban.

That’s where the government focus was and it should come as no surprise. But due to low purchasing power of these customers compared to the urban ones, the growth in sales of all discretionary consumption companies has been anemic. So now if you look at it, weak consumption plus poor private investment, plus maxed out government investment and spends, plus rising imports, plus uncertainty on exports with the current drama on tariff is a drag on our GDP growth. If you look at the current GDP growth number that 7.4%, the last print that we saw, There has been a slowdown in private consumption by 2% over last quarter and private consumption is about 60% of our GDP. So there is a slowdown about 2% over last quarter.

Exports are down by 4%, but investments are sharply up 9%. So government seems to be have done a lot of spending in the last quarter. Global growth and shifting wins, thanks to AI, is casting a long shadow on our services export, especially in tech. The monetary policy that was tightened by RBI by two fifty basis points increase plus liquidity was kept tight. The objective of such a policy is to slow down growth.

Mean that is exactly what this policy is aimed to do. Because I mean to slow down inflation you want to slow down growth and both have been achieved. Now we are in an easing cycle. Sales, I mean if you look at the economy on a narrow basis, sales on online e commerce websites plus D2C websites, quick commerce, food and medicine delivery apps, organized retail stores from groceries, electronics, clothes, spectacles, medicine, jewelry are taking business away from the neighborhood Solanki Chemist, CRM general provision store, Kantabai vegetable vendor, Ashantaram fruit vendors, some Koli fish stall, and May one chicken center, street fast food retail shops, Mahalashmi Jewelers and their ilk. So Wall Street and Dalar Street are eating real street lunch in urban markets.

We could see this coming. When we are setting up SBFC, could see the trend coming. And we decided in the start to focus on small businesses in small towns and stay away from metros because this was the concern. It is playing out what we had envisaged. The taps of credit were turned in a risk on mode fueling the bottom of the pyramid growth until RBI rightly saw a bubble forming and pricked unsecured and microfinance lending.

As lenders recoiled in a cautious mode, re adjusting their risk models, the velocity of money dropped and this always has unintended consequences impinging on other borrowers who are getting their money from these. We saw political risk play out in Karnataka where the ordinance which had nothing to do with us brought our collection numbers down sharply in the last quarter of the last fiscal and while damage takes a quarter, its repair takes away the other four. NBLCs have moved from a go go demand and restrained supply of money with rising rates till FY24 to the supply taps opening up and cost dropping, but a more restrained demand. The need for finance has gone up, the demand defined as need plus ability to pay the EMI has reduced. A mixture of tightening credit that we did in February 24 and a stretched borrower on the ground has increased our rejection rates by 10%.

We are building an institution and any financial institution needs three things governance and profitability at scale. Storms and earthquakes will come. It is our job to build the firm anti fragile. We have signaled last April and if you see all my calls since last April, we were seeing incipient stress due to old leverage of individual balance sheets. Lending near the bottom of the pyramid has always had this pattern that for a long time things hold.

And then an event like the one we saw in Karnataka in quarter four of last fiscal kind of shakes the tree. These customers once they move forward, it takes four quarters to repair the damage of one quarter. We are cognizant that rewards of a high yield do not come without attendant risks. And to that extent, we must fortify our balance sheet over profit and loss account. So we are at all points of time and that has been our strategy from day one that the balance sheet has to be protected, profit and loss account can wait.

If you recollect the last the first quarter since our listing two years ago, we have stopped accruing interest on NPAs and we have been raising our PCR to the double of regulatory minimum. As recently as last quarter, we increased our PCR to the higher end of the mid-40s. We also sit in almost 2x more liquidity than the regulatory minimum. These are price we will happily pay for a good night sleep. Considering the current environment, we will be increasing provisioning, which will increase our credit costs going forward.

There are four tailwinds and one headwinds where we stand. Cost of credit is a headwind we will battle, but the tailwinds we have are one, the regulatory risks have moderated two, liquidity flow is ample three, the cost of incremental funding is dropping much faster, while the transmission to MCLR usually takes its time to find its way down to us, but the incremental funding is certainly dropping and four, cost of operations will likely continue its downward trajectory around our guided path. This will enable us to be on a continued path of profitability and on track to deliver the ROE we had built SBSE for. Right now, at our debt equity of just 1.87x and a cost to income ratio of 39%, we have delivered an ROE of 13.5%. We are targeting business as usual growth of our AUM by a 5% to 7% quarter on quarter growth.

