Muthoot Capital Services Limited (MUTHOOTCAP) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Muthud Capital Services Ltd. Q1-F527 Earnings Conference Call. As a reminder, all participant lines will be in the lesson-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 touch-tone phone. Please note that this conference is being recorded. I would now like to hand over the call to Mr. Manit Khimawad from Ilyra Securities. Thank you and over to you, Mr. Khimawad.

Thank you. Good morning, everyone. On behalf of Ithara Securities, we welcome you all to the Q1 FY27 Earnings Conference Call of Mutu's Capital Services Limited. From the management today, we have with us Mr. Matthews Marcos, CEO, and Mr. Ramandeep Gid, CFO. I now hand over the call to the management for their opening remarks. Thank you, and over to you, sir.

Thank you, Manish. Good morning, everyone, and thank you for joining us today. On behalf of Mutut Capital Services, let me extend a very warm welcome to all our shareholders, analysts, investors, and members of the investment community. I sincerely appreciate your continued confidence in the company and your participation in today's earning call. So let me start with the highlights of Q4 1 FY27. I think our Q1-FI-27 has been an important milestone in our transformation journey, and we believe that, you know, Q1, we will remember for the significant strengthening of our balance sheet and franchise. I would like to start by highlighting three key achievements that we made during the quarter. First and foremost, we received a crystal rating upgrade to AA- table. We believe that this is a very strong external validation of the transformation that the company has undergone over the past couple of years, and it reflects a sustained improvement in our asset quality, our governance standards, our funding profile, among many other things. And more importantly, I think it enhances our ability to access diversified sources of capital at a very competitive price, because that is a very critical aspect of our NIM and ROI, et cetera, et cetera. And therefore, it will position us well for our next phase of growth. Second, our public deposit franchise cross 100 floor. While this number may not be very big, but considering that, you know, we just recently started scaling up on this, and we recently launched our online FD module, and all that is a significant achievement. And, you know, this is important also from the fact that it gives us a very stable, diversified, and granular funding base. And it's a very important pillar of our long-term liability strategy. So this is one business that we want to continue to focus on and scale it up to a significantly large amount. Third, I think we delivered a substantial improvement in our asset quality. Our GNPA level reduced to 3.94%, representing a decline of about 182 basis points year on year. And this is a function of our disciplined execution on collection, sustained recovery, and a successful resolution of the stressed asset. So this is a very clear demonstration of our focus on quality, even while we pursue growth. I think these are really foundational measures, and coming to the business performance, the external environment has been very favorable. Q1, you know, automobile industries saw good growth, two-wheeler industry recorded a 14% year-on-year growth. At Mutut Capital, we delivered a 6% growth, which may be slightly moderate compared to the industry growth. But all our internal analysis indicates that the gap was not driven by market demand, but primarily due to the fact that our credit acceptance ratios were kept moderate. We were approving about only 35-40% of the cases that were getting logged in, and that was as a measure of continuing to focus on our quality. As we go forward, some of the measures that we are taking is that building our own. So we were using different scorecards from partner. Now we are our own data analytics team is building our scorecard internally, which will be differentiated for existing to credit and new to credit. And we are also bringing in a multi product, multi bureau strategy to enhance our credit profile. And, you know, on the parallelly, what we have done is that our own retail portfolio has been consistently increasing. So, we have reached 84%, which means our co-lending book has been steadily declining. That is a conscious call that we took. So, if you compare Y on Y, last year, Q1, we had about 120 crores of disbursement through co-lending. And this Q1, in the first month we stopped, we only dispersed 20 crores. So, overall, dip in numbers, YOY is a function of that, but MCSL alone has grown. And our portfolio yield remains healthy at about 21%. And as we, you know, move forward, I think our focus will continue to be on accelerating high quality retail book, improving credit conversion, and expanding our liability franchise, and of course, leveraging technology. I think last couple of years, we have invested a lot on technology. And now we are continuing to invest in AI-driven technology. We have brought in AI in multiple fields now. Our entire X bucket collection is being done by AI bots. So, AI bots continue to collect about – so, this month, our resolution with AI bots on the X bucket was as a year, 55%, and we'll continue to expand there. Other use cases of AI has been on our welcome calling, our audit and compliance, our automatic ticket segregation of customer complaints. So we are investing heavily in AI. We've done a couple of trainings already for our senior management and all relevant people on AI. So that continues to be our focus area, and we will continue to invest in that as a technology because we see that consuming a lot of space in the BFSI segment. And we remain confident that the investments that we have made so far in strengthening our franchise will enable us to deliver sustainable and profitable growth in the periods to come. So I think with those opening remarks, I'll hand it over to our CFO, Ramandeep, to take you through the detailed financial and operational performance of the quarter. Thank you once again. Over to you, Ramandeep.

