Ladies and gentlemen, good day and welcome to the Mahindra & Mahindra Financial Services Q1 FY25 earnings conference call hosted by Motilal Oswal Financial Services Limited. Please note, this call is not for media representatives, investment bankers, or commercial bankers, including corporate and commercial affiliates. All such individuals are instructed to disconnect now. A replay will be available for Motilal Oswal Financial Services Limited and commercial bankers, including corporate and commercial affiliates. The replay is not available to the media. 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 that this conference is being recorded. I now hand the conference over to Mr. Abhijit Tibrewal. Thank you, and over to you, sir. Thank you, Chithak. Good evening, everyone. I'm Abhijit Tibrewal from Motilal Oswal. Thank you very much for joining us for the Mahindra & Mahindra Financial earnings call to discuss Q1 FY25 results. To discuss the earnings, I am pleased to welcome Mr. Raul Rebello, Managing Director & CEO, Mr. Vivek Karve, Chief Financial Officer, Mr. Sandeep Mandrekar, Chief Business Officer. Thank you, Abhijit and the Motilal Oswal team. Hello, everyone. I know many of you are joining from different parts of the globe in whichever time zone. Thank you for taking time on this Q1 FY25 results call. I will be making commentary on the circulated document, and I request you to keep the investor document handy as I narrate commentary for the same. Okay, so I'm going to page number four, which is titled as Highlights. What you'd see for the Q1 specifically is a very strong PAT growth of 45% year-on-year at INR 513 crore. This was in the back of our continued AUM growth of 23% YOY, which continues to be at strong levels, which results, of course, from an income also growth to be at a very steady and strong level of 20% at a YOY level. The PAT growth was further enhanced because of lower credit cost, which came in at 1.5% versus 2.1% for the same quarter last fiscal. Now coming to disbursements, you would observe that we have seen growth relatively moderate at 5% YOY to INR 12,741 crore. Prior to this quarter, we have witnessed many, many quarters of very encouraging and strong vehicle growth. Q1 had its unique challenges. We did mention in our monthly updates about some of the disruptions, which were specific in April and May, considering election disruptions, heat waves in the North belt of the country. In June, we did witness some flooding in Northeast. All of these geographies are significant to us. All this would kind of contribute towards more moderate growth that was witnessed in Q1. Also, with the commentary you would have heard from OEMs in the vehicle side about growth moderating to an extent in Q1. However, we do believe this is very early parts of the fiscal, and there could be an overall structure. We do still have a very bullish outlook, and we will watch for the rest of the year to see how we can amplify our growth. Sorry. On asset quality, our GS2 numbers have remained range-bound. We have been focused on reducing interquarter volatility. So our GS2 numbers from closing of Q4 last year at 3.4% have climbed up to 3.56%. Historically, we have always seen Q1 significantly go up versus Q4. That number has been moderate in specifics of Q1. When we look at GS2 numbers, yes, these GS2 numbers are much lower than last year, same time. There has been a bump up from Q4 from 5% to 6.1%. We do see some specific bumps with certain customer segments and product segments like tractor in certain geographies. We look at this as temporary delays, not default. We are confident of ensuring that both GS2 and GS3 are range-bound in the year going forward. Other updates for the quarter include we're very pleased to have seen the corporate agency license come through. We have commented in the previous quarters about augmenting our fee-based income, and the corporate agency license would be a big enabler in that cause. We have received the approval from IRDAI, and we are pleased to announce that 6 tie-ups have already gone live in the last month, active tie-ups, 2 in life, 2 in general, and 2 in health. Please move to page number 5. This is a page wherein we try to give you an appreciation of the P&L waterfall. What you'd see on the income side is that, yes, we have made conscious efforts to improve on pricing. As we also go ahead and increase the prime book contribution, on a sequential basis, there will be a slight fall. But overall, there are efforts, and we do see also, as I mentioned, with some of the fee-based efforts that we will make, and this number will only strengthen from year going forward. On the cost of funds side, the COF remains elevated for now. As per macros, I'm sure you'd see there's not much relief happening. However, all the levers which we have at our end, we've, in fact, seen in Q1 most of the incremental COF come in our internal budgets. We are looking at all levers to make sure that COF moderation happens in the year going forward, which has also resulted in NIMs being slightly lower than last quarter and lower than last year, same time. On the OPEX side, this is a number that we think we are moving in the right direction. We have seen steady improvement. This is a lever which is completely within our hands. We have reduced OPEX on a YOY as well as QOQ basis. Frugality on various projects is being exercised. And going forward, with some of the benefits we are seeing in the efficiency levels of the investments made in tech, etc., some of these benefits are going to accrue in the rest of the quarters going forward. Coming to credit costs, this has been a major benefit for the quarter. You know that credit cost is a summation of provisions, write-offs, and settlement losses. On all three fronts, we are seeing ourselves moving in positive territory. With the various levers and the various P&L influencing items moving directionally well, our PAT for the quarter, as I mentioned, was pretty strong at 45%. I request you to move to page 7, which is titled Disbursements and the Distribution of Disbursements. In this page, we would like you to appreciate how each different asset segment has been growing on a year-over-year basis. We have a very significant share in passenger vehicles. It comprises 41% of our overall mix. I did mention that the macros in PV, and you would hear commentary from different OEMs, etc., and see retail numbers. This number reflects what's happening on the industry at large, as well as we've seen that growth taper down and moderate at 3%. This has been at much higher levels in the past quarters. When you look at CV business and construction equipment, we are not a very, very large player in used CV, but especially LCV, SCV, where we have a