Q2 2021 L&T Finance Holdings Ltd Earnings Call Mumbai Oct 23, 2020 (Thomson StreetEvents) — Edited Transcript of L&T Finance Holdings Ltd earnings conference call or presentation Friday, October 23, 2020 at 5:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Dinanath Mohandas Dubhashi L&T Finance Holdings Limited – CEO, MD & Whole-Time Director ================================================================================ Conference Call Participants ================================================================================ * Alpesh Mehta Motilal Oswal Securities Limited, Research Division – Deputy Head of Research of BFSI & Banking Analyst * Karthik Chellappa Buena Vista Fund Management, LLC – Investment Analyst * Kunal Shah ICICI Securities Limited, Research Division – Research Analyst * Nischint Chawathe Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst * Subrat Dwibedy SBI Life Insurance Company Limited – Investment Analyst ================================================================================ Presentation ——————————————————————————– Operator  ——————————————————————————– Ladies and gentlemen, good day, and welcome to L&T Finance Holdings Q2 FY ’21 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded. We have with us today, Mr. Dinanath Dubhashi, Managing Director and CEO; and other members of the senior management team. Before we proceed, as a standard disclaimer, some of the statements made on today’s call may be forward-looking in nature, and a note to that effect is provided in the Q2 results presentation sent out to all earlier. I would now invite Mr. Dinanath Dubhashi to share his thoughts on the company’s performance and the strategy of the company going forward. Thank you, and over to you, sir. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Thank you. Good morning — a very, very good morning to all of you. Thank you for joining this call, and my compliments to all of you for the festive season — ongoing festive season, which is hopefully bringing on some good news in all the gloom and doom which presided before. We are happy that we have sort of predicted that this festival will be good, and that’s what is actually playing out on the ground. We’re quite happy with that. But before starting with the call, I will have to — I will want to say a special thank you. I will want to say a special thank you actually to people not on the call, and that is my 22,000 employees. These are people who don’t understand important but completed financials like profit after tax, ROE, credit cost, stage 1, stage 2, they don’t understand all that. They only understand going out out there and — and they understand going out there and doing collections, they understand giving good service customer if they are in the branches or in head office. And while it is normally their job to do this and why am I thanking them on a analyst, is very clearly this time they have gone surely beyond the normal call of duty. I’m very grateful that each one of them have actively put — literally put lives at risk. Going out there, meeting people, getting the collection, convincing people to get finance from us. For us, sitting here and — for management, sitting here and calculating all ratios, calculating all deliverables, like what is moratorium, what is collection efficiency, these are mere numbers. But if you go beyond any collection efficiency number, a large part of it will be a personal meeting which would have happened between my team member and the customers to collect that money. And that has put people lives at risk at times like that. So just would like to put there a thank you for their share grit resolute (inaudible) that they have put to show these kinds of numbers that we have been able to give. Very clearly, we can have opinions about the PAT, about credit cost, as I said, stage 1, stage 2, all those things. Important thing is business is done by business fundamentals, which is the speed with which sales are recovering, the speed with which collections are recovering. And I would like to talk about that first because that is the biggest positive coming out of these results, and I would genuinely like to talk about that. A few lessons that — normally, yes, I do give some (foreign language) at that just at the beginning of the call. But to stay with that habit, a few lessons that we have. Number one is anything that you have started preparing for during COVID or during the lockdown will never helped and would have never helped anybody. It is only because the business fundamentals were strong right from the beginning. A few things like tremendous concentration on data analytics, tremendous concentration on dealer relationships, tremendous concentration on managing (inaudible) well. These are the reasons why I would think that not only we have been able to manage the lockdown, manage COVID, but today coming out, with business fundamentals being extremely, extremely well. And that’s something I would take as the first lesson, that always do the right things and do things right, irrespective of how the environment is. And that’s what I think has been one of the biggest lessons. The second learning is that we have chosen our sectors of concentration well. If we take a few steps back, in fact, a few years back, you would see that whenever the country’s economy has been in problem, the first sector always to lead the recovery has been the rural sector. And this time, that has not been the — that has not — it has not been an exception. Again, similarly, the rural sector is very, very clearly leading the economy. Last results at the end of last quarter, I have talked about green shoots in the rural economy. Today, those green shoots have developed into a nice healthy plant. And our leadership positions and strengthening positions in the rural sector is actually tremendously helping us, actually getting out of any problems that were there during the lockdown. So these are, I would think, the key messages that we’d like to talk before coming to the results or to the presentation. Now the results are very interesting. Last time I spoke about month-on-month improvements between April, May, June. This time, it is not only month-on-month improvement, but even quarter-on-quarter improvement. And in some cases, even year-on-year improvements are up. So if you take all these ratios, you will see actually tremendous impetus month-on-month surely, quarter-on-quarter surely. But in some cases, even year-on-year, that is Q2 upon Q2, that impetus is there. And that is something that is very different. I mean if you are looking at a sort of turnaround or are we coming out of the woods, these are early indicators. But we have not thought this in any parameter we will actually show an improvement over last year. We are actually showing that. I will highlight some of them as we go ahead. They have tried to cover the maximum in the presentation. Give as many numbers as possible in the presentation so that you get that feeling, I will highlight some of those numbers. But if I have to put 3 big messages of this result, and why we believe that not only that Q2 is our good set of numbers, but more importantly, what makes us confident of Q3, Q4 being better? And what makes us tremendously confident of FY ’22 being the excellent year for us. And that truly, we can put FY ’21 back as okay — I mean, normally, cycles are the once in 5 years that happens. This was much more than a — this was a nightmare. But it looks like we are getting out with the nightmare and very cheerfully, hopefully saying good morning. And what are the 3 things which make us confident of that very 30,000 feet (inaudible). Number one is a resilient balance sheet. So first is what are the signs of a resilient balance sheet? One is GS3 has continuously reduced. And both GS3 and NS3, we have reached the lowest ever. So NS3, we are at some 1.61%. This is lowest ever number. Now here, it is important to understand that, of course, a part of this — a large part of this reduction is because for 6 months has not moved. And most definitely, these numbers will go up in Q3 and Q4. There is no doubt about that. I mean, they’re not going to keep coming down as billings have started. We have only 1 month of billing in in the moratorium of. So all other accounts it was (inaudible) but in moratorium accounts only 1 month of billings. And that is obviously some NPAs are going to come additional increase as we go ahead. So there comes the important point. Are we well prepared for that? And that’s where the journey that we have started in Q4. We have continued quite properly, quite methodically going ahead. So number one is the PCR, we have kept at around 69%. So that protects us well. And then just making additional provisions. So this quarter INR 512 crores of additional provisions, taking our total additional provisions on standard book to around INR 1,750 crores. So this is additional, meaning more than the normal standard provisions that we make. If you take the normal standard provisions also in this, then it is close to 2.4%, about INR 2,200 crores of that (inaudible) and which makes our stage 1 and stage 2 provisions quite strong as we go ahead. why is it necessary? It is necessary for — because of — are we being prepared for the worst? Yes, perhaps we are being prepared for the worst. Does that mean we are expecting all this to become NPAs? Most definitely not. I will just give you an example. The example is micro loans, right? Micro loans collection efficiency for September has reached 90%. In October — till 22nd of October, we have already collected — the collection efficiency is well on the way of being more than that surely. But even out of people who have not paid in September, close to 37% have paid in October. But yes, certainly, as an example, in micro loans, there have been certain breakthrough habits. People who are saying that 99.5% to 99.8% have some issues, keep facing some issues. One is loss of livelihood; second is breakup habit; and third is that genuinely because of some political interventions, et cetera, they’re becoming toxic (inaudible). We are — as months go, we will come to know more and more as to what is the percentage of each. We are — as you know, we are doing lots of data analytics of this. But so that is in play, and we will know how these people behave as we go ahead. And hence, we believe that we should be totally, totally prepared. And what we have done is against the collection efficiency of 90%, they have done 9.2% already provisions on the standard moratorium. So I mean that would mean that most of the worst-case scenario moratorium-related issues, we would have provided for. And now we will see the future provisions so we’ll depend on how things develop in Q3 period. So generally speaking, across portfolios, we have tried to do that. Even in housing, we have built about INR 500 crores now out for incremental provisions on standard book, INR 518 crores, about 2%. So that has been the track. So that’s the second big part of strong balance sheet — rather the first part. The second part is the liability side. Now as you would know, the entire lexicon of NBFC was about liquidity. And liquidity, cost of liquidity, excess liquidity, digital savvy. These were the words that were always talked till the first quarter. Our current presentation also has that. But the year-to-date peer message has given is that amount of liquidity we keep on the balance sheet is a subject of main liquidity available, also the standard deviation on liquidity available. And now if you see the dependability of liquidity available, especially to topnotch NBFC, thankfully we are a part of that sector for about 10 or so NBFCs. Liquidity and availability of liquidity has stopped being the concern. I think we can call pretense to that and we can now say that most definitely for — we might have already told, but definitely from Q3 onwards the concentration will be on reducing minimum to what our model defined point also. And also reducing cost of funds and that is something how we look at Q3, Q4, very optimistically that our NIM plus fees, which have already come back to our just at the bottom of our guided number of 6.5% will surely increase our revenue going ahead. So that’s the second message. Third message was definitely is about the market. 2 sectors which have definitely picked up is farm and infrastructure, especially in renewables. And very clearly, the company is very, very well placed to take advantage of that. I will talk more about how we got #1 position, et cetera. But now — I didn’t talk about it in Q1 because it was only a June predominant. But now for 4 months continuously, we are #1 in the market. And in fact, in the month of September, in the overall rural business together, we have now our best ever September disbursements. Now that this is now a change in language, right. You would see in Q1, I was hardly talking about disbursements at all. But we have started talking about disbursements. We are very keen on picking up the disbursements as we go ahead. And not only this in renewables. Renewables, we have been able to especially in renewables over — close to INR 3,000 crores of disbursements. When we have said, okay, we are not going to put balance sheet on it. And what does it mean? It means that our pay down has been good. It is, again, the best ever quarterly pay down. Now this is not only our mood, but this shows that the market mood is this because we have given some numbers now our sell down has been at the minimum in 3 digits over the last few quarters. And I’m just saying a INR 4,000 crore sell down is sustainable but it shows the coming back of demand. So very clearly, the Troika of what is required for good performance of NBFC, good liquidity and hence definite possibility of cost of funds going down further, a well-provided balance sheet. Does that mean that no provisions are made (inaudible) of course, not. But it gives us the confidence that we are well provided and a strong balance sheet and then well placed to take advantage of the pickup in some of the businesses, is what the major message in these results are going to be. Bear with me. This time, I’m going to talk a little bit more about each of the industry. Hopefully, it will answer some of your questions. But it is important that’s what we can do, especially the rural industry. And here, I’m talking about the industry and then I will talk about ourselves, how we are taking the advantage of it. Now rural. It has become a part of everybody’s commentary as to how rural is taking forward and how rural is going to save the country and things like that. The message we want to give is that while monsoon is a very important part and a good monsoon is a very important part of the rural pickup, why we believe that actually many of these things are structural, right? And why this being structurally is important, is that bad monsoon will come. I mean once in 3, 4 years bad monsoon comes. And– today’s India’s farmer and forget the press, but Indian farmer as a whole has the resilience to take at least one bad monsoon, and that the answer is yes. So I’m not only talking about this year. I’m talking about how Indian agriculture has changed structurally. What are the seasonal factors, monsoon, excellent across. You will see 9% above normal rainfall in almost 85% of the country, most definitely. Sentiment because of that remaining very, very strong. Reservoir levels, not only the reservoir levels at end of monsoon, if I can call it end of monsoon, is at 88%. But this year, the more important fact is at the beginning of the monsoon, the reservoir levels were at 40%. And that, genuinely establishes sentiment. Because of that, the Kharif sowing has been 5% above normal. I mean 5% is huge in India, is huge and which actually indicates a bumper Kharif crop. Lots of issues about harvesting, reaching the mandi, et cetera, which were the doubts for the Rabi crop, and we have solved it. I mean the country has solved it. Governments, local bodies have solved. So we don’t see any problems there coming in for the Kharif crop. So we genuinely expect this year the farmer to have a lot — much more money in hands. In a very ironic way, it has also — the lockdown has also helped because normally the first marriage season, which is April, May and probably the second marriage season, November, December, it is not going to be possible to spend too much money in weddings, marriages, et cetera. And generally speaking, the wealth in the hands of the Indian farmer is more. Now the structural things like — I mean, it’s not a party political. But still, direct benefit transfer, affordable housing, Jal Jeevan, Aayushman Bharat, toilets, hospital facilities. These things have improved drastically, and this is what — whoever I have met one-to-one amongst you have always been saying that the — when the farmer gets extra money, the proportion of that now going to these absolute necessity is structurally reducing because these necessities are available to the Indian farmer now more — in a more dependable manner and at either free or cheap, right? And that is the discretionary spending of the farmer is changing, and that’s where we believe, our analytics teams are absolutely confident. We were confident enough to about 4, 5 months back call a turnaround in agri, and we are happy that, that’s what is happening. Tractor sales, as you would have definitely seen, in Q2, are 41% above Q2 last year. And most definitely, it looks a good festive season coming as well. In 2-wheelers, the story is a little mixed. But if you take motorcycles, which is understood to be the — mainly dependent on rural demand, and especially if you take September, you can see the major pickup in demand. September Y-o-Y numbers are 17% up. So very clearly, all indicators moving towards a good rural demand. And if you take — even on the collection side, the collection efficiency of industry, and let us say, the microfinance industry because these are numbers are given. Many times, you don’t know the numerator, denominator, et cetera. But let us take those numbers. They have constantly improved from June, July, August, now to about 80%. So generally speaking, whichever parameters you say, and this microfinance, of course, there are nuances, but those nuances are same for June, July and August. So whatever the nuances, these numbers, industry numbers are continuously improve. That’s the message that we want to put. Now vis-à-vis that, how is our performance, right? And that’s something that I would now like to talk about for rural. So just in rural, if you see, if you take farm, as I said, we have gained market share. We are #1 in farm equipment, largely based on, and these are very clearly based on our criteria. Not loosening an LTV, not reducing interest rate, going for customer, our customers, our counter. But this is where the data analytics has come to the fore that data analytics very clearly showing us based on collections, based on portfolio quality, which are the counters we want to go back and go for, and that is where we have gone. This time, we have given data like what is the monthly disbursements we have done. And very clearly, we believe that it’s a sustainable — at least for some time sustainable #1 position that we have got in this and taking full advantage of the situation. Number — the second thing is the 2-wheelers, of course. 