Cholamandalam Q4 Interest Expense 6% QoQ | NDTV Profit
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00:00We have with us the management of Cholamandalam Investment and Finance to talk to us about Q4 numbers at the
00:07Context it's a very strong set of numbers and good growth numbers that they've clocked and we'll talk a little bit about that
00:14And we have with us. Mr. Arul Silvan as always the CFO at Cholamandalam
00:20Welcome to NDTV Profits Sir
00:24Thank you, good morning, good morning
00:27So I want to first off try and understand, you know, you've grown extremely well in FY24
00:3437% year-over-year AUM growth clocked. So I want to try and understand what the number for FY25 will be
00:43On this slightly higher base will will the number be slightly more tempered or are you seeing enough opportunities?
00:50No, we will be right now, you know looking at a growth of around 20 to 25% in the coming year
01:01We are we are always conservative
01:04There are reasons to it
01:06A large part of our business still depends on the rural economy and until and unless the monsoons or you know
01:14If you are very clear about where the monsoon settles down, there will be some impact if the monsoons are not so good or widespread
01:24Also election results. We need to factor in and we need to see how the you know
01:30Overall liquidity position with regard to cost of funds etc also pans out, you know, there are again differing
01:38You know signals coming from the environment
01:41both from the federal side and thereby it will have impact on the Indian economy also
01:48As well as our VI by itself
01:50So we need to see how the availability of funds at what cost will make it business sense to grow
01:57Because we believe in growing profitably. So we would not be following growth just for the sake of growth
02:04So we need to make you know, the committed rota levels to achieve this. So these factors we will certainly watch out
02:11before committing on a larger book growth
02:14Understood and what segments would you be targeting in terms of your growth?
02:19Is there a predominant focus area that you see yourself growing in in FY25?
02:26Yes as a percentage wise we will grow a little faster on the loan against property home loan and the new businesses
02:34because
02:35These businesses the loan against property and the home loan are going
02:39Making inroads into other parts of the country from where they were earlier
02:44you know operating from so the geographical expansion would give them the traction to grow faster as
02:51Well as in the new businesses because the base is low
02:54There were percentages would look seemingly high but in absolute terms like a finance would still be the largest player
03:01With regard to disbursement growth and AIM growth
03:05But overall portfolio wise vehicle finance portfolio may come down again marginally
03:10We would have seen that it has been coming down in spite of its growth
03:14But that is because the rest of the businesses are going faster
03:19Understood and so how quickly would you continue to run down that or rather just in terms of mix
03:27Reduce or how would the mix shift maybe in the next three years
03:31In favor of loan against property and home loan as you scale geographies in those segments
03:38Yes, the vehicle finance will come down to around 50% or a share less than 50%
03:45The loan against property and the home loan by themselves should be in the range of around 30 to 35% of the overall AIM
03:52And the new businesses would be constituting the balance 15%
03:57Understood and sub new business itself has grown extremely fast while I'm focusing in more on growth at the moment
04:03But new businesses itself in terms of disbursements quarter of your disbursements to new businesses
04:10Any what's the strategy here any concern with regard to you venturing into these new businesses and growing extremely fast without having?
04:19Enough of comfort on asset quality or you're completely comfortable there
04:24No, we are comfortable there
04:26We have seen that we have explained over a few calls over the quarters also on how we are tracking and how we are
04:32Making you know even minor
04:35Corrective actions for example in the FinTech like partnerships
04:39Which is you know less than 1% of the overall book, but there are even there
04:43We have made corrections to make sure that we don't exceed on
04:48NCLs and say will be our predominant focus with regard to any business we grow so that would be I know
04:55tracked very closely on a very
04:59Online basis so that would help us to keep them in check
05:05So these businesses would continue to grow and we but vehicle finance would be still the largest business
05:12I would say even three years long
05:15Understood
05:16I'd like to talk about Q4 specifically margins have come back in Q4 and they've come back
05:23Decently well for you you expect
05:26This kind of 7.8% kind of margin to continue into FY 25 as well
05:33What's the thought and the guidance like?