good share, as well as some of the bus segment that we've been participating on late. We have seen incremental growth, and that's grown well at 11% YOY. Pre-owned vehicle growth could have been better for the quarter. We are looking at getting back on a high growth level, which we've seen in the past. Tractor, the industry has seen actually some amount of cooling off last two years. But Q1 has seen what numbers you see are a mix of wholesale and retail numbers. These are, of course, retail numbers. Our growth has—we've actually had a degrowth in tractors. As I mentioned, for us, tractor is a fine balance between growth, margins, and profitability. Coming to three-wheelers, it's a business that we are number 2 in the market, and our business also has had very moderate growth in quarter one. The SME business has progressed well. We have been sharing with you our investments made in this business, and we do see the relatively new business, not on a YOY, but more on a 1x, 2x kind of a growth going forward. So overall, highlight from this slide is growth has been moderate, 5%. But we do not believe this is reflective of the rest of the year. We are looking at what all are the green shoots, as well as areas in which we can participate better to amplify growth in the rest of the fiscal. Request you to move to page number 9. A very brief slide, basically to mention that both on a disbursement and collection efficiency, we are steadily progressing. I did comment on disbursement growth. On collection, the headline commentary would be that we are not seeing any deviation from the Q1s that we have seen in the past two fiscals. Quickly moving to page number 11, which is a spread analysis. This slide is basically giving you an appreciation of how our individual line items have been moving from last quarter as well as same quarter last year. Again, looking at income to average assets, yes, there's been a kind of fall from Q4, but growth from last year, same time. Q4, let me just mention, Q4 sees some great interest right back because our GST numbers significantly come down between Q3 and Q4, which gives us a lift in the income numbers in Q4. We are looking at augmenting the income. We are not happy at a 12.9% level. We are looking at going up. And I did mention the levers that we're working on, including fee-based income, to augment this line item. Interest cost has been marginally higher as we also consume our leverage ratios also kind of go up. We will see an increased amount of interest cost. But we are looking at incremental cost of funds being moderate. Overheads, I did mention earlier. This is one line item that we are extremely, extremely having a very, very tight handle on, and you would appreciate from last quarter as well as same time last year, this number has slid down. Credit cost, I did mention. You would appreciate the specific line items in credit cost, which is the write-offs have come down. This has been a structural change from the past, as write-offs is now just 1.1%. And we will look at even moderating this number or being range-bound going forward. Provisions to assets have also fallen. I mentioned that provisions is a function we have seen benefit from the overall collections that we have demonstrated over the last two years, which does have an impact on LGDs. That does flow into the coverage ratios, which gives us a benefit in the overall credit cost, which is 1.5% versus 2.1% in the last year, same time. Moving quickly to the last slide, which is on the balance sheet. Please refer to page number 12. Three important parts here on the balance sheet: capital adequacy, GS3, and coverage ratio. We've always said that our CAR being reasonable is a key priority for us. We've always been well capitalized above the regulatory thresholds. Our Tier 1 is still very strong at 16.4%, overall at 18.5%. With our current growth trajectory, for the rest of the fiscal, we don't see a need to raise capital. Maybe sometime next year, Q1, Q2, when our Tier 1 levels are lower, we will look at augmenting our overall CAR. GS2 plus GS3 numbers and GS3, of course, I mentioned as one of the 3.56% from 3.4% last quarter. Q1 historically goes up much higher. We've been able to contain this. The movement I did mention were very specific geographies and segments, which we are confident of getting back very soon. Coverage ratio has come down to 59%, close to 60%. As I mentioned, this was bound to happen as the LGDs are improving with last 7, 8 quarters' collections, overall throughput improving, which reflects directly in the LGD, and then, as per model-based, improves our coverage ratios. With that, I wind up my commentary on the overall financials, and I'll shift back to you for Q&A. Thank you very much. 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 touch-tone 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 Maharukh Adajania from Nuvama. Please go ahead. Yeah, hi. So just in terms of your ECL coverage now, what would be a fair estimate of coverage on a steady-state basis for the next four to five quarters? So it's dropped 3%. You had also guided to it that the cover would fall. But is there a target ECL you have in mind? Some companies have a target that they'll not go below 50. There are some NBFCs. So is there any such range that we need to be aware of? So hi, Vivek here. I hope you can hear me. Yes, yes. Okay. Yeah. So as you know, Maharukh, we get guided by a model. And whatever model tells us, which is a reflection of the behavior of the NP assets in the past, is what we typically provide. So if you ask me whether there is a target in mind, there is no target in mind. But we will get guided by the model. But what we will definitely ensure is that we will have prudent provisions on the book, which more than adequately covers the probable losses that we will incur in the GS3 portfolio. Yeah. But Maharukh, having said that, I just want to mention that the model is a reflection of the actions that we take. So the model doesn't only drive it. We are, by the collections that we have been doing over the last two years, will naturally, as Vivek said, the model basically has an LGD PD, but the LGD and PD is, of course, influenced by the collection throughput that the team exercises. The fact that we've been able to have demonstrated over the last eight quarters very strong collections, and the loss-given defaults have been coming down because we've been able to, whether the settlement losses have been coming down, etc. At the business team, we are conscious of the fact that this is only going to kind of go down thereafter. Again, with the kind of sourcing that we're doing, the sourcing quality and the early buckets that we're seeing, the early bucket movements, etc., being contained, we are