Ladies and gentlemen, good day, and welcome to first quarter FY 2024 earnings conference call of Arman Financial Services Limited, hosted by JM Financial. As a reminder, all participants line in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Akshay Jain from JM Financial. Thank you, and over to you. Thank you, good afternoon, everyone, and welcome to the first quarter FY 2024 earnings conference call of Arman Financial Services. First of all, I would like to thank the management of Arman Financial Services for giving us the opportunity to host this call. From the management team, we have Mr. Jayendra Patel, Vice Chairman and Managing Director, Mr. Aalok Patel, Joint Managing Director, and Mr. Vivek Modi, Group CFO. I would now like to hand over the call to Mr. Patel for his opening remarks, post which we can open the floor for Q&A. Thank you. Over to you, sir. Thank you, Akshay, and welcome, everybody. On behalf of Arman Financial Services Limited, I extend a warm, warm welcome to our first quarter FY 2024 earnings conference call. With me on the call, we have Vivek Modi, the Group CFO, and representatives from the investor team. I hope everyone has had an opportunity to go through the results, press release, and presentation for the quarter ended 30 June 2023, uploaded both on the stock exchange and the company's website. Over the past decade, the microfinance industry has experienced rapid expansion and changes across dimensions, including consumer engagement, technological solutions, and regulatory frameworks. Serving as a catalyst for advancing financial inclusivity objectives, this sector has taken on a pivotal role in extending financial services to the unserved or unserved low-income class in India, as well as extending microcredit support to small and medium-sized enterprises, all while aiming to foster economic and social progress within. During FY 2023, the microfinance industry has demonstrated remarkable resilience and determination despite global and economic challenges. This indicates a complete rebound from the challenges posed by the COVID pandemic. With substantial growth of the industry and the first quarter, it highlights the path of progress, supported by well-established regulatory standards that foster a fair and balanced competitive landscape. As on 13 June 2023, the assets under management of the company stood at INR 2,147 crore, resulting in a growth of 54.5% year-on-year and 10 point% quarter-on-quarter. Of this book of INR 2,143 crore, our microfinance contributes about 84%, MSME about 13%, and two-wheeler about 3. Interestingly, it took us 30 years to achieve an AUM of INR 1,000 crore. Remarkably, we managed to double our portfolio to INR 2,000 crore in just 18 months. As often emphasized, we have fared fairly well navigating through different kinds of crises and emerged with increased resilience. Our disbursement grew by 41.6% year-on-year to INR 137 crore. This expansion can be attributed to positive credit cycles, favorable regulatory policies, and our geographical expansions that we did in the first quarter and last quarter of previous year. Last year, we ventured into untapped geographies of Bihar and Haryana, both of which positive outcomes. Building upon this, we have also now expanding into Jharkhand for the MFI division and Telangana for the MSME division. In addition to this, we have also inaugurated a new zonal office for North India, which will be in Uttar Pradesh, in Lucknow. In the quarter, we opened seven new, bringing the total branch down to 343, with a workforce of about 2,900 employees and a customer base of almost seven lakh across 10 states. We are dedicated to expanding our presence within these new states and plan to open several new branches before this fiscal year. In continuation with our branch expansion, we are committed to the ongoing technological investments through digitization, automation, and process enhancements. Last year, we integrated new LOS and LMS and also transitioned to fully paperless operations, and this has improved our efficiencies and also, more importantly, enhanced our customer experience. Graduating MFI customers to cashless e-NACH collections in the new ideal segment. We'll be rolling out Aadhaar-based digital signatures for all our customers in the coming to next. We are positive that these efforts will make our company poised for the next stage of strong growth. The asset quality, our gross non-performing assets demonstrated a notable decline of 115 basis points year-on-year, and a contraction of 26 basis points sequentially, and stood at about 2.5%. Simultaneously, net non-performing assets stood at 0.14% or 14 basis points as on first quarter FY 2024, signifying a 20 basis points year-over-year decline. As of 30 June 2023, our collection efficiency reached about 