Thank you, sir. Good morning, all. We'll start with the asset of the company. So, as Mathisar has detailed it, the retail portfolio of the company, which was a year back, close to 2,300 crores, now we close at 2,851 crores. We have seen a significant growth in the retail portfolio. Co-lending portfolio, which was close to 1,000 crores a year back, now it has been closed at 499 crores. And safe to say that we are having a zero incremental business from the co-lending. And the corporate loan book, we are not doing from last two years. That book has been de-grown again by 16 percentage. So, overall, the focus was on the retail portfolio, which has shown a significant growth of 500 crore year-on-year basis. Of that retail portfolio, we have seen growth in all the parameters, whether we can call two-wheeler and CV also, used car as well. Put together, my CV and used car, they have shown a growth of around 40% from year on year as compared to the previous financial year. My two-wheeler, since we have excluded that DA and the ARC portfolio, we can see a minor regrowth, which is a stable portfolio only at 1%. Other than that, construction equipment, which we have recently started, has again shown a very good growth of 75%. And then, as I said, corporate loan, we are not doing as of now. The portfolio has been evenly split throughout India, where in South, a part is containing 40% and the remaining part has been contributed by East, North and Western part of India. That has also been shared within the investor PPT as well. The business of MCSL standalone comes to 535 crore as compared to 508 crore, which we have done in the Q4. So there is also a growth. Generally, we see Q1 business slightly lower than the Q4. This is the first time in our last few years when Q1 business has picked up specifically the MCSL endorsements. Then, as Mathis said, the yield on the product has been closely tracked now. We started the used two-wheeler, which has given a yield of 26% while my two-wheeler and the loyalty loan and others. The blended yield for the entire two-wheeler comes to 22% while my CV and CE having the blended yield of 17.5% and used car is operating at 18.6%. Right now, we are almost, as I said, you know, the co-rending business has already been closed. So, the entire business from the Q1, except some 4 to 5 percentage has come from co-rending, which we have done in the month of April itself. Other than that, the entire business has come only from the NCSL retail. And when I say retail, the dealer channel shown a significant growth as compared to the Q1 of last year, wherein we can see that last quarter, last Q1 of the financial year, we did 421 crore from this channel. Now we have concluded 465 crore alone from this channel. So therein, we are seeing the growth. Coming to the asset quality of the company, 96.06% of the total portfolio of the company remains standard, while 3.94% remains sub-standard. Out of that, there is a standalone case of corporate loan, which we already spoke in the last two quarters, wherein the retail GNP of the company stood at 3.49% only. That one case is contributing 15 to 16 crore. That's the reason the GNPA is coming just at 4. On the bucket-wise, the company is having 85% lying in the zero bucket. Last year, at the same time, it was 78%. On the first bucket, the company is having a portfolio 7.34%. On the second bucket, it is 2.76%. And then we have the NPA and all, which is 3.94%. The segment-wise analysis also we did, which we have already shared, wherein we can see that GNPA from my CV portfolio along with the CE is coming only 0.35% itself, while my USCAR portfolio is showing as 1.31% only. The remaining GNPA is contributed by the tubular portfolio. Last year, at the same time, the GNPA was 5.81% for the retail. Now, we are closing at 3.50%. There is no change in the TCR of the company. It stands at 60 percentage. Hence, the NNPA is 1.94 percentage. So, Darren, now we will speak about this asset quality, and then we, Matthew said, and we have given a detailed note also, note number 6 with the results. The company has undertaken one ARC deal with Paris. So this deal, the overall objective was to, you know, bring down the GNPA at the same time the portfolio which is not contributing, wherein we are not getting as much recovery as we should have got. So, therein, the company has taken an average valuation of 45% on our portfolio that we have sold for around 203 crore. So, that was one-time cleanup access we wanted to do in the Q1 itself, so that by Q2, Q3, and Q4, we should have a portfolio wherein we are getting recoveries from the MCSL itself. Secondary part, the portfolio which we have stored in the last 14 months and all, therein, the GLP is only one percentage. So, that gave us confidence that, okay, the new portfolio is behaving well. That was the sole reason of, you know, doing a deal for the ARC of the portfolio, which was two years to three years and more, which is there in the bookshop in PSN. So, that deal has also been concluded in this quarter itself. Our source of recoveries, the major source wherein last year, as Matt has said, bank and electronic mode, which used to be 75 CR, it has now reached to 100 crores, which is again a very significant achievement. The total income, whether any other income we have classified from insurance partners from cross sales since the company is holding IRDA. So then the total insurance income comes at 2.47 crores. That is backed in the other income as well. On the liability front, the promoter's shareholding remains at 63.23% and remaining has been contributed by corporate, retails, and others. All right. While we have acquired a lot of banks during the last financial year, you know, we relied very less on the NDSPs and the NCDs. And now the overall cost of funding, which we have already shared, we have seen, you know, 0.80 paisa down as compared to the last financial year. That is, that change has come only in my term loan, which we have taken from the bank loan. Overall change in the borrowing, we can see from the last quarter Q1 to now this Q1, we can see 0.43 paisa down. And that too, rating upgrade has happened now. So we are expecting another, you know, 40 to 50 paisa down in the upcoming views as well. On the fixed deposit part, the company has surged 100 crore in this year, in this month itself. So, the liquidity position of the company remains, you know, stable, wherein the company is always having a balance over and above the LCI balance, which is required to be maintained from the RBI. So, when RBI is 100%, the company is, average league company is having a fund balance of 125 to 113%, which we have already maintained, we always maintained throughout this quarter itself. The over and above the balance, wherein the liquidity which has been classified as a high-quality liquid asset, that has been invested in my SLR investment, PCC investment, SLR deposit, and collateral deposit with the bank. Whereas the over and above 100% has been invested in the fixed deposit with the bank itself, the company has taken an overall yield of 6.71% on those investments. Liability front, the company has closed the borrowing at 3,318 crore at a borrowing cost, incremental borrowing cost in the Q1 at 9%. This will be going to go down in this quarter as well. That has a very fair mix of banks, NCDs, PTCs, big deposit, and others. Then there are the last two slides which we have shared with the overall organization. The company is having AU of 3,300 crores. Therein we have excluded the portfolio that we have sold out to DA and also the GNPA portfolio of 20 crores that has already been sold out to ARC. The company has reported a pack of close to 8 crores, which has taken the shareholder funds to 678 crores. The overall balance sheet size of the company has grown by 1 percentage from Q4, which is 4,079 crores. The Q1 business, as I said, 564 crores, which takes our line-loans customers to 5,77834 crores. The blue wheel, which we have shared with the investors as well, wherein we can see a growth of AUM on 4%. The GNP has gone down by 182 BIPs. One reason, which is a very specific reason, is basically, yes, we have done the ARC. That effect we can also see in the NNP as well. PBT has close to 11 crores, CRAR at 22.07, and the debt to equal to the gearing of the company stood at 4.88 times. The total business which the company has done in this quarter is 465 crores.

