Ladies and gentlemen, good day and welcome to Five-Star Business Finance Q2 FY 2027 earnings conference call hosted by Ambit Capital Private Limited. 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 call, please signal an operator by pressing star then zero on your touchtone phone. Please note this conference is being recorded. I now hand the conference over to Mr. Raghav. Thank you and over to you, sir. Good evening everyone. On behalf of Ambit Capital, I would like to welcome you all to the second quarter FY 2027 earnings call for Five-Star Business Finance. Joining us from the management today, we have Mr. Lakshmipathy Deenadayalan, Chairman and Managing Director, Mr. Srikanth Gopalakrishnan, Joint Managing Director and CFO, and Mr. Prashanth Sreenivasan, Chief of Treasury and Investor Relations. I would like to first thank the management for giving us this opportunity to host the earnings call. We can now begin with the opening remarks from Mr. Lakshmipathy, post which we can open the floor for questions. Thank you and over to you, sir. Yeah, thank you Raghav. Good evening everyone. I am extremely happy to present to you all the details about another quarter of strong performance of Five-Star Business Finance. The quarter ended September 30, 2026, saw Five-Star delivering very strong numbers across various parameters. Our upward trajectory in disbursements continued during the current quarter as well, where we recorded our historical best disbursement of INR 2,078 crores, up 39% over previous quarter and 74% year-on-year. The loan book also saw robust growth with our AUM at INR 14,640 crores, a growth of over 6.7% over the previous quarter and 14% year-on-year. Importantly, this growth has come alongside improving collections and stable asset quality and profitability. Collections continue to trend very well with our unique customer collection efficiency improving to 98.2% in the current quarter from 97.7% in Q1. Along with improvement in X-bucket collections to 99.4% from 99.2% in Q1, which has helped contain forward flows. As a result, the current bucket proportion of our AUM rose sharply from 83.3% to 84.78% and 30+ DPD came down from 12.38% to 11.5%. With our clear focus on containing flows from early buckets, I am very confident that we will continue to see our portfolio quality improving in coming quarters. Slippages eased marginally to 0.68% from 0.70% in Q1, and gross Stage 3 assets were broadly stable at 3.48%, despite macroeconomic headwinds being witnessed across the industry. The credit cost improved to 1.80% of average AUM from 1.85% in Q1. We expect flattish slippages and credit cost for the rest of the year despite the industry headwinds. Let me repeat: we expect flattish slippages and credit cost for the rest of the year despite the industry headwinds. With our collection framework better than expected results, we continue to focus on bringing back the growth momentum Five-Star is known for. With strong collections, controlled slippages and credit cost, we are well- poised to continue our strong traction in disbursements in coming quarters, which will help us cross our growth guidance for this year very comfortably. We availed incremental debt of INR 825 crore during the quarter at an all-inclusive cost of 8.43% and our cost of funds on book eased marginally to 8.78% from 8.80% in Q1. Net interest margin remained broadly stable at 19.87% as against 19.97% in Q1 and was 16 basis points higher year-on-year, showing that our spreads have held up despite the drop in yields. With the tightening rate cycle, we expect to see some inch up in our cost of funds, both on incremental debt and on our book, which would have some impact on spread and NIM. However, we expect to cushion this impact through yield increases on our incremental disbursements, which has been made effective from October 2026. Further, through the operating leverage that we will be able to achieve going forward, resulting from increased productivity, higher growth, tighter control over operational and credit cost, we are confident of largely offsetting the hawkish stance of RBI expected for next few quarters. On the profitability side, we clocked a PAT of INR 299 crore for the quarter, up 10% sequentially and 5% year-on-year. This includes a one-time tax benefit of INR 19 crore relating to previous years. Even excluding this, our PAT was 3% higher on a sequential basis. We have seen improvements to return ratios compared to previous quarter. ROA was up 28 basis points to 8.39%, and ROE up 79 basis points to 15.25%. For the first half of this year, we have clocked a PAT of INR 571 crore, up 3% year-on-year. After a year beset with challenges across multiple fronts, we have bounced back stronger than before. Some of these numbers across disbursements and collections are our historical best and clearly validate the actions we have taken over last few quarters. They have also strengthened our confidence that we are moving in the right direction of onwards and upwards. Let me hand it over to Srikanth for further details. Thank you, sir. A very good evening to all of you. As Mr. Pathy highlighted, this has been our best quarter over the last couple of years, after the last couple of years being beset with multiple challenges facing the company as well as the industry. With all the metrics stacking up very well across various parameters. Alongside our focus on increasing ticket sizes, we have also been growing our customer base, with the active loans standing at about INR 5.1 lakhs, representing a growth of 5% over the previous year. During this quarter, we added 19 branches, and over the last one year, we have added 75 branches. The clear thought being focusing on deepening our presence in our core geographies and also putting up additional branches in those states where we have been operating for a while and developed good comfort across various aspects. Disbursement for the quarter grew by 74% year-over-year, and AUM growth was at 14% year-on-year. We ended September 30th with an AUM of INR 14,640 crores. Yields were marginally down at 22.26%, with the average cost of funds being marginally better. The NIM stood at 19.87%, better than a year ago. While the cost to income inclusive of credit cost remains slightly elevated at a little over 47%, we are also confident that through the operating leverage that we will be able to achieve in the coming years, we should be able to bring this down in the coming quarters and coming years. The return on average assets stands at 8.39%, up 28 basis points sequentially, and ROE at 15.25%, which is also higher sequentially. Our proportion of borrowing from banks stood at about 69%, as against 67% in the previous quarter. Despite tightening interest rate scenario, we managed to avail incremental debt of about INR 825 crores at an all-in cost of 8.43%, which is quite attractive. Our liquidity as on September 30th stood at about close to INR 1,300 crores, and we also have unavailed sanctions of about INR 1,100 crores, which is more than sufficient for