Aptus Value Housing Finance India Ltd (APTUS) Q3 FY23 Earnings Concall Transcript

Aptus Value Housing Finance India Ltd (NSE:APTUS) Q3 FY23 Earnings Concall dated Feb. 03, 2023.

Corporate Participants:

M Anandan — Chairman & Managing Director

P. Balaji — Chief Financial Officer, Executive Director

Analysts:

Mona Khetan — Dolat Capital Market Private Ltd — Analyst

Amit Bhatt — Mit Engineers — Analyst

Ashok Kumar — I&D — Analyst

Ankit Bansal — AB Investment — Analyst

Bhuvnesh Garg — Investec Capital — Analyst

Vikram Subramanian — Spark Institutional Equities — Analyst

Nidhesh Jain — Investec — Analyst

Chintan Shah — ICICI Securities — Analyst

Praveen D’Souza — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Aptus Value Housing Conference Call hosted by Dolat Capital. 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’ll now hand the conference over to Mona Khetan. Thank you and over to you.

Mona Khetan — Dolat Capital Market Private Ltd — Analyst

Thank you, Irene. Good evening, everyone, and welcome to the Earnings Conference Call of Aptus Value Housing Finance Limited to discuss its Q3 FY ’23 performance. We have with us the senior management from Aptus to share the industry and business updates. I would now like to hand over to Mr. Anandan for his opening comments, post which we can open the floor for Q&A. Thank you and over to you sir.

M Anandan — Chairman & Managing Director

Thank you, Mona. Ladies and gentlemen, good afternoon to all of you. I am Anandan, CMD of the company. I welcome you all to this conference call to discuss the financial performance for the quarter ended nine months ended December ’22. I have with me Mr. P. Balaji, ED and CFO Finance; and Mr. C. T. Manoharan, our Executive Vice President in Business Development. The results and the investor presentation are already available on the stock exchange as well as in our website. I hope everyone had a chance to look at it.

Aptus, as you know, had a healthy nine months, which reflected in our strong results, business outcomes. Disbursements growth helped [Phonetic] and collections are back to pre-COVID level. Total disbursements for the nine months stood at INR1,734 crores as compared to INR1,120 crores in the previous year, up by 55%. Assets under management December ’22 is about INR6,307 crores, up by about 31%. With focused collection efforts, our collection efficiency have stabilized at around 100%, resulting in reduction in the soft buckets over due.

Our 30-plus DPD improved to about 6.27% from the earlier 6.5% and prior to that 9.9%. So, coupled with the improvement, the GNPA has also marginally improved to 1.44% from 1.47% as on September ’22. During this quarter, we have increased our interest rate to borrower by about 50 basis points for our home loan customers with effect from 1st November ’22 to take into consideration the increase in the interest rate has happened in the immediate past.

Full effect of this increase on the income will get reflected in Q4 of ’23. Spread for the year at 14.45%, represent an improvement of 102 basis points as compared to nine months of the previous year. We have registered consistent ROA of about 8.5% and our ROE has improved to about 16.02%, up by about 190 basis points. This ROE is, as you could have noticed, is one of the best in the industry.

As of December ’22, our liquidity position is more than comfortable with a liquidity of about INR1,060 crores, including undrawn sanctions of about INR400 crores from NHB. Further, we also declared, as you are aware, a dividend of INR2 per share in the month of December ’22.

Our net worth now stands at over INR3,200 crores, which indicates robust capital adequacy in order to support future growth. Key highlights of nine months ’23, our performance being, NII was at about INR622 crores, up by 39% year-on-year; spread at 14.45%, up by 102 basis points YoY; net profit at INR365 crores, 41% higher YoY; and AUM about INR6,307 crores, a growth of 31% over previous year.

Disbursement for nine months, as mentioned earlier, has grown by about 55% and our NPA stands at about 1.44% as of December. Capital adequacy is very comfortable at about 79 [Phonetic], and ROA at 8.5%, and ROE is attractive at about 16.02%. I would now hand over the line to Mr. P. Balaj, our ED and CFO, to present our various other business parameters. Thank you.

P. Balaji — Chief Financial Officer, Executive Director

Good afternoon, friends. As of 31st December, total live customers has crossed 1 lakh. It is a growth of 29% year-on-year. Total number of branches were at 215. We had added nine branches in the first nine months. Four more branches, including one more in Odisha has got opened in the month of January. Employee count was at 2,349.

Major performance highlights: AUM grew by 31% to INR6,307 crores; disbursement increased by 55% year-on-year to INR1,734 crores; spread was 14.45%, increased by 1.02% year-on-year; and opex to assets were at 2.75%; PAT was at INR368 crores at 41% growth year-on-year; ROA and ROE was at 8.53% and 16.02%, respectively.

With regard to the asset quality, with focused collection efforts, 30 plus DPD improved to 6.27% in September ’22, which was around 6.5% in — sorry, 6.27% in December ’22, 6.5% in September, and 9.91% in March. Coupled with this, there is also a marginal improvement in our NPA from 1.47% in September to 1.44%. Net NPA is at 1.08%.