We are on track for a 50 basis point reduction in cost of operations down the year. Our cost of credit that may inch up by about 15 to 20 basis points from here. On growth profitability and ROE, we are on our guided path. We thank each one of you for the faith that you repose in us. We are very happy now how far we have come.

But as Dhruv Yamani once said, our dreams are to be bigger, our ambition is higher, our commitment deeper and our efforts greater. With that, I hand over the call to Narayan to take us through a little bit more about the company numbers. Thank you, Assim. Good evening, investors. So our AUM as of June 25 is INR9351 crores with a growth of 30% on a Y o Y basis, 7% on

Narayan Dhruv, CFO, SBFC Finance Limited: a Q o Q basis and with our book secured by properties in gold. During the quarter, we added 10 branches with a total branch at two fifteen as of June 25. In terms of yield spreads and OpEx, the yields and spreads both saw marginal rise during the quarter. The yields improved by 11 bps over the quarter. The cost of borrowing came down by three bps for the quarter, thereby increasing the spread by 14 bps during the quarter.

The yield as of now for the quarter is 17.99 with a spread of 8.67% for the quarter. Our borrowing cost also reduced by three bps during the quarter, which is at 9.32% for the quarter. Our OpEx also reduced by three bps during the quarter in spite of increments etcetera and is at 4.59% for the quarter. OpEx improvement is 25 bps from Q1 of the previous financial year due to operating leverage. This is in spite of our consistent increase in branch network, which we are doing over the period of time.

In terms of asset quality, our GNPA is range bound during the quarter to 2.78% with PCR at 44.4%. Our credit cost is 1.11% for the quarter which is in line with our guidance. In terms of capital and return ratios, our capital adequacy remains strong at 34.3% with a tangible net worth of INR3039 crore as of June 25. Our return on average AUM for the quarter is 4.5% with return on average tangible equity improving to 13.53. The PAT for the quarter reported is INR101 crore with a Y o Y growth of 28% and Q o Q growth of 7%.

With this, we open the floor for further questions and answers.

Moderator: Yes. We open the floor for questions and answers, please.

Conference Operator: Thank you very much. We will now begin the question and answer session. The first question is from the line of Raghur from Ambit Capital. Please proceed.

Moderator: Raghur, in case you’re speaking, we can’t hear you.

Conference Operator: Mister Raghur?

Raghur, Analyst, Ambit Capital: Sorry. My bad. Can you hear me now?

Moderator: Yes. We can hear you. Please go ahead.

Raghur, Analyst, Ambit Capital: Okay. Thank you. Good evening, and thanks for giving me the opportunity. I have a few questions. One is when I look at the business per branch or per employee, that’s been increasing consistently for last three, four quarters.

Yet when I look at the OpEx to asset side, that’s down only six bps Y o Y and I think that’s mainly because of the other OpEx line item which is going up. So what is driving that? Where will this other OpEx line item settle and when should you start seeing meaningful scale economies? Yes, so that’s my first question. Should I ask my other questions also?

Or should we take one another?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: No, I think we’ll answer your questions. So I think you rightly pointed out that, yes, the productivity at a branch or at an employee level is gradually inching up. But what’s also happening is that we’ve been consistently adding these branches. So if you look at our entire distribution network, you’ll always find close to around 15% to 20% odd of our branches, which are less than twelve months. And what we’d like to do is that we’d like to front load a lot of these new branches in the first half of the year.

So what we’ve been guiding is that you might see probably an elevated cost up fronting in the initial quarter. But on an annualized basis, we feel that the overall cost reduction is going to be 50 basis points for the full year. This is what we had guided last year and that’s what we had achieved. And our guidance remains unchanged for the current year as well.

Raghur, Analyst, Ambit Capital: Understood. And one more question, you gave your volume number, right, for the MSME bit. Then when I look at that when I divide that by employees, I’m able to get a file productivity number. That’s inching close to where you were before you called out stress, I think, in April 2024, right? And then you said you’ve titled your underwriting rejection rates are 10% higher.

