Earnings Call Transcript - XNSE:CSLFINANCE 2026-11-03

Operator

Ladies and gentlemen, good day and welcome to the CSL Finance Limited Q2 and H1F527 Earnings Conference Call hosted by TIL Advisors Private Limited. 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. Sayyam Pukharna from TIL Advisors, Private Limited. Thank you, and over to you, sir.

Sayyam Pukharna, Other

Thank you, Rutuja. Good evening, everyone, and thank you for joining us today for the Q2 and H1 F527 earnings conference call of CSL Finance Limited. The investor presentation for the quarter two has already been uploaded on the stock exchange and on the company website. In case you wish to be added to our mailing list, please feel free to reach out to us. To take us through today's results, we have with us from the management team, Mr. Rohit Gupta, Managing Director, Mr. Naresh Chandravarshney, Chief Financial Officer, Mr. Chandan Kumar, Head Strategy and Business, We will begin with a brief overview of the quarter from Ms. Rachita Gupta, followed by a Q&A session. Please note that any forward-looking statement made during this call should be considered in conjunction with the risk and uncertainties that we face. These risk factors have been outlined in our annual report. With that, I would now like to hand over the call to Ms. Gupta. Over to you.

Rachita Gupta, Other

Thank you, Swayam. Good evening, everyone, and thank you for joining us today. I am pleased to share the highlights of CSL Finance's performance for the second quarter and the first half of FY27. The quarter has seen a continuation of the trends we outlined in our previous calls. The wholesale segment has continued to perform strongly and remains the primary driver of our AUM growth at present. Supported by healthy disbursements, robust asset quality, and good availability of funds for future growth, SME retail segment has remained in a consolidation phase, driven by a mix of internal and external factors. On the external side, the broader SME lending space remains low. The factors we discussed in our earlier calls, namely over-livered borough profile, stagnant income growth across the MSME ecosystem, and higher competitive intensity in the smaller ticket segments have not yet eased materially. On the internal side, we have used the spear to tighten our credit policy and checks, rationalize non-performing branches, relocate others, and strengthen the team with the focus on improving productivity in our existing branches, rather than on a network expansion. S&M retail disbursements remain measured during the quarter, although they were higher sequentially compared to quarter one FI27. As a consolidation measure takes hold and the operating environment gradually improves, we expect better performance on the S&E retail disbursement front in the second half of the year. With that overview, let's come to our financial performance. Let me begin with our AUM performance. Our AUM as of September 30, 2026 stood at 1,627 crore, which was up by 16% year-on-year from 1,397 crore. and up 88% sequentially from 1505 crore at the end of quarter 1 FY27. On-book AUM at 1578 crore, which was up by 21% year-on-year and 7% sequentially. Growth during the quarter continued to be led by the wholesale vertical. The AUM mix now stands at 2773 between SME retail and wholesale, compared with 3466 a year ago and 3070 at the end of Q1 FY27. Total disbursement for the quarter stood at 385 crore, which is up 31% year-on-year and 20% sequentially. This is the highest quarterly disbursement in the company's history. For the first half of F527, disbursement stood at 706 crore, which is up by 18% over first half of F526. Collections stood at 298 crore in Q2, which is up 16% year-on-year, and 5% sequentially, taking first half of FY27 collections to 580 crore. Collection efficiency improved to 99% during the quarter from the 98% maintained over the preceding four quarters. Apart from on-book AUM growth, we continue to work on strengthening our fee income through joint lending structures. With select industry partners in the wholesale segment, these structures continue to support growth during the quarter, and our off-book AUM stood at 50 crore as of September 30, 2026, which is up from 33 crore at the end of quarter 1 FY27. We see joint lending as an important lever for the wholesale segment. It allows us to participate in larger transactions while retaining control over the project and its cash flows, deepens our relationships with larger NBFCs and banks, and adds a fee-based income stream alongside our interest income, thus improving our ROEs. We expect activity to build up on this front further over the coming quarters. Now, coming to our asset quality, gross NPS stood at 1.13% as of September 30, 2026, compared with 0.95% in quarter 1 FY27, and 0.51% in quarter 2 of FY26. The net NPS stood at 0.71%, compared with 0.60% in quarter 1 FY27, and 0.39% in quarter 2 of FY26. Gross