Provision coverage ratio has been increased to 1.06% as on 31st December from 0.8% in March ’22. As of December, we are carrying a total provision of INR67 crores and this when compared to as a percentage of NPA workload, the provision coverage of 73%. Outstanding restructuring book were at a nominal 0.8%, and the behavior of this book is on par with our normal books.

In regard to borrowings, we have well-diversified borrowings. Of the total borrowings, 62% are from banks, 23% from NHB, 11% from DFIs like IFC and large financial institutions, and the balance in form of securitization. We enjoy a rating of AA-minus both from ICRA and CARE. We have sufficient on-balance sheet liquidity of INR1,064 crores, including undrawn sanctions of INR400 crores from NHB. As on 31st December, our net worth was over INR3,200 crores. Now with these remarks, I open the floor to the question-and-answer session. Thank you.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question is from Amit Bhatt from Mit Engineers. Please go ahead.

Amit Bhatt — Mit Engineers — Analyst

Sir, disbursements increased by 55% and there is a 41% rise in profit-after-tax is really very good growth. The question is, in the coming year, what will be the reasonable expectation of this disbursement growth and what is the strategy to achieve that growth of more than 35% to 40% in disbursement?

M Anandan — Chairman & Managing Director

As you aware, we’ve been having a consistent growth in the last four, five years and we expect the growth to continue in the future also. We are working with a growth rate of around 25% to 30% in our loan book going forward. Given the large size of the market, this is somewhat underserved, unserved, under-penetrated. We do see there is an opportunity for us to maintain this growth rate for long periods to come.

As far as the strategy and the action plans to achieve this growth going forward, one is that on the geography side, we are looking at — we have got a very good leadership position in all the southern states. So we will look for more branches in the existing states and we will also look at one or two new states — on adjacent states going forward. And within the existing branches, we will look for higher level of productivity. We will increase the productivity of the existing staff. We will add more staff at the field level to vent [Phonetic] the additional business.

So in other words, the strategy is largely it terms of, we will continue to grow both in the home loan as well as in our SME business and we will continue to be a very strong player in Southern India as we keep expanding into the other parts and we believe in a very strong productivity. So we will look for higher productivity from the existing staff. We will add more staff. We will add more branches, particularly of the four southern states, our branch network has been very good in Tamil Nadu and Andhra and it is somewhat less in Telangana and Karnataka. So going forward, we look to add more branches in some of these places.

And our ATS which is about INR8 lakhs now, there is a scope to really look at up to INR9 lakhs, INR10 lakhs. We don’t substantially go up, we are quite happy to operate within this category of INR6 lakhs to INR15 lakhs broadly, but there is a scope in terms of our average ticket size also to move up. Even if it moves up to INR9 lakhs from INR8 lakhs, it is about 10% improvement in disbursements.

So in other words, going forward, we really looking at all these key elements, keeping our strength in terms of productivity, cost of operations including lower funding costs. Same time, we would really go for growth which we are able to obtain in the recent past and that will also help us to further increase our ROE going forward.

Operator

The next question is from Ashok Kumar of I&D. Please go ahead.

Ashok Kumar — I&D — Analyst

Hello, am I audible?

M Anandan — Chairman & Managing Director

Yes.

Ashok Kumar — I&D — Analyst

Yeah, sir, first of all, congratulations on good set of numbers. I just need one clarification regarding the current quarter numbers. On YoY basis, the numbers looks pretty strong, but on the sequential basis, we don’t see the strong momentum in terms of sequential comparison with the previous quarters. Can you please throw some light? Is there any slowdown in the business momentum in terms of the growth? And a little bit color on the guidance for the next year as well. Thank you, sir.

M Anandan — Chairman & Managing Director

Thank you. Actually, as far as the market is concerned, demand from the customer is concerned, there is absolutely no issue. The demand continues to be very strong for the home loan segments that we service. So, it is not a question of lack of demand or lower demand or higher increased competition at least at this point in time is not the issue. The issue that we had is really as you must have observed is that rightly, in the second Q, we had a 15% growth in disbursement over the Q1. So we have Q1 — Q2 was 15% higher, which has been the annualized, it’s almost 60%. So in other words, our Q2 was a very strong base and foundation.

And on top of that, also what has really happened, we are able to grow in — of the four states, we’re able to grow in Andhra, Telangana, and Karnataka in Q3, but in the state of Tamil Nadu because of certain stop changes, couple of — at the cluster manager levels, couple of branch level, there is slight dislocation in Tamil Nadu, which has been corrected.

And so it’s an internal staff-related issue that we have acted upon. And to that extent, there was slightly lower growth in Tamil Nadu alone, not in the other states. And going forward, in fact, though as you must have also observed, though the disbursements have really started compared to Q2, but as far as the loan book is concerned, you must have [Technical Issues] 5% and 6%, which annualized, it comes to about around 35% [Phonetic] growth rate and things like that.

So in other words, our loan book has grown, our income has grown, our PAT has grown, but then on the disbursement, a particular issue that we have resolved and that to also in a particular market only, but otherwise, we don’t really see any hindrance for our growth going forward.