Over to you, Manit, for the questions now.

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 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. The first question is from the line of Sukrit Deepata from Eyesight Finance to Private Limited. Please go ahead.

Good morning to the team. I have two questions. Let's focus on Mr. Matthews. Just beyond the headline disbursement growth, So, to understand how are you planning to structurally reposition Muthud Capital's two-wheeler and retail lending portfolio over 28, financial year 28, to defend margins in a rising cost of funds environment, while still maintaining strength against rural stress and identifying competition from other fintech companies. That's the fourth question. I'll ask my second question after this. Thank you.

Okay. Thank you. So, first of all, our portfolio, you see that quarter on quarter, we are diversifying our portfolio. So, the two-wheeler used to be our warhols for a long time. It was actually the single product for us for a long time. Now, we have diversified and our other three businesses, which is construction equipment, commercial vehicles, and car is steadily growing against that. So, this diversifies our portfolio, and the portfolio that is growing is at a much significantly lower GNPA levels by the basic nature of those products. You have slightly more qualified customers. You get more documents. You do a direct personal discussion. People need them. Contrary to a two-wheeler where a customer walks in and the decision is taken in five minutes and all that. So, it's a completely different profile that we are catering to. And there, even on our existing portfolio, we can see that the GNPA levels are sub 0.5% and all that. So, that, you know, reduces the pressure on us on keeping higher provisions, etc., etc. Two, we have got a rating upgrade, which will significantly alter our funding. Okay, so as it is, we already started seeing, I think Raman has already taken you through the numbers. We already started seeing at least a 50 BIPs reduction in our borrowing cost and which will continue to happen. On the third side, we are also aggressively building our liability franchise, which is at almost 150 BIPs lower than our borrowing cost. So that will also come in handy. Fourth is that our geographical distribution also is in such a manner that we are not maybe in direct head-to-head competition with the large banks where, you know, the rates are disproportionately low. So our markets are largely the Tier 2, Tier 3 players, and we have a very nuanced approach of the competition whom we face, and the competitors that we face in these markets operate broadly in the same interest rate range as we do. So I don't see a significant pressure on the top line in terms of NII, etc., as of now. And we are steadily watching the portfolio. As I mentioned in my opening remark that we are also coming up with our own originations scorecard where our data analytics team is working on. And we are, you know, trying to rework on our risk-based pricing also where we will be pricing the higher risk customers significantly higher so that it covers the possible credit loss that we will incur. So, and then this, you know, risk-based pricing will be a very dynamic one, which we will continue to monitor on a weekly basis, and wherever we see that any portfolio is coming down on the race, we will be able to alter those race. Because it's our internal scorecard. Till now, we were dependent on a vendor to do that, and vendor would review it every quarter, etc., etc. But now, with our own internal data analytics team doing it, we will be able to do it on the same day itself, but of course, we will monitor it on a weekly basis. Yeah, thank you for the guidance.

