Home First Finance Company is looking at 25-30% AUM growth YoY: Manoj Viswanathan, MD & CEO

Manoj Viswanathan, Managing Director and CEO, Home First Finance Company, talks about Q3FY22 numbers, profitability, NPA situation, disbursement, demand situation, growth in geographical terms, margins, outlook on the recovery and loan growth and AUM among others during a candid chat with Swati Khandelwal, Zee Business.

Edited Excerpts:

Q: The company has posted good numbers for Q3FY22. What led to this improvement in the profit?

A: Growth has been good for since last 3 quarters. On a quarter-on-quarter basis, there is a growth of almost 67% and 8% in terms of AUM compared to the last quarter. Even the profitability is going up in line with the AUM growth, so, our delinquency of credit cost is range bound and there is not much a change in it due to which the profitability is growing quarter-on-quarter.

Q: Do you think that this rise in profitability is sustainable? NPA levels have increased for the company, so, how big a concern is it for you?

A: NPA levels have increased due to reclassification. RBI has issued a new guideline, which put forward a rule of daily classification from December due to which there has been a reclassification of accounts, which led to this increase. If measured from the methodology that was used in the last quarter then NPA is actually flat, i.e., the NPA stood at 1.7% in the last quarter and it is standing at the same 1.7% in this quarter. The difference of 0.9% is only because of reclassification.

Q: Do you think that these numbers are sustainable or do you foresee any concerns that can hit the numbers that are improving sequentially? 

A: We have seen a slight impact of the third wave of the COVID in the first two weeks of January but it didn't have enough impact on the business. So, the momentum has been good in January and is in line with the last quarter. We are expecting that this quarter should go very well. There are no concerns and the numbers should keep improving.

Q: Disbursement have increased 10% sequentially and 63% YoY. Last year the base was low and we saw a pent-up demand due to the COVID. What will be your outlook on disbursements?

A: The disbursement that is coming is not a pent-up demand, it is genuine ground-level, grass-root level demand. I travelled a lot in many locations in the last quarter and have seen a very strong demand at the ground level. So, the demand was quite strong in the affordable housing segment in the pre-COVID era and is very strong after the COVID. So, we are expecting that the cycle will continue further in the affordable housing segment in this country for several quarters. The growth we are seeing will go up from here.

Q: We have talked a bit about the asset quality numbers where the RBI reclassification impact was seen. But has it been observed completely and such concerns will not be seen and where the NPA levels will be seen ahead?

A: If you will have a look at other numbers of delinquency then there has been a significant improvement in 1+DPD (days past due) and 30+DPD numbers that we publish. In the 1+DPD there is an improvement of more than a per cent and in there is an improvement of 40 basis points (bps) in 30+DPD. This improvement will also pass on to the NPA figures going forward. Going forward, the NPA figures should improve because there is a decent improvement in the previous buckets. If you will have a look at the collection efficiency of December then it is also quite good. The feedback that is coming at the ground level, the consumers are saying that the issues related to jobs due to the COVID is resolving and are being able to pay more instalments and are trying to clear the pending payments.

Q: You have been reducing your dependence on the top three markets especially in Maharashtra. Geographically what will be the mix for the next 2 years and name the state you are looking forward to more growth?

A: If seen historically, our concentration has been in Gujarat and Maharashtra. Going forward, we are focusing more on the southern markets, which are very large for affordable housing and we are also getting good traction there. So, we are focusing there and because of that if you will have a look at our ratio or the share of AUM, then it will be slightly less in Gujarat and Maharashtra but in terms of absolute numbers, even these markets are growing. Just because we are focusing on the south and its numbers are going up, the ratio is rebalancing in itself. So, it is a part of our diversification strategy. We want to be present in six key states Gujarat, Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh and Telangana. Because our AUM in the southern states is increasing which you are seeing a rebalancing effect.

Q: You are increasing the focus in the southern states. Is there any specific reason due to which you're reducing exposure in the top three states like the competition is increasing in these states are it has reached a saturation point and opportunities are more in other states?

A: We are not reducing our focus or exposure in Gujarat and Maharashtra, in fact, our exposure is increasing, i.e. the AUM is increasing, but in terms of the ratio of the overall AUM it is looking less because the growth is faster in the southern states.

Q: Margins have been impressive in the last 3 years. What is your outlook on it and do you think that the margins are sustainable at these levels or it may go up?

A: As far as margins are concerned, we have derived the benefit of the low cost of borrowing in the ongoing year. The cost of borrowing has continuously declined in the last 18 months. Going forward, it will be tightened in the next few quarters and rates will be tightened. But we are confident that we will be able to maintain spreads around 5%.

Q: Going ahead, what is your outlook on the recovery and loan growth as well as on spreads and yields?

A: As far as recovery is concerned, if you look at the experience in December and January till date then recovery has been very strong. The impact of COVID is gradually reducing on the customers and most of the customers are getting back their jobs and are clearing the pending payments by making multiple payments. So, the recovery outlook is very strong. The sale of the NPA properties that we were supposed to sell is quite strong. As far as growth is concerned, we are fairly bullish on the growth and in the last three quarters, we have been continuously growing at more than 7% on a quarter-on-quarter basis, which translates to almost 30% annually and we have been saying that we will make a 30% annual growth. So, the growth continues and even in January we are not seeing any impact so far growth is still strong and the momentum of disbursal, which was seen in December is continuing to date. In terms of spreads, last year and the ongoing year, we derived the benefit of cost of borrowing, which declined gradually, due to which there was an increase in the spreads. Going forward, there will be a decline in its benefit because we are expecting the rates to harden next year and as a result spreads could be compressed. But we are confident - as our work model works on 4-5% spreads - that we will be able to maintain it.

Q: Your AUM has increased to around Rs 5,000 crore in Q3FY22. What kind of AUM targets do you foresee by the next year and how will you increase your book size? From a consumers point of view, which kind of preferences you are seeing in terms of the ticket size and is it really going up as people are preferring to buy big homes or the mid-sized segment is taking off more compared to affordable?

 A: Right. If you will have a look in the pre-COVID era then there was a slight slump in the mid and higher segments for a few quarters. There was not much growth in that segment. But now in the post-COVID-era, we are seeing that there is a lot of demand even in the middle segment and larger houses. Of course, our segment is for first time home buyers and builders, so, it belongs to the segment where normally people construct between 800-1,000 square feet and if buying then between 600-800 square feet flats. So, that is our segment and in our segment, we are seeing a continuous demand but of course, even in the higher segments, there is a lot of demand in the post-COVID period. So, as far as AUM growth is concerned, it stands at 5,000 and we are confident that in the next two years we are looking at a 25-30% AUM growth year-on-year.

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