Earnings Call Transcript - XNSE:LAXMIINDIA 2026-11-13

Operator

Ladies and gentlemen, good day and welcome to Lakshmi India Finance Ltd. Q2 FY27 Earnings Conference Call. 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. Deepak Baird, Managing Director. Thank you, and over to you, sir.

Deepak Baird, Other

Yeah, thank you, ma'am. Good evening, everyone, and thank you for joining us for Lakshmi India Finance Limited Quarter 2 and H1-FI27 Earning Conference Call. A warm welcome to all our investors, analysts, lending partners, and stakeholders. Joining me today are Mr. Gopal Kishan Sen, our Chief Finance Officer, Mr. Priyush Somani, our Chief Treasury Officer, and Mr. Kuldeep Singh, our Chief Business Officer. Before we discuss the financial performance, I would like to share how we are looking at business at this stage of our journey. Over the years, Lakshmi India Finance has grown by identifying opportunities in market where access to formal credit remains limited, despite the presence of established business and entrepreneurs with genuine financing requirements. We started by building relationships with customers, understanding their businesses, and developing We have a strong presence in our home market of Rajasthan. Gradually, we expanded into adjacent state, strengthening our product offerings and build the distribution and operating infrastructure needed to serve a much larger customer base. 1,840 crores in AYUR and expended our presence to more than 200 branches. We are entering an important phase in this journey. The opportunity ahead is no longer only about how much we can expend. It is also about how effectively we can use the platform we have already built. This is an important distinction for us. We have invested in branches, people, technology, credit infrastructure, and institutional funding relationship over the past several years. As the business grows, our focus is increasingly on improving productivity, strengthening operating... Efficiency and ensuring that every stage of expansion contributes to sustainable profitability. And when I look at our performing during this first half year of 2027, I see encouraging progress in this direction. Our asset under management stood for 1,844 crores as of September 28, 2026. Representing growth of approximately 33% year-on-year. More importantly, the growth has been accompanied by an improvement in our earning performance. Net interest income increased by approximately 35% year-on-year. While profit after tax, including other comprehensive income, grew by over 66% during the first half. Our return on asset improved to 3.18 compared with 2.56% in the corresponding. These numbers reflect the benefit of large funding asset base, improving funding economics, and operating investment we have made over time. At the same time, we recognize that the business is still in an investment phase. New branches require time to mature, new market requires constant execution, and credit quality must remain up. We are therefore approaching this phase with a clear focus of balancing growth with profitability and risk. Let me briefly discuss four areas that I believe are particularly important for our business going forward. The first is the opportunity with our code-secured MSME franchising. India's smaller towns and semi-urban market continues to have a large population of entrepreneurs and self-employed individuals who are underserved by conventional lending channels. Many of these customers have established businesses, regular cash flows, and collateral, but may not always fit the standard credit assessment framework of large financial institutions. Our business model has been developed around understanding these customer segments. We combine local market knowledge and relationship-driven sourcing with centralized underwriting, qualitative assessment, and structured credit process. of customers who require timely and appropriate financial while maintaining control over the quality of our lending decision. Our secured MSME portfolio stands at approximately 1493 crores and continues to represent the largest part of our business. We believe this segment will remain central or two-hour growth strategy over the coming years. Building on this franchisee, we are also preparing to launch a new product line under which we will offer credit line to our customers. Many of our MSME borrowers have recurring working capital needs and a revolving credit facility. Let them draw and repay funds at their business required. We believe this will deepen our relationship with MSME. The second area is the evaluation of our distribution network. We ended September 2026 with 209 branches across six states, compared with 164 branches a year ago. Over the last few years, we have made significant investment in establishing our presence beyond Rajasthan, particularly in Madhya Pradesh, Gujarat, Chhattisgarh, Uttar Pradesh, and Maharashtra. As these branches mature, we expect an increasing contribution from the network already in place. We believe there is a meaningful potential. To improve business volumes, customer acquisition, and branch level profitability without a proportionate increase in operating infrastructure. This is where our focus and productivity becomes particularly important. We will continue to evaluate opportunities for new branches, but expansion will remain selective and aligned with our ability to... The third area is the strengthening of our financial position and institution relationship. For any growing NBFC, the ability to access capital at competitive rate is fundamental to long-term success. We have made steady... In diversifying our lender base, increasing access to bank funding, and improving our borrowing cost, our average cost of borrowing has declined by 51 basis point year to year to 10.59%. Our external credit rating has been upgraded from A- to A. Developments reflect the progresses made in strengthening our financial profile. As we scale, this will remain an important area of focus because a stronger liability franchisee provides greater flexibility in pricing, liquidity management, and future business expenses. Now, I would like to touch upon the asset quality. In the lending business, growth is meaningful only when the underlying portfolio continues to perform. I declined to 1.75 and net NPA improving to 0.49% as of September 2026. This is encouraging. Continued monitoring, particularly in certain parts. Our credit and collection team remain focused on identifying stress early. Strengthening Underwriting Standard, where required. Calibrate approach to growth rather than a compromise on portfolio quality. Looking ahead, we It continues to be. Annually. of the branch network. For FY27, we expect to... 2,000 crore, representing the growth of around 25% and over March 2026, with net interest income growth of around 35 to 40%. At the same time, our focus is on translating this growth into better operating efficiency, stronger profitability. To summarize, the first half of 2027 has been encouraging not simply because the business has grown, but because we have seen progress in several capabilities that has been determined in the quality of our growth in the year ahead. Our ambition is to build Rashmi India Finance. into an institution that can serve and deliver sustainable return without losing the local understanding and customer relationship. Thank you.