So what I want to understand is despite the rejection rates still being 10% higher, you’re getting back to older levels of productivity levels. Is that the right way to understand this?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: That’s one right way to understand. The other point that I’d just like to add is that the volume number that you see is largely related to the ME business. It does not include gold, whereas you are taking the total employees, which are mentioned probably in the second or the third executive summary slide. So if you were to add both probably you’ll have a much favorable outcome than what you’re currently getting.

Nishanth, Analyst, Kotak: Understood. Third

Raghur, Analyst, Ambit Capital: question is what has led to this higher yield on a quarter on quarter basis? Why has that happened?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: So I think our gold business, as we are beginning to add new branches, most of these branches are having gold. And the increase in yields are largely on account of gold. The ME business has largely remained stable. So most of the increases that you see in the yields are on account of gold.

Raghur, Analyst, Ambit Capital: But see, when I look at Q on Q AUM accretion, right, it’s pretty similar in both in the sense that the ME business is around 7% and then even the gold business is up 7% quarter on quarter.

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: Correct. So let me put it the other way. So you have gold, which is contributing close to around 13%, 14% on your total portfolio. And if the yield variance is close to around, say, 3% to 4% between ME and gold, that’s where the majority of the variance comes. Understood.

Raghur, Analyst, Ambit Capital: Sure, sure. Fair enough. Understood. Do I have time for one more question?

Moderator: Just go on, please.

Raghur, Analyst, Ambit Capital: Sure. So see, you partly alluded to this thing that the ability to repay EMI has reduced a bit, I think, if I heard it correctly. When I look at your OnePlus DPDs, they’ve been inching up, collection efficiency has dropped. One of the larger MBS has also recently indicated some pain in MSMEs. What are your thoughts on this bit?

You said you will increase the credit cost by fifteen, twenty bps this year. But just very qualitatively, what are the challenges that you are seeing? Why are these MSMEs not able to repay? Just some granular colors qualitatively on that will really help.

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: So, see, I did try to cover that in the opening statement, if you had got that. There is a political risk that has emerged this year, which is not a normal thing that happens for the industry. I mean, microfinance has faced political risk before. But for the rest of the industry it is a new normal that we saw this time. And there are phases, money is linked, is money is not you cannot segment money into products.

So ultimately if the velocity of money drops, if lenders pull their hands away from unsecured lending, from microfinance lending, ultimately somebody’s expense is somebody’s income. So if somebody is cutting down something ultimately that same fellow will go to a small grocery shop and buy something and if his income has gone down or his ability to get cash has gone down, then the consumption also is going to get affected and that consumption is somebody’s income. So it is linked, we have seen an increase in OnePlus and that flow and that has built a pressure. These are cycles that come that one has to navigate. In these and it’s very clear that it is linked to ticket sizes more than anything else.

So it is not about geography so much, it is not about a particular kind of borrower, it is more about ticket sizes that what it is telling you is that the prime credit Indians are doing extremely well, they are pulling it away. But as we go down the ticket sizes, there is a stagnation of income and a pressure on ability to pay. So that is broadly what’s happening.

Raghur, Analyst, Ambit Capital: That’s very helpful. Thank you.

Conference Operator: Thank you. The next question is from the line of Nitesh Jayant from Investors. Please proceed.

Nitesh Jayant, Analyst, Investors: Thanks for the opportunity. Sir, one question is that in the current environment where we are seeing stress over leverage, one plus GPD inching up, so what is giving us confidence to grow and to disburse, showing 30% plus disbursement growth? And what are the changes in the underwriting filters that we have done, which is giving us confidence to grow?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: So as Asim pointed out, what we are beginning to see is that there is some bit of stress in some pockets of the country. The stress is more towards the smaller ticket sizes. And we have seen a deterioration in their bureau scores. So that leads us to tighten our credit filters further for a particular category of borrowers. Till this time, we see the environment stabilizing or even our buckets stabilizing.

