Ladies and gentlemen, good day and welcome to the Five-Star Business Finance Q2 FY 2026 earnings conference call hosted by DAM Capital Advisors. As a reminder, all participant lines will be in the 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, please signal an operator by pressing Star then zero on a touch-tone phone. Please note this conference is being recorded. I now hand over the conference to Mr. Sanket Chheda. Thank you. Over to you, sir. Yeah, thanks. I am very. Good evening to all of you. We have with us the management of Five-Star Business Finance to discuss their Q2 results and outlook. Thereafter we have with us Mr. Lakshmipathy Deenadayalan, who is the Chairman and Managing Director, and Mr. Srikanth Gopalakrishnan, who is Joint Managing Director and Chief Financial Officer. Without further ado, I'll hand the call over to Mr. Lakshmipathy for the opening remarks and then follow up by question and answers. Over to you, sir. Lakshmipathy. Challenges. Yeah. Thank you. Thank you, Sanket. Good evening. We welcome all to the Q2 earnings call. As we have updated in the last quarter, we have given a stable performance in the current quarter across various metrics. The downtrend that we witnessed in Q1 has been arrested in the current quarter, and from here onwards we believe that we would see some green shoots emerging in Q3 and a much stronger performance in Q4. We have taken several strategies and actions towards this across sourcing, credit underwriting, collection, and risk oversight. These are marked out as focus areas for us in the quarters to come, and we believe this will pave the way for building a bigger and stronger portfolio in coming quarters. While our asset quality and credit cost have seen marginal impact in the current quarter as compared to the previous quarter, these still stack up better than many of our peers operating in the small ticket secured and unsecured loan space. As I had said in the past also, we believe that a trend reversal is likely on the horizon and is expected to play out over the next couple of quarters. Our investment in physical infrastructure and people continues, as can be seen from the addition of 33 branches and 769 business and collection offices during Q2. During this quarter, we disbursed INR 1,196 crores of loans as against INR 1,290 crores in Q1. The drop in disbursement can be attributed to the additional controls that have been implemented for the first time during this quarter towards onboarding the right customers. With our system getting attuned to these changes, we should start seeing increase in disbursements and increased AUM growth in quarters to come. Our collections from unique customers and overall collections have remained stable compared to the previous quarter. Collections from unique customers stood at 95.1%, the same as last quarter, and we have seen an improvement in the overall collection efficiency, which went up from 96.3% in Q1 to 96.7% in Q2. These metrics show early signs of revival, though in a gradual manner. During this quarter, we availed incremental debt of INR 1,068 crore, and the cost of incremental debt came in at 8.56%, which is marginally lower than the cost of incremental debt borrowed during the previous quarter. Cost of the funds on the book has dropped by about 25 bps-27 bps, and given our cost of incremental debt, we should see improvement in the cost of funds for the full year, with incremental yields on HACC coming in lower than the book yields. Since we are lower our yields in last November, we expect to bridge a good portion of the yield drop through drop in cost of funds. We continue to have a robust liquidity on the balance sheet of INR 2,360 crore. For the quarter, we achieved a PAT of INR 286 crore, 7% higher as compared to the previous quarter. Even during these extremely challenging times, we have been able to achieve healthy return ratios, as can be evident in the increase in return on assets from 7.24% in Q1 to 7.49% in the current quarter, and an increase in return on equity from 16.57% in the previous quarter to 16.91% in the current quarter. I am also happy to inform all of you that we have commenced our housing loan product during this month. The first few logins have come in and are in various stages of processing. While this may not have a significant impact on growth for this financial year, this would be a lever of growth for the coming years. We expect to deliver on the guidance for this financial year that we have given you and look forward to a much better and stronger second half of this financial year. Now let me invite Srikanth to take you through more on other numbers. Good evening to all of you after a difficult quarter in Q1. When we had met you all post our Q1 results, we had very clearly guided that we expect the second quarter to be a quarter of stabilization, and as we speak, we stand mitigated in our belief the second quarter has been a stable quarter across various metrics. As Mr. Pathy has pointed out, he has touched upon many of the operational metrics. Let me quickly delve into a few of the financial metrics and then open out for any questions that any of you may have. Our yields continue to be around 20%- 23.2%. We have had a good drop in the cost of funds, which has come down to about 9.27%. The spreads have fairly remained constant on a sequential basis at around 13.9%. The NIM again has been consistent on a sequential basis, but obviously NIMs have an impact of leverage getting built up. It will continue to drop as we go forward and have a good portfolio growth. Our cost to income ex credit cost is largely stable at around 31%. The credit cost guidance that we revised last quarter, we have been able to maintain the credit cost at around 1.34%, which is very marginally higher than what we had in Q1. Even across asset quality, collection efficiency, and in the credit cost, we have remained stable. This has resulted in an attractive ROA of close to 7.5% and an ROE close to 17%, which are very good numbers given the trying times that we are all in. From a debt perspective, lenders continue to see us as a very strong borrower. We did avail more than INR 1,000 crores during this quarter. During the quarter, we also onboarded JP Morgan, one of the largest banks in the world. This was for a very sizable investment into our PTC of close to about INR 650 crores, about $75 million, and at fairly attractive rates. Not just any lenders, but even pedigree lenders are looking at Five-Star as an attractive destination to lend their monies to. We should be able to build on this foundation, which will also aid in our asset growth in the quarters to come. Our collection efficiencies have been largely stable. Unique collection efficiencies stood at 95.1%, and we saw an improvement in the overall collection efficiency by about 40 basis points. We believe we should see improvements coming in Q3 and hopefully a much stronger quarter in Q4. On the provision coverage ratio, we continue to hold close to 1.9% of provisions on the overall book, while our PCR on the stage three assets dropped a little bit. This is purely on account of the write-off that we have taken. If you would understand, whenever we take a write-off, these are typically deep delinquent assets on which we carry a much larger provision. There will be a drop in the provision coverage, but we are still having a very healthy provision coverage on stage three at over 45%. When you compare this with peers in the industry, this still stacks up as one of the high numbers. On the profitability side, we had a good quarter, so our profits grew 7% year on year. On a sequential basis, we clocked a profit of about INR 286 crores during this quarter, which resulted in the net worth of about INR 6,800+ crores as of September 30th. On various metrics, this has been a calm and a stable quarter. Our belief is that we should start seeing improvements coming through in Q3, which will pave the way for a stronger Q4 and thereafter. With these opening remarks, we are happy to take any questions with any of you. Over to all of you for any questions. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the Touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Ranesh from ICICI. Please go ahead. Yeah, hi, sir. Am I audible? Yeah. Yes. Yes, Ranesh. Yeah. Sir, two, three questions from my side. One on this early bucket. Right. 30+ has again gone up to more than 12% since COVID. How do you see the bucket moving going ahead? I mean, obviously you did mention about tightening head filters, etc. Do you see any green shoots in October or any early sign of the bucket pool softening down going ahead? Ranesh, our thought process is going forward, at least for the next three to six months. We don't want any buckets to bulge up, we want to bring in a stable performance across all buckets. That's our prime focus. If you see unique customers at 95.1%, that means there will be some slippages from current to arrears. That is inevitable. We are trying to arrest that in this quarter. Hopefully, I'm seeing this quarter the focus will be more on current customers, not much slippages from current customers. Eventually, this 30 bucket will start stabilizing and coming down. Okay. I mean, so basically what you're trying to say is the current focus is containing flow forwards in the already delinquent pool, and the every bucket pool, you know, might start improving after a couple of quarters. Is that what you are trying to highlight? From this quarter onwards is what I'm trying to say. What you said is right from this quarter onwards. Okay. Okay. My second question is around this disbursement run rate, right? I mean, last year or so we have added almost 140 branches, added more than 2,500 people. Disbursement has been a little curtailed. I understand that we have been very guarded when it comes to sourcing new customers, etc. When do you see the disbursement run rate start picking up meaningfully? When do you see this, the infrastructure which we added in last year or so start generating business? See, as I said in my opening remarks, we have brought in the underwriting tightness and risk oversight by creating layers before a file even gets into the logging stage. This kind of controls is very new for our system which we have done in last quarter. Close to 5,000 offices are there, close to 1,000 VMs are there to get attuned to this new system. It will take some time. That is why we said in Q3 you will see a better performance and a very stronger performance in Q4. Okay. Okay. Basically, this quarter most of the operating parameters are sort of bottomed out, I mean business plan as well as the sort of credit out. Is that the correct observation? Yes, that's our belief. Okay. I do have a few more, but maybe I will come back in the queue. Thank you very much and best of luck, sir. Thank you. Thank you. The next question is from the line of Viral Shah from IIFL Capital. Please go ahead. Yeah. Hi. Thank you for the opportunity and I would say congratulations on good set of numbers. Mr. Pathy, if you can elaborate on two things. One is the changes that you have highlighted and mentioned also in the press release with regards to say the sourcing underwriting. If you can just elaborate and try to give us a flavor of what are the things that you have changed and consequently because of that, do you think like how much time do you think we will take to go back to say a INR 1,400 crore kind of a quarterly disbursement run rate? That is my first question. The second is on the asset quality front while I look at the unique collection efficiency remaining stable QoQ. The overall collection efficiency has started improving. This has been actually accompanied by our net slippages improving both on stage two and three. First of all, do you see now the recovery starting to come back even from delinquent customers? Secondly, more importantly while you're talking of we are on the cusp of it how strong this improvement could be. Can we start seeing a 30+ DPD reducing from say Q3 onwards? Those are my two questions. Probably I'll come back in the few further questions So I'll start with the second question. I think as I said in the first one we want to stabilize one more quarter from each DPD buckets perspective. We are not here to say that reversal will start happen in this quarter. We wanted to stabilize in this quarter and we will see the reversals happening to the extent possible in Q4. That is our plan of action as we move forward on this. We are putting in collection effort and legal recovery team as I mentioned in last call also a good chunk of legal recovery team is being put in place where they are starting to yield good results. That is why you see whenever a NPA gets closed you get lot of coming back to us. That is where you see the collection efficiency has gone up. The legal recovery team is doing extremely good work and you see a lot of reversal happening going forward. On the first question on the disbursement side I think the over the levels that what we have increased from a supervisory perspective is giving us a good result. Just to share some data, in Q1 we had a 25% rejection ratio whereas in Q2 we had a 41% rejection ratio compared to login files getting in. That is how I measure the strength of layers that we are putting from a quality files perspective, showing a good result from a system perspective. As I said, 5,000 people of sourcing and 1,000 branch managers of sourcing attuned to this system is new for them. It will take some more time and some more months to get attuned. This quarter we will see better disbursement compared to Q2 and a stronger disbursement coming in Q4. Got it, sir. Viral. Thank you very much, Viral. I think Mr. Pathy has clearly articulated the changes that we have done. One other thing that we have been highlighting to you even in the past also is the slight shift in focus on customer profile. While the branches have been a little more attuned towards focusing on sub INR 5 lakh ticket size, today we are moving the focus slightly towards the INR 3 lakh- INR 5 lakh and INR 5 lakh- INR 1 lakh. That also takes a little bit of time. The changes that actually made is in terms of going behind the right customers and ensuring that these are underwritten in a stronger manner by stronger people. We have added more layers in terms of doing the underwriting checks, which has caused a little bit of an impact in this quarter. I would say that most of that had been ironed out. If you look at September standalone, the numbers have been very good. In fact, we have crossed more than INR 500 crore of disbursals in the month of September and we should start seeing good run rate coming in Q3 and Q4. Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead. Yeah, thank you for taking my question. The first one is, I mean if you could give some geographic color around what is it that we are seeing during this quarter, which are those geographies where we have seen in physical and likewise, given that we are expecting Q2 or Q3 to be a proper period of stabilization and improvement from Q3 onwards. I mean which are those in particular which will contribute to that? The second question, sir, that I had was on the guidance front. Now that we are looking at three things, realizing it's much stronger improvement, composure, how is it that we are looking at the rest, remainder of this year in terms of growth, in terms of credit costs, as well as if you could speak a little bit on FY 2027 in terms of guidance. Lastly, the bio acknowledge that both the MFI and the micro LAP product that we do are very different. I mean for at least the last couple of quarters, right? At least in MFI business we have seen that the goal post has just kept moving after every quarter. In other words, what I mean is we are still seeing some of the NBFC- MFIs increasing their credit cost guidance for the coming quarters and the next few years. How would you look at that given that in the past we have acknowledged that maybe 40%- 45% of the customers, that is an overlap of microfinancing. Just these couple of questions. Thank you so much. The first point, you know you're talking about the geographic color. Like we said, I think we have seen a good amount of stabilization across the various geographies. There is no specific geography where we can point out a more than normalized improvement or a more than normalized worsening. The one geography which continues to be a little bit of a concern is Karnataka, where the numbers are still a little higher. Given that our portfolio in Karnataka is only about 5%- 6%, this is not going to have a very significant impact on our overall AUM. Otherwise, we have seen improvements even in the other bit of a problematic geography that we had, which is Andhra Pradesh. Even there we have seen some bit of improvement happening in this quarter. Largely, the 18 basis point increase in NPA has been, I would say, uniformly contributed across the geographies. There is no specific geography which has seen significant improvement or significant worsening, which is also giving us a good hope and belief that overall at a macro level also things are getting settled in, and from here onwards we should start seeing things improving. There is no specific concern on any geography at this point of time. The concern again is on the ticket size. If you look at across our portfolio, we see higher delinquencies or higher NPAs still in the sub INR 3 lakh ticket size. If there is a geography with a little more pronounced proportion of sub INR 3 lakh, that geography is probably showing up a little bit of a higher number in terms of delinquencies and NPAs. Otherwise, we are not seeing any geographical differences in any of the states. Coming to your question on guidance, Abhijit, at this point of time we would like to say that whatever guidance we have given you in the past, we are not changing the goalpost at this point of time. We still hope and believe that we should be able to deliver on our guidance. Mr. Pathy also talked about this in his opening remarks. We still believe that we should be able to deliver on the guidance that we have given you. At this point of time, there is no change in guidance either on growth, profitability, asset quality, or credit cost. Sorry, could you please remind on the third question? Third question was around this micro LAP and NFI where I acknowledge that [audio distortion]. This is a point that we have anyway clearly told you. While there is an overlap from an MFI borrower perspective, the behavior of the borrower is very different when it comes to different products. While the borrower definitely tries or is hopeful that we may be able to get benefits from a secured map lender also similar. Abhijit, is that your line where we are seeing quite a bit of disturbance? Okay, yeah. Now it's okay. Sorry. Yeah. What you're saying is while there is an overlap and we saw a temporary issue because there was a little bit of a behavioral issue from the borrower side when they saw that microfinance had written off their loans, the collection efforts had reduced and there was a hope that secured lenders also will follow that path. When they see secured lenders coming to them, following up more frequently, taking necessary legal actions, the behavior definitely changes and that is what we are seeing in this quarter. While it is still happening in a very gradual manner, we still believe that just because a borrower has taken a microfinance loan which could have been, while his belief might be there, the question is depending on the actions that the lender takes, the borrower's behavior will also shift. We are still confident that even those borrowers who slipped in Q1 we will be able to collect the entire money back from them. The question is, you may not be able to do it through let's say a regularization kind of route like collecting multiple instruments from them. You need to bring them back towards the behavior of paying one installment every month. Then it's just a question of maybe one or two months extension in tenor by which time they will pay up their entire loan. We don't really see any impact in our eventual losses or in our eventual ability to recover from these borrowers. Got it, sir. This is useful. I just wanted to speak in one follow up question. While you said that there is no change in guidance, just wanted to understand from next fiscal year onwards what should be the steady state credit cost. Abhijit, we have told you in the last call itself the credit cost guidance changed what we said in last call from 0.75 to now it's 1.25- 1.35 range. We will hold it for a shorter period of time, right? I don't think next year we are going to change the guidance on credit cost. This product, this customer needs, this kind of credit cost is what we have concluded and we have told that guidance this will hold on for at least next 18, 24 months. Thank you. Thank you so much. I wish you. Thank you. Thank you. Thank you. The next question is from the line of Raghav from Ambit Capital. Please go ahead. Hi. Thanks for the opportunity. I just have two questions. One, business officer count is up from 35% versus last year. Obviously, the focus has been mostly on collections. When you decide to press for growth, will you continue to hire with the same intensity or will it be lower? Even the current capacity that you are creating can be utilized for growth. I just wanted to understand what are your thoughts on this? Yeah. Yes, Raghav, you're right on that. Building the infrastructure should not stop unless until your business runway looks very, very dull. Our business runway looks very bright. Today the biggest opportunity is small business loans and small secured loans. We are continuously creating the infrastructure, and if we see the stabilization continuing and no more damages happening to the repayments, I think then the press, the business has to be moved up. That is what we are expecting in Q3 a little bit and Q4 more strongly. Just giving you a breakup, the 700 odd offices that Mr. Pathy alluded to in this thing also has collection offices. It's almost like 500 business offices and about 200 collection offices. We are strengthening both sides of the operations such that we have the necessary infrastructure when we want to press the pedal of growth. At the same time, we are building a good collection support to ensure that there is no slippages. Understood. The stability in unique collections that we have seen in Q2 over Q1 is a result of that. Is that understanding correct? Because of the investment that you've done in hiring collection officers over the last one year? That's right, Raghav. Understood. One more related question is that, you know, you said that 1.25%, 1.3% is something that should be a steady state number on credit cost. Does that translate into, say, 4.5%- 5% kind of static NPAs? If you were to look at NPAs in a static pool, does it translate into that kind of a number? Around 4.5%. I'm just asking for my modeling purposes. So Raghav, we'll take it offline. We've not really looked at that. The number seems a little high, what you're talking about. Obviously, then on