My second question is to Mr. Dil. You know, with credit costs showing, you know, some early signs of pressure and capital adequacy moderating, what frameworks are you putting into place to sustain provisioning discipline along with funding digital transformation and maintaining the dividend commitments? Uh, uh, You know, pertaining to any regulatory compliances, you know, that may keep on changing over the coming quarters. Thank you.

Sure. Sir, I think three ticks that, you know, we have done, and this is what I wanted to share while, and this is for everybody of the calls. First thing is, while you see the total AUM growth is not that much on the book. The best part, what we have done over the last one year is we stopped co-lending almost. Now, how this has helped us, which we can see in the results, I am not talking about now ECL. I am not talking about any impairment of the words. Our total income, so the overall growth was only 1%, 2% on the EU. Our total income on the same book, which was 147 crore, has now gone up to 160 crore. This is substantially because we are doing our own sourcing. While the GNPS remains the same as per the Q1 of last year. If I exclude the ARC portion, what we have done. So, which means there is a 12.5 crore increase in revenue. Why? Because the blended yield is going up as NCSL is sourcing on its own. Number one. Number two, the finance cost of the company, as I have also explained, and Mathis has also explained, it has already gone down by 0.50%. Now, there comes the third portion, which is the impairment of the company. See, we are tracking it. So, what we have done is, as I said, you know, last 14 months MOB. So, the two-wheeler is somewhere around, you know, 75% of the book. So, wherein we need to see that entirely impairment will come from Mayer itself. So, on 14 months MOB, we are seeing a GNPA of 1% which used to 3.5% you know, when we spoke in the last year Q1. So, therein, we are seeing a reduction, but at the same time, macroeconomic factors has also been taken. So, we have, last year also, we engaged EY, and this year also, we have engaged EY. Therefore, if you see the note number 5, which, you know, we have placed, we have additionally taken 2.5 crore on the impairment, because we know that in Q2, when the ECL, so ECL model is something which we are going to revise every year, so that, you know, we should know that any macroeconomic factor, which, as you have asked, is impacting the impairment, how it could be done. So, we have done an analysis in the Q1 itself. For us, so last time that we did this analysis in the Q2 of last year, that gave us a reversal of 5 crore. This time, we don't want that factor. We just thought, okay, let us see how it is impacting my PD and LGDs of the world. So, LGD remains the same. We were expecting, okay, with macroeconomic factors, some probability of default factor may go up, but at the same The GMP on the 14-month book has gone down from 3% to 1%. Still, we kept around 2.5% as an additional impairment, which I have also shown in the note. So, therefore, that gave us extra space that whenever we revise our model, which is due now in the next four weeks or so, therefore, we don't have to take additional P&L hits for the entire year. And number three, last time, if you see my ECL, you know, the impairment that we have taken, though the company is at 50% PCR at a whole. My used car and CV, during last year, we have taken an LGD of 50%, you know, which was on the higher side, while their GNP remains static throughout the year itself. Rather, used car GNP has gone down from 1.75 to 1.36%. Therefore, we are expecting some revision in the LGDs as well, wherein 50 will become 40, 42. So, therein also some advantage might come, but we are not going to take it because we want to see this through whole financial year that how it's going to pan out. Therefore, we are providing additionally, if required, we will take a final call in the Q4 that if required, we need any reversal, we'll take that reversal. Other than that, whenever we see any profits are happening and if we are able to provide further more for impairment, we'll do that. I hope, sir, I have been able to answer.

Thank you very much, sir, for the guidance, and best wishes. Thank you.

Thank you. The next question is from the line of Amit Mahindale from RoboCapital. Please go ahead.

Thank you. So, my first question is on AUM. We had an aspiration of, you know, about 10,000 crores of AUM. So, how do you see AUM as at FI 27 and 28? And also, you know, if you could indicate any ROA aspirations we may have budgeted for.

Yeah, thank you.

So, on the AUM growth, as I mentioned earlier, we are in the Q1 of this year, our credit acceptance rates were far below the industry number. So, where industry gives about 75 to 80% approval rates, we were only at about 35-40% approval rate. So, that was being cautious. Now, we've seen how the last one and a half year's portfolio has behaved, and now, therefore, we are bringing in a scorecard-based model, which is getting built internally, and we are going to scale up our disbursements from end of Q2 to the rest of the year, and, of course, Q3 happens to be the biggest time of the year, and you, of course, have a bumper Q3 because of Diwali, Dhan, Teres, and the entire festivities coming in. So that is the time when we want to be ready for the market and take advantage of that quarter and scale up our numbers. This year, the AUM projections that we had given was around 4,000 to 4,200, and we will reach those numbers this year. That's the projection. Yeah. And Raman, can you take on the ROA part, please?

Yeah. So, as of now, so in this year, as I said in the last call also, we have taken a pre-tech share of around 2.5% for this financial year. And we are going to work on that. As of now, we have reached a stage of 1%. But, you know, there are now from the next quarter, since we are expecting the business to grow. Therefore, we are also expecting, as I said, the interest income, we have already seen a growth. So, we are expecting, you know, that this impairment piece, which was, you know, which was an issue for us in the last financial year, that has been over now. So, we are not expecting much increase in that cost during this financial year. So, we are on track. This is what I want to say on the ROA tree.