us to take care of our requirements over the next quarter. As was stated in the opening remarks by Mr. Pathy, we should expect some compression in spreads given the tightening interest rate cycle, but the increase in yields on incremental lending should help cushion this. On the DPDs, we are very glad to inform all of you that our DPDs improved significantly with 1+ dropping from 16.38%. [inaudible] Even in terms of absolute quantum, the overall Stage 2 assets dropped from about INR 1,225 crores as of September 30th, 2025 to INR 1,173 crores as of September 30th, 2026. Our PCR continues to be at around 40% on the Stage 3 assets, and on overall AUM, it is about 1.73%. This was also a strong quarter from a profitability perspective. We clocked a PAT of INR 299 crores. Even without the one-timer, we are almost at about INR 281 crores, which is 3% higher sequentially. Our net worth stands at about INR 7,903 crores, a touching distance of INR 8,000 crores. The complete focus being that with the disbursement momentum back, the collections holding up extremely well, we are poised to cross our growth guidance for this year in a very comfortable way. On that positive note, we will take a pause here, and happy to invite any questions from any of you. Thank you. 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 their 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. The first question is from the line of Renish from ICICI. Please go ahead. Yeah. Hi, sir. Comments on a good set of numbers. Sir, just two, three things to one on this entire, the broad rainfall deficit scenario. From near-term perspective, how do you see the asset quality moving out? A lso is there any, let us say, the lead cyclical indicator showing any sign of stress? I f not, obviously, in opening remarks, you have already mentioned that there will be a maintaining on guidance in terms of second half at flex repayment credit cost, b ut do you foresee any risk to that at this point in time? Yeah, Renish, I'll go one by one. On the drought, we all know Five-Star operates in many states, but our key states are Tamil Nadu, Andhra, and Telangana, which contributes more than 80%+ AUM. So we don't see any kind of drought in these three states. In fact- Okay. ... this month and next month, we see good rains in Tamil Nadu and Andhra and some parts of Telangana. Right. So we don't see any kind of drought-like situation in these three states. R est of the states, like parts of North Karnataka, MP, and MH, people are calling out. But to be open, as I say today, our collections are holding up in these three states as well. So comparing with September same date, or generally we compare with the first month of every quarter, that is July. So if you compare with July 25th and September 25th with the October 25th, what day has gone, the collections are standing well. So as we speak today, I don't see any collections coming down or asset quality going up issues like things as we stand today. Got it. It is very helpful, sir. My second question is around this repayment rate trends, right? I mean, last six, seven quarters, we have seen a consistent increase in repayment rate. How one should read the data point? I mean, is this because of higher BT out or is there any sort of change in product feature, et cetera? Renish, this was something that we called out last time as well. See, what we have done now is we have started to adjust the outstanding on the top-up loans subject to very strong filters from the disbursal of the new loan. Which means, a lot of borrowers in the past, we were pushing them that they will have to first close their loans and then take a fresh loan from Five-Star, a top-up loan. In that scenario, a lot of them would actually fall off because they will not be able to arrange for that quantums of money, which means we are going to a different institution, and there they would be adjusting the outstanding. We said subject to very strong filters, that puts absolutely no questions around restructuring, evergreening. Today, we are adjusting the outstanding of that, which has pushed the repayment rates slightly up. You should possibly bake in for about, compared to what we were maybe a couple of quarters back, you should bake in for another 1%-2% extra repayments coming on account of this. Nothing much on the BT out and all that. It is more the internal top-up features that we have undertaken. Got it. S econd, then in that case, the behavioral tenure of new loans is actually less than three years then, right? I mean, if you go by this 36%, 37% of repayment rate. Which is stark different from what we used to operate and hence, this question is. Renish, the number will come down because this is also something that we have introduced over the last three, four quarters. At 36, 37, it is on the higher side. The number will come down. Okay. See, earlier we used to guide the market that our behavioral tenure is somewhere around four years or 4 + years. This number will be- Got it. ... more closer to four years. I do not think it will be over four years in the revised scheme of things. Got it. Okay. There has been still at least 10% difference between current repayment rate and the behavioral tenure. Yeah. It will come down a little bit. I think even in the last call, we alluded that we will be able to give you some better perspectives over the next couple of quarters- Okay. ... once we see a little more stable numbers on the top-ups. Got it. Just a last verification, sir. I think last call we were about to sort of highlight the new product line which we intend to enter. Do you want to give any more insights around it in this call? We have same interest as what we said in last quarter. Maybe in next quarter I will give you more details about that. Okay. To the shareholders, we are very clear we are inching towards the new product. Got it. Okay. Thank you and best of luck, sir. Thank you. Thank you. Next question is from the line of Nischint from Kotak. Please go ahead. Yeah, thanks for taking my questions. First is, can you spell out how much rate hike have you done for your customers? I believe this is on incremental basis, but just maybe put some numbers in perspective. About 1%, Nischint, across the various risk characteristics. So the number what was about 21.5 to 23 or so, now will get to about 22.5 to about 23.9 thereabouts. So 1% is the incremental increase across the various types of customers in these categories. Probably it means that the yields have maybe bottomed down this quarter and will start inching up because anyway they are- Yes. ... bottoming out or the ticking down- Yeah ... of the number is coming to an end now. You are right. In that case, could you sort of see a margin expansion will be in the second half of the year, or you're probably not sort of ruled that out? No, margin expansion is not possible, Nischint, because we are already seeing the effect of the repo rate increase on our existing borrowings, which are both external benchmark linked and MCLR linked. MCLR linked will come with a