confident that the loss-given defaults are only going to go down hereafter. Okay. Could you share the LGD estimates while? It will be kind of too cute to give such fine kind of estimates and predictions. As I said, we are in a secured business with the handle we have on LTVs, etc. Collecting earlier on and repossessing and selling earlier on, we do believe we'll be able to contain net losses. And that should flow through the LGDs, and the model will then definitely be in our favor. Got it. Just a follow-up on this, I guess last year sometime you had indicated that you will have a positive rollover following COVID by the second quarter of this year. As far as I remember, that is possibly what you've said. So does that still hold good? Yeah. You're right. I think your memory is correct. We have said that. However, we would believe that some of it has gotten a bit advanced to the first quarter. Raul also alluded to the fact that the sourcing calls that we have taken and the collection intensity that the collection teams have shown are reflecting in a better collection efficiency and lower credit losses, which would indicate that over a period of time, the LGD ratios would further moderate. However, we would not like to hazard against as we sustain today. Okay. Thank you. Thank you. Thank you. The next question is from the line of Avinash Singh from MK Global. Please go ahead. Yeah. Hi. Good evening. A couple of questions. First one again, more from the medium term that this 1.8% ROE, that is the outcome of so many moving parts. Now, you also have a strategy to sort of move up in the sort of customer profile that will, of course, put some pressure on your asset yield. Of course, I mean, over the coming quarters and years, you will benefit from the cost of funding side. But then I mean, OPEX is kind of very, very sticky at around 40% cost to income ratio. Of course, as a percentage yield, there is some improvement. But if one were to kind of look at some 70 basis point improvement that is needed for here at ROA level, how are you sort of seeing, I mean, given your kind of the product offering in mind, the customer profile that you are seeing, which are the areas? Because I mean, cost side also, it does not seem that okay given the kind of your model, the product mission customer that's going to come up dramatically. And credit cost is already now very respectable, particularly for the quarter number, 1.5%. So that is question number one. Second, I mean, again, related to the ECL, if I go through the presentation disclosure, there's sort of a negative movement for stage one. So basically, now stage one, your coverage is almost like coming to 60 basis points from 80 basis points a year ago. Now, lastly, the product segment has not changed that dramatically. I understand that what you are saying on the LGD side. But for stage one, has your PD estimates also changed, I mean, dramatically? That sort of leading from 0.8% coverage in the Stage 1 a year back to now 0.6% and almost like a Stage 1 provision, in fact, reduced slightly despite the fact that, okay, there is an AUM growth there at 25%. Thank you. Thanks, Avinash. So I'll take the first question on medium-term aspirations on ROA. I would just like to get back everyone's memory to the call we had in Q4, wherein we did mention that the aspirational ROA that we're chasing for the year is not 2.5, but more like a 2.2 number. So the 70 basis points improvement, I would look at, please read it in that frame that we're looking at 1.8 more to move to 2.2. And there are the levers, as we've cited, Avinash. Today, clearly, the NIM side is not exactly panning out as per plan. We do recognize for the rest of the three quarters, we have legroom to influence that number. But you'd appreciate, from the last quarter as well as Q1, we have moved directionally well on OPEX and credit cost. Both these numbers have been directionally moving down, which augurs well for our overall aspiration to get to 2.2. I just want to set that record straight that 2.5 was something we set out in FY2022, and we did recalibrate that to an aspiration level of 2.2 for FY2025. Regarding your comments on the stage one PD, I'd invite Vivek to comment. Yeah. So the prognosis is right. As you rightly pointed out, stage one coverage is a function of PD as well as LGD. So the LGD benefit, which you see in stage three, also reflects in the lower coverage in stage one. On top of that, the PDs in stage one also have witnessed improvement over the last 1-1.5 years, as our focus is largely on early bucket collections. That is really helping us to bring down the delinquency in stage one. And therefore, you will see this improvement sustain over a period of time. Very clear. The 2.2%, again, you are saying is the quarter exit for Q4 or for the full year? Because, I mean, if it's a full year, then again, for the nine-month year after it, we were 2.3%+. Yeah. Right. See, as I said, we are not casting in. This is more what the operating teams are chasing. We are chasing a goal of 2.2%, right? Which means, yes, it's steeper going ahead. Okay. Okay. Thank you. Thank you. The next question is from the line of Gaurav Singhla from Bank of America. Please go ahead. Yeah. Thank you. Good evening, Raul and Vivek. Thank you very much for the opportunity. So sorry to belabor on the ECL model again. So we are just looking for some handholding in terms of how should we be looking at the forecasting on the credit cost side? So if I were to use a framework, you talked about some amount of benefit coming with rollover post-COVID. So if I were to look at the numbers pre-COVID, therein the total ECL, this is ECL 1 + 2 + 3, was around 3% of the total asset base. Is that a benchmark which we should hold on that the company will not go down below that level on a total provisioning basis, or even that number might not hold given that the change in customer profile is we have better customer mix and product mix? And secondly, in the same thing, GS3 at that point of time, I think it was around 40% odd. At the moment, we are still way above that level. So should we see that normalizing to on the provisioning, the stage three PCR going to that level towards the end of this year? So the first question, Gaurav, that you asked is whether it will be at 3% on overall. See, end of the day, 3% is a derived number. So that cannot be taken as a target or we can't guide on that basis. But what we can definitely guide on, which is something that we said at the end of last year, that as we progress during the year, we expect an improvement in the LGD ratio because some of the portfolio, which was a troubled portfolio during the COVID period, will get out of the 42-month calculation that we do. So at least we believe that