So you would probably see us see the ticket sizes marginally moving up because we would get a little cautious on some of the ticket sizes in some of the geographies. But having said that, our distribution is so large and we’ve got two fifteen odd branches. And even if we were to say contribute out of that 80% of the branches contribute and there are some small tickets that we move that away. That’s not going to actually take the wind away from the disburses. Just to put numbers in perspective, we did close to around INR800 crores this quarter.

Even if we were to assume that we maintain the current momentum, that takes us to INR3200 odd crores against INR2600 crores last year. And that’s roughly around a 20% growth in dispersal translating to 25% in terms of the AUM growth. This is after we introduced fresh filters on underwriting, going slow on the smaller ticket sizes and really focusing on the sectors and the customers who are demonstrating a proper track in terms of repayments or where we feel confident with respect to the credit outcomes.

Nitesh Jayant, Analyst, Investors: Sure. And secondly, you share what percentage of customers will have, let’s say, more than three loans, etcetera? Because what we understand is that is one big driver of the stress. The customers who are having higher number of loans, those customers, the stress levels are much higher versus customers who are unique or have only one or two loans.

Moderator: Any customers would not have significant loans outside as we have seen, so there are hardly one or two unsecured personal loans that we see from the Euro watch. The gold customer will have more unsecured borrowing outside SBFC.

Narayan Dhruv, CFO, SBFC Finance Limited: And we track the customers based on the Bureau score, wherein our bulk of the customers is 87 odd percent is above a cutoff of 700.

Nitesh Jayant, Analyst, Investors: Sure. And last question is on credit cost guidance. So this quarter we have done around 1.1% credit cost and in the opening comment you mentioned credit cost will be 15 basis 10 basis 15 basis points higher. So should we build the 1.25% to 1.3% grade cost for the full year or 1.1% is the right number? No.

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: So see the you can’t see the full 18 hole golf course, you play it all at a time. So at the moment, what we are seeing in our one moving forward, it appears that 15 to 20 basis point is what should be penciled in, that’s what we are penciling in. We’ll of course try to do a better job than this, but that is what it appears looking at the numbers right now. Because even if you look at the civil data, what it tells you is very clear that if you look at MSME loans across the industry between March 24 and March 25, you will see that above 50 lakhs, from 50 lakhs to 50 crore all buckets have seen an improvement, a reduction in NPS, all buckets. From 10 lakhs to 50 lakhs, there is a slight 10 basis point deterioration in NPS.

But in less than 10 lakhs, the deterioration has been 70 basis points. So from 5.1%, the industry has gone to 5.8%. So there is a linkage of what is happening at the bottom of the pyramid and we will be fine tuning our business in light of this data.

Nitesh Jayant, Analyst, Investors: Sure. So the base grade cost is Q1 grade cost, on that we would expect higher grade cost for the full year?

Ranish, Host from ICP Securities, ICICI Securities: That’s right. That’s right.

Nitesh Jayant, Analyst, Investors: Okay. Thank you. That’s it from my side. Thank you.

Conference Operator: Thank you. The next question is from the line of Shivrant Shrum Mishra from Philip Capital. Please proceed.

Shivrant Shrum Mishra, Analyst, Philip Capital: Right. Hi. Good afternoon. So do we do any industry analysis of our MSME exposure? If so, what would be these industries which have these specific issues of stress?

And what is the curing rate for zero to 30 dpd today versus, say, a year ago? And in terms of understanding the hand loans of the MSME customers, the civil bureau score would possibly give the credit lines which they have from other lenders. But during our PDs, do we get a understanding of the hand loans that these customers have? Are they honest enough to speak about it? Or is our process acute enough to understand what are the hand loans that these customers might have?

The second question is around gold loans. How are we looking at gold loan growth? How do we select the branch? Do we have specialized branches for gold loans? Or we have branches which are merged with the MSME branches?

And how what is our outlook on gold loan branch expansion?

Moderator: Are we going

Shivrant Shrum Mishra, Analyst, Philip Capital: to do it stand alone? Or it will be for cost benefits, we will have both products together in locations?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: So let me I guess there were just too many questions under the wrap of one, but probably we’ll try and answer one by one. Answering your gold question on gold. So out of two fifteen odd branches, 175 branches do gold. Whenever you select a location, you have data available with respect to what is the market size available in that particular market. The intent is obviously if there is an opportunity for both the businesses to do in that particular location.