bit of a lag, depending on the periodicity of the repricing window. Definitely, I don't think we will expect the margins to increase. They will certainly compress, but the incremental yields will cushion the compression impact to a good extent. So which means, otherwise, let's say even a 25 basis points increase in repo rate would have possibly resulted in at least 20 basis points kind of an impact on our overall cost of funds. Now, the number might be more like a 10 - 15 basis points because the 1% will cushion the impact. Plus, also since the yield increase is only on incremental disbursements, it will also take time for this entire number to get built on the overall book. Yes, of course. T he 8.43 you mentioned was all-inclusive cost on a book basis? Yeah. Okay. 8.43 is the all-inclusive cost on the incremental disbursement, Nischint. Okay. It's more or less similar to the book as of now at least. Yeah. It's a combination of rate of interest and processing fee amortized over the life of the liability. Sure. Just finally, what proportion of your customers have gold loans? We will have at least 40%-50% of our customers with some kind of gold loans. Meaningful number will be more like a 30%-40% kind of overlap. Got it. Just one last thing is, given the fact that you still have a considerable exposure to Karnataka, what gives you the comfort or confidence that credit costs have sort of plateaued from here on? The fundamental reason is Karnataka is definitely showing improvements in collections on a month-over-month basis. Our very strong belief is that whatever the worst there is in Karnataka, we have already seen that, and we are seeing collection trends definitely improving on a month-over-month basis. The NPA number also, the slippages are largely being contained, which has also given us the confidence to start disbursing in a little more pronounced manner in Karnataka. With all of these things, we are very confident that the worst is behind us, and from here onwards, we will definitely improve in a gradual manner in Karnataka. Nischint, what Srikanth spoke about, it is from the effect of the ordinance what Karnataka government brought in 18 months down the line. From there, we are fully recovered and the collections are as usual in Karnataka and business is also picking up very well. If your question is regarding the drought in Karnataka, as I said earlier, as we speak today, our collections in Karnataka is standing up well with comparing to July as well as with September. Got it. Thank you very much, and have a good day. Thank you. Thank you. Next question is from the line of Viral Shah from IIFL Capital. Please go ahead. Yeah, hi. Thanks, and first of all, congrats on good set of numbers. I have three questions. One is predominantly, I look at the OpEx. Does this quarter have or does it reflect the full impact of the collection infrastructure that you were building? So there's been some increase on that OpEx, and what could be the steady state run rate looking like? So that's my first question. Should I ask the others or one by one? No, we'll go one by one. Yeah, sure. Viral, you are right. The OpEx has fully absorbed the impact of the collection infrastructure. Both on the collection infrastructure and on the legal infrastructure, the cost has been fully baked in. From here onwards, you will not see any increase in cost on account of collection or legal infra. But definitely we will start seeing the benefit of operating leverage coming through. While in absolute quantums, the cost will not go up, from percentage sense, you will start this dropping from the quarters to come. Got it. Srikanth, if you can give some sense of how the asset quality trends and especially, say, the collection efficiency trends are trending in the first 25 days of October, would be great. Probably say, also give some regional or state specific texture. Mr. Pathy mentioned about Karnataka now being better than July and September. At an overall level, Viral, we are trending in line with both the July and September numbers, which were good months for us from a collection perspective. October is in line with that. That leaves us with no cost concern, anything, because if you compare with September, we still have one more day in October, and despite the fact that we lost a few days to holidays in October, the collection trend in October continues to be fairly robust. Largely across the states, we are not seeing any alarms in any of the states, while there could be a bit of discrepancies between various states. For example, generally, Tamil Nadu tends to be a lot better in collections compared to the other states, followed by Andhra and Telangana. That trend holds, but there is no material difference or discrepancy between any of these states. Across the various geographies of the company, the collection efficiencies are holding up fairly well, in line with what we saw in Q2 in the months of July and September. Right. Srikanth, if I may, if you can also mention the intensity of collections effort, how is it trending? Probably that can be, say, a leading indicator of how the things are going in terms of interactions with customers. Some sense on that? See, the way it works, Viral, is that the current book is largely managed by the business team and the in-house calling team that we have built, which is a mix of both manual as well as AI-led initiatives. There we are also seeing quite some improvement. In fact, if you see for the last quarter, our current bucket came in at about 99.4%, which I can say is historically the best number that we would have recorded. In this month, just to give you a metric, if you look at the first 15 days of the month compared with the 15 days collections in the current book in September, the number was about 1.5% higher. The intensity on the current book is largely driven by in-house calling and the business team's involvement towards reaching the connect with the customers. The collection teams largely focus on the bucket between one to 90 days, where the intent is to hold them in their buckets by collecting one installment, and there is also a pronounced push towards rolling back these customers, at least by collecting one more installment. We are also seeing fairly strong rollback trends over the last quarter or so, given the focus of the company. The rollback is also coming in quite well. Across various buckets, where the collections team is involved in, we are seeing the numbers in line with our previous quarters. But the slippages from the 61 to 90-day bucket continues to be flattish. Given that these are also accounts that have gone to the collections team in the recent past, they will need to sort of put some effort towards bringing these back. I think we will start seeing improvements maybe a quarter or two down the line. But the other buckets, definitely we should start seeing impact. So Stage 1 should definitely go up. In Stage 2, you will see the 31 to 60 bucket getting better. The 61 to 90 and 90+ are slightly sticky assets, but even there, over