Sure, thanks. My second question is on the ROA for our used car book, you know, because the yield there is significantly lower at 18.6%. So can you provide ROA tree for that or what ROA do we expect for this product?

Sir, sorry, can you just repeat your question? I missed it. ROA for used car? Sorry.

Yeah, yeah, ROA for used car because see the yield is significantly lower at 18.6%. You know, and if I take, you know, cost of fund of, say, 10, 10.6, and then some amount of OPEX. The product will be diluted to ROA at a console level. So I just wanted to hear your thoughts on what do you expect the ROA to be, you know, in a near term like for 27, 28.

Sir, we track that. We track that this vertical price profitability of rather for used car as well, for CV as well. Because CV and CE also, if you see it is on the same line, 17.5% to 18% with itself. The best part about these two is, you know, the impairment factor. While CV is hovering around only 0.36 percentage, the four-wheeler is 1.31 percentage. Whereas, as compared to two-wheeler, which is around close to three-and-a-half percentage, right? And productivity is something, you know, which we need to see for all this. So, therefore, the last quarter, you know, we have prepared the vertical-wise P&L. And therein, we have seen the ROI tree for used car. The 18.5% was my total income, which I am receiving from the used car. On that, I am having a minimum expense for the impairment. I am excluding the finance cost, which we have already said, though we are 50% lower only, but still, by taking your finance cost, and then there is an impairment cost of around 0.5% as compared to 2.5% for the other product we have. So, therefore, we are expecting an ROA tree of around 1, 1.5%, but at the same time, USCAR is going to have a break-even in this financial year. So, we are looking forward for that. Then we will set a formula, okay, at this range, you know, these are the number of units which USCAR has to do, so as to make a profit of this for the whole month. So, that formula also has been provided to the respective business heads as well. So, they are working on that, and even if you see the use car business, as I have shown in my portfolio as well, use car business has also been grown. If you see the last year, last year to this year, there is a significant growth in my use car business as well. And on the total contribution to the AUM, use car alone has gone up to 8, 8.5% for the company, which was only 2% in last year. So, as the business is growing, we are expecting good numbers in the top line from the use car. And so as to give you the RO.

And to add to what Raman has said, I think now we are tracking vertical-wise, not only vertical-wise, but also region-level P&L. So, every regional head, area head has a P&L and vertical-wise. So, that gets monitored and reviewed every, you know, week, every month. So, that, and it's bottom-up. So, therefore, everybody knows, understands how the P&L is to be managed. Yeah.

Yeah, I'm just looking to clarify the numbers. So, what type of OPEX are we, you know, forecasting for this used car business?

One second, sir, I have just opened my used car business only. So, sir, I am expecting at a breakable level of around 4% of OPEX, which the company has to operate. Right now, we are at 6.6.5%.

Yeah, so you are expecting some reduction in OPEX because you are sourcing it yourself or what?

Yeah, so sir, OPEX will go down as and when productivity will increase, which we are seeing now. So last year the team has come, and this year the business has started growing from the same team itself. As I said, last year, from the same team, it was contributing 2% of the AEM. Now, the same team is contributing 8.5%.

To add some number to that, what Raman said, so last year, our average productivity for car and CV used to be 13, 14 life. Right now, it is 20 lakhs plus, and we are expecting it to go to 30, 35 lakhs. So, that's where, you know, the entire dynamics for this business will change.

Right, perfect. And the last question is on the LTV, you know, whenever we calculate LTV for two-wheeler, how is it, you know, how is the LTV calculated? Is it on on-road basis or is it on, you know, off-road basis?

On-road price. LTV is calculated on the on-road price.

Okay, perfect. That's it from my end. Thank you very much.

Thank you. A reminder to all participants to press star and want to ask a question. The next question is from the line of Hidansh from Press Securities. Please go ahead.

Hello.

Yes, sir.

Yes, sir. My first question is regarding the ARG transaction. Can you just provide me the brief about the transaction? What are the numbers and what were the number previously and the current number? And is there any amount written off from their side as well? And can you just provide about it?

One second, sir. I'll just give you the entire number from the ARG. Yeah.