So the first preference and the first choice is to have both the businesses together because obviously economies of scale and the cost come. Our plan for gold, clearly, it’s a high OpEx business, so we’re a little watchful. So if you look at our overall gold in terms of the AUM per branch And the moment our AUM per branch is more than INR7.5 crores to INR8 odd crores, it is a highly profitable product for us to pursue. So you will see increase in our branches on a consistent basis. And the increase in gold branches will continue to do because they obviously are a yield enhancer for us on an overall portfolio.

And obviously, the credit costs related to that product is also to the bare minimum.

Narayan Dhruv, CFO, SBFC Finance Limited: On the hedge loans which you were asking, see during the PD, the credit, one is that we do 100% personal discussions for all the transactions. And whenever the credit manager visits the customer, he or she tries to understand that whatever assets he has created, whatever working capital he has invested in the business, what is the source, what is the end use of the loans which he has borrowed. So based on the PD, is able to gauge whether there are any hand loans or not because these are intricacies wherein you meet the customer and understand. So if there are any hand loans to the personal decision is something which the paid manager understands.

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: And answering your question with respect to the industry analysis, so average ticket size of 10 lakhs, these are your mom and pop stores in your neighborhood. So typically, industry analysis is more on cluster driven businesses, which have slightly higher ticket sizes, so where you can probably derive the trend as to how the trends are moving, how the receivables are aging or how the inventory is aging. These are largely cash denominated businesses which you deal in. What you can actually build is the kind of businesses that you have, if it’s a grocery store or a salon or what size and what scale of those businesses at what pin codes and what is the range of ticket sizes which typically are borrowed by these businesses. That’s a relative range that comes in.

But obviously, you triangulate that further with your personal discussion with the customer and the other financial covenants that come along with it.

Shivrant Shrum Mishra, Analyst, Philip Capital: Right. So can we split this into, say, trading and manufacturing, if that makes sense?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: Yes. So the entire book largely is on the services side. So you have very little manufacturing where the ticket sizes are sub-forty, 50 odd lakhs, except largely the converters. But you won’t have really pure manufacturers in this particular category of segment because clearly the investment in plant machinery is going to be significantly higher for them to fall into our category.

Shivrant Shrum Mishra, Analyst, Philip Capital: Right. And how many what percentage of our MSME customers have a hand loan? Do do we have data on that?

Moderator: So we would not know how many hand loans they would have, but what happens is, generally, when our collection team goes to collect, there’s some bit of flavor we get that they also had a separate loan, which was not there in the record. So we would not

Shivrant Shrum Mishra, Analyst, Philip Capital: get the entire hand loans at a portfolio level how many customers would have. So, it’s fair to say that that’s possibly a gray area for the entire industry, if I have to pan out for the entire industry, the

Nishanth, Analyst, Kotak: hand loan part of it?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: Yes, absolutely.

Shivrant Shrum Mishra, Analyst, Philip Capital: The

Conference Operator: next question is from the line of Nishanth from Kotak.

Nishanth, Analyst, Kotak: Hi. Thanks for taking my question. You know, just curious, where do we see, you know, ourselves or probably the sectors in the cycle? You know, once the DPD has gone up and kind of gone up quite meaningfully, I would guess a part of it may be seasonal. But again, you have kind of raised the credit core guidance as well.

So is it something that you probably see the share delinquencies or flow outs increasing further? Or is it something that whatever has flown out is something that probably you need to provide for?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: Obviously, when you see a flow, are two things that happens. One is that you see, you provide for the worst outcome, but you bag for the So obviously you would want that these flows be pushed back and that is the attempt that we would be making. But when you are giving the guidance, obviously you want to ensure that in the end of the because at this moment it is just flown. So I mean we also don’t have a full answer to what’s happening. See we want to realize that while you may think that the operator who is doing the business is fully in control and is always aware of everything, the reality of a business is that you are also responding to an economy that is at play.