the next one or two quarters, we should start seeing some improvements coming through. Got it. That is very helpful. Last, Srikanth, on the yield front, you did mention about the 100 basis points rate hike. Of course, it is incremental. Yeah. There is also some bit of, I would say, also tilt towards the larger ticket size segment, right, in terms of the average ticket size. Is that something that will have, say, an offsetting impact on the rate hike that we are taking, or it is largely at the similar yields that you are looking at? Largely at the similar yields, Viral Shah. Across the various segments, which could be based on ticket size, the credit score of the borrower, whether he is PSL eligible or not, or various other risk parameters, the yields have gone up by 1%. So you will largely see the 1% coming in, let us say, over the next two, three years. Like how we saw the drop in 200 basis points come over a couple of years. This 1% also should reflect over the next couple of years. Got it. That's very helpful, Srikanth, and thanks a lot, and all the very best. Thank you. Thank you. Next question is from the line of Abhijit from Motilal Oswal. Please go ahead. Yeah. Good evening, everyone. Thank you for taking my question. Srikanth, what was the proportion of your customers who had an MFI loan as of September? Abhijit, we have not done a scrub analysis for this quarter, but behaviorally, what we can say is the number has not changed. It is about 35%-40%, which was the experience even in the past. No material change is arguably. Got it. The only reason I was asking is we have just recovered from a stress asset quality cycle. The growth is back. Asset quality is stable. Slippages are stable. Given the kind of drought-like situation that we have seen in some of the states, while I agree Pathy called out that in our core three states, Tamil Nadu and Telangana, we are not seeing those kind of conditions. Do you think, I mean, in case things were to deteriorate on the MFI side, you see some spillovers again? Yeah, Abhijit, I think the issue that we saw in the last 12-18 months, but not just in terms of customer cash flows getting impacted, the cash flows were largely intact. It was more behavioral and the fact that the company's infrastructure was slightly stretched given the over-leverage issue that cropped up. Whereas today, from an infrastructure perspective, we are very well- prepared. Even if this stress were to build out in the future, it is not that we do not have people to go and mitigate the stress. In the past, the same guy was responsible for both business and collections. If there is a focus on one of this, the other one was suffering. Whereas now, the fact that the entire arrear book is being managed by the collections team, there is expertise that is getting built there. There is a strong focus, even if a stress were to get built up. Despite all of this, there won't be any issue from a business perspective. Given all of these factors, we believe that, again, touch wood, all of us are hopeful that the MFI sector is coming back and we do not see any issues in the near future. But even if some issues were to crop up, I think we are far better prepared today to deal with the situation and ensure that the asset quality impact on account of that will be extremely minimal. Got it. That is useful. The second question I had is, in your liabilities, what proportion of your bank borrowings are linked to MCLR repo rate and to other EBLRs? See, roughly, the variable rate of our book is about 70%, Abhijit. Out of that, 25% will be MCLR-linked, and repo and T-bill will be about 30%-35%, with SOFR and the other external benchmarks will be another 15%-18%. Got it. Lastly, given the kind of momentum that we are seeing now on the business side, I am guessing that if asset quality is holding up in October, we might see continuation of these trends in the second half, which is a seasonally stronger second half of the fiscal year. You already mentioned, I think, in your press release that we should comfortably be able to surpass our earlier guidance on growth. Do you think that now, we will shoot for a 25% kind of a premium growth this year? No comments on numbers. As I said, we will be very comfortably crossing the guidance what we gave in the beginning of this year. Abhijit, we will possibly come out with some, if there is a need for a revised guidance, maybe after Q3. At this point of time, our commentary stands that we are well-poised to comfortably cross our AUM guidance that we have given to you. What is that number going to be? I think kindly hold on for another quarter. Sure, sir. That's all for my side. Wish you and your team the very best. Thank you. Next question is on the line of Aditya Miglani from Burman Capital. Please go ahead. Hi, Srikanth and team. Congrats on the very good results. Just wanted to check on one thing. Since you mentioned we may see some spread compression, and that is despite the rising incremental yield by around 1%, could you please indicate how we see the cost of borrowings trending from here? Also on probably Q4 FY 2027 exit detail, where can we see the spread landing at? Our belief, Aditya, is that the incremental cost of borrowings will possibly go up by another 20-25 basis points for sure compared to this quarter, because we'll be taking some sizable incremental borrowings in the next quarters, and there are also, for example, the second tranche of ADB is still left, and there the hedging cost is still on the higher side. Our incremental cost of borrowings for the second half will be more like 870-875. With the repo rate increases and the MCLR increases also hitting the book, our sense is we should be exiting FY 2027 with maybe another 12-15 basis points of higher cost of funds on the book compared to where we are today. So we are luckily at about 875 or thereabouts. We should possibly be ending the year with more around an 890 kind of a number. Got it, b ut would this not then be offset completely by the 1% incremental yield that we are planning on our book? It is only 12 - 15 basis points. No, Aditya. Our book is fixed, so we will not be able to change the rate on the existing book. Fresh disbursements will come in at 1% higher yields. Now, for that to get absorbed on the book will take eight quarters or so. So you will not see any meaningful impact of the yield increases on the yield for this year, but then it will gradually keep going up. Sure. Understood. Thank you. Thank you. Next question is from the line of Puneet from Dolat Capital. Please go ahead. Hi, sir. Am I audible? Yes. Yeah. Firstly, just from my understanding on the, you mentioned that the book duration is close to four years on an average, and the current repayment rates are not to be taken that will come down basically. But, from a yield assumption, the 100 basis points yield, is it fair to assume that over 25 basis points each year or, because you guided for two years, so I am just not getting that math. Ideally, it should be 25 basis points each year, right? The