from the level of 60% that you see today, there would be a slight downward revision that will happen in the overall coverage ratio at stage three. And if that were to happen, it will definitely reflect on stage one and stage two also. But very difficult to say the exact numbers will be hazarding a guess, which we don't want to do. Yeah. I'll just add to that, Gaurav. See, this 3% number is basically derived from composition of stage one to three and coverage ratio, right? I think we've been voicing over our aspiration to keep stage two, stage three levels as you'd see that we came to a record low level at the end of FY2024. And it is our aspiration to keep the stage two, stage three levels in that range, in fact, slightly lower. Now, if the composition of stage one, two, three remain at those levels, that's one part of the equation. The second part is, of course, the coverage ratios, which is a function of what is the LGDs going forward. And we have mentioned that the LGDs, in our mind, because of the period moving forward, should ideally be beneficial. So in a way, we have given you an answer without being very specific on what that number should be. We have given you what goes into that number being in the 3% range. Sure. Sure. Got it. And the second question is with regard to the OPEX. Obviously, it's a big focus area for us, and it's been trending down. So the 2.5% aspiration on the OPEX side, can we see that number towards the end of this year, or is that a number which we should see in FY26? So I'll again go back to the end of Q4 call, wherein we mentioned that we're looking at a pretax shave of about 15 basis points on our exit number or our consolidated overall number of FY24. So that number is more closer to a 2.65 type of aspiration for a full-year basis. We have had some benefit as of now, but we have to always balance growth with investments. And so I would look at really moving levers on the revenue side as well as on the asset quality side without being too pennywise, poundful-ish on OPEX. Of course, being frugal, being efficient is all part of the game, and we are completely seized of all the initiatives that need to be done on that direction. Got it. Got it. And lastly, if I may, on the growth side, the volume growth is negative for this quarter in terms of number of contracts, 1.5% negative YOY. So I think it's only driven by value in this quarter. And you did talk about some of the constraints on the OEM side as well. The volumes have been weaker there. So can you talk about your strategy on delivering the growth aspiration which you have set for this year? Thank you. Yeah. But I'd request you to read that number with some amount of nuances. See, last year, we were doing CD loans and PL and those numbers also, which we sunset, right? So you might sometimes this is not just vehicle loans. This is also part of the other digital businesses that we were doing last year at the same time. So that is one. So maybe when we can give a finer details on vehicle versus non-vehicle growth, you might be able to appreciate that number better. But having said that, yes, we are also moving up to high-value vehicle loans, etc., which is going to hold us in good stead. But specifically, when you look at the overall number, look at it as number of contracts for the entire businesses, not just vehicle loans. Got it. Got it. Thank you. Thanks a lot. Thank you. The next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead. My question, just two questions from my side. One was, do you revisit the ECL and LGD model typically once a year or twice a year. I mean, how often do we kind of see these ratios changing? That is one. The second is on the PPOP growth this quarter, which was closer to around 14-odd%. Given the lead lag between disbursements and loan growth, I think, and I think based on your guidance of around 1.2 lakh crore sorry, we have INR 120,000 crore kind of a loan growth by the end of the year. It is fair to assume that loan growth comes down. So what kind of a PPOP growth are we really looking at for the year? And second point also, I think a related point over here is that if I look at the margin, your margin actually, or your yield on loans has actually declined on a year-on-year basis. I'm looking at total loan income upon average business assets. So I was just curious as to why we, I think in our ROA walk, we are looking at around 25 basis points sort of an expansion in yields. At least in the first quarter, we seem to have almost like a 20 basis point kind of a decline. So how do we really expect to catch up over here? And in light of, A, weakness in margins, and B, sort of growth coming down, how do we really look at PPOP growth for the year? Yeah. Hi, Nishchand. I'll take the, or maybe I'll invite Vivek for the first question on ECL and take the remaining questions. Sure. So, Nishchand, you recollect in Q3 last year, we did a complete revamp of our ECL methodology, wherein we moved from one vehicle cohort to multiple segments of the vehicles, and we also assigned multiple macroeconomic factors to each of these segments. In that point in time, we said that this refresh, we will do once in a year, typically in the third quarter. However, the PD and the LGD will get refreshed every quarter. And that is something that we will consistently do over to overall. Yeah. So, Nishchand, you're right. When we talked about the NIM expansion and ultimate PPOP, I did comment that in the walk for getting from our 1.7 to 2.2, we would aspire for a 25 bps expansion in NIMs and largely going to be driven from the income line, which last year was 12.8. Q1 is, of course, 12.9. We are looking at sweating out fee-based income, which nothing has happened in Q1 because, as I said, the corporate agency license came in Q1, which we will see some delta starting from Q2 onwards. Besides that, we have kind of transmitted rates in the last two quarters now, which will start showing which will start showing some delta in the going forward income to average assets, as well as our focus on what we call as penal interest charges and other charges. There are certain avenues in which we can augment overall yield by income. In our mind, this expansion from 12.8 to closer to 13 is something which will be gradual, but there are enough of levers in our hands today to start seeing that number move up. It takes time on a large book, I acknowledge, but we have started the process of unlocking these new revenue line items, which will start contributing thereafter. On the question of PPOP, yes, our PPOP numbers are subdued, but we are looking at taking PPOP levels closer to the high teens, to the high teens to 20% type of levels for the year. Because your growth itself could be somewhere closer to 20s or