Our customers are across geographies, are across ticket sizes, they are across businesses etcetera and you see a certain thing happen and it is very typical for small ticket business to behave this way that for a long time things are steady and then one quarter something shakes it and also this time it was Kanata, something shakes it. And then when it shakes it, when our customers do not have an ability to pay multiple EMIs. So when a customer moves forward to bring the customer stabilization is a little easier, rollback is where the challenge comes. So that’s the challenge that we have braced for. We will pull it, but since you want to model in your cost, we’re just helping you with an outcome.

Nishanth, Analyst, Kotak: The reason why I’m asking this is because you’re probably one of the first or maybe the first BFSI to kind of tighten screens around fifteen months back, if I recollect rightly. And I think you’ve done it twice or thrice in the fifteen months. But we have seen this increase. So is it something that kind of has happened suddenly and it was like there are some trends that we could not read? Or is it something that there has still been a gradual flow despite the tightening?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: So I think, Nishanth, obviously, when we were tightening the screens, we were tightening the screens across for certain PIN codes, certain states. Some developments which probably happened in the last quarter was obviously outside the radar, and that obviously had some multiplier effect, and that’s reflected in most of the results as well. So you wouldn’t want to pencil in, but then what you can do is you can probably stay away from certain pin codes and bring down the exposure till the time the tide settles. What we’re only trying to say is that while the flows have happened and these flows will stabilize, it will take us a quarter or so to stabilize before we nurse it back. But we aren’t really too alarmed with the situation because certain pockets where the flows have happened, we have a limited exposure in some of these areas.

So clearly, there’s nothing to be too worried or we need to pencil in any more costs than what we’ve already stated.

Nishanth, Analyst, Kotak: But you don’t seem to be calling it transitionary either, you would say that you’re probably just trying to trade it a little more cautiously or do you think it’s transitionary?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: It seems you have been in industry long enough. The second half will be better in transitory, I hope. We do not deal in hope, deal with reality as we face it. We are, as I said, are prepared for the worst and on batting for the best. So that’s all we can do.

But who knows, I mean, is what is happening on the economy on the ground across the country, who is in a position to command and say for sure that this is transitionary, this will pass. In the long run everything is transitionary. If you take a very long view everything is transitionary, but reality is that you have to bat for the ball you are getting. And right now the ball that’s coming on to the pitch is bouncing on you.

Nishanth, Analyst, Kotak: Sure. Just one, maybe two tiny questions. One was on the core lending AU sorry, co originated AUM, which kind of has probably grown very marginally this quarter. Is there anything to read in it? Or is it just that these things probably even out over quarters?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: No, no. So these even out in a quarter. So even last year, in this quarter, the numbers were lower in the core origination. Second quarter probably is going to be significantly better. But that’s been the trend and that’s been the cycle.

Nishanth, Analyst, Kotak: And just one final one, if you could give some sense or schedule or guidance in terms of how do you see credit costs coming off maybe over next two, three quarters? Sorry, I’m sorry, how do you see the cost of borrowing coming off over the next two, three quarters? My bad.

Narayan Dhruv, CFO, SBFC Finance Limited: Yes. So, Nishanth, so there are two very positive things which is happening. One is the repo has already slighted by 100 basis points and also there’s ample liquidity in the system. So both are positive. Our cost of borrowing has also started inching down.

And so obviously over the quarter on quarter, the cost of borrowing numbers will look obviously much better. It is very hard to put a number to it. But what happens is the transmission from repo to MCLR takes a little bit of time. And so as the transmission happens, obviously we’ll get the benefit of the transmission.

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: So see, if you want to see it differently, at what I said in my opening comments that there is going to be a fifteen, twenty basis point increase in credit cost, but our entire earnings remain the same. So you will be able to go backwards to see what we are saying. Because see also we don’t want to pencil in all the good news, let it come. So I mean there is good news on cost of borrowing side and also let it come. At the moment we are penciling in a flat cost of borrowing as our worst case scenario.

Let the good news come because I mean we are quick to take in good news into excel, but the bad news always comes from where you want to see

Nishanth, Analyst, Kotak: Okay. That’s very conservative.

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: Thank you very much and all the best.

Raghur, Analyst, Ambit Capital: You. Thank

Conference Operator: you. The next question is from the line of Mayank Mistry from JN Financial. Please proceed.

