Aavas Financiers Limited (AAVAS) Q3 FY23 Earnings Concall Transcript

Aavas Financiers Limited (NSE:AAVAS) Q3 FY23 Earnings Concall dated Feb. 03, 2023.

Corporate Participants:

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Sachinder Bhinder — Chief Executive Officer

Ghanshyam Rawat — President and Chief Financial Officer

Ashutosh Atre — President and Chief Risk Officer

Analysts:

Ankit Kanodia — Smart Sync Services — Analyst

Uday Pai — Investec — Analyst

Abhijit Tibrewal — Motilal Oswal — Analyst

Shubhranshu Mishra — Phillip Capital — Analyst

Shreepal Doshi — Equirus — Analyst

Shweta Daptardar — Elara Capital — Analyst

Vikas Kasturi — Focus Capital — Analyst

Mayank Agarwal — InCred Capital — Analyst

Srinath V — Bellwether Capital — Analyst

Ashay Jain — Jane Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Aavas Financiers Limited Q3 FY ’22-’23 Earnings Conference Call. This conference call contains forward-looking statements about the company which are based on the beliefs, opinions and the expectations of the company as on date of [Technical Issues] These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. 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. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kumar Agarwal, Managing Director of the Company. Thank you and over to you sir.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Yeah. Good afternoon, everybody. Thank you for participating on the earning call to discuss the performance of our company for quarter 3 and nine-month FY23, I am very excited to make a few important announcement today. In 2011, we started our journey as Au housing and subsidiary of Aavas, while Au financier which was the first stage of our journey Aavas 1.0. Aavas has subsequently evolved into a standalone business under the ownership of Kedaara Capital and Partners Group and subsequently, went public in 2018, which was Aavas 2.0. Now we are preparing for the Aavas 3.0 journey. The company is evolving into long-term institution and has embarked on the journey to becoming one of India’s largest affordable housing finance players led by people and technology. That would have dealt with a very deep and talented management bench. We are excited to be able to build upon 2:13 [Indecipherable]. In order to create additional leadership bandwidth and allow for better focus on both long-term strategy and day-to-day exhibition, the role of managing director and CEO will be splitted into two distinct roles. The updated leadership structure is designed to allow for the accelerated achievement of Aavas long-term vision. I will continue to be Managing Director of the Company and continue to focus on its overall vision and strategy for the future. I take this opportunity to introduce you, our CEO, Mr. Sachinder Bhinder who will focus on driving core execution. Sachinder has been with Aavas for over three years as Chief Executive Officer of our Aavas MSME business.

He previously served as EVP and Business Head of Home Finance at Kotak Mahindra Bank as he built INR400 billion in AUM business. As part of Aavas 3.0, the Board has also elevated Mr. Ghanshyam Rawat to President and CFO, Ashutosh Atre to President and CRO and Surendra Sihag to Chief Correction Officer in recognition of their long-standing commitment and contributions to Aavas.

I would now hand over the line to Sachinder to introduce himself.

Sachinder Bhinder — Chief Executive Officer

Thank you, Sushil. Good afternoon, ladies and gentlemen. Firstly. I would like to start with thanking you the Board and Sushil for thrusting [Phonetic] me with this opportunity. I’m very happy to be part of this exciting journey. I am confident that with the support of my colleagues, the Board and other stakeholders, I’ll be able to work towards achieving the company’s vision, mission and customer goals. Sushil has laid down a very strong foundation for Aavas. Under Aavas 3.0, my focus will be to build on that foundation and to focus on people and technology. On people, I want to retain and build on the entrepreneurial culture in an institutionalized framework, leverage the significant upfront investments already made in human capital to drive growth and productivity, focus on engagement, training and upskilling of the organization. On the technology side, we’d like to contribute to focus on the completing the technology transformation projects initiated in 2022. The idea would be to achieve nonlinear growth, the technological ability equivalent to that of a bank, create a remarkable customer experience. Sushil and I are joined on this call by Ghanshyam Rawat, President and CFO; Ashutosh Atre, President and CRO; Siddharth Srivastava Chief Business Officer; Surendra Sihag, Chief collection Officer; Ripudaman Bandral, Chief Credit Officer; Jijy Oommen, Chief Technology Officer; Anshul Bhargava, Chief People Officer; Rajaram, Chief Strategy Officer and Head of Analytics; and Ghanshyam Gupta, Investor Relations. The results and the presentation are available on the stock exchanges as well as on our company website and I hope everyone had a chance to look at it. I will now hand over the line to Ghanshyam, President and CFO, to discuss the business and financials. Over to you, Ghanshyam.