thereabouts, given the lead lag in disbursements and loans also. Yeah. Yeah. The disbursement growth, of course, is right now low, but book growth, just considering the last two years of good disbursements, we don't see too much of a challenge on book growth being in high teens to maybe 20%. Thank you. The next question is from the line of Jignesh Shial from InCred Capital. Please go ahead. Yeah. Thanks for the opportunity. Actually, I was also going to the same line. So basically, assuming that cost of funds are going to remain relatively elevated, how are we going to see the yields moving up? Are we going to see the similar kind of disbursement and asset composition or asset mix composition, or are we seeing that there will be some changes happening out here? Also, since we are moving more towards high-ticket vehicle and all, does that also indicate that that could be a little lower yield and better on OPEX side, or that assumption would be incorrect? The product mix, we have a decent spread across vehicle asset categories. For specific NIM attractiveness, we have cited that the pre-owned vehicle segment, which is anywhere between 17%-18% of our incremental sourcing, needs to go up to 20%. That number for Q1 has not gone up to that territory, but there are enough of kind of investments we're making in terms of teams, partnerships, etc., to see that number move up. On the prime vehicle side and on the more affluent customer segment side, we've already hit our threshold. So our incremental growth is not going to come in from swapping out higher NIM products and swapping in lower NIM kind of capable products. We've already hit our upper thresholds on the PV segment as well as the affluent customer segment in our own internal budgeted kind of guardrails. So that negative drag on NIMs is not going to kind of be seen going forward. However, we are living in a scenario, as you mentioned, where interest costs have not moved down, and we cannot be delinked from that vulnerability. We can move levers of PSL, etc., which is within our frame, but otherwise, we will hope to see if there is some softening on rates and get benefit from that. Understood. And just one more, whatever the last quarter, the Northeast issues happened, whatever was the losses we already booked, right? Nothing else been left out to be recognized now? Nothing. Nothing. We are fully provided for that, and there would be no more provisions required. Just a comment, the slide 15 that you had given, geographical distribution, that sounds really good. If you can give such more color on the book and all, that would be really helpful. Thanks. Thanks a lot for this. Sure. Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead. Yeah. Hi. Thanks for taking my question and congrats on the quarter. Raul, just getting back on this, if you can just comment a bit on pricing competition in the market in cars and CVs. You mentioned that you've taken some hikes. Piran we lost you. Can you just repeat that, please? Yeah. Just wanted to understand how pricing competition is in the market in cars and CVs. You mentioned that you've taken disbursement yield hikes in the last two quarters, and we've heard this before also, but somehow in the numbers, it does not really show up when we just calculate interest income divided by average loans. So just curious to understand what's going on there. And secondly, we can you Piran, can you repeat your question? Couldn't understand it clearly. We'll talk about NIMs not going up. No, not NIMs. Yields. Yields. Yields. Okay. Sorry. Yes. Yes. So just pricing competition. The second part was on the liability side where we've been trimming commercial paper and just wanted to understand the logic of doing that when rates are elevated and it's better to lock in lower cost of funds. So those were my two questions. All right. I'll answer the first one and then hand it over to Vivek. On competition intensity, Piran, passenger vehicles, we are still number 3 in the rank order. If you ask if we see where the competition intensity is, it is PSU banks who we see. Basically, with the rate beneficial, we see a lot of regression from the PSU banks. On the CV side, yes, the CV fleet operators, again, are moving towards banks, and we see NBFCs' overall share in CV come down a little bit. Used CV is still a reasonable fortress for NBFCs, and we continue to play a significant part over there. See, transmission on rates, as you say, income to average assets, I'm sure when you look at the whole book, it takes time for whatever rate transmission to show up materially on the overall number. But when it comes to incremental pricing, we are post the festive season of last fiscal; we have taken transmission of rates calls more sharply than the first three quarters of last fiscal. Whatever is done in Q4 of last year as well as Q1 in this year will start showing up in the future. Of course, it will not be a significant delta right away in Q2 or Q3. We believe the larger lever for that would be also some of the fee income that we've been talking about, which can come in at a decent clip. And Piran on your yeah. Piran on your question of the choice of borrowing instrument. So one must appreciate the fact that we are now close to a INR 100,000 crore borrowing book as well. And therefore, we need to take a balanced view on the instruments that we use. So the offshore borrowings will definitely bring in quantum. They come in at a slightly higher cost, but they bring in quantum, and they come in at a three-year door-to-door maturity. So that provides the much-required stability to the overall ALM mix. That is not to say that we are not going to focus on the short-term instruments like CP. We continue to do that. And if you were to look at our ALM chart, which you will find on slide number 26, almost up to six months, there is an opportunity for us to do that. And we have already started doing that since Q4, and we will aggressively do that in the next couple of quarters. Okay. That answers my question. Thank you so much and all the best. Thank you, sir. Thank you. The next question is from the line of Kunal Shah from Citigroup. Please go ahead. Hello. Yeah. Hi. Yeah. Hi, Kunal. Yeah. Hi. So firstly, with respect to yields again, so you highlighted in terms of at least on the product side, we are largely done, and there shouldn't be too much of drag. But when we look at it in terms of the regions, okay, wherein we were more focusing on, say, affluent and maybe outside of the rural, could that continue as a drag, or maybe there also we have achieved the levels which we were looking forward to, and there should not be any further pressure on yields? Yeah. Yeah. Thanks, Kunal. Do you have any other questions? We'll take them all together. Is