pass-through, because the four-year duration is there. So say 25% of book repricing each year. Am I thinking? Yeah. We are at about INR 15,000 crores of book. Our belief is the next couple of years, we will possibly disburse much more than this. So you will see a large part getting in the next two years. It is not like entire 100 basis points will come in in the next two years. It will possibly take about three years or so, because the incremental disbursements will also be much larger than the proportion of the book that we are carrying. The book will run down, the incremental disbursements will come in. So a large part of the 1% will come in over the next about 24 - 36 months. Got it. That is clear. Yeah. Also, on the NPA, I know your Stage 2 has declined and Stage 2 plus Stage 3 is worse. Stage 3 has increased by, say, 7% or 8% on an absolute basis. I want to understand what are the reasons. Still we have customers flowing from Stage 2 to Stage 3. When can we start seeing the decline in these numbers? Is this just transient, I am seeing for a couple of quarters or something, and then I come start seeing the decline from this base? Any comments on that? Puneet, our commentary on this is that the next couple of quarters you will see flattish slippages. When we mean flattish slippages, obviously the growth will come in, but the NPAs are slightly sticky. It also takes time for us to recover on the NPAs and roll them. We cannot roll them back. You have to effectively settle these accounts. Our sense is for this to start trending down, it is possibly couple of quarters away. You will see some marginal gradual drop over the next couple of quarters, but some trend down, I think it is possibly couple of quarters away. Right. Okay. It is a couple of quarters away. Credit cost then, despite this, even if it is a transient decrease or something like that, it should not go higher than these levels, is what your expectation would be. That is right. Got it. What would be the recoveries this quarter from written off accounts? See, written off accounts, we did about INR 13 crores, which is reflecting in the top line. Put together NPAs and written off accounts, we were at about INR 35 odd crores for this quarter. Got it. INR 13 crores was around INR 9 crores last quarter, right? If I am not wrong or- Correct. ... something like that. Correct. Got it. Okay, got it. Thank you so much. Thank you. Thank you. Next question is from the line of Shubhranshu from PhillipCapital. Please go ahead. Hi, good evening. Thank you for the opportunity. The first question is, what proportion of the AUM and disbursements would be for debt aggregation purposes? Second is that, what proportion of the disbursal is through top-up loans? When we look at the top-up loans versus the original loan that was there which run down, this top-up is what percentage of the outstanding loan amount when given? Those are my questions. Thanks. See, Shubhranshu, I think currently in the given product, you don't really see too much of debt aggregation because our ticket sizes are largely around INR 4 lakhs-INR 5 lakhs. When you're looking at a much bigger ticket size, then the debt aggregation is possible because these are people who will have a few other loans like from an MFI or a gold loan or maybe a two-wheeler or a vehicle loan. I would say the debt aggregation part of it will be extremely minimal. It's not like we are taking over most of the loans. Ours is more towards the takeover of secured loans, primarily from unorganized institutions. It's not a debt aggregation product. It's like a product that is given for them to get into the formal financial ecosystem for a secured loan so that they are able to amortize this loan over a seven-year period and become debt-free, at least on the mortgage that they carry. On the top-up part of it, today I will probably say this number is somewhere around 10%-15% of the overall disbursements. If you have done about INR 2,000 crores in the last quarter, possibly the top-up number will be somewhere around INR 200 crores-INR 300 crores out of this, a nd roughly the incremental disbursal on these top-up loans will be anywhere around 50%. Whatever is outstanding, let's say if it's about INR 3 lakhs, the customer generally gets about INR 6 lakhs or so, out of which INR 3 lakhs he prepays and INR 3 lakhs is the incremental cash flow in the sense. Can I ask you then one last question? Yes. Right. PSU banks are allowed Mudra loan up to INR 20 lakhs, which is basically an unsecured loan. How does that figure out in our scheme of competition? Shubhranshu, this has been in existence for a long time now. It's not like it's fresh, this credit guarantee scheme, you talked about the CGTMSE schemes and all that, b ut how comfortable are the banks in lending to the profile of borrowers that we are lending to? This has been a questionable fact, and we still have a very healthy demand for our loans. I don't really see either them being overlapped, because there you also need few other points like proper GST registration, your returns and all that, which possibly are things that we don't insist on. There is still a category of borrowers with a large addressable market who are not going and taking Mudra loans from the banks and coming to us for their funding requirements. Right. This was very helpful. Thank you for your time. Thank you. Next question is from the line of Arvind from Sundaram Alternates. Please go ahead. Hi, team. Thank you so much for the opportunity and congratulations on the good set of numbers, also considering the headwinds. Hope I am audible. Yeah. Please go on. Yeah. You said like low flattish slippages you are expecting for next one or two quarters or so, and we have one of the best collection efficiency indicators. We have observed [inaudible], when you say that this is the best slippages we could achieve, are we comfortable with this level of slippage? Arvind, the point that we are trying to say is, for the next couple of quarters, you will see flattish slippages. Depending on how the portfolio builds up, which is where we have tremendous confidence in the flows, the ability to control the flows into the 61-90 day bucket. Hopefully, you will start seeing some trend down in the slippages also in the next financial year. For the next couple of quarters, given that there is a sizable stock in the 61-90 day bucket, you will possibly see the slippages at around the 70 basis point levels. Okay. This is one question, when I compare it to the previous cycle, even with COVID, we were able to come out of it and we were able to deliver credit cost under 1%, relatively, in a shorter span of time. This time, the higher credit cost has actually gone for almost two years and still, it is taking time. What has happened compared to the last two to three quarterly cycles? That is one question. With respect to cost of funds, our incremental cost of funds is still lower than the book cost of funds. Doesn't it mean we have enough space there to manage cost of funds? That was the question. What