Ghanshyam Rawat — President and Chief Financial Officer

Thank you, Sachinder ji. Thank you, Sushil ji. Good afternoon everyone, and warm welcome to our earning call. The disbursement increased by 26.4% year-on year to INR12024 million for quarter three FY23 and 48.7% year-on year to INR34,428 million for nine months FY23. As on December 31, ’22, average borrowing cost 7.29%, I guess, an average portfolio yield, 13.04% resulted in a spread at 5.75%. As on December 31, 2022, total number of live account is stood at 1 lakh 75001 [Phonetic] that is 24% year-on year growth. Total number of branches was 321. 23 new branches added in last 12 months. Employee count 608 to 28% year-on-year growth, in anticipation of additional 20 to 25 new branches in Q4 FY23. Assets under management grew 2.3% year-on-year to 6:52 [Indecipherable] million as on December 31, 2022. AUM has the impact of subsidy received of INR2900 million since December 2021, previous years INR440 million. Therefore AUM grown is 26% excluding the impact of subsidy. Product-wise breakup, home loan, 70.1%, other mortgage loan 29.9%. Occupation wise breakup, salaried 39.7%, self-employed 60.3%. After witnessing 190 basis point increase in the repo rate in the first half of the year, RBI has further increased the repo rate of 35 basis points during third quarter 7:36 [Indecipherable], we have also increased our time lending rate by 125 basis points during first nine months of FY23 and further increased 35 basis point with effect from January 5, 2023. During the quarter, company borrowed an incremental amount of INR13,364 million at 7.15%. As on December ’22, our average borrowing cost stood at 7.29% on outstanding amount of INR1 lakh INR15,648 million [Phonetic]. I get to Ind-AS, reconciliation has been explained in detail for profit after tax and net worth on slide number 35 to 37 of our presentation. Borrowings, access to diversified and cost-effective long-term financing, strong relationship with development financial institutions, during the year, borrowed INR31,815 million at an average rate of 6.84%, overall borrowing mix as on December 31, 2022, is 42.2% from loans, long-term loans from banks, 22.3% assignment and securitization, 22% from National Housing Bank, 13.5% from debt capital market. Liquidity INR27,882 million is December 31, 2022, cash and equal — cash and cash equivalent balance of INR14,682 million, un-availed cash credit limit of INR11,00 [Phonetic] million documented un-availed sanction from other banks of INR12,100 million. Profitability. Profit-after-tax increased by 25.8% year-on-year to INR3,035.4 million for nine months of FY23, ROE 3.43% and ROE 13.59% for nine months FY23. As on December 31, 2022, we are well capitalized with a net-worth of INR31,489 million and capital adequacy ratio at 49.5%. Our book-value per share stood at INR398.4. Now. I would like to hand over line to Ashutosh ji, President and CRO to discuss the assets’ quality. Thank you.

Ashutosh Atre — President and Chief Risk Officer

Thank you, Ghanshyam ji. For the key portfolio risk parameter, asset quality and provisioning, one day pass due stood at 4.05% as against 4.45% at the end of last quarter. Gross Stage 3 stood at 1.13% and net Stage 3 stood at 0.87% as on December 31, 2022. Gross Stage 3 of 1.13% includes 0.19% of up to 90 DPD assets which have been categorized as GNPA following RBI notification dated November 12, 2021. Additionally, the company has stopped recognizing Assets Held for Sale under SARFAESI and mark them as NPA after March ’22. Amounting to INR280 million, which has an impact of 0.26% on above-stated gross Stage 3 assets. During FY22, resolution plan was implemented for certain borrower accounts as per RBI’s Resolution Framework 2.0 dated May 5, 2021. Some such accounts with an outstanding amount of INR931.1 million as on December 31, ’22 have been classified as Stage 2 and provided for as per regulatory guidelines. Out of INR931.1 million, INR701.9 million is into 0 to 30 DPD bucket. Total ECL provisioning including that for COVID-19 impact as well as Resolution Framework 2.0 stood at INR675.3 million as on December 31, 2022. With this, I open the floor for question-and-answer session.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen, we will wait for a moment while the question queue assembles.Our first question comes from the line of Ankit Kanodia from Smart Sync Services. Please go ahead.