P. Balaji — Chief Financial Officer, Executive Director

Even for Q4 I think we are looking at a better growth.

M Anandan — Chairman & Managing Director

Exactly, our projections of Q4 actually will be better and we’ll get back our growth and maybe more than our growth that we have achieved so far, yeah.

Ashok Kumar — I&D — Analyst

Thank you, sir. That helps. Just a follow-up on that. So since you are saying that the internal staff issues which are there at some branches in Tamil Nadu. So, do we see this is going to cover up in the Q4 given the fact that in the second half of every financial year, we show pretty a strong performance. That is one. And, the other portion of my question was still waiting for an answer. Any guidance on the next year growth? I mean, is the growth momentum is going to sustain for the next couple of years in the long-term prospects?

M Anandan — Chairman & Managing Director

No, we are planning and we are confident of pursuing a growth rate of around 25%, 30%. in the loan book going forward in the next three to five years because we believe the market in affordable housing finance is large and the share of our — not only shares, all the players put together also the share is — the penetration is low. So to that extent, there is a long runway to go.

Obviously, there will be some internal issues in terms of branches, in terms of staff and productivity, that kind of issues, but that we are very confident of facing and resolving as we have done in the past. And even in the current year that’s why we have grown, you know, the nine months, we have grown by 50% disbursements higher than the previous year and our loan book has grown by about 31% higher than the previous year.

Ashok Kumar — I&D — Analyst

Thank you. Sir, that helps. Just a follow-up, which I have asked before. So in the Q4, do we expect whatever the growth happened in the Q3 because of the internal issue, is it going to cover up or do you see [Speech Overlap].

M Anandan — Chairman & Managing Director

Our Q4 will be good and we are already started getting the normal growth back even in the month of January — starting with January. So we don’t really see any issue. Sorry, please go ahead.

P. Balaji — Chief Financial Officer, Executive Director

The internal problem that happened in the Q3 has got sorted out fully. So that’s what we just wanted to highlight that. So the growth should come back, yeah.

Ashok Kumar — I&D — Analyst

Thank you, sir. That really helps. All the very best for the coming quarters.

M Anandan — Chairman & Managing Director

Thanks.

Operator

The next question is from Ankit Bansal from AB Investment. Please go ahead.

Ankit Bansal — AB Investment — Analyst

Hello.

M Anandan — Chairman & Managing Director

Yes, Ankit, good afternoon.

Ankit Bansal — AB Investment — Analyst

Good afternoon, sir. Sir, my question is like you said, you give loans mostly to home loans, mostly the loans are into home loans. Sir, on what basis you calculate GNPAs and net NPAs?

P. Balaji — Chief Financial Officer, Executive Director

No, the GNPA is computed as per the RBI norms, which has been suggested for the HFC, which is the daily DPD basis has been implemented right from last December onwards for us. We didn’t wait till the grace time that has been given by the RBI. And in fact, from December ’21 onwards, we have implemented daily DPD and daily stamping system. So it is based on the RBI norms the GNPA is getting calculated.

Ankit Bansal — AB Investment — Analyst

Okay, sir. According to your balance sheet, sir, these net NPAs and GNPAs are very fluctuating. Like in this quarter, it has come down from previous quarter — 1.47% to 1.44%, only 0.3 marginally and like I’ve seen in like in 31st March, 2022, it was 1.19%. From there, it has been increased, like it’s very fluctuating, it’s not a consistent graph. So what is the reason, sir, are the home loans — is there any problem in that?

P. Balaji — Chief Financial Officer, Executive Director

It’s actually not fluctuating. As of 31st March, it was around 1.19%, okay. The full effect of this daily DPD stamping came into effect in December, but it took time for us to — I mean that the RBI circular impact was there and because of that, in June, it became 1.15% and after that, it has been only reduction. So, from 1.15% in June. In September, it has come down to 1.47% and in December, it has become 1.44% and we are confident of bringing it down further.

M Anandan — Chairman & Managing Director

Actually, just to add to what Mr. Balaji said, our 30 plus outstanding, 30 days plus overdue, as on December, it is — no 30 plus, it was 6.27% as on December ’22, which was 6.5% earlier September and it was 9.9% in June ’22 and it was 12.98% in March ’22. So in other words, it is being — after be COVID impact, our collections in the last six months it’s almost a little over 100% resulting in — there is a continuous constant improvement in our outstanding positions. As far as all the dues are concerned, there is significant reduction happening place [Phonetic]. It’s not fluctuation actually, it’s a one-way reduction that’s been happening.

Now when it comes to the NPAs that you had mentioned, that alone, because the new RBI guidelines came in effective December, the new RBI guidelines resulted in NPA going up to almost all financial players, anything between 0.5% to 1% almost to everyone. Now that blip has happened and after that, again it has started really coming down. For us also it has really started coming down and our NPA today at 1.44%, first, it has not really gone up over September or June or kind of thing and second thing is that we are also trying to work on that and further reduce it going forward and irrespective of that, we also provided adequately to take care of the NPA.