98%. This diligent collection endeavors of our, coupled with rigorous underwriting procedures and advanced technology, have collectively contributing to enhancing loan portfolio quality, nearly restoring it to levels comparable to almost comparable to the COVID period. Collection efficiency for our microfinance business stood at 98.2%, MSME at 90.1%, and for two-wheelers stood at 96.6%. For the quarter, cumulative provisions stood at INR 72 crore, which is about 3.4% of the total book. Of this, provisions for Arman stood at INR 15.5 crore, and Namra Finance stood at INR 56.5 crore. We also have a management overlay of INR 28 crore included in our cumulative provisions, which is over and above any regulatory or ECL required provisions. Of this overlay, INR 7.7 crore is for Arman and INR 19.9 crore for Namra Finance. Coming to our borrowing profile, our total borrowing for 30 June 2023 stood at INR 2,161 crore, including the debt component of OCRPS CCDs of INR 48 crore, as per Ind AS guidelines. Debt-to-equity ratio stood at 3.4x. The company has successfully been diversifying its funding sources. Last year, it raised about INR 45 crore through Market Linked Debentures, and during the quarter raised another INR 49 crore through listed Non-Convertible Debentures. Of the total borrowings, about 33% was through banks, 19% through NBFCs, 13% was through NCDs, 11% was through PTCs, and 19% was through DAs or direct assignments, and the rest was borrowed from DFIs like NABARD and SIDBI. On the liquidity front, the company has a healthy liquidity position of INR 294 crore, nearly INR 300 crore in the cash, bank balance, liquid investments, and undrawn CC limits. Additionally, the company has another INR 42 crore of undrawn sanctions from existing lenders. As on 30 June 2023, the company is capitalized with a capital adequacy ratio for the standalone business at 31.64% and for the subsidiary number at 26.32%. After successfully raising equity funding last year, we are confident that these resources will play a pivotal role in achieving our targeted growth in the coming quarter. Now, throwing highlights on the key consolid finance numbers for first quarter FY 2024, the gross total income stood at INR 149 crore, registering a growth of 889% year-on-year, and the net total income stood at INR 85 crore on the back of AUM expansion and improvements in yields. The NIM for first quarter FY 2024 at 13.4%. Profit After Tax grew at 154% year-on-year to INR 40 crore. This was again mainly on account of improved interest income, optimization of operational cost, and of course, lower provisioning requirements and improved asset qualities. Cost to income for the quarter stood at 26% as compared to 37% over the same period last year. Yields for the quarter stood at 25.9%, registering a growth of about 170 bps over the same period last year. As on 30 June 2020, annualized return on asset, AUM, return on average AUM stood at 7.8%, and return on equity stood at approximately 37%. To summarize, we are positive that the current credit cycle and regulatory environment is favorable to the industry and the company, and this growth momentum will continue. Our strategic emphasis on the technological advances and expansion of our branch network to drive the next phase of growth. With this, I would request the operator to open the floor for any questions that anybody may have. Thank you so much for your kind attention. Opening the call up to Q&A. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Amit Mantri, 2Point2. Please go ahead. Hello. Yeah, hi, Amit. Yeah, hi, Aalok. first of all, congratulations to the entire team on, on a great quarter. My question is, you know, this first quarter tends to be seasonally a weak quarter for the MFI business, yet Arman has had a very good performance in terms of even sequential growth. So what's driving this strong growth that we are seeing even in, even a otherwise weak quarter? See the, as far as the profits and stuff are concerned, that is reliant a lot on the business you have done in previous quarters. Very rarely does it impact, you know, typically, whatever disbursements you do in any single quarter, largely the income that you'll earn will be in the following seven or eight quarters. As far as disbursement, of course, we had a, a small, I mean, a decline from fourth quarter to first quarter, if you consider that. And that is for two reasons. As you said, that, historically, of course, fourth quarter is slightly slower, demand is slightly slower. Of course, on top of that, you are doing a lot of housekeeping items, a lot of transfers, a lot of new branches, a lot of system changes and other aspects. Largely also the impact, this quarter on the disbursement was due to the fact that, renewals were much, much lower, and there's a very