Ankit Kanodia — Smart Sync Services — Analyst

Thank you for taking my question and congratulations for good set of numbers. Sushil, just one question. We started a new product post the pandemic which is related to the secured small business loans. If you can give some color as to how that product is shaping up and what is the competitive scenario and where do we see this product shaping up in the next two, three years?

Thank you.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Yeah. So, good afternoon, Ankit. Ankit, as our non-home loan portfolio is around 28%, 30% and two, three years back, most of this portfolio was left [Phonetic] and three years back, they started converting this into MSME. So now, 60% of that non-home home loan portfolio is MSME portfolio, MSME portfolio is how it is different from LAP [Phonetic] tenure, MSME portfolio is seven year, LAP can be up to 15 years. MSME portfolio can be used by business guy only, LAP can be used by personal users also. And MSME loan is basically priority sector loans, so we will get funding accordingly. So that has picked up very well and we want to continue the same to — between 70:30 home loan and non-home loan and most of which we want to do as a MSME loan.

Ankit Kanodia — Smart Sync Services — Analyst

And sir, what would be the competitive scenario here? And how are you placed?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So, Ankit, as of now, the areas where we work tier 2 to tier 5, though there is a competition but in small pockets, but we — because of our distribution and reach, up to 2,500 towns, we are very well placed to cater this kind of segment and — so little competition, but because of distribution, we are able to take many 14:55 [Indecipherable] which we want to build in [Indecipherable]

Ankit Kanodia — Smart Sync Services — Analyst

And is it fair to assume sir, that in the next two, three years, this category of loan will probably grow faster than the home loan portfolio because we are 15:09 [Indecipherable] and we already have a distribution advantage?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

No. So we want to maintain 70:30 home loan and non-home loan portfolio. So in the same ratio, it will grow as a overall company.

Ankit Kanodia — Smart Sync Services — Analyst

Any reason for this 70:30 ratio?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Normally, we want to be in proper housing finance company and that’s where we wanted to more focus on the housing loan business rather than non-housing loan business.

Ankit Kanodia — Smart Sync Services — Analyst

Okay. Thank you. Thank you so much, sir. And all the best.

Operator

Thank you. Our next question comes from the line of Uday Pai from Investec. Please go ahead.

Uday Pai — Investec — Analyst

Sir, we 15:53 [Indecipherable] for the quarter?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Sorry.

Uday Pai — Investec — Analyst

DTL rate 15:49 [Indecipherable]

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

DTL [Phonetic] rate is around 0.5%, earlier, first quarter around 0.7%, then second quarter, it came to 0.6%, now just 0.5% per month.

Uday Pai — Investec — Analyst

0.5% per month.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Yeah.

Uday Pai — Investec — Analyst

Thank you, sir. Thank you. That’s it.

Operator

Our next question comes from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.

Abhijit Tibrewal — Motilal Oswal — Analyst

Yes, good afternoon, everyone. Am I audible?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Yeah, Abhijit.

Abhijit Tibrewal — Motilal Oswal — Analyst

Yeah. Yeah. So thank you for taking my question and congratulations to the entire management team for starting a new chapter through 16:38 [Indecipherable], sir, beyond numbers, there are a couple of things that we will portray and we have also put out slides on that I wanted to understand. Firstly, on the split of the role and responsibilities between the MD and CEO. While you understand, it is a very well intention than the welcome step. Two things I kind of wanted to understand. Firstly, what was the contribution of Mr. Sachinder to Aavas over the last three years? And what are the different functions that he’s been involved with over the last three years? What — I mean, now that, Ashish will be moving into the MD role — exclusively MD role, what 17:21 [Indecipherable] group sectors and strategic initiatives would now — but now we have been backing upon? And lastly, is there something in the [Indecipherable] even for your subsidiary Aavas and so where we gathered during some of our field trips that you have already started doing some pilots in personal loans?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

No. So Abhijit, we applied to RBI for our NBFC license and that’s where Sachinder joined us three years back to build MSME business. We started building MSME business in the parent company until the time we get the license. Eventually, last quarter, RBI denied us for NBFC license. And so, Sachinder is shifted to our finance team as the CEO. Sachinder has contributed Aavas Financiers team as a CEO.

Sachinder has contributed building MSME business in the parent company and he also used to take care of affordable housing, and some of the direct government-led businesses in the company.

