Earnings Call Transcript for Q3FY20 between Management and Analysts

Opening Remarks

It was a difficult year, no doubt and the difficult conditions in the overall economy in general and the NBFC sector in particular, gave us the opportunity to test our resilience and the robustness of our business model and principles. We definitely had to do some heavy lifting and believe that we have come out much stronger at the end of the year. Our competitive strengths in our core businesses, ability to run down our defocused portfolio efficiently, ability to maintain margins and fees in difficult conditions, ability to raise adequate liabilities from diverse sources at the right cost, our early warning signals and project management capabilities, our assets resolution capabilities, our portfolio quality and last but not the least our execution abilities and group synergies have been adequately tested and have crystallised in form of good and steady financial performance.

First of all, we would view these results as one more quarter of delivering steady performance in line with our strategy of delivering assurance to all stakeholders. In the quest to deliver steady performance quarter after quarter, it is particularly important to do so especially in turbulent times and I believe that our performance for the last 4-5 quarters demonstrates that. We generated a steady ‘NIMs+Fee’ of 7.29% in this quarter and the PPOP stood at Rs. 1,334 Cr, up by 12% on YoY basis. This sustainability is achieved on back of a data analytics-based approach which has helped us to increase/maintain market share while maintaining asset quality. The asset quality remained stable with GS3 at 5.94% vs 5.98% last quarter and NS3 at 2.67% vs 2.83% last quarter with provision coverage going up since last quarter. Steady margins, steady credit costs and asset quality has enabled us to deliver once again a top quartile ROE of 16.51%. PAT for the quarter stood at Rs. 591 Cr keeping its steady trajectory. It must be explained that the PAT for Q2 FY20 included a tax benefit of lower tax rates for Q1 and Q2 together and this number after normalisation is Rs 597 Cr.

The profit trajectory is quite steady, the RoE was also 16.74% adjusted for this tax effect. So, both PAT and RoE have maintained a steady trajectory.

2. The second important point I would like to make is about the demarcation which is being seen between sound NBFCs and others - regarding raising of liabilities. This has, become clearer and more pronounced in Q3 FY20. Highly rated NBFCs with good parentage were clearly preferred over others by lenders of all genres. As a result, one of the major positives of the quarter, not surprisingly, came from liabilities side. LTFH raised ~Rs. 10,400 Cr in long term borrowing in the quarter, the highest ever since FY17. As I have said before, the market is clearly differentiating NBFCs with high ratings & inherent parentage strengths and any concerns about availability of funds continue to subside with each quarter. LTFH successfully raised long term funds from diversified sources, may it be traditional sources of bank borrowings or privately placed NCDs or newer sources like publics NCDs, ECBs and priority sector borrowings. We raised Rs. 1,408 Cr through Retail NCDs and Rs. 2,012 Cr through privately placed NCDs in this quarter.

Click pdf to read full transcript