a static pool, whatever we used to guide about 3% or 3%, 3.5% on a static pool will go up. I'm not sure if it will go all the way up to 5% and all that. Let's take it offline. Sure. Just last question. The write offs were quite high this quarter. How much more do you expect to write off in the second half? How should one think about the stage three coverage? Will you take it back to 50% over time? The way you should look at it, Raghav, is it is done for the first half of the year. While we have done it in one quarter, it's for the first half of the year. We are talking about, let's say, INR 50 crore write off that we have done. It's broadly, I would say, 25, 25. In the next two quarters, the write off will be a little higher because we would want, the financials allow that, and we would want to take benefit of technical write offs. The write offs will be a little elevated compared to the run rate that you saw in the first half of the year. Maybe from your modeling perspective, you need to bake in a little higher write offs for the rest of the year. From a provision perspective, as we take more write offs, mathematically the coverage will come down. The current regulatory climate is also that they are not really pushing for any specified coverage number on stage three. It will largely be guided by our ECL model and our LGD, which probably should be somewhere around the 40%- 45% kind of a range. It is not like we are working with a specified number in mind. It will be coming out of the ECL model at this point. We don't envisage taking it back to 50% just from a number perspective. If the model throws 50%, let us say for whatever reason at a later point of time, that's the number it will be. If the model throws, let's say, 42%, it will be 42%. Understood. How much [DYTO] can you build for [secondary]? Are there any numbers? Why don't we just take it offline? Sure. Yeah. Thank you. Thank you. The next question is on the line of Amit Khetan from Laburnum Capital. Please go ahead. Hi, thanks for taking my question. My first question is on OpEx. If I look at the last couple of years, our OpEx to total assets, average assets, has been in the 5%- 5.5% range. That was a fairly benign credit environment. Going forward, as you're guiding to higher credit cost as well as beefing up the collection and legal recovery team, how do you expect this issue to evolve on a steady state basis? Amit, this is again something that we've been talking in the past also. Generally, at least for the short to medium term, the guidance continues to stand at about 5%- 5.5%. While we will definitely get some benefit of scale, we will also be upfronting certain investments in terms of collection support, in terms of technological investments and all that, which will continue to keep the OpEx a little elevated than where we would like to be. I think we should build in about 5%- 5.5% of OpEx for the short to medium term. Understood, understood. Second question was on the housing loan product. Can you throw some more color in terms of what is the customer profile you're targeting? What are the yields, ticket size, and geography that you're currently looking at? The housing loan product has actually been introduced in some of the safest and the strongest branches of the company, about 175- 200 branches. We are expecting to lend to the same profile of customers, slightly maybe people whose expectations are a little higher. Average ticket size of about INR 6 lakh- INR 8 lakh, because these are people whose expectations are higher, but maybe the incomes from a LAP 10-year perspective don't match up. Given that they are going to be using this money for housing, we are expecting a yield somewhere around 16%- 18% and lending for up to 15 years or so, or maybe beyond that depending on the requirement of the customer, which will make the customer qualify for, let's say, a INR 7 lakh, INR 8 lakh kind of a loan. That's the profile and the product characteristics that we are targeting. Got it. You intend to apply for a separate housing license or how should we think about that? Currently? Not now. Not now. I think there is an echo coming back. Got it, got it. We would be disadvantaged, right, because of the—we can't access NHB Housing Finance. I think Srikanth has told you from a debt perspective and the pricing perspective is very attractive. We are able to get the current debt at around 8%. For the housing, which is the priority sector, we may even target lesser than that percentage, which will augur well for us. Debt and pricing will not be a problem. Got it. Thank you and all the best. Thank you. The next question is from the line of Kunal Shah from Citigroup. Please go ahead. Yeah, thanks for taking the question. Firstly, when we look at in terms of the number of people, maybe on a quarter-on-quarter basis, there's almost like housing which has got particularly the business and collections, and that too I would say maybe more on the business side. Is it really confidence with respect to preparing ourselves for the growth? Is that the right observation? Yes, Kunal, you're right. Close to 800 officers have been recruited in the last quarter. Out of that, if you see, 600 has gone to business and 200 has gone to collections. Rough figures. This clearly indicates the focus is back on business when the collection gets stabilized. As I've been saying in the call, you see the pedal pressing for the business which will happen in Q3 and Q4. Yes, we are preparing for a good business. Got it. Secondly, on the account side, is there some retailing which has happened or maybe have they been moved to some other place? Because almost like 180, 190 people moving out of accounts. Is it something like maybe they are getting towards the business side of it? Has there been anything— No, no, no, no. Kunal, what we have done is you would see that number a little more at the operations side. Earlier, we used to have an operations officer and cashier. If you see, the drop will be in the cashier side. We used to have a cashier and an operations officer in a particular bank branch. Given that the cash proportion has significantly dropped and the newer branches, the digital adoption has been extremely high. What we are now doing is we are only having 1 person, so not having 2 persons for cashier and operations officers s eparately, they are having a branch support officer. Those have been mapped under operations. None of the accounts or cashiers people have actually moved to business and all that. They'll be doing both cash receipting in the branches and also doing the operational support for the branches by acting as a branch support officer. Okay. Almost like 190 of cashiers coming off and operations officers are going up by almost 50 and so on. That's right. Yeah, that's right, Kunal. As you see in our presentation, our penetration is moving up from 81% to 82%. Slowly, gradually, we intend to take it to 85%. The work of cashiers is going to come down as we go forward, so we are deploying them in the operational work. Perfect. Got it. Thank you. Thanks a lot. Thank you. The next question is from the line of Ajit Kumar from GM Financial. Please go ahead. Yeah, thanks for the opportunity. Question from my side. First, coming to FY 2026 again, which is roughly 25% versus 18% growth currently, our rate in terms of disbursement becomes very steep. Almost around INR 1,800 crores-INR 1,900 crores of disbursement per quarter period. In next two quarters, it is INR 1,200 crores-INR 1,300 crores of disbursement that we are doing currently from March, eight to nine quarter. Do you think this kind of acceleration in disbursement in second half is possible? Ajit, if you look at disbursals in Q4 of last year, we were almost at