Abhijit Tibrewal — Motilal Oswal — Analyst

Got it. And sir, what are the — this newer growth vectors and strategic initiatives that we would like to now embark upon, given that, I mean, now there is a separation between MD and the CEO role.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Yeah. So Abhijit, the way we see always — the way I describe that we plan for 10 years, we built for three year ahead and then we use for current year. So in the process of thinking for long-term. We take lot many initiatives, like, right now, we are doing the digital transformation of the company. So this will enable us to scale for maybe 100 times from the current level.

And then certain new product lines, new target segments, new markets identification and new opportunity identification on which we need to work in-depth as a pilot before putting into a system, which will then scale up.

So I think, all those things are new initiatives, and long-term thinking and vision perspective is important. By this year end, we will be approximately around INR15,000 crores, which was the first, you can say, benchmark for affordable housing that whether you can break that bridge or not, and then then after that, even if we grow with 25% growth, so it’s almost three — twice every three year or 3.5 years.

So at that scale, you will need different kind of infrastructure, different kind of thinking, different kind of initiatives, that we have divided now responsibilities that Sachinder will take care of day-to-day activities of business earning and I will help more from the long-term perspective company.

Abhijit Tibrewal — Motilal Oswal — Analyst

Okay, sir. Sir, one thing is, which is heartening is, I think, until last quarter, you used to talk about a 20%, 25% growth. Now we are talking about a 25% kind of a growth after we reach that INR50,000 crore kind of a milestone. Sir, last question from my side. I mean, given this transition to Aavas 3.0 and the related IT transformation which will enable this transition to 3.0.

Just wanted to explain — I mean, just wanted to understand, if you can explain in some detail, what are the things that you have planned under this IT transformation? What is the total investment outlay on this IT transformation? And by when do you expect this to get completed? Because what we also heard that you plan to launch your sales force platform within the next few days and then gradually phase out your current omni platform.

And sir, also related, I mean, what benefits are you maybe kind of expecting to accrue from this IT transformation in your origination and underwriting? Will it significantly bring down your TAT? And like I said, — but you have all along talked about as this steady and calibrated AUM growth of 20%, 25%. Can this IT transformation help you [Indecipherable] into a higher orbit of AUM growth?.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So, Abhijit, overall as a digital transformation project for Aavas, this has five, six component. Overall capital outlay is around INR120 crore to INR150 crore. Out of this, three key projects right now are in working states. So one is sales force which is transformation of all the loan origination processes. If you see last three years, we were — are stagnant 10 to 12 days of TAT in our loan processing. I think with this new initiative, we will be able to bring it down by 30%, 40% in the first phase and maybe second phase, it can be further better out.

Secondly, this transformation will help us changing the customer experience because going forward, once we will be big, our competition will be — our customer will see, compare us with the bank, large fintechs and best-in-class companies. And with this software, I think we will be able to cater that side.

Other synergies are like, our productivity enhancement, so till today if underwriters are processing 15,000 files, can 400 underwriters process the 24,000 files. Today one file is around 150 pages and it costs around INR1000. With this system, 70% of file will be digital. So that INR1000 cost may come down to INR300, INR400. That itself will save INR10 crore to INR12 crore a year.

So, I think, there are lots of things which you want to achieve either on productivity, process, customer experience, cost reduction and scalability. So I think, all those purposes this serve.

Second phase is LMS. So now we are moving to banking system, which is Flexcube, which is like HDFC Bank, AU Bank. All these larger bank platforms are using this. This will help us scaling us our branch network [Foreign Speech],

So, I think, once we will implement this, this is scheduled to be implemented first we — first quarter of next year. This will help us in scaling up with better control. In the bank, if you will go, INR1 crore cheque can be transferred by a teller, but in NBFC, if you want to transfer INR1 crore, I think its require MD’s approval.

So I think, this will give us flexibility and we are hoping if regulator will give us some more product line approval like car against property, overdraft against property or some of the banking products, we are ready for that from the very first day in our journey.

And third one is ERP system. So, we are moving to best-in-class Oracle Fusion, which in India, like Kotak Bank is implementing or in — I was in Singapore. So even HSBC is implementing the same version at the current point.

So this will help us getting better cuts on profitability product wise, branch wise, people wise, different segment wise and it will also help us bringing India’s accounting fully automated basis. So lots of help on site.

And the fourth version is analytics growth, where we are creating a architecture which can sustain 100 times growth on data from the current level with a seamless integration and a speedy decision making, maybe not days, hours, maybe in some seconds in some kind of profiles.