2-wheelers, we are doing well again. The disbursements are up close to 16% Y-o-Y in September and moving forward. Micro loans, of course, it remains negative in Y-o-Y, a big improvement over Q2 because — Q1 because Q1, we hardly did anything. Q2, we have done close to about INR 1,400 crores, which is about 50% of what we did last quarter. And what that shows is there is a big upside there, which can come in Q3. Because Q3, as we are getting more confidence as the data analytics is throwing up that we can do more business in certain areas, we can definitely push there. So that’s as far as business is competed for rural. As far as collections are concerned, it has been a really good story. In fact, rural book has increased Y-o-Y by about 7% despite very strong disbursements, especially because even stronger collections. And I’m not cribbing about it. I’m quite happy that collections are so strong. If you take product by product, collections have improved drastically. In fact, in farm, they are back to pre-COVID levels, right? We are back at collection efficiency, on-time collection efficiency of 89%, which is absolute pre-COVID levels collection efficiency. So we are back there. Two-Wheeler, yes, collection efficiency has improved drastically. But yes, it is not back to pre-COVID level. And we are hoping that since it is improving, we will reach there. Two-Wheeler have one issue is that check bounces are not back to the pre-COVID level at all. I mean check bounces, yes, they are falling month-on-month, but they are still at a raised level compared to pre-COVID. What it means is our collection team has to spend more effort, money, et cetera to collect. So be it, but we are maintaining overall collection efficiency and the GS3 as well. Microfinance, I talked about from the numbers in September — sorry, in July, August, which were about between 65% to 70%. The collection efficiency has now improved to around 90%. And we are quite hopeful that it is continuously improving. One number I have given is 37% customers who have not paid in September have actually till now already paid in October. So it is continuously improving, strengthening our collection structure to handle forward for 0 DPT. This is a very, I would say, a very rhythm business, right? This business, 99.8% of the customers are supposed to pay on the day due and hence, the collection machinery is based on that. This machinery finds it difficult to understand how the customer 8 days, 10 days, 12 days delayed. So you have to change the character of the collection machinery which we are doing. And we believe that this now — from now on, it is only going to improve. And the collection, as I said, we are already carrying provisions of close to 9.2% there. So generally speaking, I would think that farm all good news, Two-Wheelers, recovered well. Micro Loans, recovering well, and we are well prepared for that. So what this has happened led to is a book growth of close to 19% in farm and close to 12% in Two-Wheelers. And there is a small drop of 5 percentage in Micro Loans, which we hope that it will turn around as we go ahead. So that’s as far as rural is concerned. If we turn to infra now, very clearly, the industry so much maligned industry. Let me remember — remind you that where we are is largely renewable energy and road refinance. And let us talk about those parameters. So if you take new auctions, they are literally in just 9 months, they are more than 2x that of the entire calendar year 2019. Our state liquidity has been helped by the liquidity packages given by government. Energy — pickup in energy demand is excellent. In fact, it is higher, especially in the renewable energy, which have been given the must run status. It is actually higher than the pre-COVID levels. So any parameter you take, you take NHAI awards, you take toll collections, they are back to levels which where we are seeing pre-COVID. And when we talk about our collections, I will talk about that a little bit. So what we have done here in disbursements, our disbursements, of course, is very, very strong disbursement in infrastructure, reaching almost Q2 FY ’20 level. But here, that even very, very important number is that of sell down. So you would see for the last 4 quarters, actually, the sell down 3 quarters, it has been around INR 500 crores. Even Q2 FY ’20, it was about INR 1,700 crores. We managed to do INR 4,000 crores of sell down in this quarter. I can tell you today that this kind of number is not sustainable. I look at it as a bounce back of demand and close to between INR 1,500 crores to INR 2,500 crores of sell down is what we are quite confident of doing every quarter, which will enable us to do good amount of business. Now as far as collections is concerned here, there are some even better numbers. So in terms of power generations, in terms of special liquidity window available and, of course, in terms of the Dussehra available with us, I had always said that we are well covered in this and hence — I mean practically all our infra accounts are at 0 DPD. We maintain that from FY ’12, there is no addition to GS3 in this business. An interesting number of toll collections, annuities are anywhere on. But even toll collections in September, they’re 8% higher than pre-COVID months. And that — this is something the — which makes us quite happy and quite gung-ho about the future in pesos. Now we come to housing, and this is where we believe that the pickup is slowest, though some very early green shoots but very early. I’m not — it’s — because this industry is also — the players in this industry are largely builders, individuals. They are not large corporates, largely speaking and hence more vulnerable. So obviously, this industry is going to take that much more time to come out of the issues. So most certainly, right now, the call we have taken is even though we are seeing green shoots, at least for FY ’21, we may not be doing any new underwritings here. Entire concentration will be on completing our projects and making sure that there are no accidents in this portfolio. There are a few things which are making us cautiously optimistic about this sector. One is increasing absorption of number of units in this quarter compared to the last quarter. Also new launches, and new launches this time in the right time. I mean nobody is launching the INR 3 crores, INR 4 crores, INR 5 crores, INR 10 crores flats any more. It is all in middle income, lower income, which has government schemes, that kind of launches are happening. And even those are substantially up than Q1 than Q1– than Q2. But yes, definitely, again, to catch pre-COVID numbers, there is a long way to go. That is why I’m calling it early turnaround. Some of the pressures which are done by RBI, the interest rates which are there now for home loans, stamp duty cuts in a state like Maharashtra, which in some other states considering is working quite well here. If you take our disbursements on this, there is no big news here, except for saying that our targeted segment, which is salaried home loans, we have done decently well. Our home loan book is up by 11%. And within that, the salaried home loans book is up by 22%. What is down is LAP. And obviously, what is down is real estate since we are doing no new business. Now the important part here is the collections part, but what are the positives that I’m seeing in my real estate portfolio, especially, I mean home loans, a very good reduction in debtors. Generally, we don’t see huge issues there. There is nothing that is out of the ordinary. But real estate, we have to be very careful. So our focus, as we always has been on track and where we see good resumption of activity. So obviously, all the projects that we are in, the construction activity has started. Even the sales in our portfolio are actually back to close to 70%, 75% of pre-COVID levels. I’m talking about purely of our portfolio, right? Still a long way to go. Industry sales as such are just back to about 50%, long way to go. As I said, very, very early. I don’t want to sound extremely optimistic about this sector. The one thing I say that the confidence that we have in our portfolio is reasonably good. And as I said, our try always push is to make that our projects are completed on time and there are no issues there. What are some of the indicators of that? Number one, our escrow collections are actually in September are back to pre-COVID levels. And that is earlier than what we thought. We had always talked about the escrow collections, 30%, 40%. In July, at 53%, August 65% and September at 100% of pre-COVID levels. This is — I don’t know whether it’s a one-off, I don’t know how sustainable. We will have to see volume play. But the number I would like to give more importantly is 75% of the projects were repayments, principal repayments are due, 75% of that, we are actually not only getting those repairs, we are also getting prepayments. Small numbers, but we are actually getting prepayments. And this is something which is making us quite optimistic. The fourth business is that we are in mutual funds. Again, good growth in the — in AUM, good growth in equity AUM, good — the sector, of course, has net negative sales. But luckily, the market has done well. Our strategies have done well. Our funds have moved back to quartile 1, quartile 2 and that portends well for the AUMs there. This business as usual. Now we got to use to contributing INR 50 crores, INR 55 crores PAT per quarter to the overall profit. And given the total PAT of INR 265 crores this year after all the provisions extremely, extremely good contribution from mutual fund also. So that largely covers the gap we have been managing sales, collections. Both of that is making us very optimistic for Q3 and Q4. I will not be doing justice to my treasury, if I don’t talk about the cost of funds reduction. 