that it? Yeah. And second is, last time you indicated that maybe OPEX, it's not very easy to clamp down because you will continue to invest. This time, you are highlighting that maybe levers are completely in your control and benefits are accruing from it. So not getting the contradictory statements over maybe a quarter. So no doubt you are highlighting in terms of 15 basis points getting shaved off. But is it like on the investments we have cut down a bit, and that's giving the added benefit on the OPEX to assets? Yeah. Thanks. See, on the yield side, the comment I made earlier on hitting the thresholds of low-yielding products was a combination of the affluent and non-rural customer segments that we've swapped in over the last two years, as well as the more rural customer segments, which we have historically been our stronghold. So we have hit the ceiling on the low NIM kind of product threshold, as I mentioned, the affluent and low NIM historic products. So we don't see us increasing our share there, which will cause a negative drag. So the negative, while there is one, can call it a negative drag on yields, but you know that we have a very positive story there on OPEX as well as credit cost. Credit cost. Right? So we have hit our thresholds on those products. On the OPEX side, I did mention that I think take the narrative as we are not compromising investments for growth with reducing OPEX. And my commentary was that we will make the requisite investments in distribution, tech digital, continue to do that to make sure that our growth is at a robust level. Having said that, there are benefits in the last couple of years, investments that were made in tech digital, etc., as well as efficiency levels. And that's the lever we have in our hand. And that's the lever which is moving well in the commentary that I made, which is coming down. Even, for example, the two biggest costs is branch cost and employee cost, right? And those are largely within our control. And we have been extremely on exercising those controls that we have. Okay. Okay. Got it. Yeah. The next question is from the line of Viral Shah from IIFL Capital. Please go ahead. Yeah. Hi. Thanks for the opportunity. So Raul, I have a few questions. So one is on your yields, right? So as you mentioned that it takes time to reflect on a book basis the kind of hikes that you have taken. So what explains the quarter-on-quarter 40 basis points decline in your yields? Because I'm sure the book mix on a sequential basis wouldn't have made that kind of a difference. Yeah. So Viral, I did open up by mentioning that Q4, if you look at Q4, usually is much stronger. One of the biggest line items that improves yield in Q4 is the interest write back we get because GS3 falls very significantly from Q3 to Q4. Now, when the GS3 number falls, the interest, which was earlier reversed, gets written back. And that's a big component of what kind of helps the Q4 numbers go up. And that's also sharp from a decline in, let's say, between Q4 and Q1 because we don't have the same delta of GS3. In fact, GS3 has marginally gone up by about 15 basis points between Q4 and Q1. So that's, and this is on an annualized basis, would be less. So probably that's one big variable. Of course, there are some other variables in terms of penal charges, etc., which come in at a higher clip in Q4. But are we happy with 12.9? Clearly not, right? I mean, that's what I've been saying. This is not a number that we are looking to live with. We are looking at, in the medium to long term, influence that number to go up. That the number is under challenge now is a fair challenge that we are experiencing, and we are cognizant that we have to move this number up. So, Raul, if you can quantify what was the interest right back in fourth year and what was the kind of interest reversal that you had to do this quarter? I'm sorry, but we will not be able to share with that granularity. Okay. No problem. The next is on growth. Raul, if you look at the pre-owned vehicle, again, until last quarter, you have been mentioning that this is a segment which is going to be a growth driver. And then when I also look at it in terms of your tractor segment, where we saw kind of a degrowth, we saw another NBFC there reporting very strong growth in that segment. So is there anything to do with either in terms of the segmental growth coming down or in case of tractors losing market share? Any of those things? See, in tractor, it's a business which has always been a focus for us. But as we look at the tractor and CVs, they are cyclical businesses, and we are looking at businesses which, across cycles, are able to give us our ROA aspirations. We always will have to balance going forward between growth margins and overall risk. We are right now still. I wouldn't say we're losing our bullishness on the segment, but we are making interim correction in specific locations where we do see that there would be stress on an across-cycle basis. Whatever corrections we are making here is going to hold us in a good state going forward, more in the medium to long run. I don't want to make any kind of impression that this is a deprioritized business for us. We are still a leader. We are amongst the. This is a business where today we largely only finance Swaraj and M&M. But because we are doing this in a captive mode, we've always had the highest amount of credit appraisals, etc., but we are still fortifying our ability to be more medium to long-term, across cycles, profitable in this segment. Got it. Lastly, in terms of your asset quality and the credit cost piece, so as you and Vivek have been highlighting that in the second half of this year is when we saw some scope for coverage reduction, we have kind of preponed that. But what could be your sustainable credit costs when we go into FY26? There is one, and second related to that is that when I see the delta in your Stage 2 and Stage 3 relative to 4Q in this quarter and versus last year, while the delta is high, how come the collection efficiency number remains the same at 94%? Why? Yeah. Vivek, you want to comment for the coverage? Yeah. Yeah. So you're right. We have indicated that as we progress into the year, we expect some further moderation in the LGD and therefore coverage ratios. And we believe that's more likely to happen. But your question was more on what should we take as the credit cost in the coming year, that is FY26. So last year, our credit cost was 1.7. Of course, 10 basis of that was due to as well. But let us say 1.6 was the real credit cost. And when Raul speaks about our aspiration to at least deliver a 2.2% post-tax ROA in the current year, we are talking about shaving off about 20 basis points from last year's credit cost of 1.6. So 1.4. And