Aptus Value Housing Finance India Ltd (APTUS) Q4 FY23 Earnings Concall Transcript

Aptus Value Housing Finance India Ltd (NSE:APTUS) Q4 FY23 Earnings Concall dated May. 05, 2023.

Corporate Participants:

M. Anandan — Chairman and Managing Director

Balaji P. — Executive Director and Chief Financial Officer

Analysts:

Mona Khetan — Dolat Capital Market Pvt. Ltd. — Analyst

Hirenkumar Desai — Private Investor — Analyst

Uday Pai — Investec — Analyst

Amit Bhatt — MIT Engineers — Analyst

Ankit Shah — White Equity Investment Advisors — Analyst

Renish Bhuva — ICICI Securities Limited — Analyst

Rajiv Mehta — YES Securities — Analyst

Kunal Shah — Citigroup Inc. — Analyst

Siddharth Jain — Private Investor — Analyst

Ankit Bhansoli — AB Investment Group — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Aptus Value Housing Q4 FY ’23 Earnings Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Mona Khetan from Dolat Capital. Thank you and over to you, ma’am.

Mona Khetan — Dolat Capital Market Pvt. Ltd. — Analyst

Thank you, Melissa. Good evening, everyone, and welcome to the earnings conference call of Dolat Aptus Value Housing Finance India Limited to discuss its Q4 FY ’23 and yearly performance. We have with us the senior management from Aptus to share 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 and Managing Director

Yeah. Thank you, Mona. Good afternoon to all of you. Ladies and gentlemen. I am Anandan, Executive Chairman of the company. I welcome you all to the conference call to discuss the financial performance for the quarter ended, end fo year and in March ’23. I have with me Mr. P. Balaji, Managing Director; Mr. C. T. Manoharan, CBO, Chief Business Officer; and Mr. John Vijayan, our CFO.

The results and the investor presentations are available on the stock exchanges as well as our company website. I hope everyone had a chance to look at it. Aptus as you’re aware, believes in the growth with the duke importance in the quality of loan book and with good financial metrics. Very happy to record that Aptus had a healthy and good financial year FY ’23, it is reflected in our financial strong results. Sharp business focus, deep penetration in shared markets, customer centricity have enabled the company to achieve good growth.

Enhanced the adoption in customer sourcing, underrating, collection, and risk management also supported the business growth well. Total disbursements for the year stood at INR2,394 crores, up by 46%. And our AUM, March ’23 was INR6,738 crores healthy growth of AUM 30% Y-o-Y. With focused effort — collection efforts, our collection of visions have stabilized at over 100%, resulting in the reduction in our soft buckets outstanding as well as for all dues, the NPAs in particular. Spreads for the year was good at 14.3% that represents an increase of 65 basis points, while our FY ’22, despite as you know our significant headwinds and interest rates. We have registered a consistent ROA of 8.44% and our ROE has gone up to 16.34% up by 189 basis points Y-o-Y.

These as you must have observed is one of the best in the industry. But also declared a total interim dividend of INR4 per share, the face value per share INR2 as the dividend declared is INR4 interim dividend. Our net worth stands at about INR3,300 crores which indicates robust capital adequacy. I’m also happy to share that the Board has elevated Mr. P. Balaji as the Managing Director of the company. Also, Mr. Manoharan who was in charge of the business development has been elevated to the position of Chief Business Officer, and Mr. John, who is currently our Chief Risk Officer has been promoted as Chief Financial Officer of company, of the company.

Also the organization further strengthened the senior and middle management, by the second level in sales, started technical and finance functions to pursue in extra level of growth. I would now hand over the line to Mr. P. Balaji, Managing Director of the company. Thank you.

Balaji P. — Executive Director and Chief Financial Officer

Thank you, sir. Good afternoon, friends. As on 31 March ’23, the total live customers were over 1,07,000, which represented a growth of 28% year-on-year. The total number of branches as on 31st March, we’re at 231, we had added 23 branches in FY ’23 and employees count was of 2,405. Major performance highlights were, AUM grew by 30% year-on-year to INR6,738 crores, disbursements increased by 46% year-on-year to INR2,394 crores, spread was at 14.31% pointed 0.65% increase year-on-year, opex to assets were at 2.75%, PAT was at INR503 crores, representing a growth of 36% year-on-year. ROA and ROE was at 8.44% and 16.34%. Now as regards to the asset quality, with focused collection efforts, 30 plus DPD improved to 5.9% in March ’23, this was 9.91% as of March ’22. Coupled with this, there is an improvement in our GNPA at 1.15% from 1.44% as of December ’22. Net NPA was at 0.86%.