Ranish, Host from ICP Securities, ICICI Securities: Yes. Hi, sir. Thanks for the opportunity. Sir, my question is mainly on the mix. As you have already guided that 15% you will try to manage around 15% in whole loans.

But given the current scenario where the stress is firing up in lab book and also considering that even RBI is giving us a little bit of relaxation in terms of ITV in gold loans. So isn’t this the right time to maybe shift our mix slightly more towards gold loans, I mean, given this current scenario and probably get it back once the situation comes down? And my second question is on the TCR. Given that in this quarter, we had 1.1% of credit costs. Despite this, also our TCR has also declined.

So I mean, or even if we make we do fifteen, twenty bps more of credit cost, how do we see the PCR? I mean, at what levels do you plan to keep the PCR ratio also on the overall cover on our book? Those are my two questions.

Moderator: On the PCR front, one plus is usually not always going to 90 plus, it’s sitting in the bucket one and two as well. So, PCR is calculated on the NPA books that has marginally come down, it is in that range of 44%, 45. So, nothing too deep to look into it. So, on

Narayan Dhruv, CFO, SBFC Finance Limited: the PCR also note that if you look at June 24 and you look at June 25, you will see an increase in PCR, isn’t it? So quarter on quarter some movements may happen here and there, but if you see gradually we have taken the PCR up over a period of time.

Ranish, Host from ICP Securities, ICICI Securities: Sir. And on the mix?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: Yes. So I think on the mix side, probably if you look at our entire last twelve months and even on a quarter on quarter basis, you’ll see our gold moving up by almost 40 odd percent. This quarter is also closer to eight odd percent. Year on year, should be close to around 37%, 38 odd percent. We’ve been conscious enough and we’ve been investing in these branches in states where we are comfortable.

I think gold, there is no underwriting or there is no credit risk. I think the largest risk is the operating risk. So it’s not that you open 100 branches and 200 branches and you feel that the gold price is favorable and you can actually derive those particular results. I think the way we approach it is slightly different. If we are comfortable about a particular state or a geography where our returns and the operating metrics is in line with our expectations that we wouldn’t mind going ahead and expanding.

So to answer your question, we will remain invested in incremental branches coming through, and most of the branches are going to have gold with it. And coming to the MSME business, I guess all of us at SBFC has spent probably more than two decades in this particular business. We’ve seen enough cycles going up, going down. And I think the entire approach is that how do you address those particular cycles. There’s a particular method to the madness in which you address them.

You would want to probably go a little slow in terms of disposals. In some pockets. You might want to accelerate your momentum in some category and some pockets. But you will have to balance. You just can’t vacate a particular geography or you can’t completely vacate a particular segment because of an event which has happened in a month or in a particular quarter if you are there for a long haul.

What we are looking at it is probably a temporary pace for which we’ve taken proactive actions in the last quarter. You will see some mix and color changing from this quarter onwards as we speak. But this is largely for the long haul. And that’s what we keep committed to the fact saying that irrespective of the seasons and the color changing, our guidance of 5% to 7% in terms of growth momentum is going to remain unchanged.

Ranish, Host from ICP Securities, ICICI Securities: Sure, sir. And also the mix, right? Because I think that with branch expansion going faster in gold as compared to MSMEs, automatically your gold mix will start moving up. That’s my actually question mainly.

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: Yes. Mix is largely going to remain the same.

Nishanth, Analyst, Kotak: Okay. Sir, just

Ranish, Host from ICP Securities, ICICI Securities: can you give us some light on the ROE 3s? Or maybe if you can give us segmentally, mean what is your ROE differential in both the businesses?

Narayan Dhruv, CFO, SBFC Finance Limited: So see, we are very profit and ROE focused organization. The difference in the two business are fundamentally very different because gold comes with a higher OpEx, the secured MSME come with a low yield and low OpEx, right. So in a way the ROEs are the similar numbers and we steer to look at a 15% ROE over the period of time. So ROE today is about 13.5%, if you look at ROE every quarter it has been moving up. Last year 2024 we were at 12.3% and now it is at 13.5 So, over the period of time, I think we will see volatility, sometimes the delinquencies are high, sometimes the gold business takes a knock.

But I think both the businesses we are steering towards 15 ROE.