So, sir, so when we did an ARC of 203 crores at this time, this is the third ARC of the company. So, you wanted to be specific on the third ARC or you wanted to know the numbers of first and second as well? Yeah, first and second as well. Okay. So, I'll take it. So, this is the third ARC of this company. The first ARC we did in September 2023. Wherein the company has sold a pool of around 235 crores. The second ARC the company has done in September 2024, wherein a pool close to 100 crores have been sold to the ARC. So, these are the two ARCs. The first ARC we did with Phoenix. Therein, the first ARC, the valuation which the company has got on that pool was 117 CR, which comes to 50%. On that, the company was having a security receipt of 102 Crores. That security receipt from the first ARC has been gone down by 75%, which means that company is able to recover 75% of that ARC in a span of two and a half years. Coming to the second ARC, which was close to 100 crore, again, the company has got a valuation of 50%, wherein the security receipt comes to 48 crore. Of that, the investment from Mutut Capital comes to 41.73 crore. From that ARC also, we have been able to bring down that ARC by 46.71 percentage, which means that 46.71 percentage has been recovered by the company. Now, there comes the third ARC. So, third ARC has two components, wherein the right-off pool of the company, which was there, you know, wherein we have started getting recoveries as we have a specific focus now. So, that pool comes to 83.18 crore, and then there is a normal GNPA pool of the company, which has a DPD of around more than 600 days. So, that pool has also been sold to ARC. So, in totality, 203 crores have been sold in the ARC 3. At a valuation of around 45.61%, which I have already shared in the note. So, during this valuation exercise, what we have done, we have taken a blended valuation. Unlike the first two days, wherein the valuations were coming as 50-55% with the same ARCs, and therein also the company has shown a significant reduction in the balance of the security receipt. We don't want that higher kind of valuation of those, so we have taken a blended valuation of the entire pool, which comes to 46.51%. Of that 46.51%, the company has sparked that 81 crore as an investment in the security reserve in this year's financials. So, this is what the answer to your transaction is, sir.

Okay, thank you so much. And my second question is, what are the guidance for GNP and NMP for TEC527 and going further?

Okay. So this year, as far as the Q1 is concerned, so we have already taken a call from the ARC, from the pool, which was always forming part of the GNPA, and we were not giving much of the recoveries. So we were expecting the recoveries from that pool. That is the reason we have done a very conscious call on the ARC. Therefore, my retail GNPA comes at 3.49%. Then there is one corporate loan, which I have already explained multiple times. I'm excluding that corporate loan for that purpose. Just to add on this, about that corporate loan as well, we have been able to take this security from that corporate loan, you know, during this Q1 itself. And that security is something which is already parked in my financial as an asset held for sale. So, therein, we are expecting that corporate loan recovery to happen in this year itself. So, we are expecting between six to eight months, we'll be able to sell up this property which we have taken from the corporate loan. From the retail portfolio, the GNPA 3.49 percentage, we are expecting, you know, if the business is continuing to grow in the same fashion, so we are expecting the GNPA to be sub 4 only throughout this financial year for the retail segment. And there is no change in the ECL policy of the company, so as the PCR, so NNPA would be sub 2.

Okay. All right. Thank you.

Thank you. Participants who wish to ask questions may press star and 1 at this time. The next question is from the line of Vinay Jadwani, an individual investor. Please go ahead.

Hello. Hi, Vinay, sir. Good morning. Yeah, good morning. My question is, please excuse me. My question is regarding layman's lens view, and this is related to the sale of... NPA to the ARC. I want to know the accounting impact of this whole sale. So, you have sold that amount and how it's impacting the profit level. Already the impaired asset is there or that? I just want to, please excuse me, I'm just asking from a layman's lens view. Okay, sir. Okay, okay. I'll explain.

So, I'll take it, sir. So, We will just tell you, 203 crore of pool has gone. Right-up pool was 83 crore, which means that that pool was not there in the books. Of that, company has already taken a 100% impairment hit in the last financial year.

Okay.

So we'll go step by step. We'll just go step by step. So write-off impacts, impairment, it has already been taken in the last financial year. Means last P&L already had that impairment expense. When we saw that each pool's recovery, we have started. So therefore, we have taken a call, okay, if we are able to sell that pool, so then what? Now, 100 percentage impact we have taken in the last year of 83 CR. So we have taken a P&L hit of 83 CR in the last year, and then we got a recovery out of that pool only 14 crore from the ARC. So accounting inspect will say that last year's P&L, 83 crore has been wiped off from the P&L. In this year's P&L, only 14 crore has come. So this is what it is. So there is no gain from the ARC. It is just that 83 crore has already been taken a hit over the years. Now 14 crore has come back because we are seeing some recoveries out of it. Now, coming to the second question.

Just to say that 83 crores have been taken a hit for the last year, and what we are seeing is that 14 crores will be added to the profit and loss for this year.

This year. Yeah, it is for the last years. Not last year, sir. Last year, it was only one-fourth of that. So, last year, we have a couple of years, so three to four years, we have taken an impact of 83 crores on the book 100%. Now only 14 crore has come. So there is no gain out of it. It is just that we have started seeing some recovery. So we said, okay, let's take a call out of it. And of that 14 crore, sir, of that 14 crore, 85 percentage has been held by the company in the SR only, in the balance sheet. So, which means that we are going to bank on that 83 crore pool. You understood, sir?

Yeah, yeah, yeah.