Gopal Krishnan Sain, Other

Thank you, Deepak sir, and good afternoon, everyone. I will take you through our financial performance for Q2 and H1 financial aid 27. Rather than looking at the financial numbers individually, I would like to explain how the different elements of our business are contributing. The first half of financial year 27 has seen healthy growth in our earnings, supported by three important factors. Expansion in our loan portfolio, improvement in funding costs, and... Thank you. Propos after text. 19.1 growth, also reflecting growth of approximately 66%. Our operating expenses for H1, Punisher 27, The increase reflects our expanding branch network, employee base, and investment in technology and operating infrastructure. These investments are necessary to support the growth of business. Improving the efficiency with these resources are utilized. Moving to margin. Our net interest margin improved to 11.28% in H1 financial year 27 compared with 10.88% in the corresponding period last year. Our average portfolio yield is to 21.59% while our average cost of borrowing declined to 10.59%. The improvement in borrowing costs has been an important contributor to our margin performance. Our profitability ratio over return-on assets improved to 3.18%, compared to 2.56% in H1 Financial 26. Our return-on equity stood at 13.16%, compared with 11% in corresponding period last year. While we are encouraged by this improvement, we recognize that there is further opportunity to improve capital productivity as the business scale. The company cookie-based. Thank you. The premium increased to 1843 crore compared with 1386 crore in September 25. Our net worth stood at 499 crore, while our capital adequacy ratio was 22.95%, including tier 1 capital adequacy of 22.54%. Our gross debt equity ratio stood at 3.31. We continue to closely monitor our performance of vehicle finance portfolio. Our approach is to maintain appropriate loosening and continuously assess the recoverability of stress exposure. On liquidity, we maintain a balance of Rs. 292 crore at the end of earnings year at the end of September 26. Our annual profile continues to reflect cumulative surplus across the reported maturity buckets. This provides an important buffer. As we pursue for Growth Plus, looking ahead, our financial priorities are centered on improving the efficiency of the balance sheet. We see opportunities to enhance profitability. Funding cost optimization. We recognize that these outcomes will depend on how efficiency we After all, we believe our H1 performance demonstrates progress toward a more scalable earning model, while also highlighting the area where we continue to focus on improvement. At this point, I would like to highlight the provisioning made toward the UpMoney direct assignment transaction, which we had already communicated during our earning earning course. We had met a provision of 60% of financial year, 25-26, which was duly charged to pay under. Further, during H1 financial year 26-27, we have made an additional provision of 30%, amounting to approximately 6 crores, which has also been charged to the pendants. Accordingly, we have cumulatively provided for 90% of the exposure as of the date. If we exclude the impact of the specific transaction or adjusted pad, standard 36.34 crores, representing a robust 91% year on death growth. On this adjusted basis, our key financial indicator would also reflect an improvement. Our ROA would be 3.65%, ROE 15.01%, gross NPA 0.61%, and credit cost 0.24%. This clearly demonstrates the underlying strength of our business performance, profitability, and assets quality after excluding the impact of the specific transaction. With that, I would now request Mr. Pills to discuss. This is how our funding strategy is evolving. And, accordingly, we see on the library side,

