Finance company Arman Financial Services announced H1FY25 & Q2FY25 results Financial Highlights: Company’s consolidated Asset Under Management (AUM) stood at ~Rs 2,465 crore registering a growth of 7% YoY. Consolidated disbursements for H1FY25 stood at ~Rs 832 crore, a de-growth of 22% year-onyear, led by industry challenges. Disbursements for Q2FY25 stood at ~Rs 373 crore, registering a de-growth of 31% YoY. During the period ended 30th September 2024, the company has deliberately prioritized collections and portfolio quality over rapid expansion. Net total income for H1FY25 amounted to ~Rs 235 crore, registering a 32% year-on-year growth, while Q2FY25 net total income grew by 25% to ~Rs 116 crore. Pre-Provision Operating Profit (PPoP) for H1FY25 registered a 23% year-on-year growth to ~Rs 163 crore. PPoP for Q2FY25 grew by 12% year-on-year to ~Rs 78 crore. Shareholders' Equity as of September 30, 2024, stood at ~Rs 865 crore, calculated in accordance with IND-AS standards. For H1FY25, Return on Average AUM stood at 3.65%; while Return on Equity stood at 11.10%. Credit Rating upgraded to ‘A | Stable’ by Acuite Ratings for Namra Finance Limited Borrowing & Liquidity Profile: Total borrowings stood at ~Rs 2,019.5 crore (Including off balance sheet direct assignment (DA) liability). Of the total borrowings, 35.9% is through banks, 12.3% is through NBFCs, 18.7% is through debt and NCDs, 0.8% is through PTC, and 27.9% is through direct assignments (off-balance-sheet liabilities), of which 23.2% is through banks and 4.7% is through financial institutions. The rest is borrowed from DFIs (i.e., NABARD & SIDBI) and others. As on 30 th September 2024, the Company has a healthy liquidity position with ~Rs 281.2 crore in cash/bank balance, liquid investments, and undrawn CC limits. Additionally, the Company has ~Rs 157.5 crore undrawn sanctions from existing lenders. Asset Quality: GNPA stood at 3.7%; NNPA stood at 0.6%. Cumulative Provisions stood at ~Rs 114.3 crore as on 30 th September 2024 (covering 4.64% of the consolidated AUM, 5.88% on book) Jayendra Patel, Vice Chairman & Managing Director, Arman Financial Services, said: The microfinance industry is currently facing a significant rise in impairment costs due to overleveraging in the rural retail unsecured lending space, involving both MFIs and non-MFIs. This overleveraging has strained borrowers' repayment capacities, leading to increased delinquencies and higher default rates. High attrition rates among ground-level staff across the industry have also impacted collection efficiency, as staff turnover disrupts the continuity and effectiveness of borrower interactions, which are critical for ensuring timely repayments in microfinance. We have been anticipating an increase in credit costs due to over-leveraging since early last year. However, the extent of the challenges has been greater than expected, and the evolving macroeconomic and regulatory environment has only added to these difficulties. Given these challenges, we have adopted a cautious growth strategy, prioritizing collections and portfolio health over aggressive expansion. This approach is essential for safeguarding the quality of our assets and maintaining a stable financial position. For H1 FY25, total disbursements stood at Rs. 832 crore, compared to Rs. 1,068 crore in H1 FY24, indicating a slowdown in lending to focus on asset quality. Our Assets Under Management (AUM) reached Rs. 2,465 crore. The Gross Non-Performing Assets (GNPA) were at 3.74%, with Net Non-Performing Assets (NNPA) at 0.64%, which remain within manageable levels given the broader industry context. The Pre-Provision Operating Profit (PPoP) for the period stood at Rs. 163 crore, compared to Rs. 133 crore in H1 FY24. This growth in PPoP reflects our commitment to maintaining operational efficiency and cost discipline, even as we navigate a difficult macroeconomic environment. Impairment expenses amounted to Rs. 99 crore for H1 FY25, reflecting the impact of the current challenges on our financials. We understand that these impairment costs are a natural consequence of the changed risk environment, and we are taking all necessary steps to mitigate these risks. Both the industry and Arman are taking proactive steps to mitigate these issues and navigate through this difficult phase. The MFIN guardrails have been implemented to help manage overleveraging, and we are in the process of rolling out independent credit teams across all branches by the end of this fiscal year. These independent credit teams will enhance our credit assessment processes, ensuring greater oversight and quality control at the branch level. This initiative is aimed at improving our risk management capabilities and ensuring that we are better positioned to assess and respond to borrower needs effectively. Our focus remains on maintaining quality over quantity while navigating the uncertainties in the rural environment and awaiting the end of the down-cycle. We believe that by prioritizing quality, we will be better positioned to emerge stronger once the industry environment stabilizes. Finally, we acknowledge the challenges faced in H1 FY25, which have led to weaker-than-expected performance. However, we want to emphasize that these challenges are not unique to Arman but are being experienced across the industry. The rural sector, in particular, has faced significant pressures due to multiple factors, including erratic weather, elections, and general economic uncertainty, all of which have also impacted borrowers' ability to repay on time. Despite the near-term challenges, we remain confident in our long-term strategies, which we believe will position us for future growth. Arman, with its 32-year history, is no stranger to downcycles. We have successfully navigated similar situations in the past, and each time, we have emerged stronger and more resilient. Our experience in handling such challenges gives us the confidence to continue on our long-term path. We are steadfast, wellcapitalized, and poised to navigate these challenges effectively. With prudent management practices, a dedicated team, and a clear focus on risk mitigation, we are well-equipped to overcome the current headwinds and drive longterm growth for our stakeholders." Result PDF