about INR 1,400 crores-INR 1,500 crores of disbursals. If not for the issues that we probably faced in Q1 and some consequent changes that we have done because of that, we would have been disbursing more around, let's say, INR 1,500 crores, INR 1,600 crores kind of disbursal run rate in the first half of the year. To move towards, let's say, INR 1,600 crores-INR 1,800 crores is not difficult in the second half of the year. Obviously, the company will keep the necessary caution in mind before stepping up the disbursals. Our point is it is not something that is not doable. We have done it in the past and based on our run rate, we should be able to do that. It's not an unachievable number, but we'll definitely keep various aspects in mind before pushing the pedal of disbursement. At this point of time, we are not revisiting our guidance on our growth. Sure. On credit cost, just wanted to confirm again, FY 2026 guidance is 1.25% to 1.35% as you allocated just now. In last quarter call, credit cost guidance was 1.2%- 1.25%. They wanted to reconfirm credit cost. Even last quarter. Last quarter we said 1.25%- 1.3%, 1.35% only. The guidance stands. We have not changed our credit cost guidance. It will be about, you know, around 1.25%- 1.3%. This is as a percentage of AUM, right? Not as a percentage of assets? No, no, no, no. This is as a percentage of total assets. When you compute on AUM, this number will be, you know, more around 1.5%- 1.6%. Okay, okay. Okay. Just last one has been lagging from last few quarters and has come down to the mid 10% odds in this quarter. Any issue, Tamil Nadu, in terms of growth or asset quality as it is your home state? No, nothing, nothing. Tamil Nadu is gearing up very well and the collections also is very good. You see a good amount of rundown is also happening in Tamil Nadu when the collections are stacking up very well. I don't see anything coming up. You see improvement in this in next six months also. Slowly that state will move towards 30% of overall AUM. Okay. Okay. Sure. Thanks. Thank you. Thank you. The next question is from the line of Chandrasekhar from Fidelity. Please go ahead. Yeah. Hi, good afternoon. The yield drop since you've instituted the disbursement cut has almost been 100 bps on the book. Typically, in one particular year you have about 40%-45% that has been originated in that year. This year, obviously a lesser portion has been originated because disbursements have been slow. How could there be a 100 bps drop in book yields when only 35% has been originated during that year? Have you all done some differential pricing of some people even below 22% yields? No, Chandra, this is a little bit of a function of the delinquencies as well. If you look at accounting methodology or interest accrual methodology, that follows an ideal schedule. As per the Indian accounting standards, the unpaid interest gets added back to the principal. Let us say if a customer does not pay, you are accruing or you are charging a penal interest which does not get accrued on books. What happens is the interest as per the original schedule is the one which is in the numerator while the denominator, the interest also gets added. Whenever there is a little bit of a delinquency that gets built up on the portfolio, you will see a little bit of yield drop. If you want to look at the overall number, you should probably add the penal interest to this and compute the yields. Even that will be slightly lower because generally the collection system has been a little muted. It is a function of accounting rather than any other. Any further drops that we have done? Understood. There has been no change. I mean, are they broadly? At about 22%? Yeah, 20%- 22.5%. Understood, understood. Employee cost growth has been 15%. The count is up actually 25%. What is happening here? How is there such a substantial difference? That is the second one. A lot of the growth has actually come in towards the end of the second quarter because collections, we are putting people. When we saw that things are stabilizing, like Mr. Pathy said, the business offices have been added more towards the end of the quarter. You are not seeing their cost fully absorbed yet. That is to say, do not look at an OpEx of 5.07% as compared to 5.47% on a sequential basis. You should probably build somewhere between 5%- 5.5% for the full year. 5.1% is not the indicated number that you will probably see for the full year. The last question is obviously you saying that your recovery legal teams are able to recover from the assets better. My understanding for this business is that the threat of recovery works more than the actual recovery. It's very tough to actually recover. I mean, and given the ticket sizes, you can't even use SARFAESI. How are you, how does. Has there been some change that you're able to recover more now than in the past? Yes, Chandra, I think I've been articulating these things since the beginning. This is the myth that you people think that smaller ticket size loans, properties cannot be sold or brought in for action. There was a conscious decision that the company has taken for the last 20 years not to go into the auction route, rather to negotiate with the customer and collect your dues. That is how we contained our NPA. Having said that, in the last two years since listing, we started to focus on bringing the properties of NPA customers to auction and taking them to the legal proceedings. We have put in a Chief Legal Officer 24 months down the line and today we have close to 150 legal people who are working on legal recovery. That is why I said in the last conference call, also earnings call, close to INR 75 crores- INR 80 crores of NPA will be recovered for the full year. Just to give you the number, last quarter, July, August, September, close to INR 20 crores of NPA got resolved in a single quarter. That again shows even though a small ticket size, the properties are genuine, the legal documents are very clear and buyers are there. We are able to recover close to INR 20 crores of resolutions happening from these delinquent NPA accounts. This will continue. Thank you. Thank you. The next question is from the line of Aravind Ravichandran from Sundaram Alternates. Please go ahead. Hello team, thank you so much for the opportunity and congratulations on the good set of numbers despite tough environment. Sorry to interject. You're quite low. Could you please keep the mic towards your cell phone, have a louder tone? Is this better? Yeah, that's better. Yeah, better please. Yeah. I just want some clarification in terms of, you know, credit cost grade and said, you know, we mentioned 125, 135. Is it on the total AUM or average or like an average, like, you know, balance sheet? It's average. Average balance sheet, assets. Total assets. Oh, okay. Because, like, you know, generally in market, like, we talk about when we say credit cost, it's usually on average. That's why there was a, like, you know, like. If we can, like, you know, make clarity on, like, if it is an average advantage or average, it would be better so that everyone would have a clear idea of what we are referring to. That is my request. We'll take a look. Generally, we have all our ratios on total assets. We don't want to think this, you know, as a separate number. We can give you a guidance depending on how the trend was in the past in terms of how it will look on an average AUM. We can take it separately. Yeah. I would like to understand, like, the new housing loan product we are introducing. You know, like, how are we, like, you know, looking to scale it up? Like, is it, like, you know, are we looking to make it, like, a 5% or 10% or lower next few years? How are we looking to scale up as a