Ankit Bansal — AB Investment — Analyst

Okay, sir, my next is, sir, with the kind of all the growth story of India. Sir, what next leg of growth are you seeing in the company, from which sector? Is it home loan year next — you are being translating into another or you are seeing for next 10 years home loan is the main growth for the company?

M Anandan — Chairman & Managing Director

No, there will be actually [Speech Overlap] home loan will continue to be our main focus area, but in addition to that, we’re also into what we call the financing for the small businesses, SME business financing. We currently have a loan book of around INR700 crores in the SME business, which is good in terms of and which has got a good growth opportunity also. And the customer profile, customer location, and this loan also we give only fully secured one based on the results and profit of the security. So in other words, our two engines of growth will be one is the home loans and second is the SME business loans. Both we will grow, but we will not at this point in time, we don’t have any plans to diversify into any other retail products secured or unsecured.

Ankit Bansal — AB Investment — Analyst

Okay, thank you, sir. Thank you.

Operator

Our next question is from the Bhuvnesh Garg of Investec Capital. Please go ahead.

Bhuvnesh Garg — Investec Capital — Analyst

Yeah, hi, am I audible?

M Anandan — Chairman & Managing Director

Yes.

Bhuvnesh Garg — Investec Capital — Analyst

Yeah, right. Thank you for the opportunity. Three questions from my side. Firstly, what was our BT out rate for the quarter and staff attrition rates for nine months?

P. Balaji — Chief Financial Officer, Executive Director

Yeah. Our BT out — see, let me first talk about pre-closures and then I’ll talk about the BT out. For the nine months, the preclosure rates were around 7.9%. Of that, almost 5% to 5.5% is on account of own stores that got pre-closed. That means the customer had money, so he didn’t borrow from any other bank or any lending institutions to repay our loan. So that is for almost 5% to 5.5%. So the balance 2% is the BT out so which has gone to other financing companies.

Bhuvnesh Garg — Investec Capital — Analyst

Okay, so that is on nine months? YTD basis?

P. Balaji — Chief Financial Officer, Executive Director

It is very minimal, yes.

Bhuvnesh Garg — Investec Capital — Analyst

Okay, and staff attrition?

M Anandan — Chairman & Managing Director

As far as the staff attrition is concerned, our staff of about 2,400, we have our, what we call the band one at the senior management level, the attrition is only not more than 2%, 3% or near about nil I should say. And in band two, where we have got all the managers, middle managers, senior managers, at the band two, our attrition rate, again is low at around 4% to 5% only. Now it is really the band three, what we call our field officers, which is really comprising of the sales officers, collection officers, legal, technical team at the branch level, our attrition is slightly higher though it compares well within the competition, still we you know the attrition is around 18% to 20%. That is what we are working to reduce it further. So compared based on our Intercom comparison and available data comparison, it compares reasonably well with our competitors, but still we look at it something high and we are working towards reducing that.

Bhuvnesh Garg — Investec Capital — Analyst

Okay, 18% to 20%?

M Anandan — Chairman & Managing Director

Sorry.

Bhuvnesh Garg — Investec Capital — Analyst

18% to 20%.

M Anandan — Chairman & Managing Director

Yeah.

P. Balaji — Chief Financial Officer, Executive Director

At the sales officer level.

Bhuvnesh Garg — Investec Capital — Analyst

And sir. Thirdly, what percentage of our book is at a fixed rate and what is the structure of that fixed rate? Is it fixed rate for the whole life of the loan or for some period of the time?

M Anandan — Chairman & Managing Director

No, actually, our fixed loans are almost about 78% and our variable rates are the balance 22%. And this fixed rate, it is fixed for the entire tenure of the agreement, right from the day the agreement commences. There is — we have not really gone first two years, it will be fixed, after that variable, that kind of issues. So it is really fixed for the — because given the nature of our customers and which are largely rural based. Typically, district headquarters, taluk headquarters and given our loan size, which is around INR8 lakhs to INR9 lakhs and in fact our outstanding loan per customer today is only about INR6 lakh. And given our EMI, which is about INR12,000, has an average about INR12,250 to INR12,500. Now these customer they find it complex to understand the variation in the interest rate situation. And on the other side, we are willing to pay for the risk associated with the interest rate. For that they are willing to pay, but the basic management of ALM and liquidity is something which we are taking care of and we are pricing our products also in line with that.

Bhuvnesh Garg — Investec Capital — Analyst

Got it, sir. Thank you. Thank you for your response. All the best for coming quarters.

M Anandan — Chairman & Managing Director

Thank you.

Operator

Our next question is a follow-up from Amit Bhatt of Mit Engineers. Please go ahead.

Amit Bhatt — Mit Engineers — Analyst

Sir, management regularly interacting with lots of institutional investors. What is that concern that is such a clear grow, there is no incremental demand from the institutional investors. And even the prices you know, the SCO [Phonetic], but there is more demand. So price is the God. So what is that we don’t know and they know, so that’s why they are not investing in our company.