Piyush Samani, Other

The cost, tenure, and availability of funding directly influence our ability to compete. This strategy has evolved from primarily ensuring adequate availability of funds to build a more diversified, cost-efficient, and resilient funding structure, and we have continued to make progress. The average cost of borrowing stood at 10.59% as of September 30, 2026, compared with 11.10% a year ago. This represents a reduction of 51 basis points year on year. On a sequential basis, the cost of borrowing improved from 10.66% in June. This improvement has been supported by a combination of strong banking relationships, competitive pricing on incremental facilities, and continued negotiation with our existing lenders. The most important part of our strategy has been to deepen relationships with public sector and private sector banks. We also added ICIC Bank and City Union Bank as a new lending partner during the first half. These relationships are important because they expanded or assist to the funding and provide opportunities to optimize both pricing and manufacturing. During the quarter was mobilization of 100 crores. Through a NCDE transaction, we believe access to the capital market instrument provide an additional source of funding flexibility and reduces dependence on a single category of lenders. As of September 2026, banks accounted for approximately 65% of poor on foreign mix. Just to give a perspective on the rate hike cycle, Is that around 80 to 87% of NCLR linked, majority being linked to 6 months to 12 months NCLR. So, there will not be an immediate rise in the borrowing cost on the part of the borrowing. Even on the rapport rate based borrowings, we take a reset every 3 months. So, we also get some time to readjust our borrowing there also. Another important development that has been there, that is upgradation in our action. Thank you. In terms, as relationship matures, we have also actively working with Pricing on the outstanding facilities. Our incremental cost of borrowing over the past 12 months stood at approximately 10.42% compared with a blended cost of 10.59%. We believe this provides an opportunity for further optimization as existing liabilities mature or become eligible for repricing. Around 117 crores of undrawn facilities are available at the end of the quarter. Our ALM profile continues to reflect cumulative surpluses across the reported maturity bucket. We believe maintaining this liquidity and maturity discipline is essential, particularly as our lending portfolio continues to expand. Looking ahead, our Treasury strategy will focus on the three major areas. First, keeping relationships with the existing banking partners. And selectively onboarding new lenders. Secondly, evaluating alternative funding instruments, including capital market issuances and direct assignment opportunities, wherever the commercially appropriate. And thirdly, continuously optimizing our liability maturity profile and funding cost while maintaining sufficient liquidity buffer. We believe the progress made in our funding profile over the past several quarters is creating a strong platform. For the next. With that, I will request Kuldeep to share his perspective on the business or the distribution network and the opportunity.

Kuldeep Singh, Other

Good evening, everyone. I would like to briefly discuss how we are approaching the next phase of growth with key focus on making our existing distribution network increasingly productive. Today, we have presence at 6 states with 209 branches serving more than 45,500 customers. This network is one of the key assets and going forward, our focus Our model remains focused on relationship-led, secured lending MSME, traders, self-employed, borrowers, and other customers in semi-urban and underserved markets. Our local market understanding physical verification structures, credit process continues to be important strengths of the business. During H1, financial year 27, we dispersed approximately 506 crores compared with the last year H1 311 crores, which is around 63% growth approximately. Q2 disbursement stood at approximately 274 crores compared with the 231 crores in Q1. Secured MSME lending remains our core focus. As the September 2026, MSME AUM stood at approximately 1,493 crores, or around 81% of the total AUM. We continue to see opportunities across small traders, shop owners, service providers, and self-employed borrowers. Our branch network has gone from 164 branches in September 2025 to Two hundred and nine branches in September 26. Rajasthan is remains our largest market, while newer markets such as Uttatabev, Maharashtra provide further opportunities as branches matured in these states. If I calculate the numbers, there is a 45 branches we have opened in the last financial year. So, if we precise it, there is a branch opening in every week. A key priority is improving branch level productivity with branches typically reaching breakeven within 7 to 9 months. The branches opened over the past 12 to 24 months are matured now and support incremental EVM growth and operating leverage. Technology will also play an increasingly important role. We are using digital process across sourcing, onboarding, underwriting, servicing, and collections. Helping us improving turnaround time, standardize the process, and manage the larger network more efficiently. Looking ahead, our strategy remains centered around three priorities. Deepening our secured MSME franchisee, improving productivity across the existing branch network, and selectively expanding into markets where our underwriting and collection capabilities can be effectively replicated. Our objective is not simply to grow numbers. of branches or the size of the portfolio, but to ensure that every branch and customer relationship contributes to building a stronger and more profitable business. With that, I would request the moderator to open the floor for questions and answers.