percentage of the overall next few? If you can give some color on that. It's a little early to speak about going forward. Now, as we have introduced in October month, we have picked up close to 125- 150 safe locations of Five-Star across India, and we have introduced only for those branches. The logins are coming in, the processing is going up. Maybe in this financial year, we may build up close to INR 100 crores-INR 150 crores of pure housing loan portfolio, translates to 1%- 1.5% of our AUM going forward. Let me give you a good color after six months of being in this product. Maybe after the March quarter. Okay. Okay. Can you look at this? What are the actual write-offs in this quarter? It's about INR 49 crores. Okay. Okay. Thank you. Thank you. Thank you. The next question is on the line of Rehan Saiyyed from Tinetra Asset Managers. Please go ahead. Just I wanted to confirm that my all questions have been answered. Could you please give me the economics of new branches that you have added in, specifically time to breakeven in p roductivity? This is similar to what we have been doing in the past also. Every branch typically takes anywhere between six to nine months for achieving a complete breakeven because they are able to log in. They start with about five officers and each officer logs in about four odd files out of which three get converted, which means it's about 15 files that get logged in on a monthly basis, which will roughly work out anywhere at about INR 5 lakh-INR 6 lakh. When the portfolio reaches about INR 2.5 crores-INR 3 crores, we are able to break even. There are branches which do this in six months. There are branches which do this in nine months. If you look at it, I think historically we have seen that almost 98% of our branches reach this breakeven between six to nine months. There could be some very few outlier branches. Nothing has changed for the newer branches also. Okay. Thank you for clarification and good luck for your coming quarter. Thank you. The next question is from the line of Sanjay Ladha from Bastion Research. Please go ahead. Yeah. Hi sir. Thank you for the opportunity. I just wanted to know that, you know, we are focusing on housing ticket size and, you know, what we have observed and listening to various other players, most of the players are entering into, you know, the secured segment. My question, how you see competition in that space and most importantly, are you seeing will maintain at this level given the competition which, of course, you already highlighted that this is going to drop down going forward as you start taking leverages on that side. If you can highlight more onto that, where we see the stabilization taking place. Hello. Hello. We are unable to hear you. Are you connected? Yeah, yeah. Hello. Ladies and gentlemen, the line of the management has been disconnected. Please hold while we reconnect them. Ladies and gentlemen, thank you for being on hold. The line of the management is now reconnected. Thank you. Over to you, sir. Thank you. Is Mr. Sanjay there? Yes, sir. Thank you, Sanjay, for patiently waiting on the line. We understood your question. The housing loan product that Five-Star intends to commence, I think, is not comparable with other affordable housing players because we are not going to be in the ticket size of INR 10 lakhs, INR 15 lakhs, INR 20 lakhs space. As Srikanth explained in the earlier question, the profile of customers whom we have been built for the last 20 years, for those profile of customers we find there is a huge space for the house to be built. Our average ticket size for the housing loan product we have built will be around INR 7 lakhs-INR 8 lakhs. That is the ticket size and the profile of customers whom we are focusing on. We believe the competition is not as intense as it is if you cross about INR 10 lakhs or INR 15 lakhs. We will be able to maintain the pricing we said, that's our commentary as of now. Just wanted to take a follow-up on that side. As you rightly said, there will be a yield of 16%- 18% annual audit. If my thinking is correct, on 16%- 18% and on lower of the interest expense on that side, you will see some moderation on that side and that number on ROA will drop out. That as well. Am I standing right on that side or as a company are you thinking on a different line? Sanjay, obviously, housing is not going to give you the ROE that our current product is giving. This is something that we have been talking about in the earlier calls as well. Housing, we are doing it from a product diversification and from the market being available where there are customers who are currently being excluded from our lending. We will tap into those customers. It will be a secured product. It will help us on the balance sheet side. Combined ROA will definitely drop because of the housing side. We are not expecting an ROA which will be like 7%, 7.5% and all that. Even the current product ROA will compress given the increase in leverage. Put together, we should be able to deliver you a 6%, 6.5% ROE and at a good leverage if you are able to push it, that should be attractive ROE for the investors. Yes, on a combined basis there will be a compression in ROA, but it will also give a sticker from an ROE perspective. Thank you, sir, for the clarification. My another question will be, as you know, we are very much focused on secured building side and as I see we have a very low LTV as well. We are very much, you know, secured portfolio as we speak. The stage one and stage two increasing and as you rightly eluded in your previous comment that you will see higher recovery going forward. In the past also I have checked your numbers. At times there is a stage one going towards 10, 11 at [522] but that not reflected into GNPA level. This time the scenario is something different. I just wanted to know more clarity on that side, what is happening. I understand the dynamic is such where the numbers are going up, but the previous cycle does not support me and should mean that your numbers are different. I wanted to understand your viewpoint on that side. That is the advantage of a secured product. In an unsecured product, let us say a loan flowing into stage one, one DPD or a stage two, typically you will see it free flowing into stage three and the recovery will be very low because the ability to recover on an unsecured loan is very less. Whereas in a secured loan, while the customer may flip on installment for justifiable reasons, there may be a good event happening in the family or a bad event happening in the family. Given that this is a strong and an emotionally attached asset, the customer will not continuously keep slipping in the further buckets, which would mean that you are able to control a lot of load into NPLs. That is why we have always been saying that our softer buckets will be a little elevated, whereas our harder buckets will be a lot controlled. That is an experience that the company has been paying for the last not one, two years but maybe for the last two decades. That's the nature of a secured loan. Given the nature of the security, you won't see free flows into NPAs. Sir, that's the follow up and it would be last from my end. I just wanted to understand in the quant call also in the previous conversations you have eluded that the asset for quality of on the GNPA side from 2 to you are expecting some 3.5 and credit cost side has also increased but in the past never has been that happened. I just wanted to understand why this discipline is now, is the model is something getting different. I just wanted to understand more clarity on that side. Yeah Sanjay, our guidance what we gave credit cost of 1.25%- 1.35% and NPA's level around 2.25%- 2.5% takes into account