P. Balaji — Chief Financial Officer, Executive Director

See, actually, when we speak to the analysts and the institutional investors, I mean both Mr. Anandan and myself meet them, but they are not expressing any concerns over the — over investing in stock or the business model, basically. But I mean, beyond that, I don’t think I can actually answer that.

M Anandan — Chairman & Managing Director

Just to add — it’s a tricky question, but nevertheless, I’ll try to answer. Basically, we are really focusing on the performance of the company. And our company has been performing well and consistently. And so either in terms of growth, in terms of quality of our sales, in terms of profitability, in terms of any parameter, we continuously will add value and continues to add value to all stakeholders, including shareholders. So our — that’s one of the reason why we have really declared our dividend also. Apart from increasing the overall shareholder value, we definitely want to increase overall shareholder value. And that we believe we can achieve largely through focus to performance and good performance on a continuous basis on a long-time basis, that we are doing it.

But then as far as the share prices are concerned, you know better than us that there are several headwinds and both macro and micro and caused by different developments and for different sectors and things like that. So those — we believe, even in this situation, what we have — apart from performance, we have now taken the other obligation task of continuously interact and share our performance and what we are doing with the analysts and investors more and more and then leave the marketplace basically left to them, really.

Amit Bhatt — Mit Engineers — Analyst

Thank you sir. Thanks.

Operator

The next question is from Mona Khetan. Please go ahead, ma’am.

Mona Khetan — Dolat Capital Market Private Ltd — Analyst

Yeah, hi sir. A few clarifications from my side. So, firstly, there would be the incremental cost of funds and incremental yields for us.

P. Balaji — Chief Financial Officer, Executive Director

Incremental yields, it will be at base rate. The yields will be — if we are increasing the interest rates, it can go up by 0.5% or so. And if there is a need, we’ll do that. And on the cost of funds, as we guided in the last [Technical Issues]. Mona, your able to hear me? There’s some disturbance.

Mona Khetan — Dolat Capital Market Private Ltd — Analyst

Yeah, I am able to hear you. Please go ahead.

P. Balaji — Chief Financial Officer, Executive Director

So as regards the cost of funds is concerned, as we guided in the last quarter, some of the variable rate loans are getting repriced in Q3 and Q4. This is — this will be partly adjusted when we draw NHB borrowings. But we didn’t draw much of NHB borrowings in the third quarter because we have adequate liquidity. And because of that, if we draw the funds, it will only result in negative carry. So we will be drawing that balance INR400 crores in this quarter, which will aid in balancing of the interest cost and then take it forward.

M Anandan — Chairman & Managing Director

Basically, our incremental interest cost now accounts around 7.8% — yes, around 7.8% to 7.9% is coming incremental interest costs. But as far as our yield is concerned, our yield is around 15% on home loans and about 21% on the business loans and quasi home loans around 17.5%. Our weighted average yield is over 17.5%. So and that’s where we are having good interest spread, good NIM and good ROE.

Mona Khetan — Dolat Capital Market Private Ltd — Analyst

Sure, so when you say 50 bps rise in yields, that you’ve done. This is across the three products you have HL, BHL, as well as SBL loans.

P. Balaji — Chief Financial Officer, Executive Director

No, we did it only for the housing loan customers.

Mona Khetan — Dolat Capital Market Private Ltd — Analyst

Okay. And secondly, so you had guided for Stage 3 assets to decline to 1.3% by March. And so that target is still workable?

M Anandan — Chairman & Managing Director

Yes, yes. We are at 1.44%. We just have to reduce by 0.14%. We are on the job to get that done.

Mona Khetan — Dolat Capital Market Private Ltd — Analyst

Sure. And this quarter, the tax rates were a little higher at 25%. So how do we read that? Could we expect…

M Anandan — Chairman & Managing Director

That is, what happened — see, there is a benefit which is available to us under 80JJAA. See, that is linked to the actuarial valuation. So that we do every half year. So that benefit under 80JJAA is taken every half year. So because of that, there is an increase in the tax rate. But on the overall basis, I think it is still at 22% or so.

Mona Khetan — Dolat Capital Market Private Ltd — Analyst

Okay. Okay. And where would the one-plus DPD stand as on December end?

P. Balaji — Chief Financial Officer, Executive Director

December was at 8%. Last time, it was at 8.75%, it has reduced to 8%.

Mona Khetan — Dolat Capital Market Private Ltd — Analyst

Okay, thank you sir, that’s all from my side.

P. Balaji — Chief Financial Officer, Executive Director

Thank you, Mona.

Operator

The next question is a follow-up from Ankit Bansal from AB Investment. Please go ahead.

Ankit Bansal — AB Investment — Analyst

Hello.

M Anandan — Chairman & Managing Director

Yes.

Ankit Bansal — AB Investment — Analyst

Sir, with the kind of questions I have been, sir, overall company’s main principle of delivering growth, delivering value to shareholders. What are your final comments on that.