Ranish, Host from ICP Securities, ICICI Securities: Okay. Thank you. Thank you

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: and all the best, sir.

Raghur, Analyst, Ambit Capital: Thank you.

Conference Operator: Thank you. The next question is from the line of Shivantru Mishra from PhillipCapital. Please proceed.

Shivrant Shrum Mishra, Analyst, Philip Capital: Hi. There was one question, which was unanswered. What is the zero to 30 during this quarter versus say a year ago?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: So we don’t call out on that particular number. Largely, all I can tell you is that the trend is not going to be very different, although we’ve seen the OnePlus moving up, but that’s again for this particular quarter. But in terms of curing, stabbing and stabilizing, the percentages, we’ve not seen that very, very different.

Shivrant Shrum Mishra, Analyst, Philip Capital: So largely, it’s similar. Yes. And that is largely to do with our collection efforts? The curing remains similar on a Y o Y basis? Because what you alluded to is that the customer segment and certain ticket size is coming off.

So it’s more to do with our collection efforts in that case?

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: It’s not to do with the collection effort. So in terms of our collection infrastructure, I think what we’ve done is we’ve invested in the collection infrastructure. We’ve got more than five fifty odd people across our two fifteen odd branches. I think the distribution is reasonably set. Answering your question in respect to curing, now curing has two parts.

One, you either stabilize or you roll back. So my answer was that as long as you’re able to stabilize first and then you can cure for it in terms of roll back. So as far as the stabilization are concerned, the percentages are largely similar.

Shivrant Shrum Mishra, Analyst, Philip Capital: Sure. And if you can give out the number of loans that we do in MSME on a quarterly basis or a monthly run rate?

Moderator: So we do close to

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: around 2,700 to 2,800 loans on a monthly basis.

Shivrant Shrum Mishra, Analyst, Philip Capital: Right. This run rate remains similar in the upcoming quarters as well? Yes.

Ranish, Host from ICP Securities, ICICI Securities: Right. Thank you.

Conference Operator: Thank you. The next question is from the line of Prahal from Town Capital. Please proceed.

Ranish, Host from ICP Securities, ICICI Securities: Hi, sir. Good evening. Just one question. Any outlook or guidance on the return on assets?

Moderator: So we have been stable ROA since last couple of years. I think even when the leverage has gone up, we’ve managed to have our ROEs in the range of 4.5 to 4.6. As we lever up, there might be slight compression and we may, over a period of next two years may go down to 4.2 to 4.25, at which time your leverage from three will go up to four. So this ROA along with the leverage will end up giving you the desired ROE of around 15%.

Ranish, Host from ICP Securities, ICICI Securities: Okay. So ROEs will see some pressure for over time? Yes. Yes.

Singh Dhru, Managing Director and CEO, SBFC Finance Limited: So by when do

Ranish, Host from ICP Securities, ICICI Securities: you feel they can go back to current levels and more?

Narayan Dhruv, CFO, SBFC Finance Limited: Rahul, so see the way it works is, as the leverage improves, the ROEs tend to go down, right. It’s only a function of leverage, isn’t it? We are at a low leverage today and the leverage should improve from here. The good thing is and the most important thing is to see ROE, which whether the ROEs are improving or not. So whatever happens to ROA basis leverage, we should see the ROEs improving.

So if you see the ROEs have been constantly improving quarter by quarter, it has been at 12.3 quarter one of last financial year, it is at 13.5 now. The question is whether the ROEs will move to 15% as we go on and that’s what we are aiming at. With increasing leverage, ROEs generally tend to slightly come off over a period of time. But what we are looking for is obviously a good spread as we go along as we guided the OpEx stood as a percentage of coming down. The only thing is the leverage which will improve, which is good from a ROE point of view.

Ranish, Host from ICP Securities, ICICI Securities: Okay, okay. Thank you, sir. All the best to you. Thank you.

Conference Operator: Thank you. Thank you.

Moderator: Thank you so much. Thank you so much for joining the call. Since we have done the call on the same day of the results, if there are any further questions, please do reach out to me. Thank you so much.

Conference Operator: Thank you. On behalf of ICICI Security Limited, that concludes this conference. Thank you for joining us, and you may now disconnect.

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