over a longer period of time, our aspiration is also to reach to 2.5% post-tax ROA, which would then mean that we will need to operate in the corridor of 1.2%-1.3% credit cost. And there is no change in this particular thought process as we stand today. So basically, we see further scope of PCR reduction even in 2026 or even without the PCR reduction? Not necessarily only PCR reduction, but as the asset quality improves, there is a further scope in terms of lower credit losses coming in from lower bandwidth or lower termination losses because these two are also focus areas for us going forward. Got it. And if you can also explain the collection efficiency piece? Yeah. So collection efficiency really is a function of due collections as well as overdue collections, right? And hence, that number will not kind of be exactly mathematically equal to the due collections only because there are different buckets of overdue collection. If we collect more from overdue buckets, the overall C ratio can be maintained. So you'll not be able to draw an equal parallel towards the GS3 number of last quarter, this quarter, and the same collection efficiency. But Raul, if I look at stage two as well as stage three, which are the overdue buckets, the delta between 1Q over 4Q, both in this quarter has increased versus last quarter. Sorry, last 1Q of the last year. So despite the delta as in overdue increasing, I think the collection efficiency should have been different versus what it was last year. Yeah. So I just invite Sandeep to come and also oversee the collections to give you a more fairer numerator denominator. So collection efficiency is also a factor that you collect from the overdue that we already said. It also happens that you collect in the same bucket, that is stage one, stage two, and stage three. You collect more from the one aging, so you have efficiency, but it doesn't change your movement from Stage 1 to Stage 2. And that's how the efficiency could be there, but still you had the delta that you had between the Q4 and Q1. Because there are ages to include 30-60 and 60-90. Correct. So there are two ages within one stage. Got it. Makes sense. That's it from my end. Thank you, Raul, Vivek. Thank you so much. Thank you. The next question is from the line of Shweta from Elara. Please go ahead. Thank you, sir, for the opportunity. So while you highlighted the fact that prime and affluent segment threshold has been hit, there will be now no further drag on them. But in the first place, we have strategized this primarily to fix our sourcing business guardrail so that the business cyclicality stands corrected. And just related to that, we are also targeting the last quarter you mentioned, we are also targeting GS3 of 2.4% by the end of 2025. So against this backdrop, then where are we positioned to achieve this? And also, how are we ensuring reducing business cyclicality? So on one side, you have taken care of NIM, but again, like you also mentioned, it also helps in credit cost and asset quality. So how will you balance that? Thank you. So Shweta, we have always said that for us, it's going to be a balance between growth margins and risk. From a growth standpoint, while we have delivered a decent amount of growth, we do need to be cognizant of the overall growth that's happening in the underlying vehicle segment, and that will also dictate part of our appetite for growth. In terms of margins, we've selected certain customer segments as well as the segments which will have an influence on the overall risk quotient, and that's been the choice framework we've been operating in. Coming to your question on GS3 number, I don't know whether you said 2.4, but I don't recollect ever saying that our GS3 aspiration is 2.4. I said we want to be in the corridor of 3.4, not 2.4. The number that we exited last fiscal, we will definitely aspire to be below that number, but 2.4 is not a number that I recollect giving any guidance for. Sure. Noted, sir. Secondly, we are around 5% in terms of new businesses. Again, we have been targeting around 15%, but we've been recalibrating in the interim because of the obvious reasons with Edwin that we have seen. So any commentaries around that? Yeah. See, the diversification plan included the SME business growth as well as the growth for some of the leasing businesses and the other businesses which are non-vehicle in nature. I'm sure you have seen the Q1 update wherein our SME business grew at a very high clip. We had a 60%+ growth, 68% growth to be specific on the SME side. So any new asset businesses, while yes, the aspiration is to diversify as quickly as possible, but it has to be on the backdrop of very sound risk practices, very sound, and these are all retail businesses which will take time to shore up in terms of book size. Incremental disbursements are moving in the right direction. If you looked at last year, same quarter, incremental disbursements from SME was only 3%. That number has already gone up by 200 basis points to 5%. So these diversification plans in the two, three non-vehicle category segments are moving up. They are moving up directionally in a manner which we think is good, and we will continue to kind of invest on the diversification plan. Noted, sir. That helps best. Last, thank you. Thank you. The next question is from the line of Gaurjeetwan from Snowfield. Please go ahead. Hello. Yes, you are. Yeah. Thank you so much for the opportunity and congratulations on the results. Just want to understand on the margin side. So what's our guidance or outlook for margin this year? Okay. So I'm just repeating your question because while we could hear you, we could not hear you clearly. So are you asking what is the guidance on margin for the current year 2025? Yes. Yes, sir. Okay. Yeah. So see, we did mention that we would like to, in the medium term, be in the corridor of 7%. This has been an aspiration for us to get back to the 7% margin level. We are below that at the moment. And the levers for us is to augment the income line item more than the cost of fund. We know the cost of fund line item is going to be much more challenging given the macros. I'm sure you would have heard during the course of the call, there have been a lot of questions on what are we doing to protect the income to average assets and further influence it going higher for us to get back. The aspiration level is to get back to 7%. It is tough. I'm acknowledging that it's a stiff ask, but our business models should basically predicate it on getting to that 7% territory in the near to medium term. Got it. That's very clear. Sorry to go back to the ECL model and the coverage. Just want to understand a bit more because I think our previous calls, we talk about our LGD and PD assumptions