kind of assumptions are you having in mind when you're talking about 20-15 basis point increasing overall book borrowing cost? Sorry, Arvind, I just missed the last question. What is the last question? Yeah. The last question is, what kind of assumptions are we having on repo rate increases, like in terms of any further repo rate increases you are envisaging? Any quantum you have in mind when you are talking about 10 to 15 basis point increase in borrowing cost? Arvind, on the first question, you asked about COVID versus the current scenario. See, in COVID, the issue was with respect to the borrower's cash flows, them not being able to come out of their houses to do their business. There was never a behavioral impact. When you have a very factual impact coming through, curing that factual impact is a lot easier because once the borrowers were allowed to come out of their houses and start their businesses, they were very clear that they have to repay the money to institutions like Five-Star. Whereas in this crisis, it did impact the behavior of the borrowers a little bit because they saw microfinance institutions writing off huge amounts of money, not during a scenario like COVID, but during even normal times. When you are seeing a behavior being impacted, that takes a little bit of time for us to set things right, which is why we are seeing this challenge being a little more prolonged one as compared to what we saw during COVID because in that case, the borrowers' minds were very clear and they were not really used to huge amounts of write-off or not being followed up on collections. Given that the behavioral impact was there, we are seeing a little more prolonged impact. See, on the cost of funds on the book, you are right. Yes, our incremental cost currently is less than the book cost, but as I guided for a previous question also, going forward, I think the incremental cost will largely align with the book cost or even possibly go beyond the book cost. See, today you are only looking at incremental disbursements, right? There are also borrowings on the book on which you will see MCLR increases, repo rate increases, which will impact the book cost itself. That is why we are saying that the number will certainly go up. Our assumption that we have built on 10, 15 basis points, Arvind, is the 25 basis points repo that has already happened. Now, if there is another increase of 25 basis points or another increase of 50 basis points, that will again have a further impact on the cost of funds, which will come back to you depending on the policy action that the central bank takes in December or thereafter. Sure. If I can just ask one last question. Our cost income ratio has slightly inched up even sequentially or on a year-on-year basis, however you look at it. I saw very specific other expenses increased meaningfully both on year-on-year as well as quarter-on-quarter basis. Any particular reason which it has increased? Because employee expenses and all other expenses were broadly okay, but a very specific number was actually what you call as other expenses, which is not very clear what it is. Has increased meaningfully. So what it is and why should it be the case? This is primarily because of legal expenses, because as and when you log in files, when the business momentum picks up, you also start expending monies for the external legal opinions and all that. That takes time for it to get converted into sanctions and disbursements. So primarily on account of legal expenses and to some extent on the CSR expenses, where the company is also expected to spend based on the last three years average profits. So primarily these are the two line items that have pushed the other OpEx costs higher. Okay. Thank you. Next question is from the line of Sanket from DAM Capital. Please go ahead. Yeah. Hi, sir. I had the set of numbers. I wanted to understand on your comments on the spreads. So the cost of money, you said, will move up by about 15 basis points, and the hike in the yield that you have taken will come through over the next 7-8 quarters. So maybe 5 - 7 basis points per quarter is what we can expect. So net spread moderation could be 8 - 10 basis points. Is that the right way to think going ahead? Margin moderation. For the half-year, you are right, Sanket. What the 10-15 basis points was how we will exit the FY 2027 with, b ut if you look at the half-year, yeah, about 10-12 basis points. Okay. Post-tax, that should be about a percentage on ROA or that in terms of the hit. 8 basis points, right? Yeah. Yeah. Roughly, yes. You are right. Sure, sir. On credit cost, now we are saying that it will remain flattish for the next two quarters, despite the headwinds that we are seeing. From next year, we are not spelling out any numbers, but for FY 2028 and FY 2029, we can assume fairly that the growth and the credit cost outcomes could be better. You are right, Sanket. We are not spelling out any numbers, but definitely the outcomes could be better, which possibly we will come out with after the Q3 or Q4 results. Sure, sir. That was pretty helpful. Those were my questions. Thank you. Next question is from the line of Sahej from Axis Max Life Insurance. Please go ahead. Hi. Good evening, team. Just one clarification. Any of these top-up loans we are giving to customers in Stage 2 bucket? No, absolutely no. These are all current customers, been current with the company with a certain level of vintage. There are very strong controls and filters that we have put in, Sahej, to not even bring any questions around issues like restructuring, evergreening and all that. This will fully pass muster with any third party, including the regulator. Got it. On OpEx, how should we think about the OpEx ratio in the medium term? This year we have invested, but even otherwise, the OpEx momentum seems to be fairly high relative to our loan growth. How should we think about OpEx ratio over the next two years? It will trend down. Currently, for this quarter, we are roughly about 7.5%. If you look at the year, Sahej, we are about 735, 740. Our sense is that this number will trend down at least by 50 - 75 basis points over the next couple of years. It will take a couple of years, but definitely with the operating leverage kicking in, you should see this number somewhere between 6.75% - 7%. Versus 6.7% in this quarter. No, this quarter is 7.5%. Got it. Okay. Fair enough. 