So, these are little bit update, but maybe if you want more detail, you need to come to Jaipur or you need to write a mail to [Indecipherable] for further update on that side.

Abhijit Tibrewal — Motilal Oswal — Analyst

Sure, sir. I think it was a very, very detailed answer and will definitely plan a trip to Jaipur. Again congratulations to the entire management team present on the call.

Operator

Thank you. Our next question comes from the line of Shubhranshu Mishra from Phillip Capital. Please go ahead.

Shubhranshu Mishra — Phillip Capital — Analyst

Good afternoon, sir. Thank you for this opportunity, just two or three questions. One is that, what would be the individual yield on the non-home loan portfolio? And what was the time taken to breakeven that loan? And what was the yield on home loan and what is the time taken to breakeven this particular loan, sir?

And what is the number of loans that we have disbursed in each of the category in third quarter? Thanks.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So NHL is around 14% and home loan is around 12%. And we have breakeven from the very first year. It’s not that we fund and profitability starts after two or three years, because we are not in a DAV business — DSA business. We get upfront to 2.5% fee on our loan book. So our loans are positive from the first year.

Shubhranshu Mishra — Phillip Capital — Analyst

Understood, sir. And the number of loans in each category that we have done in this quarter, disbursement level?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

No. So our average ticket size around 11, and INR1200 crore disbursement has happened out of which 70% — So around 9,000 case — cases in home loan category and around 3000 cases in non-home loan category.

Shubhranshu Mishra — Phillip Capital — Analyst

Understood sir, thank you so much. I’ll come back in the queue.

Operator

Thank you. Our next question comes from the line of Shreepal Doshi from Equirus. Please go ahead.

Shreepal Doshi — Equirus — Analyst

Hello, sir. Good afternoon and thank you for giving me the opportunity. Sir, wanted to understand what is the rate hikes or the pricing hikes that we have taken in the last six months for HL and non-HL both?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Shreepal, good afternoon. As we have mentioned, we have increased our PLR by 125 basis point and further PLR increase from 5th of January around 35 basis points.

Ghanshyam Rawat — President and Chief Financial Officer

Both the products.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

On both the products. So if — yeah, on the — all the variable rate category products.

Shreepal Doshi — Equirus — Analyst

So, sir, 125 basis point already done and 25 basis point is likely to happen in Feb.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

5th January, 35 basis points.

Shreepal Doshi — Equirus — Analyst

75 basis points, okay.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

35 basis point — 35 basis point.

Shreepal Doshi — Equirus — Analyst

35 basis point, sorry. And this gets implemented within a month’s time, is it — is that a fair understanding?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Yeah.

Shreepal Doshi — Equirus — Analyst

Got it, sir. And, sir, how do you see the margin moving from current leverage for us?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So Shreepal, right now it’s 5.75% and with 35 basis point increase again, this will be 20 basis point. And last quarter, business normally bring a little bit lower, but I think we are hopeful that margins will be stable at least for next quarter.

Shreepal Doshi — Equirus — Analyst

Okay. And sir, for FY ’24 if you can give some guidance?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

We need to see interest rates movements, which side it is going, but hopefully it will be stable or it is reduced by 25 basis point to 30 basis point, we will bring that kind of efficiency into our opex.

Shreepal Doshi — Equirus — Analyst

Got it, sir. Got it. And, sir, the branch expansion plan stays as it is, right? Every year 30, 35 sort of branches.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Yeah. So in the current year, till now, I think, we’ve opened 37 and another 23 will be opened in this quarter.

Shreepal Doshi — Equirus — Analyst

Okay. Okay. Okay, sir. Thank you so much and good luck for the next quarter, sir.

Operator

Thank you. Our next question comes from the line of Shweta Daptardar from Elara Capital. Please go ahead.

Shweta Daptardar — Elara Capital — Analyst

Thank you, sir, for the opportunity. Sir, two questions from my side. So, having mentioned the fact that you will be taking up strategic steps on technological transition, so how do we perceive now opex to asset ratio, which has sort of remained elevated for a while now, currently around 3.56%?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Shweta, in our past commentary also, we have always mentioned that because of technology transformation and average capacity building up, this opex are elevated and from next year, third quarter onwards, we will see 25 basis point to 30 basis point decrease year-on-year for next three, four years in that trajectory.