stage 3 assets stood at 17.84 crores, rupees against 13.92 crores at the end of the first quarter of FY27. Total ECL provisions stood at 19.67 crores or 1.25% of the loan book with the provision coverage ratio at 110.29%. Right-offs during the quarter were 2.05 crore, lower than the 2.87 crore in quarter one of this financial year, while recoveries stood at 1.44 crores. I would also like to provide some context on recoveries. Major of our book is of AC compliant, and we expect recoveries to improve in the future as case resolutions progress through the legal process. Now, moving to our P&L performance, net interest income for quarter to FY27 stood at 49.6 crore, which is up 21% year-on-year and 10% sequentially, driven by a higher average AUM during the quarter. Total income stood at 77.4 crore, also up 21% year-on-year and 10% sequentially. Profit before tax stood at 35 crores, which is up 21% year-on-year and 18% sequentially. Profit after tax stood at 25 crores, which is up by 2% year-on-year and 13% sequentially. The gap between PBT and PAC growth on a year-on-year basis is on account of a lower effective tax rate in the base quarter of quarter to F526. Hence, PBT is a better comparison in this quarter. The annualized ROE improved to 6.30% from 5.86% in Q1 of FY27, and annualized ROE improved to 14.86% from 13.82%. For the first half of FY27, total income stood at 147.7 crore, which is up 20% year-on-year. Profit before tax at 64.7 crore, up 15%, and the profit after tax is 47.1 crore, which is up by 3%. Now, finally, on the operational and funding front, our branch network stands at 35 branches across 7 states. During the quarter, we continued with the rationalization of non-performing branches and the relocation of others, in line with our focus on improving branch-level productivity and operational efficiency in SME detail. On the funding side, we continue to make progress in strengthening our lender base. Our lender base stands at 35, comprising a well-diversified mix of public sector banks, private banks, SFCs, and NBFCs. The total borrowing stood at 962.90 crores as on September 30, 2026. Importantly, we have good availability of funds to support growth in the coming quarters as well, especially on the wholesale front. And undrawn sanction limits, including the NCD, stood at 210 crores as of September 30, 2026, compared with 90 crores at the end of quarter one of this financial year, FY27, over and above balance sheet liquidity of 76.8 crores. Our ALM remains positive across all buckets. The leverage ratio stands at 1.5 times, well within our thresholds, and leaving meaningful headroom for growth, and our capital adequacy ratio stands at 40.87%. Our credit rating continues to be A- stable from acuity rating and research, enabling access to capital on competitive terms. Together, these gives us the funding capacity and the confidence to keep growing the wholesale segment through the rest of the year. To conclude, quarter to FY27 has been a quarter of strong operating performance with record disbursements, 16% AUM growth and 21% growth in both NII and PBT, and an improvement in return ratios over previous quarter. Looking ahead to the second half of FY27, we expect the wholesale segment to continue to drive AUM growth for the remainder of the year, supported by our funding operation and the opportunity we continue to see in our core market. Alongside on book growth, we will continue to build off-book AUM and fee income through joint lending structures. In SME retail, we expect this business to improve in the second half as the consolidation measures of the past few quarters begin to yield results and the operating environment gradually improves. We will continue to pursue disciplined growth in both business verticals with asset quality and conservative leverage remaining our priorities. Thank you, and now we can open the floor for questions.

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 the touchstone 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. Participants who wishes to ask a question, please press star and 1. Ladies and gentlemen, to ask a question, please press star and 1 now. Participants, you may please press star and 1 to ask a question now. The first question is from the line of Himanshu Patayev from Steadford Investment Managers. Please go ahead.

Himanshu Patayev, Analyst — Steadford Investment Managers

Am I audible? Hello?

Operator

Yes, you are. Please go ahead.

Himanshu Patayev, Analyst — Steadford Investment Managers

Yeah, my first question was on the wholesale business. How much of approvals are there and So, disbursements are pending on the wholesale side of the business. And what we are seeing is, or what we are hearing is, there is some slowdown on the residential real estate business. So, what is your thoughts or outlook and how are you seeing the growth in loan book and, let's say, the repayments? Some thoughts on that will be helpful.