17 basis points cost of funds reduction over last quarter and close to 30 basis points cost of fund reduction over the last year. Clearly shows — and this is despite over last year, the reduction of commercial paper percentage. As we go ahead, we will surely reduce the tremendous excess liquidity that we have been maintaining as we are getting very sure of liquidity coming. That as well as reduction in cost of funds will give a further flip to NIMS plus fees. Now NIMS plus fees is a parameter that we talk about always. It has reached 6.49%. Q1, as you know, was — this number was disastrous. It was some 5.7% or something like that, where we talk about a range of 6.5% to 7%. We have now reached close to 6.5%. And definitely, as early as Q3, we believe we will be ahead of this. There is one thing that I would like to highlight here that considering the current Supreme Court case that is going on, we are actually derecognized the interest on interest on loans less than INR 2 crores. This amount is INR 83 crores, okay and based on that, I mean, if the case comes in a way that government reimburses or whatever, that’s upside that we have. But like our showing our normal conservatism, we have taken the step of derecognizing interest on interest on all loans below INR 2 cores. So that’s what we have done. I don’t like (inaudible) words. So that’s done and dusted. operating cost is a good reduction over last year. If we normalize it for GST, operating cost is down by close to 8% over last year. Over last quarter, there is actually an increase of INR 35 crores, but this is very interesting because this increase of INR 35 crores actually has a decrease in fixed cost of INR 17 crores and the increase of INR 52 crores in business related cost. These are costs for more incentives, more collection charges. So these are very clearly variable costs. And this increased the contribution to bottom line increases even more. So that’s something that’s working again well for us. I have talked about already the additional provisions we have taken, which we believe makes us fairly strong. And after that, the PAT that we have reported is INR 265 crores. If we adjust the PAT for this additional provision, this number is just arithmetic, I don’t think there is — you should take this number seriously, but then the PAT is INR 600 crores is just to show the run rate, and the ROE is close to 15.6%. But why I’m not taking it seriously, these are the provisions that we have made, extra provisions we have made, perhaps a part of it, at least, will become real provisions in Q3, Q4. So I don’t want to treat all that as just profit to be adjusted. But it’s just a number, which I’m putting in front of you, okay? So that’s with that, I’m ending what my opening remarks. Once again, specifically saying that are we able to deal with the important question that you may have is that is the worst over for the industry and are we out of the woods? I would think that the answer is mixed in some industries that we are in like farm, even perhaps Two-Wheelers, infra, I believe now worst is over. In industries like Micro Loans, I would think good signs but ball in play. We’ll have to study much more, provide well and play out of our skins for collections. Real estate is the last. It says that it’s still some time to the dawn, and we have to be completely prepared for that. Again, there, we have made provisions and complete concentration on project management and collections there. So that would be the synopsis of where I see each of the industry. We have actually put our strategy, our disbursements, our collection strategy. Based on that, as we have actually put down in our presentation, that where are we concentrating? How we are concentrating? How we have defined this industry? So just to summarize, I will say 3 things, Page #15 of the presentation that we have actually classified it the way I talked about. In conclusion, I will only say upsides coming from good business potential in our areas, coming from reduction in cost of liquidity and protection of downside coming from good provisions made and good collection performance makes us very optimistic as we step confidently into the festive season. Thanks, all of you. Good bless you. Open for questions. ================================================================================ Questions and Answers ——————————————————————————– Operator  ——————————————————————————– (Operator Instructions) The first question is from the line of Alpesh Mehta from Motilal Oswal Securities. ——————————————————————————– Alpesh Mehta, Motilal Oswal Securities Limited, Research Division – Deputy Head of Research of BFSI & Banking Analyst  ——————————————————————————– Congrats for the good set of numbers and congrats for (inaudible) numbers. Sir, I have 3 questions. First is on your farm product, how do you see the competitive intensity into this particular product because I believe that some of the tractors you were facing certain issues, at least in the last 6 months, maybe from a liquidity perspective. So that would have helped you to gain some market share. So — and how are the OEMs behaving as far as the subventions are concerned in this particular segment, especially tractors and Two-Wheelers? That’s the first question. Second question, if you can give some data points related to what customers — what percentage of your customers from product-wise, right, have not paid at least 1 EMI in the last 6 months? And how do you relate that with the provision that you had done into that particular category? And largely, on the borrowing front, you have briefly touched upon that. But now meeting up the current market situation feels that it’s a good time to increase the share of CPs to some extent, considering your portfolio mix as well. So are you open to increasing the share of CPs in the overall borrowing? And what was the marginal cost of borrowing for the second quarter? And how do you see that for the full year now? These are my 3 questions. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Okay. I will answer many of these in spirit, okay? But I will hopefully satisfy you. So your first question is about farm. Very, very good question, very intelligent question. I wonder how to answer it without taking names of competitors because that’s what I don’t like to do. But the first assumption that people face liquidity constraints. Who are in the top 5? It is us, Kotak, HDFC Bank, Chola and Mahindra, right? I wonder liquidity constraints, anyway, right? One of the — I mean these are the names. These are who’s who, right? How there will be liquidity constraints. Yes, I think one of the players perhaps they’ve have had some other issues regarding portfolio quality, et cetera. The important part what you have to understand that it is not necessary that, that particular player, we have won and taken their share because the type of business they do is different. It is not good or bad. It’s a very different segment than what we do. Our segment will be a little larger farmers, lower — much lower LTV, higher margin, lower yields, that kind of segment. And I would think that — so our share right now, our market share is what, 15%, right? So it’s not as if our market share has suddenly gone through the roof, right, from some 14%, it has increased to 15%. It has not gone up to some 20% or something. So it’s not so much we gaining market share, it is just that yes, some people are definitely dropping off, which is obvious. But also, we riding the industry growth, getting the good type of customers that we got and capturing the right counter. And that has always been our strategy, right? I remember one (foreign language) but it largely those numbers don’t mean anything. What one actually means is that we have been able to do good business and the industry is picking up. And (foreign language) in this is the collections are back. That is fantastic and that portents well for the entire industry. And this industry definitely needed that fillip, right? So it’s not — if somebody else’s collection efficiency is not good, I will be happy. No, it’s not that. I think the industry needs to expand, tractor market needs to come back. And it is very important that all of us have good collection efficiency and all of us do our type of business (foreign language) because this is the time rural economy is coming up, farmer needs credit and we should all be there. If that answers your question, right? ——————————————————————————– Alpesh Mehta, Motilal Oswal Securities Limited, Research Division – Deputy Head of Research of BFSI & Banking Analyst  ——————————————————————————– Just related to this, assuming that there is a large captive financier, obviously, in India earlier quarter pre-COVID we must be doing some other OEMs as well. At least in this quarter, the focus would be more towards the parent and sales rather than doing the other OEMs. So is there a possibility that we would have gained more market share in the other areas? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Unfair to — unfair question to ask me on a call, no? One-to-one, I may be able to answer, but it’s — not on a call. But it’s better that you ask them (foreign language) right? (foreign language)… ——————————————————————————– Alpesh Mehta, Motilal Oswal Securities Limited, Research Division – Deputy Head of Research of BFSI & Banking Analyst  ——————————————————————————– I was just trying to check what is…. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– I know the answer. Obviously, I know the answer well, but — and you know the answer, I’m sure, Alpesh. But we will discuss more. I mean there are tremendous relationships and good relationships in the industry and I won’t be speaking anything bad like this. So very clearly — let us put it this way, right, every company goes through a phase which defines their strategy for that particular time, right? There were — we had a phase where we were disbursing only retail and not doing any infra business. Does that mean we were giving up on infra or becoming weak on infra, nothing like that. So if we assume, for example — okay, I will give you the answer which relates to me. If I start shouting over the rooftop #1, #1 and be happy that the previous #1 is no longer there in that non-OEM market, I will be stupid because they can come back anytime, right? I have to strengthen my fortress for that once having captured it. So that my try should be. I should not become complacent that a particular player — any player has emptied some part of the market. I should move in, take advantage of that and then fortify those things. But now that I’ve entered (foreign language) I will fortify my So that should be my try. That’s what I can say. Now what is the second question? ——————————————————————————– Alpesh Mehta, Motilal Oswal Securities Limited, Research Division – Deputy Head of Research of BFSI & Banking Analyst  ——————————————————————————– Second question was related to what percentage from a product perspective — what percentage of the customers have not paid 1 EMI? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– There are some indicators, Anuj will give you later. Obviously, we are not giving this kind of product-wise numbers. Otherwise, we would have put it in the presentation. We have given so many numbers in the presentation. So we would have given. I will just give you one example. Micro loans, for example. It would be about 8% that not paid a single EMI from April in this year, right? And out of that, and that is till September. As I said, out of that, close to 40%. The exact number is some few lakhs… ——————————————————————————– Unidentified Company Representative,  ——————————————————————————– 37% ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– 37% have actually paid until 23rd of October, right? So the figure number I want to give you. At the same time, there is a small number. Now this perhaps, I don’t think anybody appreciates that there is a small number, very small number, which paid in August but didn’t pay in September. There is also a small number which paid in September but didn’t pay in October. So neither we should declare victory or declare doom on month-on-month numbers. The main point to understand in micro loans business, okay? (foreign language) spare me is that this was every for every player, every player. This is every year a customer, every month or every week, whoever weekly product will pay a fixed amount on that debt. That is this business model. And this business is now grappling with numbers like 8%, 9%, et cetera, who are paying late, right? The best of companies. For some companies, this number is as high as 20% but are paying late. And the important thing is, it is just 1 month, right? It is just September, right? Important thing is how we adjust to this new phenomenon? How we manage our team? How we manage our analytics to make sure where to concentrate collections? And how to get this back to normal as soon as possible. And also, on the other hand, keeping the balance sheet ready. That, okay, if it doesn’t come back, if a part of this portfolio goes bad, then what do I do and how do I provide. So it will always be a two-pronged strategy of collection efforts, analytics on one side and provision on other side. So I’ll give you one number. So that is the number for micro loans. It’s about 8% customers who would not have paid 1 EMI in the last 6 months at — as on 30th September. ——————————————————————————– Alpesh Mehta, Motilal Oswal Securities Limited, Research Division – Deputy Head of Research of BFSI & Banking Analyst  ——————————————————————————– And lastly, on the borrowing side. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– On borrowing side, CP, very simple answer, yes, most definitely, Q1 and Q2 are the lowest level of CPs. We will slowly take it up. I mean, obviously, it won’t go to numbers like 16% or not, which were pre-ILFS, but it will definitely get into double digits. ——————————————————————————– Alpesh Mehta, Motilal Oswal Securities Limited, Research Division – Deputy Head of Research of BFSI & Banking Analyst  ——————————————————————————– And if Anuj is there, Anuj, would be the marginal cost of fund for the second quarter? Because I believe a large part of those funding — funding that you raised was the long-term. So marginal cost of fund for the second quarter itself. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Yes. Okay. So I think long-term marginal cost was about 7.5%. ——————————————————————————– Operator  ——————————————————————————– The next question is from the line of Kunal Shah from ICICI Securities. ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– So 2, 3 questions from my side. ——————————————————————————– Operator  ——————————————————————————– Sir, I’m so sorry to interrupt, but your audio is not very audible. (Operator Instructions) ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– Yes, sure. Is it better now? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Yes, better Kunal. Thank you. ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– Yes terms of the farm and Two-Wheelers. But just on the real estate side, last time we directed that 10% to 12% is somewhere, maybe we can expect some kind of issue of extension. So would it be fair to assume that, that could be the number which can get actually restructured in some way or the other? Or maybe it is lower or higher than that on the real estate side, that will be ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Okay. So DCCO is different than this onetime restructuring. But yes, DCCO will be maybe a little lower than that, little lower than that, maybe in single digits, but not too much lower than that, about 8% to 9% maybe. It is still ball in play. We have done a few. It won’t be more than 10%. And onetime restructuring is something that I can — I mean I can confirm, I didn’t answer. Nobody asked that question. At this point of time, we have 0 across balance sheet. We have not done any. We are strictly discouraging that. We will take calls in this quarter if we are absolutely convinced of something in retail. We will definitely not do microloans or something like that. I mean we would prefer to call them GS3 and write them off. But — and farm is anyway not eligible. So we will see some home loans, et cetera, possibly. And project loans, we will do only if forced because of this — there’s 25%, 75% multiple banking. Luckily, RBI has now kept real estate out of it. So we are not too keen on doing any onetime restructuring, definitely. And at this point of time, I can confirm not only on 30th September but on 23rd of October, the number is 0.00. ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– Okay. portfolio, also you are sensing that there will not be my maybe you may it unless ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Kunal, there is a problem with your… ——————————————————————————– Operator  ——————————————————————————– Sir, your audio is not very audible, sir. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– coming garbled. ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– Sir, I’m saying… ——————————————————————————– Operator  ——————————————————————————– Mr. Shah, if you can hear us, requesting you to please rejoin with a different number as your audio is not clear. You may please rejoin and come in the question queue. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Or Kunal, you can give me a call, I will give you answer. I can’t — just can’t hear your question. I’m sorry. ——————————————————————————– Operator  ——————————————————————————– Next question is from the line of Subrat Dwibedy from SBI Insurance. ——————————————————————————– Subrat Dwibedy, SBI Life Insurance Company Limited – Investment Analyst  ——————————————————————————– Sir, on the overdue side — segment-wise overdue side, if you could give some color. So let’s say, for rural, housing and Infra, each of the segments, what was the 0 plus DPD as on September versus September of last year? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– So okay, I will give you this September, which are the numbers I’m giving. And I will give you total retail at this point of time. I’m not giving out — I’ve given lots of indications, right, in collection efficiency also. So very clear stage 1 of retail is about 95% of the total book and which is provided close to 3% provision already, 3.1% on that. Stage 2 is close to 2% of the total book and which is provided about 39%. Does that answer your question? The remaining 3% is obviously stage 3, which is provided close to 80%. This is rural plus retail housing. ——————————————————————————– Subrat Dwibedy, SBI Life Insurance Company Limited – Investment Analyst  ——————————————————————————– Okay. Okay. Sure, sir. So we see recovery happening in these sectors, rural, retail, housing, et cetera. But on the wholesale side, you mentioned in infra, you have 0 DPD even now. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– And I mentioned that there are prepayments coming. So I had already confirmed last time and that confirmation is valid that both the wholesale businesses, I have got enough cash in the right now to make sure that there is no incremental stage 3 coming in this year from the moratorium point of view. We don’t expect any accidents to happen this year. In fact, the collections, I would say, if you take collections over billing in real estate, in September, that has already reached 113%. So we have collected 13% more than billings of September in real estate. So that’s — for DPD reason, we may not see any issues in the wholesale portfolio. And wholesale anyway, collection efficiencies and all are numbers which are perhaps not important. It is billing versus collections every month. And the only thing which is important is 0 DPD on that. And that’s what I’m speaking of. So that’s why largely we are talking about retail, which are businesses. ——————————————————————————– Subrat Dwibedy, SBI Life Insurance Company Limited – Investment Analyst  ——————————————————————————– Right. Sir, you clarified that you would strongly discourage restructuring. But have any developers — real estate developers, et cetera, approached you for restructuring? And how do you process it operationally? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– 1 or 2, as I told you, a few, we have done the DCCO extension. The DCCO extension is very clearly where we believe that it is not the developer’s fault necessarily. It is lack of demand or more importantly, delay of permissions. There, about, I would think, 6 projects — 6 or 7 projects we have done DCCO extension. So beyond that, I think maybe very sparing, 1 or 2 developers have approached us, and we are being very discouraging. That doesn’t mean we will not do till December, but it will not go — overall, it will not go beyond the number that I had indicated. Because as management direction, I don’t want to do it. ——————————————————————————– Subrat Dwibedy, SBI Life Insurance Company Limited – Investment Analyst  ——————————————————————————– Okay. Okay. Sir, sorry, what was the number you had indicated for restructuring? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Kunal spoke about it, that it will overall DCCO and (foreign language) 10%, 12% is what I had indicated last time. This time, it will be even lower than . So it will be single digits. That is real estate. Infra, 0. (foreign language) ——————————————————————————– Subrat Dwibedy, SBI Life Insurance Company Limited – Investment Analyst  ——————————————————————————– Yes. Yes, yes, yes. Got it. And sir, one last question. Gross stage 3 for the housing portfolio has actually slightly increased absolute value wise in Q2 despite the Supreme Court ruling that NPS can’t be recognized after 31st August. So what exactly has happened there? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– That is Supreme Court is for NPA, not stage 3. Stage 3 is a state of mind. NPA is what is reported. So what report to RBI report to credit bureaus, we are not supposed to report, obviously. But GS3 is what the management believes. And hence, that is the maximum number. So we not being a bank, I don’t have to declare 2 numbers. GS3 and NPA because GS3 is the higher number anyway. ——————————————————————————– Operator  ——————————————————————————– The next question is from the line of Kunal Shah from ICICI Securities. ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– Now it’s better? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Yes, better, better. ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– Yes, yes. So on the year highlighted (inaudible) on the renewable side INR 2,500 crores of disbursements… ——————————————————————————– Operator  ——————————————————————————– Sir, I’m so sorry to interrupt again, but your audio is not very clear, sir. We are unable to hear your question. ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– No, even (inaudible) INR 2,400 crores of disbursement (inaudible) … ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– I’m able to make up Kunal but barely. So go ahead. Go ahead, go ahead. Renewables, what? ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– Yes. INR 2,500 crores of disbursement. If you can just not in terms of what the — is there any out there? How many projects? And is it more kind of sustainable trend? Or should we expect it or there was some changing focus for infra and that we are also seeing (inaudible)… ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– So these kind of details on color on those, Anuj will give you later. these kind of details. As far as sustainability is concerned, always, in infra, we have always had more business to do than what we want to do. So this time, we were able to push it so much because of the strong collections. Remember, strategically, we want to keep that book in containment so that our retailization grows, right? So it has always been not lack of business to do. I can state very confidently, any renewable project in the country. If we want to do it, we will do it. It is very simple. So there is very clearly our balance sheet, how much we can give, that is the constant part, right? So we have to see industry, how many new projects are coming, how many new auctions are declared, that is the more indicator of the sustainability. We believe it is sustainable. Now (foreign language) that we don’t. That will depend on how much we want to do quarter end. ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– Sure, sir. Sure, sir. Okay. And just question on the collection side. If you can highlight in particular as the collection efficiency in home loan? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– So once again, because retail home loans, actual going and collecting is — was still a problem till August, right? Because (foreign language) checks getting is okay, but being urban, going and connecting was difficult. September onwards, that has really started. But the kind of debtor reduction that was done has been extremely good. I would term the bounce rates that I can give it other one of the indicators, the bounce rates. It’s an important indicator. Pre-COVID, the bounce rates in this portfolio was about 16%. In the middle of the problem, it went up to 34%. It is now back in early 20s. It has to, again, come back to 15%, 16%. So that we expect should happen in Q3. So we — again, we don’t think that something is — suddenly will go wrong here. We have got it in good control. We’ve seen good rhythm. But I will be able to speak more confidently in Q3. ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– Okay and LAP? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Same, same. LAP (foreign language) We — I mean it is obviously being self-employed, the issue is a little worse than home loans. But again, it is not, but the portfolio is very small. (foreign language) INR 2,500 crores, INR 4,000 crores. So again, don’t expect any big issues coming out. ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– Sure. And one last thing in terms of the sell down. Sir, which portfolio, maybe in which segment was the sell down. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– It has been across, mainly roads and renewables. ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– Okay. Mainly roads and renewables. Are portfolio and any fee income? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– No, no, not fee income you get when you underwrite not actually — can you sell it out. So the fee income is shown because you get a particular fee and then your book goes down. That is why the fee-to-book percentage increases. So when you actually sell you don’t get a book. I mean, you don’t get a fee. ——————————————————————————– Operator  ——————————————————————————– The next question is from the line of [Jinesh Singhal] from Emkay Global. ——————————————————————————– Unidentified Analyst,  ——————————————————————————– Appreciate — very good performance this time. Just I want to on the provisioning and all. My question is 2 sides. While, now since COVID is still going on and all and still rural is doing relatively better, but urban’s should normalize. What’s your sense over the growth numbers? I mean I assume that even now our rural will continue to do well. But even we are seeing housing is picking up and all. So what’s your sense over the full year book numbers would be approximately for ’21? And if it is in just a bit of a highlight about how we are seeing ’22 would be happening or where the focus would be we 33%, 33%, 33% that we were planning it earlier? And how — which are the portfolios where you see that there would be a little extra numbers would come up. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Thank you. Very, very good question. So right now, is — I don’t know how to speak about book growth in this year, but because normally book growth is a good derivation of disbursement growth. Because you know how much EMi is due and you can easily calculate the book growth best on disbursement. This time, because I’m collecting backlog, right? The better I do, the better I collect, actually the book growth will come down, and which is a good problem to have. So I’m actually not too fussed about the book growth this year, right? I mean I actually talk about the 4 metrics. Liquidity, which always comes first (foreign language), profitability, asset quality, and then finally growth. We will be paying maximum attention to asset quality now. And these are the 4 things of strategy. Since you asked a strategic question (foreign language) I always believe that these are the 4 things (foreign language) importance — relative importance can go up and down based on the situation. Just about 1 quarter back, clearly, liquidity was the first. Now definitely, asset quality is the first. Our concentration on collections, provisioning, lots of data analytics to see, ECL, et cetera, will be maximum at this point of time. Second is profitability, how we manage our fees, how we manage expenses, how we get productivity will be the second. Liquidity will still, of course, remain there third. And even now, I’m not letting my team think in terms of balance sheet growth at this point of time. I don’t want the team to manage balance sheet growth so much, but manage basic inputs into the business, which is disbursements and collections. So at this point of time, in very short term, very difficult to predict book growth (foreign language) because if I say book growth 10%, for example, and if I do more collections, it will be 7%. And I should be very happy about it, right? And which is — it’s a funny situation, which is not a normal situation. So that’s what I will still be talk about some indicators. And I will break the overall growth because very simple, my balance sheet is static. Overall balance sheet is minus 1, focused balance sheet is 1%, which are, frankly, even in COVID, not good numbers, right? So let us try and break this up and see where we are going. So farm equipment book, 19% up despite very strong collection because disbursement is up 60%. And this trend will definitely, we believe, will be strong in Q3, at least, if not Q4, okay? So that — 2-wheelers, we are still waiting for the real pickup to come, okay? To be very frank, the Puja holidays pickup is not of the orders that we had expected, okay? And I’m getting very, very recent trends, sir. I mean Puja holidays are starting today, right? So we would have expected a complete rush, maybe people scared of COVID, whatever. The pickup is not as much as we had expected. But still, we believe the disbursement grow minus 1 (foreign language) Q3, Q4. So which will increase the book growth as well. The upside may actually come from microfinance. And microfinance more and more — as more and more collection statistics and collect — our model is very simple. We don’t do anything by gut feeling, which is a big liberation that the management has got because as we become more senior (foreign language) we know more than numbers, which is almost never true. So hopefully, we have programmed ourselves to think only numbers, numbers, numbers. The numbers didn’t encourage us to do business in microfinance in Q1. It has encouraged us to do good business in microfinance in Q2, and they are looking even more encouraging in Q3. Whether I will reach the levels of Q3 last year, I don’t know. But it will not be 50% of last year, that I know for sure. It will be a much higher percentage of last year, which will definitely lead to a positive book growth in microfinance (foreign language) at this point of time. If my collection efficiency from 90% becomes 99.8% and because of that the book growth doesn’t happen, catch me I will be thrilled. It’s — everything is like that. Home loans, for sure, there will be a book growth, but how much is our home loan book? It doesn’t matter. It is very small. The big one, strategic one, real estate, the book will continuously come down at least for, say, 1 year from now. Because next 6 months, surely, we