good reason for that. During the second wave of COVID, which was in March of 2021, so we stopped disbursements in March, April, and partially, May. The renewals that you would expect, as, as loans end and people come in for, fresh disbursements, those were largely absent, during the last quarter. Of course, that would also have an impact on the total disbursements. Okay. In, in terms of the geographic expansion into newer states, now you're already, you know, specified for, for the current AUM that you have. Do now would the... on just increasing presence in the states that you're present in, or would you still continue to enter even over the next one, two years? The plan is to do both. Expanding in existing states and also consistently evaluating when it is the right time to jump into a new state, right? Because, you know, specifically my clients, you know, now we are reaching a stage where we can visualize that in four, five years, the growth might be tapering off and, you know, the pension levels will increase. I think it's important to strategically kind of seeds before it becomes very difficult to enter into new areas. It's probably, yeah, that wherever you can expand into, you do make that call for the long run and into. That being said, we are usually very, very careful about where we go. large discussions and, you know, a lot of analysis and visits that we do. It's not that we only go any place on a whim. These things are very sort of well planned. We do it, and a lot of discussions happen around it. So yeah, I think to answer your question, in short, it will be a combination of both Okay. Third, question. The disbursements that have happened post the second wave, what's been the collection effect from them? Like you mentioned, from, say, May 2021 onwards, post that, the disbursements that happened, which are together around INR 2,000 crore plus. What's been the collection efficiency on that? About 98%. Okay. okay. Essentially, most of the book which you are seeing has been generated post COVID only. In fact, Amit, if we kind of split the pre-COVID into two slices. First is the pre-COVID, before March 2020, there is nothing that is left March 2020 when it comes to Microfinance in particular. kind of, second wave, first wave to second wave, the overall Microfinance portfolio, because again, Microfinance portfolio is typically a 24-month cycle portfolio. What you have outstanding is less than 1%, or 1.5% of the entire AUM of Microfinance. Mm-hmm. Okay, got it. Thanks. Thank you very much, and good luck for the future. Thank you. Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone now. We have our next question from the line of Akash Mehta from Capas Investments. Please go ahead. Hi, sir, and thank you for your opportunity. I had two Individual Business Loans. We've seen a lot of traction coming in, in this... In coming quarters, contribution will this make in our AUM? We offer the. It's about 2% overall micro... [inaudible] I'm sorry, sir, you're not audible. Audible now? Yes, sir. I think there's some noise, from my end... [inaudible] Akash, can you mute your line, please? There is a lot of noise. Yes, Mr. Mehta, mute your line. Yeah. I think to answer your question, it's about 2% of the microfinance book at the moment. Largely speaking, on our INR 2,000 crore book, presently it's about INR 40 to 50 crore. Not a very, very large book. The idea here is to, again, you know, we are, we are basically getting future ready. What, what I mean by that is that, overall, the prediction is that as microfinance progresses, strategically shifts from more on a group-based loans to individual-based loans. In that case, we'll rely more on cashless collections versus the doorstep collections that we do right now. While it is of strategic importance for us right now, it is not of business importance for us to expand on this. Mr. Mehta? Mr. Akash Mehta, you kept the call on hold. It is clear now, sir. Please go ahead. Hello. The answer is that, going forward in the next four, five years or so, I think if, if, if prediction is true, it will be a very large portion of the book. If not, any, not, we are just being future ready at this point. Got it, sir. Just, on, on the same front, what will be the average ticket size, and what are the kinds of yields you will be charging? The yield is very similar to microfinance right now, so it is about 27%. The ticket sizes range anywhere from, I believe 65 to about. Right now, on average, it's about 75. We are knocking over 75. There is a desire to increase that as time goes on and as the experiments goes. Okay, sir. I think that helps. Thank you. Thank you. The next question from the line of Rohit Mehra from SK Securities. Please go ahead. Yeah, thanks for the opportunity. My first question is, we have expanded in the