Are you satisfied with the listing, or you feel it could have been timed better?
Listing is a culmination of a 1,000-step journey, and we are glad that it’s done. We were one of the last few to squeeze in while the door was crashing shut. It gave us a lot of potential points to learn. Our business is not that well understood. We have been proactive to meet as many people and being absolutely open to explain how we do things to anybody who is interested.
You said it yourself there are apprehensions over the business, mainly on your NIMs and NPA…
NIM is a function yield and leverage. The leverage is low now for various historical reasons. Our debt equity ratio is sub one, which is very rare. The company doesn’t need any primary capital for the next five years for the growth. But leverage will build up over time and, hence, NIMs will drop. But the game will move to ROEs. Ours is a very operationally-intensive sector. For a book of ₹6,200 crore as on December 31, 2022, we have close to 6,500 people. We source these files without any intermediation. It is difficult to underwrite these files without formal data points. Between operating expenses and credit costs, we took an early call that was its okay to spend a bit more on opex, but not okay to have high credit costs. Our customers are not reached by formal credit institutions. Our balance transfers are really far and few. Higher sums of loans essentially mean longer years and deeper understanding of the customer. Quantum of loan and amount of EMI matter more to our customers than the rate of interest. They’re moving from an unorganised lender lending at 40-48 per cent to 22-24 per cent. We structure our EMIs to ensure what’s paid by the customer to us is equivalent to the amount he originally paid to the money lender. Otherwise, he will never be able to come out of the moneylender.
How do you ensure operating leverage then?
Our new branches have an average break even of 6-9 months. When a branch reaches ₹2 crore of AUM, it breaks even. In the last 12 months, we have put up 75-80 branches. 96 per cent of our branches have broken even at the 6th month. If I can get reasonable disbursement from the third month, you don’t have the fear of burning cash. The DNA of this company is loss aversion not profit maximisation.
When financial services as an industry is moving towards tech, you are extremely feet on the street and manpower driven…
When we go to tier 6 – 7 towns, we are building good career opportunities for the locals. We don’t face any dearth of the right talent. Tech is very important, but it takes that much time and thought to integrate tech in what we’re doing. Our tech spends in the last 3 – 4 years isn’t small. But loan in two minutes isn’t the tech we are chasing. We don’t want to miss the human touch at all. For this segment, alternate data points or tech interventions cannot give us the same quality of inputs that a human being can. We are taking 7 – 8 years call on the loan, no point in being hasty.
You deal with the informal space where they may not even at times have pucca documentation…
We don’t do such loans. We do not finance kuccha houses or where there is only patta. If title is defective, we will avoid the loan.
What are your plans for FY24?
Our growth rates will be at least 30 per cent-plus. Last 12 months the average collection efficiency is 100 per cent. The green shoots in terms of new branch opening are clear. In FY23 we did the highest disbursals and the number of customers acquired. That sets a good base for what we want to build on.
How would you address the concerns around geographic concentration given that 90% of the business comes from south India?
This business about building deep knowledge and being focused. Each geography differs. We cannot randomly open and close branches. Expansions need to be carefully planned out. That said, we will cautiously keep expanding. Five years back, we were exclusively in Tamil Nadu. Today 93% of the portfolio is from south India and 7% from Central. We don’t need to open a single branch in central or north India to achieve our growth guidance for the next 3 – 5 years. Nevertheless, we will keep investing in new states. We are getting into Rajasthan and Gujarat. We will keep improving our understanding and confidence in the newer geographies.
History has taught us that that single-product companies have a limited shelf life. How do you see it?
We don’t consider ourselves a single-product company. It’s business loans backed by collaterals at the top. But if you go two levels deeper, there are at least 40 sub-segments that we finance. We have plumbers, kirana shops, barber shops, auto mechanics and so on. It’s absolutely distributed. We constantly monitor if we are overdoing something, are we not doing something enough, is new risks coming and so on. We want to be known in this market as a business loans company. If you’re doing 10 things like auto loans, two-wheeler loans, used commercial vehicles, gold loans, all for ₹6,000 crore of loan book, what is the point? But there will come a point when the balance sheet is big enough like ₹15,000-20,000 crore when we might still be predominantly a business loan company, but might want to do 25 per cent beyond this segment. Then, within the secured lines we will do something.
Published on March 12, 2023