Operator

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Dipesh Sanchetti from Manya Finance. Please proceed.

Dipesh Sancheti, Analyst — Manaya Finance

Hi, am I audible? Yes, sir. Okay. Since you mentioned that your branch network has improved from 164 to 219, what is the breakeven of a new branch?

Kuldeep Singh, Other

So, as I explained, that around 9 months is the break-even, where we calculate the branch expenses, like the capital expenditure.

Dipesh Sancheti, Analyst — Manaya Finance

I'm saying, what is the AUM at which?

Kuldeep Singh, Other

AUM typically at around 1.5 crore to 2 crore is the AUM, because we have divided our branches into three categories. So, category 1, 2, and 3. Category 1 is having around 2 crores of AUM break-even. Category 2 is having around 1.75, and category 3 is at around 1.5 crores of AUM.

Dipesh Sancheti, Analyst — Manaya Finance

Okay. So, basically, I can safely say that 1.75 crores of a year as a branch should break-even?

Kuldeep Singh, Other

Yeah. Where the expenses of the, regular expenses of branches, branch as well as the income of branch can set up each other.

Dipesh Sancheti, Analyst — Manaya Finance

The industry report has said that there is stress loans in tractors, commercial vehicles, and rural MSME portfolios. It cannot be ruled out. That's what the report says. About 81% of our AUM is in MSME in semi-urban and rural towns. How much of that is rural, first of all, and how is the collection efficiency in those branches? And are you seeing any stress right now?

Kuldeep Singh, Other

The, uh... I'll hand over to Mr. Sanjay, who is handling the collection part. But as far as the comparison between the MSME segment and the rural segment as well, there is a bit difference between the unsecured and the secured part. So R is actually a secured part, which is always having ads over the unsecured if you compare about the microfinance industry where the loans are unsecured. Typically, there might be a stress over there, but yes, there's an improvement in microfinance industry also. There's an improvement in the credit rating of the industry. ICRA has recently announced from negative to stable. So, there's an improvement in terms of the overall collection efficiency. Over to Sanjay for the R collection efficiency about the numbers.

Sanjay, Other

Hi, this is Sanjay. Overall collection efficiency is improved compared to September 25. As in September 25, overall collection efficiency was 93, but now in September 26, we have closed more than 98%. So, we don't see any stress in our portfolio as we are having horrors with a multiple income source. We are not dependent only on single income source. That is the reason our portfolio is currently not in stress.

Kuldeep Singh, Other

I will now say to you, I agree. Collection efficiency overall in September 2026 is 98.66.

Dipesh Sancheti, Analyst — Manaya Finance

Also, how do you deal with evergreening of accounts?

Kuldeep Singh, Other

See, we don't do the evergreening of the accounts. I don't know.

Dipesh Sancheti, Analyst — Manaya Finance

But, you know, there is a tendency of the employees or the, you know, the branch, you know, the branch helps to perform. There is, there tends to be an evergreening of accounts. How does the company sitting in its head office manage evergreening of accounts that, you know, there is no evergreening of accounts? What checks and balances do you have? That is what I want to understand.

Kuldeep Singh, Other

So, we have the robust underwriting process where we are, every case passed through the LOS. into the LOS. So, there's a deduced system where the credit manager can fetch the existing detail of the customer. So, where it can be covered and straightforward, it can be said no.

Dipesh Sancheti, Analyst — Manaya Finance

No, no. What about, you know, giving loans to the same family members? How does that...

Kuldeep Singh, Other

Actually, we are taking the complete family member into the deal. And in rural and semi-urban What is happening? The family is having one property. So, we have already taken that property into security against our loan, so there are very few chances where the other member will come, but if the other member will come, that also can be fessed out through the D2 facility.