news. How is the response from Jharkhand and Telangana? Also, how is Bihar performing? What contribution do we expect in near term? Yeah. I mean, we have just moved into Jharkhand and Telangana. It's too early to tell, to be honest with you. I mean, very few. I think in the MSME in Telangana, we have only made last month, I think 12 or so disbursements, if I'm not mistaken, anyway. Yeah. In Jharkhand, I don't think we have made any disbursements or any-. Last quarter, we have had none in July. Last quarter, we haven't. July, we started doing it. It's a little too early to tell, to be honest. The ones that we went into before that, which is Bihar and Haryana. Bihar has been performing extremely well, and Bihar today now stands at the largest concentration of finance in India at this point. Earlier it was Tamil Nadu, Bihar. Bihar has overtaken Tamil Nadu. Frankly, by the numbers, one of the best places in India to do microfinance. I mean, going by both pre-COVID and post-COVID, the asset quality is phenomenal. You know, anytime something is too good to be true, you always want to make sure that you pay more attention to it. That's what we are doing right now. While it's possible to open a lot more branches in Bihar, we are kind of in watching at this stage. It, it sounds... I know it sounds kind of like, I don't have confidence on Bihar, and that is not true at all. Just what I'm trying to say, Bihar, as a market, has grown, grown very quickly, very fast. It's prudent for us to kind of just take a breather and, you know, wait to see how the what the reaction is going to be. That is Bihar. Haryana, it's kind of mixed results. The asset quality is good, the volume of business in, business being generated through disbursement is not as high as we had anticipated. You know, it is what it is. Okay, that's perfect. In the same front, with the current upcycle in the microfinance industry, what kind of AUM growth do we target? We don't give out targets except to say that we typically have a CAGR of about 35% to 40%. That will continue to be our long-term target for the, at least the next, three or four years. Yeah. Thanks. Okay. That's, that's it from my side. Thank you. Thank you. We have our next question from the line of Yash Mandawewala from Mandawewala Family Office. Please go ahead. Hi, Aalok. Congratulations on a phenomenal quarter. Thank you. Aalok, just a few questions from me. Firstly, one, noticed is that, you know, the average salary cost per employee for some of our peers, the larger MFI, NBFCs, are significantly higher than ours, you know, almost 50% to 60% more. Can you elaborate on, you know, why this might be? Is it, are our field force employee salary is not competitive with the market, or, you know, is there something else? I don't think so that is the case. I don't know where you are getting the data on the average salary, but I would be... [crosstalk] Dividing the employee cost. You give the number and the employee cost as well. Most of your peers do as well. Okay. I don't know. I don't think that is the case. Might be some nuances with the numbers of reporting and other things. But, certainly there is not a 40%, 50%, 60%. There might be a 10% to 15% difference, here and there from different companies, but, I don't know. I would be curious to look at the numbers that you are looking at. Sure. On the field force, there's nothing, sort of the salaries are not much different industry. No, I mean, there are, you know, our overall salary might appear lower, but then for older employees, we have a fairly generous ESOP program, you know, which creates a lot of wealth. I mean, it's broader than sense-wise. I think a lot of employees have done much better at Arman than they would have at our peers, if you, if you count the complete package. No, I would say that we are probably right around average or maybe slightly below average of what we pay out, but certainly I would not say that we are 50% to 60% below. I don't think that that is quite possible. All right. Maybe I'll, we, we can maybe connect offline, and I share the numbers, from, you know, from the deck and the other people's, the other company's decks, and we can have a conversation around that. Sure. Just another one. On the board meeting this time, a provision for a, for a fundraise as well. You know, if possible, can you give some more on that? And, you know, when we will look at potentially raising, these funds? I know that this is something that we always do every year. Historically, it will be the same, that we always take enabling resolutions for both NCD raises and also for, you know, equity raises as much as so specifically for QIPs only, I believe. You know, for private placement, it's not possible to take enabling resolutions. You have to go reach out to the shareholders as and