M Anandan — Chairman & Managing Director

We right from the inception of the company, on a consistent basis, last 12 years, we very strongly believe in value creation. And apart from our obligation, responsibility to the — all the stakeholders, customers, we, at the same time, believe in creating good value so that every stakeholder can get benefit out of it. And that’s how we have grown the company as a very profitable company and the company — given the risk that we undertake in this business. And we have priced our products reasonably well. We have some of the leveraging pricing power that we have in this particular market segment.

And our cost of funds are managed and our productivity is one of the best, which means our opex is one of the lowest. And so that’s why we’ve been consistently delivering our NIM, our ROA or in fact, even ROE, we have now reached from 14.5% of last year, we’re now at about 16%. And this improvement in ROE, if you look at it, there will be very, very few companies, which should be delivering an ROE at 16%. We have not only delivered that, we’re confident of improving it also going forward, So, in other words, we would want the investors in this company to see this company as a value-creating company now or and into the future.

Ankit Bansal — AB Investment — Analyst

Okay, okay, okay. Sir, as a shareholder to get best from the company.

M Anandan — Chairman & Managing Director

That’s what we are striving for. Yes, that’s why we exist actually.

Ankit Bansal — AB Investment — Analyst

But sir, we are little concerned that the share price is very diminishing. It’s very, one-time it goes to. Because as a shareholder, I only look at the company creation might rise. Share price is very — that’s little concerned. That’s why I asked that question, sir.

M Anandan — Chairman & Managing Director

Understood, understood, but from the company point of view, we are wanting to perform the best and we want to maintain good growth rate, good margins, good profitability and I’m sure the market also will recognize it in time.

Ankit Bansal — AB Investment — Analyst

Okay. Thank you sir. Thank you.

Operator

The next question is from Vikram Subramanian of Spark Institutional Equities. Please go ahead.

M Anandan — Chairman & Managing Director

Yeah, Vikram.

Vikram Subramanian — Spark Institutional Equities — Analyst

Hi, sir. Congrats on the good set of numbers and thanks for taking my questions. Just one question that’s related to dividends. So we have started dividends from this quarter.

M Anandan — Chairman & Managing Director

Your voice is breaking Vikram, we are not able to hear you properly.

Vikram Subramanian — Spark Institutional Equities — Analyst

Hello, am I audible?

M Anandan — Chairman & Managing Director

Yes.

Vikram Subramanian — Spark Institutional Equities — Analyst

Yeah, so my question is regarding dividends. So we are a high-growth company but at the same time, we are sitting on excess capital. So I understand the rationale behind dividends, but is there low watermark or threshold of capital adequacy ratio at which we might stop dividends in the future and what is the dividend policy or basically what kind of payout can we expect sustainably in the near to medium-term?

M Anandan — Chairman & Managing Director

See the question is that if you really look at our margins and our PAT and earnings per share and things like that, we have about enough leeway to sustain the dividend — that rate that we have declared currently. So in other words, on a INR500 crores estimate for profit this year, we have really have a dividend will be about so certain percentage and leaving enough money enough for the business growth.

And so in the future business, one thing we’re very very clear is that, there may not be any need at all for this company to raise capital in the future, given the fact that the base leverage is very low. Our gearing today, our leverage today, our borrowing rates are low. So that is one.

Second thing is our profitability in terms of ROE is one of the highest.it’s almost twice of the next best company in affordable home finance segment itself. So this provides us the flexibility for the Board to decide a reasonable PAT dividend payout ratio, which is sustainable into the future as well, but I won’t be able to really exactly give it to you, what will be the percentage. Because the dividend percentage is something dividend payout, the percentage is something to be decided by the Board as you know, but it’s clear that the dividends that we have declared will be sustained into the future as well.

Vikram Subramanian — Spark Institutional Equities — Analyst

Got it, got it, sir, that was clear explanation. Thank you.

Operator

The next question is from Nidhesh Jain of Investec. Please go ahead.

Nidhesh Jain — Investec — Analyst

Thanks for the opportunity. Sir, what is the sustainable debt-to-equity ratio that we can sustain in the business post which we will require capital.

P. Balaji — Chief Financial Officer, Executive Director

We are targeting a leverage of around four to five times. That is the plan we have. And rating agencies also will be comfortable with that kind of a leverage.

M Anandan — Chairman & Managing Director

The other aspect is that we also believe in making — see, we also believe in building up this business, making a reasonable profit and profitability, either in terms of ROA or ROE, based on the core business part of it, rather than on the leverage-related. So we don’t want to be sort of leveraging it 10 times to 11 times that kind of thing. Then you know, 10 times leverage giving ROE of 2%, it’s not really connected with the core business. It is connected with the financial leverage. We don’t believe in that philosophy.

Second is really, given the fact that we are a standalone company, not linked to any industrial group or large NBFC, we also don’t want to take an aggressive position as far as the leverage is concerned. That’s why we will be happy to — without compromising on our ROA and ROE through productivity and cost and better pricing, recognizing, that is, we’ll be somewhat conservative in our leverage and it will be around four to five times.

Nidhesh Jain — Investec — Analyst

Understood sir. Four to five times is an asset-to-equity or debt-to-equity leverage YonY?