50-70 basis points over the next couple of quarters, cumulative- Couple of years. Okay. Fair enough. Could you spell out the D1C1, what we are seeing in October versus September? For example, September, we did about 98%. We are expecting that number for October to be very close to 98%. Got it. Overall D1C1. How is the disbursements momentum in October versus September? October will be a little muted, but November and December will get picked up. We expect the disbursements to be somewhere around INR 550 crores for this month, and then pick up in November and December to get to a good growth number over the previous quarter. Got it. Fair enough. Thank you, and all the best. Thank you. Thank you. Next question is from the line of Karthik from Unifi Mutual Fund. Please go ahead. Thanks for the opportunity and congratulations on the set of numbers. I have one question, sir, regarding the ticket sizes. I have been noticing from the tables that you have published that we are moving away from the smaller ticket sizes to greater than INR 5 lakhs, and we have been structurally moving to higher ticket sizes. The question number one is, what will be the steady-state mix in this particular ticket size category? Is there a structural shift where we are moving from smaller ticket sizes to higher ticket sizes just because there is some amount of stress building up in the smaller ticket sizes? How is the competition? How are we building? How do we see the competition in higher ticket sizes? That's the question. First, let me correct it. We are not moving away from smaller ticket size to bigger ticket size. The structural shift is also focusing on bigger ticket size. Last year, when we gave this commentary of structurally moving, focusing more on INR +5 lakhs ticket size, we said our intent is to bring less than INR 3 lakh ticket size to around 25%. INR 3 - INR 5 lakh ticket size around 50%, which is our core, and keeping the balance 25% of AUM in INR +5 lakhs plus ticket size. See, that is our structural shift, and we are moving in the right way. But in this quarter, what is the mix? On the disbursements? No, on the INR 3 lakhs. So we are roughly there. We are at about 26%-27% of sub INR 3 lakhs, and another 20% - 23%— about 51%-52% on the INR 3-INR 5 lakhs, and the rest being in the greater than INR 5 lakhs. But it will move to a largely 25/50/25. Thank you. Thank you. Next question is from the line of Chintan Shah from Yadnya Investment Academy. Please go ahead. Hello. Am I audible? Yes. Please proceed. Basically, I want to ask about the data. In presentation, you mentioned that the 1+ DPD and 30 days plus DPD is improving, b ut I want to just like to know why the GNPA and NPA are rising. Is it issued last stage of assets? Chintan, the point that we have always been making is on the 1+ and 30+, you can definitely control flows. Fresh disbursals are coming through where we are not allowing them to slip. Whereas if you're looking at the GNPA, for us to cure the GNPA, it would mean that we have to collect more installments from these customers or settle these customers. But given that these are sticky customer and you cannot even collect one installment extra and bring it down. You have to actually collect three more installments to bring them down. That is a significant challenge for this segment of borrowers, which means they will tend to be a little sticky till the time we actually settle these loans. Okay. You will see that number being a little sticky for the next couple of quarters. Okay. In FY 2028, will it improve? Yes, Chintan, we are definitely working towards improving GNPA ratios in FY 2028, but we will give you a better perspective towards the end of this financial year. Okay. Thank you so much. Thank you. Next question is from the line of Manan from Research Analyst. Please go ahead. Hello. Yes. Go on. Hi. Thanks for the opportunity. My question is more related towards the recovery of the written-off loans. I do not have the numbers for the last six months, but in FY 2026, I think we have written off around INR 156 crores of loans, but the recovery was around INR 16 crores. Can you just guide me in how long does it take to recover the written off loans? Manan, typically it takes about 18-24 months, because we do not have the luxury of SARFAESI given that our loans are less than INR 20 lakhs. We have to go through the legal process, which is a time-consuming process. You will at least see these loans taking about two years or so on an average to recover, which means there will be some that will get recovered faster, some which will be prolonged. You will start seeing the recoveries on write-offs that we have done during this year and the previous year, more from FY 2028 and FY 2029 onwards. Okay. We expect the recoveries to increase as we go forward. Yes. Just to get an idea, the loans that we had written off in FY 2024 and 2025, are we seeing that the valuations of the securities are holding up when we are actually going for realization on the loans? Definitely, yes. It is just that maybe we are giving slightly more discount on the IRR. Even now on the write-off loans, we are able to collect the entire principal plus about roughly around 12 odd percent of IRR even on deep delinquent loans, which shows the strength of the collateral. Okay. Yeah, because I had been seeing this trend for the last five years. I mean, if you tally the, I do not have the numbers right now handy with me, but if you tally the written off loans with the recovery over the last five years, there is a good difference. That is where my concern comes in. You will see the numbers improving, Manan. It is just that given the lack of SARFAESI, it takes a longer period of time through the court process. O kay. You will see the numbers trending up. Okay. Thank you very much. No, I just want to add one point here. I think 18 months back only we set up our legal recovery vertical. Just to remind that point. When we set up the legal recovery vertical, we said we are very confident that quarter- on- quarter our resolutions in NPA will be higher. Just to give you the number, last quarter, the resolved portion of NPA, including the write-off, was INR 35 crores. Previous quarter it was INR 25 crores. The current trend gives us a confidence that for the full year, the resolution from NPA will cross INR 100 crores. That should give you the confidence that the strength of the collateral that we hold with the deep delinquent customers. Okay. That's helpful. That clarifies it. Thank you very much. Thank you. Thank you. Next question is from the line of Varun from Ascent Capital. Please go ahead. Yeah. Hi. Thanks for the opportunity. Three quick questions. I just wanted to understand when we increase the share of INR +5 lakh loans, but at the same time, we are increasing the yield, we are looking to transmit the yield from the cost of funds that we are having. Will there be some impact on asset quality for those pool of loans, given that we are going to be searching for maybe higher yield loans? That is question one. Question two is just to understand, is there a target sort of mix from a ticket size perspective when you look to increase your leverage? Question three is on the fee income. Is there any impact from the recent IRDAI circular? What do you foresee will be the impact on our fee income from that? Thanks. So Varun, first question, higher yields do not necessarily mean you are going to a suboptimal kind of borrower. In fact, if you look at our portfolio cut today, it is the smaller ticket sizes with some overlap, lesser financial literacy, who have been impacted. But yields do not necessarily translate into higher defaults. So we are very confident