05:36Yeah
05:38It will continue unless something drastically goes wrong with regard to the interest rate scenario
05:45Which we don't see right now. Well, I don't subscribe that there will be any fast reduction in interest rates
05:51I also want to see that going up drastically
05:55But we need we need to factor in geopolitical risks if any that could you know push up all prices push up the exchange
06:05Conversions and thereby lead to interest rate hike so we will have to watch that but for it
06:10I think NIMS can be comfortably held at this level
06:15You know
06:18Understood and with regard to credit losses this time around you've you've delivered quite a beat in
06:25Comparison to what the street was expecting in on the credit loss count
06:29Could you talk to us a little bit more on that what's led to a really decent number on that count
06:39So credit loss has always been our focus as I told you a few minutes back
06:44We we would be focusing on that and we have been making correction. We have been tightening our underwriting principles
06:50I know and thereby we have made inroads
06:54But also you should factor in Q4
06:56We will always be a quarter where credit losses would be minimum because a lot of push happens to reach targets
07:04Etc. It may move back a bit in Q1
07:07But we should be back to you know, better levels as we move forward in the subsequent
07:14quarters
07:15This is a trend you will see happening even pre-covid if you unless quarter by quarter
07:22Understood sir
07:23So with regard to you've spoken about your focus on profitability along with growth
07:29You're moving into a more secured business of housing finance of LAP and the like
07:37Does that therefore dilute profitability and margins? Could you try and give us some context on that?
07:44No, the customer profile we focus on gives us a better rota
07:49So are the housing loan book which we focus on is not on the salaried class where
07:54The yields are very very fine and it is there's a lot of competition from banks. Our focus is on self-employed
08:01non-professionals who do self-construction
08:04So we focus on tier 3, tier 4 cities
08:08If you see the yields on this book is above 15% and thereby
08:14If we control the losses and control the off banks
08:17This portfolio can give us a very decent rota and as I was saying earlier even higher than the vehicle finance rota
08:26understood
08:28So just in terms of margins vehicle finance versus
08:32Housing what's the kind of margin profile that that would have could you give our viewers some context on that?
08:41It's slightly different, you know between them vehicle finance itself has got a wide array of products
08:48you know right from heavy commercials to two-wheelers or tractors and the used segment where the
08:53Yields differ almost more than 10 to 15 10 to 12 basis for 10 to 12 percentage points itself
09:01Between the products for example heavies will be you know
09:06dispersed at in the range of around 10 and up to 11 percent yield while you know on the other end two-wheelers can be in the
09:13range of around 20 to 23 percent yield because
09:18For various reasons the raw packs are different their losses could be different profile is different
09:23The amount of effort that has to go behind them is different. So vehicle finance as a whole basket
09:29They will deliver a name of around seven seven point five percent
09:35The home loan on the other end is a
09:3814 to 15 percent yield product and as I was saying if we could contain the op-ex and the NCL it should deliver
09:45easily
09:47greater than 4% pre-tax rota
09:50So understood so with regard to how op-ex has moved. It's gone up quite substantially when I'm looking at it sequentially
09:59What exactly are you investing in could you give us some context on that and therefore?
10:04Where should ROAs lie as well as op-ex lie in FI 25?
10:10The op-ex increases are on account of three reasons predominantly one is for example
10:17As I was saying we were making inroads into other parts of the country for loan against property and home loan
10:25And we create separate verticals for every business with regard to sales credit and collection, so we don't cross
10:32Utilize people for any of the businesses so each business when we grow we bring in separate teams
10:38So that the focus remains on that particular product by these teams
10:43So this cost has come in the other aspect is the insurance income is now being also done by us
10:49Directly which used to be done by a subsidiary earlier because we got our own agency license cleared by IDA
10:56So there are some cost elements associated with it, but that is compensated by the insurance income coming in the top line
11:02So that would increase the op-ex a bit
11:07Apart from that in the last quarter normally we will close out all the requirements on
11:14For example the CSR expense etc. And as you know CSR expenses are supposed to be accounted on cash payment basis
11:21So those costs would have also pushed up the op-ex. There are certain one-time expenses
11:27There are certain routine expenses, but broadly the idea is to hold the op-ex to asset ratio in the range of
11:343%
11:35That's been our target as we exceeded it this quarter, but we will we have to look at it as an annualized basis
11:44Understood and so what does this do to ROAs?
11:47You know, they've come off by 20 bps probably because of all the rate hikes that have been priced in this year
11:52What should that do to ROAs for FY25 still hold above the 2.5% mark?
11:59Yes, we will track it more on the pre-tax. We are targeting 3.5 pre-tax
12:05So it should be 2.5 levels easily
12:08Understood got it. Thank you so much, sir. It's been a pleasure speaking with you and getting out of that context