Provision coverage maintained at 1.06% as on 31st March, up by — up from 0.8% in March ’22. We are carrying a total provision of INR71,000 crores and this when completed as a percentage of NPA works out to a coverage of 90%. Outstanding restructuring book were at a nominal 0.7% and the behavior of this book is on par with our normal book. As regards the borrowings we have well-diversified borrowings with good support from NHB, out-of-the total borrowings, 60% is from banks, 26% from NHB, 10% from DFIs like IFC and large financial institutions and the balance is in the form of securitization.

We enjoy a rating of AA minus both from ICRA and CARE. We had sufficient on-balance sheet liquidity of INR1,186 crores including undrawn sanctions of INR625 crores from NHB and banks. As on 31 March ’23, our net worth was at 3,300 crores.

Thanks. And now with these remarks, I open the floor for the question-and-answer session.

Questions and Answers:

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Hirenkumar Desai, an investor. Please go ahead.

Hirenkumar Desai — Private Investor — Analyst

Yeah. Thank you for the opportunity. I have a couple of questions. The first one is, I mean there is this discussion all the time about key shape discovery in the economy, and lowering some population, in case our customer base is having a little bit of difficulty because of the inflation and scars of Covid. Are we seeing anything in our book in terms of DPDs or anything else? That’s my first.

M. Anandan — Chairman and Managing Director

Yeah. We did have the impact of Covid visible in FY ’21 and ’22 part — the early part of ’22. After that during the last 12 months, there is consistent and very good improvement in collections and we’ve been consistently collecting a little more than we even a 100% of the number I believe. Resulting in that, our outstanding, both in terms of PAT and NPA have come down significantly. And not only there is substantial improvement in collection and substantial reduction in the — our dues, but our business also come back very well, resulting in significant growth in our business. Post-quarter end, in fact, costumers as well, in the entire FY ’23, we had a growth of 48% in disbursements.

Hirenkumar Desai — Private Investor — Analyst

Yeah. Thank you. Okay, that answers the first question. The second question see, our cost of funds. We’ll be rising with a little bit of a lag compared to reported high etc., assuming that our borrowing on bank mostly will be on NPLR benchmark. Yeah. Do you have an assessment as to. At what number and around which month our blended cost of borrowing might peak out?

M. Anandan — Chairman and Managing Director

No. Actually, there were a couple of reasons on our liability, we are very strong and our liability pay. Basically, because our leverage is low and our balance sheet size of about INR6,000 crores — about INR7,000 crores. Profit of about INR3,300 crores is our net worth funds, of the balance INR2,700 crores also, if you see a little over INR2,000 crores are really long-term fixed interest rates, particularly from institutions like NHB. We have a borrowing about INR1,000 crores loan from NHB, it’s a tenure money with a fixed interest rate. We are on the other aspect of the borrowing the balance of about INR3,500 crores of the total INR4,000 crore, a bit less than INR4,000 crores if I mentioned about fixed is up about over INR2,500 crore, the balance only the — with even that is really long-term loan of five years and about. We don’t have any short-term borrowings at all. We don’t have it CP, our short debenture, our short-term working capital, and things like that. So given that, we are really sort of and some of these are really in fact even the MCLR linked to the one-year MCLR, rather than shorter-duration MCLR, so to that extent and what has happened in the month of December ’21, we had also out our credit rating upgrade in credit rating, that also helped us to tie-up the funding at a slightly lower cost. So all this has really resulted in a good control of our cost of funds, so much to say that while actually we have the interest rates have gone up by 250 basis points. We have gone for a pricing correction of only 50 basis points, that too effective November ’22. Despite the significant headwinds on the entire interest situation, we are able to understand our ability to pass on. We have a good pricing power. Despite that, we are really gone for a very, very modest small price increase and we are able to protect our margins, our NIMs are really maintained, our ROAA is maintained.