because this is the first time we see an over-leveraged crisis from a small ticket borrower segment. The earlier crisis was not done by the lenders. It was being done by the environment and from a government perspective from Demon and Covid. We were able to come out of that because the cash flows were safer and clearer. Even in the current scenario the cash flows are there. The over leverage has made a big dent in the repaying capability of the sub INR 3 lakh segment. That is why we have revised our guidance from 0.75% credit cost to 1.25%- 1.35% and our NPA is up 2% to around 2.25%- 2.5% at least for the shorter term. Clearly, with this kind of ease you cannot operate for a longer period of time at the credit cost. The NPAs that Five-Star was handling in the last 10, 15 years, because the competition is also going up in the segment. People lend more and you have to be adjustable according to the environment. That's why we changed our guidance in credit cost and NPA from last quarter onwards. Thank you so much for the clarity. All the best. Thank you. Yeah, thank you. Thank you. The next question is from the line of Banti Chawla from ASK. Please go ahead. Thank you, sir. Thank you for giving the opportunity and congrats on a good set of numbers. One, just one clarity. FY 2026 AUM growth still stands at 25% for full year, right? Yeah, we expect to deliver. Secondly, on the spreads per se, as you have said, now we are focusing more on higher ticket side customers where the yields are a bit low. Going forward, yields as we have seen in last five, six quarters have just come down to 13.9% kind of a thing. What should be the sustainable run rate when we are focusing on higher ticket size lons? We are talking about sustainability, not on yield. Yes, on a steady state. Okay. 13%- 13.5%. Although we are still having a chance to decrease the cost of borrowings. We have a space for that. But there will be a little more compression needed also as the loans keep building up. Because today they are onboarding loans at 22.5%, so it can come down more to around 22.5%- 23% and whatever cost of them. I think 13%, 13.5% should be a good number to work around. Okay. Okay. Any guidance, similar guidance for FY 2027 if you can share, like on credit cost which you have shared for 2026. Similar numbers. Yeah, I think for FY 2026, 2027 on the spread side we should be at about 13%- 13.5%. AUM growth and credit cost for FY 2027? We will come back to you. At this point of time, given the kind of environment that we are living with, we would like to deliver the FY 2026 numbers. Generally, we come back to you towards the end of the year with guidance for the next year. I think please hold till then. We will come back to you with our guidance. Okay, thank you. Thank you and best of luck. Thank you. The next question is on the line of Abhishek Gulati from AG Wealth. Please go ahead. Hi, am I audible? Yes. Y es. Yeah, yeah. Actually, I was observing the numbers of other lenders in the same regions that are doing asset-backed lending. How are they reporting a bit of a strong asset quality and a loan book growth? Could you highlight, is it the case with us, as we are also doing asset rate lending? In that, don't we add that thing that the person is having more MFI exposure, we should be lending less to them? Have we added these checks now or were we missing them previously? We always had this check. When we are lending the loan, we look at all the borrowings that he has taken, we look at his leverage, we knock off all those obligations and go with a conservative debt burden ratio of 50%. What has happened is, post taking our loan, if he has gone and leveraged himself more by taking more from MFIs, for whatever reason they have been giving the loan to him, how do you control that? The question is not about us not having those checks. The checks have been existent for the last 10, 15 years when we have been operating in this. It is just that post taking our loan, there has been more leverage that the customer has borrowed today. That is something that you can't do anything about, right? We ensure that through the security, we have the priority on the customer repayment. He will typically pay us rather than paying a MFI refinance customer. Understood. In the quarter to FY 2026, two, three microfinance companies, those who have come up with the results, they are highlighting in the conference calls as well that the asset quality is improving and in future it will keep on improving from here on. Are you witnessing the same trend in the MFI borrowers as your borrowers are having that loan as well? Witnessing that the things are gradually improving in the MFI category as well? We are seeing this across the board. It is not like an MFI category is improving or a non-MFI category deteriorating. The good part is, yes, on the MFI category maybe the over leverage is not getting built up. On the non-MFI category also, things are looking up, which is why we have been able to deliver a stable quarter in Q2 and you will see improvements happening from here onwards. Understood. That's what from my end and hope things should improve from here on for us as well. Thank you. The next question is from the line of Mahrukh Adajania from Nuvama. Please go ahead. Hello. My first question is on credit cost again. In terms of your guidance, the credit cost guidance will stay here as in at 1.25%- 1.35% for 18 months. That's because of the below INR 3 lakh segment or just because of the earlier strong growth which leads to the seasoning o f the book. On account of two reasons, Mahrukh. One is because of the sub INR 3 lakh segment, which is still undergoing some bit of a stress. It's not going to come out in a hurry. The second reason, I think a few minutes back, Mr. Pathy was also saying that you cannot keep putting undue stress on these borrowers or on our staff to ensure that there will be no flow forwards or the unique customer collections will be at a very, very healthy level. We need to have a little bit of flexibility, which is why we are saying that our earlier guidance of 100 basis points is a little bit of a stretch target, and we have moved this to about 1.25%- 1.35%, which will give a little bit of a breather in terms of for our staff, and we have the ease and the stretch to absorb this. It's a combination of these two reasons. Got it. Just in terms of growth accelerating in the second half and then even more in FY 2026, do you see any green shoots for growth or was there some growth that you were earlier avoiding and now you f eel more comfortable doing? Of course, I heard you on the bit of housing growth or affordable housing that you would be looking at. The first point is, which I think all of you are aware, the over leverage is certainly coming down. Even NBFC lenders have been talking about the proportion of greater than three loans coming down in their portfolio, which means the trend of the borrowers is that much better. The second reason is we have now put additional filters and additional controls to ensure that the right borrower is being onboarded. With these two filters, once our branches and our staff get attuned to onboarding the right customer and our underwriting norms being able to filter the borrowers a lot better, we should be able to build a stronger portfolio. With the attunement getting better, the ability to onboard more customers will also increase, which will mean better growth. Okay, thanks a lot. Thank you. Thank you. The next question is from the line of Siraj Khan from Ascendant Capital. Please go ahead. Hi. Thank you for the opportunity and good setup. Numbers. Hopefully I'm audible. What I wanted to know with respect to the growth breakdown, I know you said that