Shweta Daptardar — Elara Capital — Analyst

Sure. Noticed, sir. Sir, secondly, when do you see ratings upgrade happening for us? Are we in talks with any of the rating agencies, any timelines and what is the overall broader sense there?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So, Shweta, we have done this journey from BBB-minus to AA stable and last two years all the three rating got upgrades. It’s a journey. We will continue doing all good work and it’s up to rating agencies when they will consider us for the next rating upgrade.

Shweta Daptardar — Elara Capital — Analyst

Sure, sir, thank you. And if I may squeeze in one last question. So, I remember you mentioning last quarter that 65% of your disbursements happens largely in the first half, right — sorry, they happen in the second half. So If I go by the current disbursements number around INR1200 odd crores, then — and if I extrapolate with this logic, then we are exceeding almost 25% loan CAGR for this particular year and maybe even in future. So what is your growth guidance now?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So, Shweta, we always say that, we will grow 22% to 25%. And we always keep 25% capacity enhancement in all system. If adverse thing, market competition and all those things will not be there, we might do better than this number.

Shweta Daptardar — Elara Capital — Analyst

Sure, sir. Thank you so much and best of luck.

Operator

Thank you. Our next question comes from the line of Vikas Kasturi from Focus Capital [Phonetic]. Please go ahead.

Vikas Kasturi — Focus Capital — Analyst

Hello, sir. Sir, the first of all thank you very much [Technical Issues] the CEO over the past 11 years. And congratulations, sir, [Technical Issues] too. Sir I had a few questions.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Yeah. Please go ahead.

Vikas Kasturi — Focus Capital — Analyst

So first one is, so, do we plan to, in the same [Technical Issues] below 10 [Technical Issues] I mean, or I think in the future as we, if you want to grow faster, would we be looking at a slightly higher ticket size [Technical Issues].

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So Vikas, as a Aavas, we fund from INR3 lakh to INR1 crore ticket size. And our average ticket size comes in home loan around INR11 lakh and non-home loan around INR9 lakhs. And we foresee that this average ticket size can increase by inflation rate. So we are planning that way.

Vikas Kasturi — Focus Capital — Analyst

Okay. Thank you, sir. That’s all.

Operator

Thank you. Our next question comes from the line of Mayank Agarwal from InCred Capital. Please go ahead.

Mayank Agarwal — InCred Capital — Analyst

Hi, good afternoon, thanks for the opportunity and congratulation on the good set of number and best of luck to the team with the new roles. So my question is basically on the branch expansion. So, what are the states which would be focusing on for the newer branches in this year and next year going ahead?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So Mayank, right now we are working in 13 states and the — whenever we open new branches, it opens in the combination of old state versus new states. So this year like in Karnataka, we are opening around 8 to 10 branches and Odisha, two. And rest all branches are in the existing states where we are working.

Mayank Agarwal — InCred Capital — Analyst

Okay. Okay. Okay. And secondly, my is question on our strategy and growth outlook with the additional management bandwidth which now we have. So, what kind of change in growth outlook about the, our products or product mix, geographical mix? Can we look in next three to five years as of now?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So we’ll continue our strategy as usual. We will open 30, 35 branches every year. Every five year we opened four new [Technical Issues] in last — this is third round. So we have opened Karnataka and Odisha and we will add two more states in next thee to five years in our journey on the distribution side.

Mayank Agarwal — InCred Capital — Analyst

Okay. Okay. Sir, my last question is, on the new branches were opened in newer states, what kind of — what is the breakeven period for them? We know that it takes us around 30 months for the disbursement to pickup in the newer branches, but what — by when can these branches reach at the breakeven level?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So, we have 90% of our branches breakevens in first 12 months. I will again elaborate our unit economics. So we want to open a branch, say, if it’s a population of one lakh, means divided by 4, 25,000 family and we want to penetrate there 4%, 5%. So, it’s around 10 to 12 cases per month. So INR1 crore potential. So we will get 2%, 2.5% fee and we ensure that though this branch expenses should not be more than INR2 lakh to INR3 lakh per month.

So once the branch reach 75%, 80% of its potential business, we are ROE breakeven. But as per data, more than 12 months branches entire country, we have 94% branches, which are ROE accretive.

Mayank Agarwal — InCred Capital — Analyst

Okay, thank you. Than you. And my last request is, basically I’m requesting for a Jaipur visit for all analysts, for — we can see the tech, what kind of technological changes you have made, the coalition on the Aavas 3, basically to get a look and feel for that.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

We are arranging that after Q4 results, Jaipur, Mumbai, that we will see.