that in fact, till about a couple of years back, even our more than INR 5 lakh rupee loans used to carry the same kind of yield as a less than INR 3 lakh loan. It did not really translate into a worse credit quality. Just taking the same thing into the second question also, it does not mean that it is higher leverage. The underwriting clearly takes into account all the obligations the customer has at this point of time, knocks off all those obligations, computes the debt burden ratio. In fact, from October onwards, we have started knocking off even all the obligations, including giving an imputed obligations to gold loans. So today, we are knocking off all the obligations of the customer, which is reflected in the bureau, before actually understanding the residual cash flows in the hands of the borrowers. So neither does it translate to higher asset quality or worse asset quality, nor does it mean that we are taking higher leverage, which could eventually translate into worse asset quality. On the third question, we had zero impact on account of the IRDAI circular because we do not charge even a single rupee of insurance commission that comes onto our P&L. Our insurance is a pure passthrough. We take a credit life insurance on the main income earner, and the premium that is charged by the insurance company is only charged to the borrower. We collect it and remit it to the insurance company. We never, and we do not intend to make a single rupee on the insurance commissions. So zero impact for us. Yeah. On the second question, actually, what I was asking is, do we have a target mix for, let's say, INR +5 lakh being from the portfolio at which we will increase our balance sheet leverage? No. The intent that we want to get to is 25% on sub INR 3 lakhs, 50% around the INR 3 lakh-INR 5 lakhs or a little over that, then about 25% on the INR 5 +lakh. As we see improving metrics, obviously the ticket sizes will keep going up at least for inflation on a year-on-year. So definitely this INR 5 lakhs is not something that is cast in stone. As we keep going forward, this INR 5 lakh might move into a INR 6 lakh kind of a category, and you will see the numbers going up. Understood. Thank you. The last question for today is from the line of Chirag from MS Capital. Please go ahead. Hello. Hi. Yeah, Chirag, please go ahead. Yeah. Yes. Hi. Congratulations, team, on a set of strong numbers sequentially also. Two questions. The first one, just on the top-up loans, just combining the two comments, my guess is that the current 10%-15% of top-up loans of disbursements will also trend down as the repayment rates comment and you mentioned that that's going to trend down, then that probably the proportion of top-up loans has incrementally also trend down. As the disbursement keeps going up, Chirag, even from a new loans perspective, the top-up will trend down, though in absolute quantums it may keep going up. Understood. Yeah. Understood. Srikanth, is it possible to just highlight one or two of the strongest guardrails? No 1+ customer is eligible for a top-up loan. From an LTV perspective, is it even stronger, or is the guardrail stronger than a new loan? Could you just highlight a couple of guardrails on the top-up loan? No. See, definitely it should be a minimum vintage, so we are keeping it at least 12 -1 8 months of minimum vintage for anybody who can approach the company for a top-up loan. He should not have crossed, let's say, a certain DPD threshold, and his credit score should not have deteriorated compared to what his credit score was at the time of the original sanction. On LTV and DBR, we are not putting additional guardrails, Chirag. In fact, we have resisted the temptation to relax that, because, see, this is a customer who has been paying perfectly with us for 18 months or so, right? Now, why should you put a stronger guardrail on LTV or DBR for those customers? The question is, how do you position to primarily the regulator that you are not doing this from an evergreening perspective? You are doing it because the customer is strong and has demonstrated strong repayment capability and wants a higher funding. Understood. Just to clarify, when you say DPD not above a certain point, obviously, when the top-up loan is written, they are a current customer, but in the history also, they should have never crossed a certain DPD threshold. Yes. Understood. Just one more question on the recovery side. I guess there's been a couple of questions on the call around that. I believe the INR 20 odd crores in the first half that we have recovered from the written-off pool, I'm only looking at the written-off pool. That would be relevant for everything that was written off probably till FY 2025. Nothing on FY 2026 significantly would have come into the recovery from the write-off in the first half, right? Firstly, wanted to clarify this number. Yeah, for the two, first half is about INR 20 crores. Y ou are right. See, you cannot exactly say that nothing from FY 2026 would have come in. But you are right. Largely, these would be recoveries from loans which were written off prior to FY 2026. Understood. Very clear, Srikanth. Just a request to the team, Mr. Pathy and the team. Obviously, there's been a couple of questions around the write-offs. I guess it's because Five-Star has such a strong history of the quality of collateral. If that's possible to give a few more disclosures around the write-offs. Also, given the fact that last eight quarters, we've seen around INR 300 crores of write-offs versus the last five years till FY 2025 would have been probably closer to INR 150 odd crores. So it's a much larger pool today. If you can give us a little bit more disclosures and details around in the presentation itself, what the pool is, how is it curing? I'm talking about the written-off already, not the existing NPA pool, just the deep delinquent written-off pool. That would be very helpful if you can take that into consideration. We'll think about it and come back. Thanks. Thank you so much. Congratulations again for a good, strong set of numbers. Thank you. Thank you. As that was the last question for today, I now hand the conference over to the management for closing comments. Thank you all for attending our second quarter earnings call. As we said, we are definitely very confident of the trajectory that we have been witnessing over the last couple of quarters, a nd definitely, this trajectory is going to keep going up both across all the three aspects of growth, quality, and profitability. We are seeing strong green shoots coming on some of the parameters. There are one or two parameters which are likely to remain flattish for the rest of the year, but even there, we will start seeing improvements. But definitely, the company is poised to achieve many milestones in the quarters and years to come. Thank you for all your support. We will see you all during the third quarter earnings call. Thank you so much. Thank you. On behalf of Ambit Capital Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.