we look at the guidance for FY 2027 later. Assuming we check 2025 or whatever number, I believe because we are moving to a higher ticket size, a large part of the growth will come from the higher ticket size. Because of housing, again technically a move to a product which is of a much higher ticket size, a large part of the growth will be driven by ticket size improvement. Will that be correct understanding? Yeah, the ticket size increase is right. Because last quarter, last earnings call itself we said our focus will be INR 3 lakhs-INR 5 lakhs which is our core and INR 5 lakhs -INR 10 lakhs is where our exposure will go up. Yes, a combination of these two will result in increase in ticket size. Housing loan, as I said in opening remarks itself, we have just launched it, few files are coming and the process is on. We don't expect more than INR 150 crores of AUM getting built into housing. That will not contribute much of that increase in ticket size and increase in offices count will definitely give us a good return in Q3 and Q4. I was also looking at from a longer term perspective, FY 2028 or FY 2030 perspective. By that time the ticket size will materially increase because of both us moving to higher ticket size on our core business and also on account of affordable housing. Let's say approximately like 50% of the growth would come from the ticket size is what I was getting at. I got that. I agree with. At current moment let's not talk more about it. It's not an issue forward, we can talk much about after this financial year. Got it, got it. Just a couple of clarifications. Of the INR 14 crore write-off, how much is the technical write-off and overall and the total write-off, the breakup that? For us, all of the loans are only technical write-off because we do have the properties and we'll be able to get good recoveries out of this. It's only a question of. Okay. Next on the fee income, what I can see, our fee income has improved during the quarter. What is the fee income that we are tapping into that it is increasing and will this be also like a kind of a cushion that we are adding to our spreads and the overall means. Where do you see this piece with respect to the fee income going ahead? See, on the fee income, this is on account of two things, or technically one thing, which is legal and an inspection fee that we take from the customers for logging in the loan and for processing the loan, which is about INR 4,000, INR INR 2,000 taken up front and INR 2,000 taken later. As the logins increase and as the disbursements increase, this number will look up. It has just gone up from about INR 9.6 crore to INR 11.2 crore, which is primarily improvement in logins that are happening during the quarter. There is no big operation. Depending on whatever disbursements you are modeling, you will have to take a similar increase in the incomes. Actually, I was looking on a year-on-year basis, so it was INR 6.7 crore to INR 11.2 crore, but that is fine. There is no insurance, anything of that sort in the fee income. We just have this inspection, no insurance or anything of that sort. We don't take any insurance commission, whatever it is. This is just legal inspection. We take INR 500 for storage cost. Nothing beyond that. Got it, got it. With respect to the credit cost, 1.6 in. What I wanted to understand was, out of the 1.35%, a big part of it will be our PCR, the provisions that we do. Do we intend, because we want to maybe say bring our overall GNPA also and NPAs down, will we take a conscious call to have a management overlay or something of that sort to push in deeper part provisions so that the asset quality kind of remains stabilized, kind of a liquid, kind of a buffer created? Most of our ECL provisioning comes from the model because we have a very robust ECL model, which has been working for the last about seven, eight years without any major tweaks that we have done. Most of it will be from the model. Obviously, there will be some overlays that we will build in for specific event-based occurrences. If there is a little bit of a stress in Karnataka that we are seeing because of the ordinance, we maintain a little bit of a higher provision there. Most of it will be coming in from the model itself. Final couple of ones, we are seeing a trend in the securitization moving a bit higher the quarter. It's 20% of the total borrowing profile. How do you see this moving? This will also impact our P&L, impact on the P&L on the positive side because of the upfronting and reversal. Where do you see that going? Firstly, please understand these are PTC transactions. There is no upfronting of income. There is no off book treatment. These are treated as on book assets. These are treated as borrowing. That is why we do this. These are not assignment transactions where we upfront the income. From that perspective, this is treated like any borrowing. If a borrower is comfortable doing a term loan, we are happy. If they are comfortable doing an NCD or a PTC or a bond or whatever it is, we are agnostic about that. Thank you for the clarification. Finally, with respect to the states in which this affordable that we have started, which states or any specific state or any group of states that we have, it's not specific states. Across six states, we have chosen the most safest and vintage location and we introduced the product in those locations. Understood. Understood. Finally, on the other location, I mean Maharashtra and other states that have been there, how do we see the plan going ahead? I mean, do we still look to consolidate or do we go to growth in the coming quarters? Siraj, if you are specifically asking about Maharashtra, yes, that is a turnaround state for us. We will definitely grow the state in the coming quarters. There are few other states which will continue to be in an experimental mode. We are trying to understand the geography, understand the borrower behavior and these are Gujarat, Rajasthan, Uttar Pradesh. There will always be a combination of mature states which will be growth drivers for us and early states which will be experimental areas and then which will help us for growth in the future years. Siraj, if there are any further questions, I think we are happy to connect with you offline. Thank you. Can we take a last call or last two calls? Thank you. This would be the last question from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead. Hi, good evening. The first question is with respect to the penal interest. While I see the and the GNPA moving, I don't see the change in penal interest by a CP margin. Second is if we can speak about the concentration of the top 50 branches, top 100 branches, and the top 200 branches. These are my two questions. Thanks. First of all, penal interest is accounted on receipt basis and not on assignment. Irrespective of the GNPA moving up or moving down, it depends on the collection. Just because the GNPA is moving up, you're not going to get as much of penal interest collections. This number will keep moving out depending on arrears in the coming quarters. On your second question, let's connect offline because at this point of time we don't have readymade answers on the top 50, 100, 200 branches. We can connect offline and give you the details. Right. Sure. Thank you. Due to time constraint, that was the last question. I now hand over the conference over to the management for the closing comments. Thank you. Thank you all for attending this call. As we said, this quarter has been very stable, and going forward Q3 and Q4, we expect that growth will come back and we'll meet you soon after the Q3 numbers. Thank you. On behalf of DAM Capital Advisors, thank you for joining us. You may now disconnect your line.