Rohit Gupta, Other

In terms of our pipeline, if you are asking, so we have a reasonable good pipeline at the end of September. We are roughly, you can say, around 300 to 400 crore kind of a pipeline. We are already doing the due diligence and some sanctioning has already been done. And so the second part of the question, which is more important, is that what is the scenario in the wholesale and what you are hearing around the market is no doubt. We had a very good year, four years, where the sales and the price rise was there. And we as a lender, we are more concerned with the specific projects where we visualize the cash flows, which are the most important part. In all our projects, we do cash flow back the lending only, and we have a complete control over their cash flow through the escrow mechanism. So our focus is on, you can say, affordable housing, where even there is no kind of any slackness, and the projects are getting oversold five to ten times. It's a kind of a drop lottery system that is prevalent here, and where the price has been fixed. The second is the meeting from housing, where even if the location and the pricing is right, we are seeing that the sales are sufficiently good. And something doesn't make any reason which getting sold to 100% day one, even if the project gets sold 30 to 40% in two to three months and there are some reasonable sales over a period of next 24 months, the sellability of the product is always there and it is better for all the stakeholders of those projects. So, yes, as a lender, we have to be cautious. We have to project specific and the borrower specific. Being in this lending industry in this specific region for last 12-13 years, we have strong insights and strong relationships, and that helps us. And, yes, as a lender, we have to be on toes and always see the scenario what is around, and we always keep on. And we have been very conservative in that way, and we are always very, we keep those scenarios in view and do lending according to that. And lastly, our size is too small, and the kind of pipeline we have always, we get a choice of whom to lend, and we only pick and choose a customer according to our, who fulfill our parameters. Chandan can add more on this.

Chandan Kumar, Other

Just to add two, three points, Imansu, as an strategy, CSL finance always focused on a kind of affordable, the in-group, in large segment itself, the CSL majorly focused on the affordable housing segment, where the sales is not going to be any challenge, and till date, whatever the project has been launched in anywhere in affordable housing projects itself, the sales are 100% in all those projects itself. Now, coming on your point and dividing the facial portfolio as on date, we find that 30% to 40% of the portfolio belongs to the affordable housing segment. And where the sales is not going to be challenged, the reason being the sales will happen through the lotter system, and it happens on the day one of the launch itself. Other than that, out of rest, 60% to 70% of the portfolio, 35% belongs to the small housing, where there is no slowdown. We don't find any kind of slowdown into that segment, reason being that are the small plotted projects, and majorly the locations which we fund are very much marquee. So there is no kind of slowdown into that space. Only 30% of the portfolio where you are telling that the sell could be the challenge. So, being like a conservative lender, we keep on focusing on those locations only or the geographies which are like moving or the infrastructures are good. We are not experimenting with any kind of the new geographies or the new locations where the infrastructure is yet to be developed. So, we are very much confident that the projects which we are voting in that 30% segment itself would not face any kind of challenges in terms of sales or churn in coming years itself, despite the market goes down by 10 or 20% itself.

Himanshu Patayev, Analyst — Steadford Investment Managers

And one thing on this wholesale, we have written there are 128 active accounts. Okay. So active accounts means 121 projects which we are funding or these would be 121 separate builders whom we are working with.

Chandan Kumar, Other

Projects that are currently under are funded by us.

Himanshu Patayev, Analyst — Steadford Investment Managers

Builder can have three projects also which we are working with.

Chandan Kumar, Other

The exposure size is around 2, 3, 5 crores or kind of thing, kind of SPP kind of such a single plotted project, which other NBS called it as a housing loan. We used to keep on that as a CRE exposure and that we used to fund like 2 or 3 projects simultaneously for a single borrower.

Himanshu Patayev, Analyst — Steadford Investment Managers

Out of these 121 projects, how many would be the, let's say, builders? Yeah, number of customers or builders, even projects would be there. A lot of, let's say, write-offs and all those things, and we have also, still the gross NPAs are around 3%, if I take everything on the SME side of the book, okay? That's 17 crore on. What is the outlook from here on? Now, strategy from here on, when we again start growing that book, thinking about that business, what are we going to change in that particular...