being decided by mathematical kind of look-back moving average period. So that moving average was slowly coming down. Just looking at the coverage ratio, which is a pretty sharp move from a quarter-to-quarter perspective, unlike the past three, four quarters. So it's a bit hard to imagine that the moving average will change so much just with the one quarter forward roll. Or the understanding wrongly is every quarter we refresh discretionarily how do we what kind of LGD, PD inputs that we use. Yeah. So I'll just overall just make some clarifications because there have been quite a few questions on the ECL model and is the model just driving the coverage. I just want to set the record straight that see, it's not that this is some black box model which is defining our coverage ratios, right? As in it is the LGDs are a reflection of collection intensity that has basically translated over the period of the last seven to eight quarters. That loss-given default, which arises out of the collection intensity, gets plowed into the LGD assumptions, which influences the coverage. So basically, to make a comment that the model is improving the coverage, there's no invisible model which is helping us do this. This is purely a reflection of the collection intensity. And PD and LGD, as in December we refreshed the models, we went with the objective was to get more granular. From having one model for all vehicle asset categories and only one factor, macro factor, was not prudent. And hence we refreshed the model in December with the new variable. And of course, every quarter, the refresh happens on those assumptions. So I would just kind of leave the overall narration that the benefit that we are seeing on LGD is a reflection of the LGDs, which is a reflection of the collection intensity that has translated over the period of the last few quarters. Got it, sir. And if you talk about we don't disclose the absolute LGD level, but do you mind giving us some color on, let's say, year-on-year or this quarter versus the past couple of quarters? How much improvement LGD have we seen or how does that compare? Yeah. So my recommendation would be look at the coverage ratio because the coverage ratio would more or less reflect it. Yeah, the Stage 3 coverage ratio would more or less reflect the underlying improvement in the LGD. Got it. So basically, Q on Q, our LGD improved 4 percentage points. It's going by that roughly there. Is that the right way to look at it? Because our Q on Q LGD dropped by 3-4 percentage points. So you have a good way to say that our LGD Q on Q increased. In your writing your assessment, the coverage ratio would give you an indication of the improvement in LGD. Yes. Got it. Thank you so much. Thanks, sir. Thank you. The next question is from the line of Jigar Jani from BNK Securities. Please go ahead. Yeah. Hi. Thanks for taking my question. Two questions from my side. One is on the disbursement growth. So last quarter, we had guided for about 14%-15% growth for Q2 year of FY25. If you just back-calculate the number, then the run rate comes to almost INR 17,000 crore for disbursement. I understand second half is a little bit heavy for us as compared to first half. Do you still stand by that guidance or do you think that there will be a slight moderation in it still? My second question is on write-offs. We had also guided that write-offs would see a continuous decline going ahead. If you compare the write-offs on a year-on-year basis, it's not been any higher. Any guidance on what kind of write-offs you could see for FY 2025? Thank you. Thanks, Jigar. On the two questions, disbursement, you're right. We were targeting close to a low teens growth. The first quarter at 5% is very, very moderate and quite bleak compared to our overall expectations. As you would appreciate, 90% of our 90% more is in the vehicle business. We cannot plug in higher growth than what's the underlying vehicle asset sales and retails which are happening. We do, in a sense, are influenced a lot by the dynamics in the vehicle lending business. We will find, as the year progresses, what could be those additional levers for us to move as the rest of the three quarters pan out. But quarter one has been moderate to slightly bleak in our assessment. We are not going to chase growth where there is no growth. As in, if the underlying asset growth is going to be moderate, probably that will reflect in our overall growth for the year. That's why the company is seized of the fact of the diversification plan, which helps us not being so much tied to the hip with only one asset category. Coming to your second question on write-offs, I think while you can look at it on absolute terms, you should also look at it as a percentage of the average assets because our balance sheet size is increasing. Just to look at it from when we were INR 60,000 crore to INR 80,000 crore now to INR 105,000 crore loan book, our overall write-off numbers, because write-offs is a big part of credit cost, our write-off numbers have in percentage terms shaved off by 10 basis points from last year's same quarter. Thank you. The next question is from the line of Sameer Bhise from JM Financial. Please go ahead. Thanks for the opportunity. Just one quick question. What is the incremental cost of borrowing for this quarter? We don't want to be so specific, but it has remained in the same corridor of 7.8%-8%. Okay. You expect similar corridor to be maintained. Is that a fair assessment? Yeah, because at least today we do not see any let-up. So yes, that would be my guidance. Yes. Fair enough. Thank you and all the best team. Thank you. Thank you, Mr. Rebello. That was the last question. I would now hand the conference over to the management for closing comments. Yeah. So thank you, everybody, for patiently and of course, I know there's been a busy day, many results on, and thank you for joining us for this Q1 call. It's been a quarter of, as I mentioned, moderate growth. But for us, we have taken positives out of this quarter. And the big positives for us are around the way in which we are navigating on the whole asset quality aspect. We have seen challenges in Q1 in specific geographies, certain challenges in terms of macros, which in reflection have been navigated decently well. The second, third quarter of the year are extremely important in terms of both growth as well as the Q3 is overlapped with a lot of seasonal, the festive seasons, etc. And we are equipping ourselves to make sure that the next three quarters of this fiscal are covered well in terms of growth, in terms of asset quality, in terms of margins. Thank you, everyone. And again, appreciate you joining us on this call. Thank you. On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.