Hirenkumar Desai — Private Investor — Analyst

Okay. Just a follow-up. So do we have some more sanctions available to draw from NHB or we have used it?

Balaji P. — Executive Director and Chief Financial Officer

Yeah. We had a sanction of INR500 crores sometime in December of that we have drawn INR300 crores as of March, and if you look at our investor presentations we have around INR625 crores of undrawn funds. Of that INR200 crores is still to be drawn from NHB and after that — drawn from NHB. So that is the — yeah.

Hirenkumar Desai — Private Investor — Analyst

Okay. Just one last one question, so what is the thought process behind giving the dividend. See, we are generating good ROE of 16% plus. And I am assuming that with improvement in leverage, ROE will improve further. So when we are generating, but good the returns, what is the idea behind giving dividend?

M. Anandan — Chairman and Managing Director

No. The Board has considered these aspects very carefully and deeply and we thought in the — it will be really if the overall interest of all concerned particularly the shadow of that. And it is a company objective is to further enhance our ROE. In fact, as you rightly said, our ROE has gone up in the current year by almost about 189 basis points if I recall the number correctly.

Hirenkumar Desai — Private Investor — Analyst

Yeah.

M. Anandan — Chairman and Managing Director

It has proved substantially, and in fact, if you notice, this is possibly one of the best in the affordable housing finance companies, instead of using finance companies.

Hirenkumar Desai — Private Investor — Analyst

Yes.

M. Anandan — Chairman and Managing Director

And our objective is to take this further far away, so to what this ROE will get benefited more.

Hirenkumar Desai — Private Investor — Analyst

Okay. So in the same line one last question, sir. So what is the maximum leverage that we are comfortable with? Right now, it’s very, very low like?

M. Anandan — Chairman and Managing Director

What do you mean by the limit?

Balaji P. — Executive Director and Chief Financial Officer

Leverage.

M. Anandan — Chairman and Managing Director

Leverage…

Hirenkumar Desai — Private Investor — Analyst

No. Leverage means Right now, our leverage is like 1.2 debt to one equity kind of thing, right? So I want to know…

M. Anandan — Chairman and Managing Director

Yeah. I got it. Now, you are right. Now we — our objective is to lay to we know with the good growth to maintained in the upcoming years, we would want be looking at a leverage of about five to six times.

Hirenkumar Desai — Private Investor — Analyst

You mean up to five to six today, we have saw it comfortable.

M. Anandan — Chairman and Managing Director

Correct.

Hirenkumar Desai — Private Investor — Analyst

Yeah. See, next year itself we won’t reach the five, six times time, right? It will take a while to reach there?

Balaji P. — Executive Director and Chief Financial Officer

Yes. Considering the profit which we are generating, it will take a while to reach that five to six times level. So that’s we’re not — we will not be able to come to the market for capital. We don’t want ro raise further capital.

Hirenkumar Desai — Private Investor — Analyst

No. No. No.

Balaji P. — Executive Director and Chief Financial Officer

Yeah.

Hirenkumar Desai — Private Investor — Analyst

That’s fine. Thanks. Okay. Thank you, sir. That all answers all.

Operator

Thank you. We have the next question from the line of Uday Pai from Investec. Please go ahead.

Uday Pai — Investec — Analyst

Hello. Thank you for taking my question. So just two questions from my side. First one would be that we saw a couple of management shuffle during the results. So is there any more changes to be expected in the near term, say six months or is it it is well settled now? And the second question is are you can you offer any yield increases in Q1 or Q2? A small increase of 20 bps or so?

Balaji P. — Executive Director and Chief Financial Officer

We didn’t get the second question.

Uday Pai — Investec — Analyst

Any any increase in the yields are you expecting it to increase the use in Q1 or Q2?

M. Anandan — Chairman and Managing Director

No. Okay. As far as the first question is concerned. It is unlikely there will be any more senior management changes. So it is unlikely that will be anymore. Senior management changes and upgrades. We actually present one also more of a really promotions from within and assume our responsibilities, we don’t expect to see anything happening in the short-term and in the first question. As far as second question also, we don’t really see any increase in our lending rates need to increase our interest rates, we are quite confident through higher disbursements and better cost-control, we will be — we may not have to go for any more price increase.