M Anandan — Chairman & Managing Director

Your voice broke. I was not able to hear you Nidhesh.

Nidhesh Jain — Investec — Analyst

Yeah, this four to five times is a asset to equity or debt-to-equity.

M Anandan — Chairman & Managing Director

Debt to equity.

Nidhesh Jain — Investec — Analyst

And then lastly on the Tamil Nadu…

M Anandan — Chairman & Managing Director

I also tell you there’s not much difference between our equity plus debt and the assets because we don’t carry any other assets. In fact, if you look at our balance sheet, if we look at other than the core loan book and from the treasury to take care of the disbursements of the next one quarter, we only have about INR4 crores, INR5 crores which are assets. So we don’t really carry any non-financial assets or group-related lending and things like that.

Nidhesh Jain — Investec — Analyst

Sure, sir. And then, can you elaborate about the event which has happened in Tamil Nadu, where you have to do staff changes. So was there any fraud or something. What has led to that?

M Anandan — Chairman & Managing Director

There was some attrition in a couple of locations at the level of cluster managers and each cluster manager there is five, six branches coming under them. So that has really sort of pulled their run rate slightly behind. That’s about it. Now we have identified the cluster managers actually from within and they are in place now. And we have started moving and we started seeing the results from January onwards, last month onwards. So it’s a very temporary situation. Connected with the staff.

And the other aspect is that we have also done very consciously, we have strengthened the second-line in our sales and marketing position. Earlier we had Mr Manoharan, who is sitting with me here is heading the sales and marketing function as the business development head. Under [Indecipherable] we have the — what we call the area manager, the cluster manager and the branch around and the sales staff. We have also now brought in a state head For the four states, our plan is to bring in four state heads. And two states, heads are already in place. Tamil Nadu, now we have got a state head.

And in Andhra, we have got a state head and Telangana and Karnataka, because Tamil Nadu and Andhra accounts for almost 80% of our business today and about 20% in Telangana and Karnataka. For that one head state head, we will go far candidate has been identified. And he will be in place in the next few weeks. So in other words, we have strengthened the organization. Also not really so much of this year, but in any case, we are growing at a good rate as you know, 50% disbursements. But then what the strengthening in the organization has been done mainly, keeping in mind the future growth.

Nidhesh Jain — Investec — Analyst

Sure, sir. And then lastly, what percentage of our business will be coming from Tier 1 cities. into the disbursements.

M Anandan — Chairman & Managing Director

[Speech Overlap] maximum about 8% to 10%.

Nidhesh Jain — Investec — Analyst

Sure sir, that’s it from my side. Thank you.

M Anandan — Chairman & Managing Director

Thank you, Nidhesh.

Operator

The next question is from Chintan Shah of ICICI Securities. Please go ahead.

Chintan Shah — ICICI Securities — Analyst

Yeah. hello, thanks for taking my questions. Congratulations on good set of numbers. Sir, I have a question on the opex to assets. So opex to assets from the last few quarters that has been [Technical Issues] for the company. So in terms of what would be our strategy going ahead on this opex to assets. Where are we looking at this number? And It has been like around 2.75% for nine months FY’23 versus 2.53% for FY’22. So where are the incremental expenses going? Any thoughts on that. So is it on technology or branch expansion or for future growth we are building some capabilities. Any thoughts on that would be helpful.

M Anandan — Chairman & Managing Director

You are right, actually our opex as a percentage of the assets is only 2.75% rightly put by you and as you must have observed, there is no increase in that percentage compared to Q2 and Q3, but compared to Q1, you are absolutely correct there is an increase. There was on increase.

And going forward, we fundamentally believe that we must be one of the most cost-efficient organization, productivity-oriented organization. Our opex will be one of the best in the industry, possibly the lowest the industry. That philosophy will be [Indecipherable]. So, all the time, the assets and cost of operations will be [Indecipherable] to ensure that we continue to have this cost advantage. Opex cost advantage, but whatever little increase has happened also, is a very conscious decision, spent or being spent to strengthen the organization and particularly bring in quality people at the second level.

The second in the tire to senior management level. We have done that in sales and marketing, we have done that in credit, we have done that in collections. We have done that in the finance and compliance area, audit area and all. So this is a conscious decision to strengthen the organization to manage the next level going forward. There we had consciously gone for certain spending to the talent that is required for this business. And apart from that, actually you are right, we normally add about 20 branches — 22, 25 branches a year. But the benefit of it will come in future.

So we, on an everyday [Phonetic] year basis, we continued to incur that. This year also we plan to ensure that. We’re incurring that. And of course, you have said absolutely right, in terms of the technologies area where we are very consciously investing. Technology which enables us to do better onboarding, better sourcing, onboarding, underwriting, collections, legal, technical, every aspect of the business, we would want to invest. And most in the one-time capex, also around on the day-to-day IT-related expenses.

So these are the areas. Otherwise, there is we don’t have anything. Of course, the other aspect is a very conscious decision to strengthen the provisioning norm. Also, we have taken it because it’s more a prudent measure in terms of accounting purpose.