Rohit Gupta, Other

There is no change in the product line, only that we have made few changes. So earlier, we used to do certain accounts beyond 50 lakhs, which we have stopped in last 18 months. So that is one, because in 17 crore NPA, you will see there are 7-8 accounts, which are more than 50 lakhs. So, and what we have seen that the good accounts we used to get taken over, the foreclosure used to happen within 9 months to 15 months, and little stressful account used to remain with us. So, we completely stopped, and most of these accounts, the NPAs have come up during the book period between 22 to 24, and in last 18 months, there is no NPAs which have come in last 18 months. In terms of fact that we have stopped 50 lakh plus, our focus on less More than 10 lakhs has also reduced because we have seen these are marginal borrowers and having only one property which is coming to us as a collateral and that would completely rural kind of a property. And where any mishap in terms of his businesses or any education-wise or maybe any marriage in the family or any health issues, that borrower becomes delicate and becomes difficult to roll back. So, the focus is more on the 10 to 50 lakhs, which are more compliant towards the safety also. That is one of the most helpful tools in recovery. So, that is one change we have done. Second change, we have relocated certain branches, mostly branches which are doing less than 10 lakhs. Certain Aqarni properties, branches in Gujarat, and certain completely rural property, branches in Rajasthan. So, we have done consolidation of those. And where we were lacking, I think we have built one of the finest technology platform, our legal operations and all teams are very good. So the distribution and attrition, which we were facing a lot, a bigger issue, which was there with us. Now that attrition rate is stable, we have a now complete senior middle-level team with us, and the focus now going forward will be on the distribution side, and that is where we need to strengthen ourselves. And with the new CEO coming, and we are very hopeful, he's a young passionate and who has seen all the verticals of the SME, who will steering this vertical as a, they have also seen that because there were CBOs were there and all the HODs were there, but one full-time person was not there to oversee on day-to-day basis and to bring the poissiveness of all the divisions of the SME and to strategize more and And to take forward those, what we have projected ourselves in the management meetings and forward these things. So I would not like to say too much and would like to speak in the next quarter when we see a three month of change that will happen. And after that, but we are hopeful that the thing should be better. And last two months have been the best two months of this financial year for SME. And we hope that post Diwali our numbers will be better.

Himanshu Patayev, Analyst — Steadford Investment Managers

And one last thing, would we like to increase the bucket, let's say something like a gold loan or a two-wheeler type of loans, or the product what we have on the small ticket size, at least for next 24 to 36 months, or you are also thinking of increasing the product span over?

Rohit Gupta, Other

Good morning, everyone, and welcome to the call. The knowledge in the company through technology and the operating platforms. That will be a little edge. So in gold loans, already the bigger companies are there. And still, we want to grow our SME first in the lab business with the self-employed customers. And then we would like to see whether we want to go into vital finance or gold loan or any other variant of that. But it will not make any sense start focusing on the new one without still be a lot to grow and build our existing SME lab portfolio. So neither it will make any operational metrics and it will also take a lot of bandwidth on strategizing the new vertical and still we have to consolidate a lot our existing SME vertical. So, as a company, with the size we are in, and it doesn't make any sense to open a new vertical. So, just for sake of building a new, I would say, product line, and without having a clear strategy, it will not make any sense. And so, we don't want to open in the immediate 15 to 18 months.

Himanshu Patayev, Analyst — Steadford Investment Managers

Thank you, and happy Diwali to everyone.

Operator

Thank you. Participants to ask a question, please press star and 1. Anyone who wishes to ask a question, may please press star and 1 now. Ladies and gentlemen, to ask a question, please press star and 1. As there are no further questions from participants, I now hand the conference over to management for closing comments.

Rohit Gupta, Other

Yeah, yeah. So, I think the one person who was asking question has covered most of the things, I think, which you have been, so, yes, we have already in the opening speech, we have given our performance, and we are hopeful that this quarter will be better on the SME, where we are working a lot, and so wish you, everyone, are all our stakeholders, and very happy Diwali, and we will see you Thank

Operator

you, ladies and gentlemen, on behalf of CSL Finance Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.