Uday Pai — Investec — Analyst

Okay. Thank you, sir. That was it from my side.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Amit Bhatt from MIT Engineers. Please go ahead.

Amit Bhatt — MIT Engineers — Analyst

Sir, under the able leadership of Mr. Anandan, company achieved many milestones. But Sir, after the IPO, the stock is consistently underperforming and even after two years, it is 30% below the IPO price. So sir, what — because now Mr. Anandan also aging, so what is succession plan for this company and we heard that you was some big NBFC is going to merge your company. So can you throw some light and another thing is while we are not growth hungry you bought your IPO at high penny, it means all we’re expecting more than 40% CAGR growth from your company and you are not delivering, you earninings dividend We don’t want dividend, we want growth, we want the price improvement because most of the people asking questions, they are only taking ris here, most of the big guys they outside of from your company. Can you throw some light why is it happening?

M. Anandan — Chairman and Managing Director

As far as it is true that our prices, market prices are no lower than our IPO prices and as you might recall we say with an IPO sometime in July ’21, and after that we came out with seven — the quarterly results if I recall, rightly in accordingly the March ’23. And all these current quarterly result has the performance of the company has been consistently good and very good and we keep maintaining a very good growth in our disbursements, loan book, profit, return on asset, ROA, ROE, everything. So as far as the company is concerned, we continued to perform consistently well. In the last seven quarters. I guess, the results have been circulated in our website also. So as far as the company is concerned inn assignment, thus to perform and grow, much better, but when it comes to the market price, you know pretty well that it is not a lot of other headwinds caused by the international situation or caused by the market situation and to an extent, the risk associated with any equity investments will be there. But we are very conscious and we are very committed to keep performing well and also keep communicating well to all the stakeholders as to the performance of the company is concerned.

Amit Bhatt — MIT Engineers — Analyst

Sir, what is the succession plan because you are now aging, sir and only one news that Cholamandalam is coming, the actually stock increased by 20%, so market is giving you a clear signal that market want growth, market want something new, out-of-box from the management. You can’t blame only the market condition, there are many NBFCs performing very well during this time, in the price movement I am talking about. So sir, there must be — you please clear the succession plan in depth, include some good management people from outside also or you know, if you can’t then please merge with some bigger NBFC to file because when you bought the IPO, a promising 40% CAGR growth now are talking about that in future their growth is going to be 25% and 30%, that market doesn’t like, sir.

M. Anandan — Chairman and Managing Director

Now, I take the point. Just on the succession plan. We are now, we are really, we have worked on that and then the last about BT. We had really taken some decisions and that decisions rather has been reflected in the form of — in the investor presentation and in fact what I have in my opening remarks, I did mention that there is — Mr. Balaji has been now made as the Managing Director of the company and we have really elevated Mr. Manoharan as the Chief Marketing Officer and we also, made — the CFO, who has been very-very experienced in this area. So in other words, the succession plan is really being put in place and it is presented in our investor communication — investor presentation which is there in the website. We have given, clearly, the entire management team and at what time is the — what the new steps that are being taken. So from the point of view of succession plan, not only at the departmental head levels — senior level, but given as the middle and senior about senior management level, we included in lending, everything, we have taken a lot of steps. That’s the hope we are very, very positive will result in good continued growth in business as we have done in FY ’23.

Amit Bhatt — MIT Engineers — Analyst

Thanks a lot. Thanks a lot, sir.

M. Anandan — Chairman and Managing Director

Thank you. We have the next question from the line of Ankit Shah from White Equity. Please go ahead.

Ankit Shah — White Equity Investment Advisors — Analyst

Thanks for taking my question. Sir, my first question is on the competition. So company have like ours etc, are offering loans to a similar set of borrowers at much lower interest rate. So I wanted to understand why the borrowers are preferring us versus them and why would they not shift to competition?