Mayank Agarwal — InCred Capital — Analyst

Okay. Okay. Okay. Thank you. Thank you. And best of luck to the team. That’s all from my side. Thanks.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Shreepal Doshi from Equirus. Please go ahead.

Shreepal Doshi — Equirus — Analyst

Hello, sir. Thank you for giving me the opportunity once again. So just wanted to understand Aavas. What’s the thought process for Aavas in so — like, can we deploy the strategy that we have made for MSME secured product and can we shift that business to Aavas? Do we have a plan to shift that business to Aavas Finserv, because at the Aavas Financial level, we will have a — we will have to maintain the HFC norms. Right. So is there a back of the mind thought process?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So, Shreepal, we have applied for the NBFC license, but it has got denied by the RBI. So now we are focusing only in Aavas Financiers business.

Shreepal Doshi — Equirus — Analyst

Okay. Okay, sir. Thank you.

Operator

Thank you. Our next question comes from the line of Srinath V from Bellwether Capital. Please go ahead.

Srinath V — Bellwether Capital — Analyst

Hi, sir. Could you spend some time and help us understand the new geographies, the last three geographies, what has been the experience for us from a basically disbursement? Two, how DPDs are playing out and so on?

Second is largely, we have been in say geographies with similar language base and as we go into South India or deep into East India, we are moving linguistically to slightly more different languages. And what kind of management bandwidth are we building? So if you could broadly address scalability of your business across non-Hindi geographies?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Yeah. So, in last two years, we have added Odisha and Karnataka. This is part of our natural contiguous distribution approach. Karnataka is adjacent to Maharashtra. And so we started Karnataka from area, which is adjacent to Maharashtra and from Belgaum, then Hubli, Dharwad, then Bellary, Gadag. And we have this state head, which was there with the years in Maharashtra but belongs to this market. So he has shifted there.

And in Karnataka, one, we started with Bangalore. We have four branches in Mysuru, Tumkuru and in between areas, we have six, seven branches. So today we have around 11 branches and we are able to do around INR15 crore kind of business per month. So that is — so breakeven is much faster in that market but at Karnataka another analogy is, Rajasthan state has 32 districts, 247 tehsils, 6.5 crore population. And Karnataka also has 30 districts, 222 tehsils, 6.5 crore population but their entire land we got at this side.

So we thought, we will replicate Rajasthan model there. Rajasthan, we have 94 branches. So, we intend to open 80, 90 branches in Karnataka also in next eight to nine years. Every year, we will increase 10 to 12 branches there.

Odisha, again it’s a contiguous distribution model. We are in Chhattisgarh and we have branches in Raipur and reach till the border of Mahasamund, which is Chhattisgarh border. From Mahasamund to Odisha capital Bhubaneswar, there is a straight highway. So we want to connect that through Sambalpur and other locations. So in the first phase, we have opened Bhubaneswar, Cuttack, Jajpur, Gopal. And in the next stage, we are opening up Sambalpur and other things.

And all these state again, we are able to breakeven in the first year itself. Till now, there is no delinquency, as we have told all philosophy, first 30 months we go slow, but we ensure that no account is 30 plus. So till now, we are on the exhibition side, right strategy, low delinquency on these two new states.

Srinath V — Bellwether Capital — Analyst

And how about Uttar Pradesh, sir? Given that the state has higher checkered record even in microfinance. You’ve seen couple of blow-ups in the past and in kind of non salaried segment. So what has been the credit experience especially in Uttar Pradesh in the last one year from say, DPD zero perspective, is it in line with the 4% that we are doing at the portfolio level or would it be slightly higher? Any broad perspective?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Yeah. So Uttar Pradesh, we target I think now 4.5 years. So we are — we have five years journey there. Their one plus numbers are in line with our philosophy less than 5% and gross NPA is 0.54%. So, we are doing well. We have now more than 20 branches there and doing calibrated business in that market.

We see a great opportunity there also in the long term, in 10 years horizon. UP can be a INR100 crore per month business market for us, but we will go slowly and calibrated manner in that market.

Srinath V — Bellwether Capital — Analyst

Got it, sir. Last question from my side is, this is more — when I went on a vacation to Northeast, I witnessed that there is a significant amount of single-dwelling homes and a lot of construction activity of private homes in indoors and with visibly younger demography. Is that a market that — generally also you kind of see a much more peaceful environment out there? Is that a market that would interest you? Do you think that market has the necessary population depth for a operator like you to operate?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So, we want — we are long-term focused company and we have completed over 13 years of journey. And we are in 13 states. In next 15 to 20 years, we want to cover entire India. So we will go slowly, but we will complete the entire India.