Dipesh Sancheti, Analyst — Manaya Finance

So, you are not using any technology as such for avoiding this? What are you saying? Can you repeat? Are you using any particular technology for that?

Kuldeep Singh, Other

Yes, yes, that's a technology only. So there's a dedupe system. This actually works like whenever there's a repeat mobile number, whenever there is a repeat KYC, it can fetch out the existing details. So that is the system only. That is an entirely automated system.

Dipesh Sancheti, Analyst — Manaya Finance

Right. Okay. And also, your yield has fallen about 59 basis points, and the borrowing fell 51 basis points. Yet, the NIM rose 40 bps. What drove the NIM gave?

Kuldeep Singh, Other

So, the cost of borrowing has also reduced as compared to the last financial year, and And vis-a-vis the... DIM also have increased from the last financial year. That is the reason.

Dipesh Sancheti, Analyst — Manaya Finance

Where do you see the cost of borrowing going, especially with the RBI increasing rates, and especially after those recent rate increases, what has the average cost of borrowing gone to as of today we should be talking?

Piyush Samani, Other

Hi, this is Yush. So as of now, I can say that the cost of borrowing is not increased. Most data rapport rate has been increased by 25 bits. Since my opening speech, where I had, it is that around 80 to 87% of our borrowing is with fixed or NCLR based. So 6 to 12 months NCLR based, it is linked. Only a municipal portfolio, that is 200 or 213, 14 crores, that is 13% of my entire borrowing is linked to a repo, where the reset is.

Dipesh Sancheti, Analyst — Manaya Finance

And just my last question is that, you know, how much of your AUM is actually on fixed rate of interest and how much is on floating? The reason I'm asking is that if there is any violent increase in, you know, your costs of borrowing, how can you pass on to the customers? That is my main concern.

Piyush Samani, Other

Of course, our entire portfolio is on fixed rate of interest. Secondly, in case of any rate increases, then definitely we will be passing on subsequent disbursements only. That is the only problem.

Operator

Thank you. The next question is from the line of Yash Gautam from Lakshya Capital. Please go ahead.

Yash Gautam, Analyst — Lakshya Capital

Hi, thanks for the opportunity. I just said two questions. On slide 11, I think Kurt has been mentioned that our capital adequacy ratio would have been higher with FDs instead of corporate bonds. So why are we taking this credit risk on, you know, your, on our liquidity buffer, and what is exactly the rating profile of these bonds, if I may ask?

Piyush Samani, Other

So basically, they are above A-, so put together, I can say that measure of the bonds have been parked in AA category, AA- to AA.

Yash Gautam, Analyst — Lakshya Capital

And in our slide 13, our ALM shows surplus in sort of every time sort of bracket. But I just want to ask how much of the next 12 months borrowing has been already sanctioned and is there any concentration among our top lenders?

Piyush Samani, Other

So, basically, it's a positive signal that the ALM is positive in all the budgets. I can say for the next 3-4 months, we are piled up with the undrawn lines. Though we are having a liquidity of 292 crores as of September, with an undrawn transition of 117 crores, there are a couple of sanctions and a direct assignment transaction so far. That is an in-principle sanction in the subsequent, I can say, two months only. That is October and November as well. And we are decently placed with the, I can say, the laboratory franchisee because we are having a lender group of 53 lenders. Around 29 banks are there put together. So we are decently placed. Let us know.

Operator

Thank you. A reminder to all participants, anyone who wishes to ask a question, may press star and one on their touchtone telephone. The next question is from the line of Risha Bora from AB Advisor. Please proceed.

Risha Bora, Analyst — AB Advisors

Hello, sir. Am I audible? Yeah, you are audible. Yes. So my first question is, this person rose 63%. But AUL grew only 33%. How much of the book is repaying or closing early?

Piyush Samani, Other

So, there are, I can say, on a month-to-month basis, there is a prepayment on an annual basis, there is a prepayment of around 14% of our opening book. That is one. Secondly, our average loan book is somewhere around 48 to 52 months. Okay. Okay, okay, got it.

Risha Bora, Analyst — AB Advisors

So, yeah, I have a... I have a couple of questions, but I'll come back in queue. You can move on to the next. Sure, sure.

Operator

Thank you. The next question is from the line of Paras from Purple One Vortex Ventures. Please proceed.