M. Anandan — Chairman and Managing Director

Good question. No. Actually, you are right. There is competition and not only from the existing players, but there are some newer players also emerging, and not only the players in the home loan finance segment, but some of the small finance banks also started entering into this home loan business. Affordable home loans business in particular. So to that extent, yes, there is competition, but what we’re really saying is that given our strength in terms of distribution and the very deep percent for example of about 231 branches, we have 86 branches in Tamil Nadu, 86 branches in Andhra, 35 branches in Telangana and 21 branches in Karnataka. In fact, in Tamil Nadu, if you see, out of the 86 branches literally at 70, 80 kilometers, every 70, 80 kilometers, we will have a branch. So in other words, our target coverage is one of the best and we took — it is an opportunity to be closer to the customer in terms of reaping — in terms of ordinating, the new business, and also, quickly provide the turnaround time and provide the best a service as possible. To our existing customers, who in turn wrap up new customers to us. So given this approach, we are able to really in the part that even FY ’23, we had really our disbursements grown by 40%. In detail, that despite the competition, we have strengths to grow given our very deep commitment in growth, thanks to the customers.

Ankit Shah — White Equity Investment Advisors — Analyst

Right. Sir, one follow up on this. Over the next three to five years, given — assuming that interest rates don’t move much from here, do you see our yield is trending lower or you see the increase remaining around these levels?

M. Anandan — Chairman and Managing Director

Our maintained rate will be around this, in fact in the last 10, 12 years if look at it, we have not really got any lending rate increase at all bothering the small increase that we did in November, 250 basis-points against interest-rate increase up to a 250 basis-points, we have gone for very small increase. Barring that we are able to maintain the same lending rates as almost ovwe a year ago or 10 years now. But what we really do is that, the efficiency, the financial performance, the financial metrics. We have one of the best financial metrics. That we are able to obtain through the we better productivity, lower operating costs, and lower credit cost, higher productivity of the our branches and our staff. Also, in other words, we are a very frugal organization and the both be it the volume growth and cost control to maintain this kind of pricing.

Ankit Shah — White Equity Investment Advisors — Analyst

Got it. Sir, next question is on the statutory auditor, and sir, would it be possible for you to give us some sense of why we shifted out from our big four firms to some other auditor last year?

M. Anandan — Chairman and Managing Director

No. Actually, we right in the beginning, we have started with light and are still 11 years, 10, 11 years, we had one of the big four only but consistent to the decision in terms of the number of audits being sort of restricted to the big four and given our current size, we have to really look for alternate auditor to read it and the current auditor also is one of the very well-known established, in fact, they are really auditing about, if I recall, three, four home loan companies, including a home loan company, part of Tata Group itself, if I recall correctly. So in other words, so these — they are very well experienced in the home loan businesses and they are an established audit firm with particular exposure to the home loan financial audit.

Ankit Shah — White Equity Investment Advisors — Analyst

All right. Thank you. Sir, last one from my side, so the difference between the AUM and the advances. Is it only securitization or is there something else also so this INR140 crore difference is only securitization?

Balaji P. — Executive Director and Chief Financial Officer

No. No. Under India, what happens is the gross loan book gets deducted by the provisions which we carry and the process increase which gets deferred for recognition of income by the — because of the India. So those are some of the things which has got adjusted with the area which we are reporting of INR6,738 crores.

Ankit Shah — White Equity Investment Advisors — Analyst

Okay. Okay. Fine. Got it. That’s it from my side. I’ll join back the queue. Thank you.

Balaji P. — Executive Director and Chief Financial Officer

Yeah. Thank you. [Operator Instructions] The next question is from the line of Renish Bhuva, an investor. Please go ahead.

Renish Bhuva — ICICI Securities Limited — Analyst

Yeah. Hi. This is Renish from ICICI Securities. Sir, just two questions. So one is on this our geographical concentration. So sir, Karnataka exposure is actually coming down on yearly basis it went down to 8% in FY ’23 from FY ’20. Though in our various commentary, you’ve been mentioning that Karnataka is our focused state. So just wanted to understand what is happening in Karnataka specifically.