when the time comes. Of course, a very time-consuming process. The purpose of taking enabling resolutions is just essentially that if there is an opportunity, usually those opportunities come and go quickly. It's, it's, it's convenient administratively to have those enabling resolutions and approvals in place. Now, specifically of your question about fundraising or equity fundraising, I mean, you know, we just raised, as you are aware, well aware of, just raised about INR 115 crore about 11 months ago. You know, we are not... We are at a debt equity ratio of what we make, about 3.7 or so, give or take. We don't exactly need equity at this point. Of course, we are adding a lot of internal accruals to our net worth. As long as those accruals can keep up with our growth, we okay. Now, the, the, the disclaimer here is that, you know, right now is a good time. If there is an opportunity available, I'll probably consider it, you know. You know, I, I think I learned the hard way, my own experience about that equity is rarely available when you need it. It's only available when you don't need it. On a lighter note, that's, that's the life lesson. We'll see. Nothing, nothing, nothing at the current juncture. Nothing on the, on the table at this point. Makes sense, Aalok. congrats again on a great quarter. Thanks. Thank you. Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone now. We'll take next question from the line of Amit Shah from Ace Investments. Please go ahead. Hi, sir. Sir, I have one question. Sir, currently, microfinance contributes a major chunk of the portfolio. Do you have any plans to diversify the order book? I mean, you know, microfinance has become a large chunk, as a function of its growth potential. I think, people who know a bit of our history will know that the longest time our bread and butter was two-wheeler financing, which has now become about 3%, 4% of the book, total. That it is, we don't have anything too crazy on the horizon right now. We would be considering products which kind of fit our overall rural strategy. Of course, I know I've been talking about, like, stuff like micro bank and stuff for a while. That is something that we can go into, and, certainly the desire to do it if it's feasible. We have tried to do it in the, the past, to be honest with you, but the paperwork has been challenging. Just its availability to actually do a mortgage in the rural segment has been a, a challenging part of starting a business like that. Let's see. I think of, as, as we go on and as microfinance expands, what will happen is that the growth will start tapering off, and the other businesses like MSME and individual loans will start growing. In the long run, my guess is that the weightage which you will see in microfinance will naturally start trending downwards and be replaced by other higher growth businesses. Okay, sir. Thank you. Thank you. We have our next question from the line of Savi Jain from 2Point2 Capital Advisors LLP. Please go ahead. Hi, Anu. Can you hear me? Very well, sir. Yeah, yeah. What's, what's going on? I don't know if I missed that, you know, but I just wanted to know about these senior management changes that you have announced. What, if you can just tell me something about that? I mean, I think this was a while back, right? The Chief Operating Officer. Yes, Chief Operating Officer. No, no. The, the other one, HR head and internal audit. HR head is here only. He's still here. He's going to be here for a while now, for at least the next six months. He has expressed a desire to relocate to a foreign country preparing for that. That's it. There's no, there is no resignation from Ravi at the moment. Okay. Then, I think there's some internal audit head that he... Basically, internal audit was a function of the CRO. Okay. It fell under the CRO. We have essentially split that now. CRO, whenever we do replace, will be a separate function and audit will be separate. This is a brand-new position. These ESOP program, these are aimed at, till which level of employees, the new programs that you have? All employees. The The employees that has been with us for over two years. About 700 plus employees would be eligible from anywhere from 50 shares to 4,000 shares at the highest level. The average would be about 300 shares, I guess. We have made it very... [crosstalk] Okay. This includes branch level employees? Yeah, yeah, it includes field officers also. Okay. Includes office boys also. Mm. Great. Best of luck. Thanks. Thank you. A reminder to participants to press and one to ask a question. We have our next question from the line of Karan Mehra from Investments. Please go ahead. Hi, thank you for the opportunity. A couple of questions from my end. Can you help me with, like, how many customers are unique to Arman that is new to credit and Arman plus one lender? Yeah. I mean, I can tell you that at the time of disbursement, about 20% to 30%, let's say about 25%, 20% or so, 20% to 25% are either unique to us or new to credit. But of course, once you give the loan idea that who they may or may not borrow from. I wouldn't know on a portfolio level, but disbursement level, that's where it stands today. Let's call it about 20%. Understood. one, with regards to provisioning, will we continue with our current provisioning policy? What are the total provisions that we have as of now? INR 73 crore, right? 