P. Balaji — Chief Financial Officer, Executive Director

And also Chintan for FY’22, it was only 10 months the thing, because COVID was there two months. So the cost was also there.

Chintan Shah — ICICI Securities — Analyst

Okay. Sir, just one more thing. On the asset provision, as you mentioned, so we have very well upgrade — taken the total provision coverage on total assets to 1.06 percentage from 0.41 percentage in March ’21. And despite that, we have been reporting quite healthy ROA. So that is quite commendable. So you’re now — I think we had a target of close to 1 percentage, so now we are almost at 1.06 percentage. So now we would be stabilizing this at current levels? Or would we be strengthening it further from here on?

P. Balaji — Chief Financial Officer, Executive Director

Currently, it is at around 1.06%. At the best, we can strengthen it up to, say, 1.1%. Broadly, it will be at that level. It will not be more than that.

Chintan Shah — ICICI Securities — Analyst

So, now it is largely done [Phonetic].

P. Balaji — Chief Financial Officer, Executive Director

[Speech Overlap].

Chintan Shah — ICICI Securities — Analyst

Okay, okay. Sir, so now it is basically largely done. We are largely done with the incremental provisioning, increasing the coverage.

M Anandan — Chairman & Managing Director

Correct.

Chintan Shah — ICICI Securities — Analyst

Sure, sir. And sir, and last on the — again on the opex part only, I’m coming back.So opex, would largely remain in this range only 2.7%, 2.8%. So the quality staff which we had to hire that is almost also now we are done with it, right.

M Anandan — Chairman & Managing Director

Yes.

Chintan Shah — ICICI Securities — Analyst

So I think that’s it from my side. Thank you. Thank you.

Operator

The last question is from Praveen D’Souza as an Individual Investor. Please go-ahead.

Praveen D’Souza — — Analyst

Thank you for the opportunity. Most of my questions have been answered. But just one question from my side. The provisions upon average loan book, this number you seen very low in earlier years FY’19, FY’20, FY’21. And then obviously for understandable reasons it booked up. How do you see this number in a normalized environment and do you see it going back to the levels which it used to be in FY’19, FY’20.

M Anandan — Chairman & Managing Director

No, basically, as you’re aware, the provision itself was caused by effect of the COVID that’s happened in ’19 and ’20 or FY ’20 and FY ’21. And then the problems also stated and we are now almost fully got out of it. And going forward, actually, this couple of things. One is that there is an accounting policy change itself from the earlier accounting system to the present accounting system where we need to provide based on the expected credit laws.

Not only the providing for the expected credit laws. We have taken a decision to provide more than that. More than the RBI requirement. And we thought it would be prudent to really have around a little over 1% or a little over that, it should take of the quality of assets going forward. Also, we have also taken a policy decision that — first of all, our NPA — in fact, not only NPA, we are looking at very closely — we are looking at to control 60 days to 90 days also. For all practical purposes internally, we are looking at 60 days to 90 days as an NPA. In fact, today, our 60 days to 90 days is only about 0.6%, 0.7%, 0.8%, that kind of thing. So in other words, not only 90-plus days, but even 60-plus days we are monitoring it very closely, and we want to collect it, and we want to maintain that at that level.

And also, the other policy we’ve also taken — put in place is that, from the NPA — any loan which is not recovered beyond 24 months, we provide 100%, either write off or provide 100%. And anything between one year to two years we’ll provide 50%. So in other words, we have really gone for an aggressive accounting policy, so that always our accounting is really on a conservative basis. Of course, actual recovery action will follow when they recover the money in because they’re all secured loans, they are not unsecured loans. Based on security, when we recover the money, we’ll account it.

Praveen D’Souza — — Analyst

So just directionally, do you see this number remaining at this level going forward with all these changes or do you see this trending down as the environment…..

M Anandan — Chairman & Managing Director

Broadly, we will be having a provision of around about 1%. Yeah, Bala said 1.1%. Not beyond that. Well, basically we are not seeing the — going forward we are not seeing our NPA going up. We’re seeing our NPA coming down.

P. Balaji — Chief Financial Officer, Executive Director

We might not reverse the provisions to just build strength. Yeah, that is the…

Praveen D’Souza — — Analyst

Yeah, Oh I see, okay, thank you.

Operator

Ladies and gentlemen, we have reached the end-of-the question-and-answer session. I would now like to hand the conference back to Mona Khetan, for any closing remarks.

Mona Khetan — Dolat Capital Market Private Ltd — Analyst

Thank you everyone for joining us today. We thank the management for this opportunity to host the call. Thank you, sir. And Mr. Anandan over to you, if you have any closing remarks. Thank you.

M Anandan — Chairman & Managing Director

Thank you. Thank you, Mona and Irene.for joining us today. For everyone who are joining us today.I would like to pay my sincere gratitude to all the analysts for taking the time out of a very busy schedule to listen to us today. Please feel free to connect with that in case you have any further queries. We will be happy to get back to you. Thank you very much.

P. Balaji — Chief Financial Officer, Executive Director

Thank you all.

Operator

[Operator Closing Remarks]