are not doing new This is again the same thing, not a strategic call. We are looking — we are actually concentrating on making sure that each one of our 114 projects goes well, we finance them well and you see about 150, 180 that kind of disbursements every quarter that we are doing, making sure that projects get completed on time, sold on time. There are projects where we have taken over the sales actually. There are projects where L&T Realty appointed brokers have taken over the sales. So we are not leaving too much to their developers, and we are not at their mercy. (foreign language) we are taking it over and making sure that these projects get completed. Infra. Infra, yes, we will give it some balance sheet, not too much balance sheet as we go ahead, right? So overall (foreign language) there will be positive book growth in FY ’21 overall? I would think so, but it will be maybe 4%, 5%. But the important are these factors are the sub books that I talked about, clearly moving towards retail, clearly moving towards rural. Infra, very positive. But as a percentage of book may not grow. And real estate as a percentage of book will come down, okay? And defocused as a percentage of book, continuously going down. So that is the way this 3%, 4% book growth which is possible in FY ’21 will actually look like and which will turn out to be good on profitability. As far as a FY ’22 is concerned, we believe that our retail book will — growth will be actually closer to high-teens. And hence, the overall book growth will be hopefully in double digits. Does that answer your question? I may want to sound on the call. Right now, this collection focus is not allowing me to talk about book. I’m not happy. I don’t know whether to be happy about book growth or not because I would like to collect much more and say (foreign language) book growth doesn’t matter. ——————————————————————————– Unidentified Analyst,  ——————————————————————————– Understood. That’s very, very well, a pretty good strategy, sir. My second question is, this is something that I discussed with Anuj yesterday and if you can highlight a little bit more on this. But if I see, NIM was an expected as supposed to be seeing an uptick. But even on your rural side, we are seeing a sizable growth in the fee income side as well. So now if I see it, with the disbursement, your fee income is almost last year. So I’m sure that there is — apart from the disbursement, there is a cross-sell which has also been happening out here. So what’s — if you can throw some more light on this, how this particular fee income, NIMs is anyhow expected to grow with the liquidity being available and even normalizing your negative carry going away. If you can throw some light over how we are trying to ramp up the fee income side, especially on the retail and the rural side, that will be little helpful, sir. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Thank you. Very, very strategic question. I must compliment you. So number one, as you rightly said, NIMs will surely go up from here. How much I don’t want to know for 2 reasons. One is this derecognize some income, right? That will not be the case in Q3, Q4. One, hopefully, Supreme Court will court. Second, now, there is no moratorium. So the income will be there as we go ahead. So that is number one, which is math. And second is interest cost will come up, both negative carry, and the negative carry is down by as much as INR 20 crores in Q2 over Q1 itself. So definitely, it will come down further. And second, cost of funds itself will come down. Some part, I may pass on, especially in festive season to push. Some part of it I may pass on. But the NIMs getting at least somewhere in the middle of our 6.5% to 7% NIMs plus fees range is definitely possible. So that is the first upside we are looking for. Now fees, no, you are absolutely right. Our strategy is tremendous amount of fee, cross-sell, et cetera. And I will tell you my target. And one, that target is something we reached and then fell off. My target as a good corporate, and this is a bank like target, not an NBFC rate target, is all the way operating expenses should come out of my fees, right? We had reached there. We stayed there for 2, 3 quarters, and then we dropped off (foreign language) It’s okay. But the strategy and the push to the new fees vertical, which we have found is this key entire OpEx should come out of it, first. So my interest is, okay, I do credit cost, provisions, I do tax and rest of it is my profits. Maybe very naive kind of a model but it’s a good fundamental model. So that’s what I try and push. So there are some successes and some not so successful. The success is our fees — our push for the disbursement related fees, subventions, et cetera, is very successful. Our cross-selling for cross-selling products at the time of disbursements is very successful. It’s outstandingly successful. I mean there is no question about that. What we have to — what is the upside and what we have to do much more is cross-selling through the life of the product. Our consumer loans is now the first product of that attempt that through the life of the product keep selling, cross-selling. Some more, like we have done a product called EMI Protect in farm, which actually says that this we are doing with one of the insurance companies, is that for a particular day in a season, if the insured person remains hospitalized, the EMI will be paid by the insurance company. It’s a very nice product. It’s — we have designed with the insurance company, right? So these are some of the products that we are pushing mid-life because, what, we were very happy with our fee when we realized that those disbursements (foreign language) and which is not a good thing to have. So from every crisis you have to learn something. And our learning is now our cross-selling mid-life has to increase. Too early to speak about it, but your question was so good that I thought I will say it. So hopefully, 3, 4 quarters down the line, we should be able to flaunt some numbers. Does that answer your question? ——————————————————————————– Operator  ——————————————————————————– The next question is from the line of Karthik Chellappa from Buena Vista Fund. ——————————————————————————– Karthik Chellappa, Buena Vista Fund Management, LLC – Investment Analyst  ——————————————————————————– Congrats on the improving momentum on the (inaudible) ——————————————————————————– Operator  ——————————————————————————– Mr. Chellappa, I’m so sorry to interrupt but your audio is not very audible, sir? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– It’s okay. I can hear. I can hear very lightly. Karthik, go ahead. I can try and make sense. ——————————————————————————– Karthik Chellappa, Buena Vista Fund Management, LLC – Investment Analyst  ——————————————————————————– Okay. So firstly on micro (inaudible) diluted to 3, which is basically loss of livelihoods and (inaudible) the question is twofold (inaudible) number one. And number two, what proportion of your (inaudible) loans are the borrowers more than 1 borrowing relation? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Okay. I can answer the first question. The second one, I can get you the data. But more than one, there will be quite a few. I mean only our absolute new to credit customers which we have will be one, but they will also soon — as soon as they establish credit record with us, they will go and borrow from someone else. So more than 1 borrowing will be quite a few, but we will get back to you with that number. The second one is we are seeing some political interference in Assam and a little bit in South Maharashtra at this point of time, okay? It’s not too much. It’s not suddenly which is threatening the entire portfolio. But yes, if not controlled can become a issue. So that’s answering your second question, very specifically. Yes. About the first question, I will tell you very strategically. We don’t like to be the third relationship anywhere, okay? So we are either the first or the second. That is number one. Many times what happens is after we give the loans, suppose we give the second loan, they will go and borrow from someone else the third. In that case, we don’t renew. And hence, our existing customers’ rejection can be one of the indicator of that. So our existing customers’ rejections, we are at what, we renew around 40%, 45%. So that means rejections will be close to 55% to 60% of existing customers. So when we get into a relationship we make sure that we are the first or the second. But at any point of time, that customer would have then gone and borrowed from the third, we don’t renew those customers. But specific that I wanted to answer more strategically, the number, Anuj, will share with you. It’s a number we can share. No issues. I just don’t have the numbers straight away right now. ——————————————————————————– Karthik Chellappa, Buena Vista Fund Management, LLC – Investment Analyst  ——————————————————————————– Okay. Not a problem at all, sir. Just one more follow-up. On the how would the market share appropriate in your portfolio with actual market share of overall. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Sorry, I could not make out your question. ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– Okay. And do you understood across How much are with active market share on the ground? Is there do it in a particular place? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Yes, a very good question. Other than some very specific exceptions, we are actually throughout OEMs and reasonably well entrenched into the OEMs. Like, for example, 0 in spite of having what is called a Hero Fincorp or the own financier. Hero, this is what our share — so in our sales, close to 30% will be Hero, more or less, right? Honda will still be the maximum, but Hero will have almost corresponding to its market share. So Hero’s market share is what, 39% around. And in our disbursements, it will be around 30%. So largely follows the market share of the OEM. There may be 1 or 2 exceptions. ——————————————————————————– Kunal Shah, ICICI Securities Limited, Research Division – Research Analyst  ——————————————————————————– And for tractors, sir? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Tractors, say, Mahindra will be what, in our disbursement? ——————————————————————————– Unidentified Company Representative,  ——————————————————————————– 40%. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– 40%. Mahindra plus PTL will be 40%? So Mahindra plus PTL will be close to 40% of our total disbursements, which largely reflects their market share. ——————————————————————————– Karthik Chellappa, Buena Vista Fund Management, LLC – Investment Analyst  ——————————————————————————– Okay. It’s a number of market share in tractor second quarter is the can market share. There’s no state to OEMs ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– I lost you. Sorry. You are very, very — I can’t hear you. ——————————————————————————– Operator  ——————————————————————————– Mr. Chellappa, may I please request you to…. ——————————————————————————– Karthik Chellappa, Buena Vista Fund Management, LLC – Investment Analyst  ——————————————————————————– I’ll just come back in the queue. ——————————————————————————– Operator  ——————————————————————————– The next question is from the line of Akriti Kakkar from Goldman Sachs. ——————————————————————————– Unidentified Analyst,  ——————————————————————————– First of all the segment in the next 2 to 3 years ——————————————————————————– Operator  ——————————————————————————– Ma’am, may I please request you to speak a bit louder. Your audio is not very audible. ——————————————————————————– Unidentified Analyst,  ——————————————————————————– Okay. Is it better… ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– I will answer Karthik’s question now more accurately. In our OEM mix, 50% is Mahindra Group Mindra I 15. And yes, Sonalika, 18%. So largely, 50%, and yes 18%. So largely, reflecting the market share of the OEMs. If Karthik is online, he will get the answer. Go ahead. Sorry. ——————————————————————————– Unidentified Analyst,  ——————————————————————————– Am I audible now? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Yes, yes, yes. ——————————————————————————– Unidentified Analyst,  ——————————————————————————– Sir on housing segment, sir. How much you segment to see in the next 2 to 3 years? Does it remain a core part of the overall strategy? And specifically within real estate… ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– You said which segment? Which segment you are asking about? ——————————————————————————– Unidentified Analyst,  ——————————————————————————– About the housing segment? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Housing segment. Okay. Yes, yes. ——————————————————————————– Unidentified Analyst,  ——————————————————————————– Just your thoughts on the housing segment would be over the next 2 to 3 years and are core part of your strategy? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Okay. See, we do very clear analysis of each of our businesses. Very — there are — that this industry should be doing well, number one, and should be large enough. Second is, we should build a right to win in that industry. And third, we should make money in that industry continuously. We believe that housing and housing business, which is a mix of real estate funding and home loans, is a very — is an industry which will do well. Currently, it is not doing too well. It will do well in the long-term. Being L&T and being knowing how to manage the projects, how to control builders, it’s — we have a very clear right to win. And we are also making good profits. So we put both these businesses together. So most certainly, it passes all criteria, and it will continue to be a strong part of the strategy. What we are going through in the current year is a seasonal or a temporary adjustment to that strategy, right? At this point of time, if I majorly grow my real estate book, it will not be the right thing to do. So there will be times — even in the long-term strategy, there will be time to play safe and make sure that your portfolio remains in good state rather than worrying about growth. So does that answer your question? ——————————————————————————– Unidentified Analyst,  ——————————————————————————– Just one question on real estate segment. What would be the service loss rate? How will it compete with (inaudible) ? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Sir, is there a problem with our line? Because how can everybody be like this? ——————————————————————————– Operator  ——————————————————————————– Sir, your audio is absolutely audible. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Okay. But again, I couldn’t hear the lady’s question unfortunately. What was the question? ——————————————————————————– Unidentified Company Representative,  ——————————————————————————– Can you repeat the question again, Akruti? ——————————————————————————– Unidentified Analyst,  ——————————————————————————– Yes. Sir, I’ll just repeat it. Just wanted to know in the real estate segment, what could be the real estate loss rates? And how are you thinking about LGD? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– More than LGD, the issue of probability of default is important. This is not a statistics — the whole idea about PD LGD is about statistics. I have always said that real estate investment — real estate lending is not a status quo, okay? Very clearly, if I write a check and then wait for the money to come back, the PD will be extremely high in this business as some of the players have found out. It is very clearly, it is a high risk business. Even at our yields, it is 13.5%, 14% yields. And then you have to overmanage the projects to get your money back. So our portfolio till now has been extremely well behaving. If at all, something becomes NPA, our asset cover as well as receivable cover is, on the average, will be definitely 1.5 and above. And even in absolute stress scenarios. I believe that the LGD will be maybe 10% to 20%. If something happens, horribly goes wrong with the project. And why it is so low? It’s because the parent or us has the capacity to take over the project, even complete the project, definitely sell, aggressively sell our existing projects. We are doing it in a couple of projects where we are actually selling the inventory at a good price at a good discount and having that good receivables cover, actually make sure that we may actually come out without any loss in those projects. Having said that, as we have told, we already made provisions of close to INR 500 crores on standard portfolio that we have right now, which we — and we will keep making more over the next year in this portfolio. So we are always ready for it. ——————————————————————————– Unidentified Analyst,  ——————————————————————————– Okay. Great. Sir, one last confirmation, please. Would there be any sell downs apart from the infra segment and also were there any buyouts in this quarter? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– No, I don’t think any buyouts in this quarter. Sell-down, we would love to do sell down of infra and real estate. We had done a few projects. But right now, obviously, there is no appetite for real estate. As far as retail sell-down is concerned, we will see. When liquidity was tight, we were actually thinking of some securitizations, et cetera. Right now, we don’t see a need for that. Maybe as a tactic sometime here and there, we will do, but definitely not as a strategy because we are looking at increasing our retail portfolio further. As far as you’re answering Karthik’s question, if Karthik is back, our Honda share in our disbursement is 37% and Hero is 24%. ——————————————————————————– Operator  ——————————————————————————– The next question is from the line of Nischint Chawathe from Kotak Securities. ——————————————————————————– Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst  ——————————————————————————– Am I audible? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Yes, Nischint, you are audible. ——————————————————————————– Nischint Chawathe, Kotak Securities (Institutional Equities) – Associate Director & Senior Analyst  ——————————————————————————– Just one question. Most of my questions are answered. What was the moratorium on the book (inaudible) order is? ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Okay. I’ll give you. Okay. So August, Micro Loans, as I said, it was 65% collection efficiency. So moratorium was 1 minus that. Farm was 10%, Two-Wheeler 20% and (inaudible) is 25%. ——————————————————————————– Operator  ——————————————————————————– Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Dinanath Dubhashi for closing comments. ——————————————————————————– Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited – CEO, MD & Whole-Time Director  ——————————————————————————– Thank you. I think a lot has been discussed by most of what I wanted to summarize, I summarized in the beginning. I would like to just tell you that the team, not only the management team, the overall team is feeling extremely positive. There is no doubt that situations come where we all feel that are the problems going to end, et cetera? Right now, we are not worried too much about whether the problems are ending or not, there are still problems, all those things. We know for sure that we are totally prepared if any more problems are coming. We are totally motivated to make sure that the effect on us of those problems are less. And most importantly, we are totally enthusiastic to make sure that we take advantage of all the opportunities that are coming in the segment. I believe, firmly, that you can be prepared about problem, but time has passed that we keep talking about the problem. I think time is back to talk about the opportunity and does grab those opportunities. With that closing remarks, I will wish all of you a very happy festive season, happy Dussehra, Happy Diwali, Happy Eid. All the best. Stay safe. Stay happy. Hope to meet some of you one-to-one during the quarter. And hope to meet you again with excellent Q3 in 3 months. Thank you. ——————————————————————————– Operator  ——————————————————————————– Thank you. On behalf of L&T Finance Holdings, that concludes this conference. Thank you all for joining. You may now disconnect your lines.
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