3.5% of the portfolio is what our current provisioning is, which is slightly more than we need from both an ECL and regulatory reasons. I mean, there is a management overlay on that, so bit of a slush fund. I know people do like and appreciate pre-claim provisions over and above. I know people do like pre-claim provisions over and above what is statutorily or what, see, require us to do. You know, I mean, these are all Being an accountant myself, when you run into trouble, it's not going to be any accrual reserve that is going to come to your aid, right? It's going to be cash liquidity and equity. I mean, to me, I'm kind of neutral.... about creating provisions, you know, I mean, it's an accounting line, but then so is reserve and surplus. You know, you can always use that too, against write-offs. Of course, the main benefit is that it smoothens out your PNL during crisis. Other than that, I don't think it helps you much besides that. Of course, I reserve my opinion, minority of this opinion. We continue to create a management overlay also. Okay. can you help me with the [inaudible] number that we took this quarter? The laptop number? The write-off. Write-off number. Write-off. Write-off. Write-off is INR 10 crore. About INR 10 crore, INR 10, INR 10 crore. Okay. Thank you, and all the very best. Thanks. Thank you. We have our next question from the line of Jigar Shah from AK Securities. Please go ahead. Yeah, thank you, sir. Thank you for this opportunity. I have a couple of questions. What would be the average cost of borrowing for the quarter? In the MSME segment, yields of 36%+, are these sustainable in the medium term? It's sustainable in the short term, probably in the medium term as well, unlikely in the long term. Okay. As competition increases, that you should expect that to probably come down. That being said, it's a few players that are operating in this segment. Remember, MSMEs are very, very broad term. Even like certain loans that we take from PSU banks and such is also falling under SME or something, you know. The range is like between INR 50,000 to INR 50 crore, people classify sometimes as MSME. At the level we are doing it, our rates are not very, very different than, you know, that a lot of our competitors are doing. I don't want you to get the idea that we are an outlier in terms of rates. Thank you. We are probably around average. This is a kind of a high-yield business, and it's high yield because it's a high OpEx business. You know, the operating costs are much, much higher in MSME than it is in microfinance, for example. You are doing door step collections on individual level instead of on a group level, that also increases your expenses. You are doing a much more stringent form of credit from a completely separate team. That increases your cost. You know, the type of people you have to hire is probably a lot more qualified. Theoretically, although I have not used it, book-wise, it's slightly more riskier also, is at least what they claim. The yields are basically a function of all of that, you know. Number one, low penetration and low competition. number two, it's, high OpEx. number three, higher risk, apparently, but... [crosstalk] Got it. Thank you, sir. This helps. I just had another question, that cost of borrowing for the quarter? Average borrowing cost will be, I mean, all inclusive cost would be about 12.5 or so. About 12.5. In fact, this quarter since the larger part of about 70% of our PSU banks. Right. Right. Pretty good. It's when the rates in the market have been going up, I'm sure you are aware of that. Yes, yes. Mm-hmm. We could borrow it at 2022 versus what we can borrow at 2023. Even though our ratings are better, overall costs have gone up significantly for, you know, reasons that I'm sure you guys know better than I do. Got it, sir. Thank you so much. Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to management for closing comments. Over to you, sir. Thank you so much. Thanks to everybody for joining. It's a good quarter. I think hopefully we can keep the run going. I thank everybody for their support and very insightful questions. Thank you so much. Thank you, sir. On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your phone.