So, that is not something which is reflecting only in the P&L. Balance sheet ka, maybe it is also reflecting as an investment in the SR. And if that 14 crore is not received, I have to do a mark-to-market valuation of that investment. And I have to again take a P&L hit if required. But since I have already taken a valuation of only 14 crore, so I don't think so we need to take any hit. And going to the history of the ARC 1 and 2, wherein 76% and 46% has been recovered by the company. So I think we are able to take the quoting crude as well. Now, coming to the ARC of remaining pool, which is 120 crores, that is forming part of my normal GNPA pool. On that, we already had a provision of 50 percentage, and then therein, the sale price of that ARC was 78 crores. The provision held in the book was 59 crores. Book value, we had 60.34 crore, and the entire income of 15 crore, we have already reversed. So, there is a very small portfolio wherein 2.99 crore has been received. Of that 78 crore proposed sale price, 85% of that, which comes to around 66 crore, that has been held by the company in the investment in the SI.

Okay.

Okay, so if tomorrow... No AR, no recoveries come. Then there is a mark-to-market valuation. But considering the historical valuation of ARC 1 and 2, we have taken this call, sir.

Okay, okay. And my secondary question is regarding the equity reasons. For the last phone call, you have told that you were planning some issue of equity. So, can you update on that? Yeah. Mathis, do you want to take or shall I?

Yeah, go ahead, Raman. Okay. Okay. So, right now, if you see debt-to-equity of the company is 4.88 times, you know, we are quite comfortable till 6th level. Okay. But at the same time, last time what I have told, I want to continue with that only. We are speaking to investors. There are two, three investors, you know, who are already sharing. Data sharing has also been happened with them. So, as and when the valuation will click. So, we are expecting some meetings to happen in Q2 only. So then we can think about it and we can close the deal. But that will be something, you know, which will be very known.

If we do that, no, no, no. Oh, that's it for myself. Thank you. Thank you.

Thank you. Thank you. The next question is from the line of Manish Arora, an individual investor. Please go ahead.

Hi, sir. Thanks for the opportunity. Good morning, sir. Good morning, sir. Are we speaking to the guidance of 10,000 crore AU for financial year 28? And if we are expecting 4,000 to 4,500 crore AUM in SI27, are we guiding for around 150% of AUM growth in SI28 year and year? Thank you. That was my question.

Yeah, Manish, I'll take that question. So, yeah, we are, our objective is 10,000 crores. At 28, 29, we'll, of course, you also know about the overall macroeconomic conditions, war, etc., etc. We don't know how the entire impact will hit our Indian economy and all that has to be seen. But yes, that 20, 10,000 crore guidance is still intact. 28-29, we will be there. And other guidance on expanding our non-two-wheeler portfolio of car CV, that also is intact. Our current year projection of 4,200-odd AUM is also intact. All of this, we are very closely monitoring the evolving macroeconomic situations, but the intent and the direction is the same, and there is no change in that. So, we are gearing up as an organization for multiple X growth in this vehicle space, yeah.

So, sir, in conclusion, I think what we are trying to convey is... Your message is non-two-wheeler would contribute to the higher growth to, you know, leading to 10,000 crore premium, right?

Yes. So, two things on that are disbursements may continue to be higher on two-wheeler, but the runoff of two-wheeler happens to be very fast. So, the other two products are longer-term products, so about 48 to 60 months, whereas two-wheeler is about 22 to 24 months average. So the book runs off also very fast. So disbursement may be, you know, 50-50 or 60-40 in favor of two-wheeler, but the retention of the book will be faster on the other two. So that is where we see that AUM growing faster than two-wheeler AUM. But yes, over the next three, four-year horizon, the objective is to bring down the two-wheeler book to around 30% of the overall book, and 70% being contributed by car, CVC, and maybe we will get into practice. So basically, the objective in the long run is to do everything on wheels. We have accordingly adopted our tagline as turning wheels, changing lives. So, we want to be doing everything on wheels. That's the – under the Mudhud Papachin banner, anything to do with wheels will be gated to by Mudhud Capital Services. That's the longer-term objective.

Thank you very much, sir. All the best. Thank you.

Thank you. The next question is on the line of Uncle Gulati from Genuity Capital. Please go ahead.

Sir, two things. If you can give us some color on 10,000 crore AUM, what kind of branches are you anticipating and what is the branch level productivity at that target AUM? And second, first about the two-wheeler thing, then the remaining AUM is... Roughly, 7800 crores. So we are talking about taking that 7800 approximately 10x. So how are you preparing for it?