Srinath V — Bellwether Capital — Analyst

Got it. Got it. Got it. Okay, sir. Thanks a lot. I’ll get back in the question queue.

Operator

Thank you. Our next question comes from the line of Ashay Jain from Jane Capital. Please go ahead.

Ashay Jain — Jane Capital — Analyst

Yeah, hi. I have couple of question. Firstly, can you please share some outlook on the domestic as well as export market?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Ashay, we are into — get it into domestic market only in the housing finance segment. So we don’t have perspective about the overseas market and the property finance market. But Indian property finance market, if you will see different kind of report from CRISIL, ICRA and different industry body, today industry is around INR27 lakh crores in India and it’s supposed to grow 8% to 10% year-on-year. And any Indian mortgage GDP ratio is around 9% to 10%, which we foresee that next five years, it can rise up to 11% to 12%.

Operator

Ladies and gentlemen, the line of Ashay Jain has been disconnected. We will move on to the next question, which is from the line of Srinath V from Bellwether Capital. Please go ahead.

Srinath V — Bellwether Capital — Analyst

Yeah, sir. Going back to the MSME business, could you help us understand the customer profile in this, especially seen the — given the scaling up, what are the broad customer profiles and how would that be different from the LAP business while in the LAP business, yeah, the term — the length of the term is different. So would like to understand which are the occupancies your — is it largely B2B customers, B2C, B2C consumer or what kind of broad customer profiles? What kind of incomes are these people having and so on and so forth? If you could help us explain that, that will be great.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So, as you know we, as Aavas has more customer focus on business customers, so salaried customer is 38%, 39% and 62% is self-employed. In that self-employed category, we cater to around 40 profiles from kirana merchants to medical shops to hardware to halwie to cargo. So, everything which you will see on the state, but mostly it’s D2C business, direct to customer businesses. These customer have income level from INR20,000 per month to INR1 lakh per month kind of income segment.

Srinath V — Bellwether Capital — Analyst

Got it. This would be — I’m not referring to the housing loan business, sir, more for the the MSME side of the business.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

The MSME customer has the same profile.

Srinath V — Bellwether Capital — Analyst

Okay. And so here, again — so it’s a loan against property and then just the cash flow for the business. Are you funding working capital for the business? Or are you helping them with some sort of capex and you know….

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Normally capital term loan. We fund for different kind of business requirement, from stock to machinery to erection of yard, etcetera, machine. So it can be any business requirement from working capital stocks to capex. We fund against the — see normally 99% securities are self-occupied residential property in this segment.

Srinath V — Bellwether Capital — Analyst

Got it, got it. And so this geographically, what kind of growth can you have? Is this modeled, because it may be a slightly more complex model than the home finance model, is this also replicatable across geographies? Where are we — which geographies are we currently present in and how do you see that moving?

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

So now we have created a specialized vertical that is working in around 30 branches. We can — and every year, we will expand this vertical to 30 more branches. So, we had total three. By this end — year end, we will have 350 branches. So every year, we will expand this business to 30, 34 more new branches as a specialized product.

Srinath V — Bellwether Capital — Analyst

Got it. Thank you. I’ll get back in the question queue.

Operator

Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Mr. Sushil Kumar Agarwal, Managing Director for closing comments.

Sushil Kumar Agarwal — Managing Director and Chief Executive Officer

Good evening, everybody. And I am happy to inform you that in collaboration with the International Finance Corporation, Aavas have successfully achieved A Certificate for first lot of affordable green self-build home during this quarter. This is the first ever pilot project by IFC and EDGE in collaboration with Aavas for self-build houses, which has been certified as a Green Homes, not just in India, but at a global level. This will further increase as we move along in this journey and we hope next five years, 15% to 20% of houses, which we are funding will be green-certified.

Thank you all for attending the call. We would also like to let you know that we are planning to host a longer Investor Day next quarter to give all of you a chance to spend more time with the broader team. I wish you a very Happy New Year and hope everybody to keep safety and healthy as a priority.

For any further information, we request you to get in touch with Ghanshyam Gupta, our Investor Relation team member and SGA, our IR Advisors. They would be happy to help you. Thank you.

Operator

[Operator Closing Remarks]