Yeah. So, okay. I'll take that question, Raman. So, to talk about a branch level strategy, we will have to first differentiate between, you know, our own branches and the group level branches. So, today we, at an enterprise level, we look at everything holistically at a MPG, Mutut, Papachan group level. Okay. So, there is a very clear mandate from promoters that across the group, we leverage the existing customer base cross-sell across the enterprise length and width of the organization. So, that's a very clear mandate because today, as it's a very, very famous line, data is a new oil and all that. So we have a huge amount of data across our enterprise level between the four NBFCs and non-NBFCs that we have in the group. So we have FinCorp, which is in the gold. We have Microfin, which is into microfinance. We have MHFL, which is into housing and lab. And we have capital services, which is into vehicle. Other than that, we have Mututchids, hotels, and all of these entities have a huge sitting layer of customer data, and we are actively working on leveraging that. So to that extent, the 6,000 or 5,000 plus branches of all entities in the group. Happens to be an extension counter for me. So, today, we are actively sourcing from across branches. So, Mutut FinCorp has 4,000 plus branches. We have a branch activation of about 25% to 30% right now, which means about 25% to 30% of Mutut FinCorp branches contribute to at least one vehicle loan per month for capital services. And the objective is to, by the end of the year, take it to 50-60%, which means around 2,000-2,500 branches of Mutut Fincor will be doing at least one vehicle loan per month. Similarly, with the other Mutut microfinance and housing, across the board, we have started. Doing cross-sell. For our FD business, Mutut Chit customers, we have got into an arrangement where Mutut Chit customers do FDs with us. So there's a complete collateral, sorry, complete cross-selling layer that we have made on top of each institution at an independent level. And that is also, I cannot, when I talk about branches, if I talk about only the 34-35 hubs that we have, it would be grossly inadequate because that is not our strategy. Okay, that is one set on the branches. Secondly, we today work with 5,000 plus dealers across the length and breadth of the country for two-wheeler car and CV put together. And every dealer, DSA, who is a sourcing agent for any bank or NDFC is our partner too. So, therefore, it is not a branch-centric business for us anymore. So, the entire ecosystem is a play of the branches, the DSAs, the dealers, the sub-dealers, the MBOs, all of them. And all of them are sourcing points for us, and the entire journey is digitally delivered to the customer. So, the physical brick and mortar branch is, you know, losing its significance to that sense. Okay, because all, so today we have deployed QR codes where a customer can walk into a dealership where even if our manpower is not there, he can scan a QR code and he'll get an on-spot approval. And then that spot approval comes into the nearest mapped sales officer of our institution, and then he continues that journey till closure. So, technology is enabling, enabler technology is driving the business for us today. So, I think the branch, the brick and mortar branch per se, while it is significant to the fact that we have across the group about 60,000, 65,000 walk-ins into our branches. So, they are, of course, our customers whom we will cross-sell to, but the digital journey is adding strength and muscle to our overall acquisition. So, that's how we are looking at this. And that is exactly, so the second question was on how do you take the 700, 800 crore to multiple X. So the entire strategy again hinges on the fact that we are there for the customer at his place, both digitally as well as physically. So the 5,000 plus branches is something which many large banks don't have. So we have that physical infrastructure, plus we have the digital infrastructure because we have made significant investments in digital AI and all that. So today, all the touch points are multiple. Touch points are multiple for us. So, and we have today the ability to, you know, do underwriting at scale based on our models that we have developed in-house. So, that's going to be the future for us.

Sir, I think this is the second time, the first time we refer to the whole truth group. What was last time? So, any numbers that you can share in the last three months or six months, how has that collaboration helped you guys?

Which collaboration?

With the broader group entities, right?

Group entities, so 15 to 20% of our incremental sourcing every month comes from group entities today, and the objective is to take it to 40% of the incremental sourcing. As we speak, 15 to 20% of our incremental sourcing comes through group entities.

Sir, even if I assume 50% then the remaining 3000 or CR, what you guys will have to set up your own network or what will you do?

Yeah, so I said our own network means the entire network of dealer, DSS, partners are our network. We don't need to have our own branches to be sourcing business.

And I don't know if you have the data, but let's say the incremental 15, 20, which is coming from the broader group, do you have any OPEX ratio for that procurement or is that highly possible? What ratio? Expense to income or any other profit matrix only for that.

A complete vertical with a business head called group relations and digital. Okay, that business head manages that P&L. And there is a monthly P&L that gets made for group relations and digital channel. So we have P&L for two-wheeler, dealer channel. We have, you know, P&L for CV dealer channel. We have P&L for construction equipment dealer channel. We have a P&L for used car dealer channel. And then we have a P&L for group relations and digital, where all these products get consolidated because group companies are product agnostic. Whatever product a customer needs, they will be able to source. So that gets consolidated. So every vertical is being monitored separately for profitability, and each vertical is independently profitable.

And last thing, if you guys have that metric, the business source from group branches, is that coming at let's say 1.7, 1.8% ROA compared to 1% for the overall entity today? I'm just trying to figure out that one written ROA kind of benchmark.

So, wherever, as I mentioned, the OPEX and the, you know, cost of acquisition from that channel is lower. So, obviously, it has a slightly higher ROA compared to the dealer channel. So, it is there. Those numbers are available. We can share it on a different call.

Okay. All right. Thanks. All the rest. Thank you. Thank you. Thank you.

Thank you. Ladies and gentlemen, that was the last question of the day. On behalf of Elyra Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you, everyone, once again.