M. Anandan — Chairman and Managing Director

Basically, I think at a macro level, we’ve been consistently presenting, explaining to the investors and analysts that we are not really sort of our strategy has been one of deeper presence in wherever we operate, market leadership wherever we operate, rather than very thinly spread out our branch right across the country and call ourselves as an all India ready company. Now flowing out of the basic strategy is that we have really reached a very good carpet coverage in terms of and business participation in Tamil Nadu. Now in Andhra, and Telangana, and Karnataka, we are following in fact in the current year instead of our focus is going to be only in Telangana and Karnataka. Whereas in Andhra and Tamil Nadu we have 86 branches in each state. Our pathway coverage is one of the best and one of the highest that provides us opportunity to almost be the market leader in affordable housing finance company in the state in this stage. But currently, our focus is going to be in Telangana and Karnataka and we see a good opportunity grow in these markets also as we have grown in Tamil Nadu and in Andhra and not only that as part of our geographical diversification, we’ve also looked at the state contributors to our present state. That’s where we have really commenced on a pilot project, two projects, two branches in Orissa and we are planning to add another two three branches in the coming quarters itself and we are also planning to add a few pilot project basic branches in Maharashtra as well. So these things will happen progressively. And — but wherever we are very clear, wherever we operate, we will operate with lot more deeper, with a lot more intensity, a lot more closeness to the customer, and we would want to be market leader in that particular state whenever you operate.

Renish Bhuva — ICICI Securities Limited — Analyst

Got it. Got it. And sir my next question is again on a sort of sustainable yield side. So presently in our customer mix side we are having almost a 30% of new to credit customer, wherein would be able to charge a little higher given no credit history. But as we move along with scale maybe this share of new to credit will come down and where the yield would be again lower. So sir, maybe from a medium term perspective what sort of sustainable yield you guys are looking at internally?

M. Anandan — Chairman and Managing Director

See, basically if you really look at our investor presentation very clearly there are two components. One is really up about let’s say INR7,000 crores on loan book about INR1,000 crores is from really the SME customers, where we charge 21% and that is a market rate being charged by maybe five other six other seven other players as well. So we are not really charging anything more than what being charged by the market for really providing the funds for this category of the SME customers, I can name the six, seven of them also. Now the other is for the roughly INR7,000 crore, INR1,000 SME, about balance INR6,000 crores is really net home loan and home loan equity where our average lending rate marks out to around 14.5% to 15.5%. In fact, after the last 12 to 18 months, price increase because of the interest increase, that the gap between us and our competitors have really come down. Actually, in fact, they really moved up to 13.5% to 14% and we may be 0.5% more, 0.5%, 1% a little less than 1% more. And for the kind of service that we propose, because these are very small-sized loans, an average service loan of less than INR10 lakhs to be collected over a 15-year period involves certain transaction costs, involves certain service costs. So, given that these are well accepted by our customers also, which is reflected in the form of our loan transfer to other large housing companies or bank is hardly less than 3%. So in other words, yeah, our entire preclosure is what we call the loan preclosure, it’s around 8% of the 8%, 5% comes from customer-owned money. They have not taken any loan from anybody to pay off the our outstanding loans. The actual loan transfer to other banks, other HFCs is only about 3%.

Renish Bhuva — ICICI Securities Limited — Analyst

Got you.

M. Anandan — Chairman and Managing Director

So as far as the fact that our interest rates that is been sort of well accepted and it is really related to the market situation, given the nature of this customer, given the nature of the operating cost in the segment.

Renish Bhuva — ICICI Securities Limited — Analyst

Got it, sir. Okay. So fair to assume that the current yield is more or less sustainable at least in near term?

Balaji P. — Executive Director and Chief Financial Officer

Yes. Yes. Yes. Renish.

Renish Bhuva — ICICI Securities Limited — Analyst

Okay. Okay. That’s it from my side. Thank you.

Operator

Thank you. We have the next question from the line of Manuj Oberoi from YES Securities. Please go ahead.

Rajiv Mehta — YES Securities — Analyst

Yeah, sir. Hi. This is Rajiv. Congratulations on a very good set of numbers. I have a few questions. Sir, firstly, this sharp jump in small business loan book on a Q-on-Q basis, this book was pretty steady in the preceding quarters and in this quarter we have seen a sudden big jump. What has driven this?

M. Anandan — Chairman and Managing Director

Basically, as recall, because of the Covid the impact on SME we found is a lot more harsher than the home loan customers. Given that we have really gone very consciously, we have gone slow in lending to the SME customers till about almost 6 to 12 months back. In fact now after that, we see there is a significant change and improvements and they really pass through. We seems to have left behind the Covid impact and we are seeing the — now the customers are coming back to normal in terms of their demand for loans and also the repayment customer more importantly. And given that we have really now activated this SME lending because we do see as the SME segment as an important segment going forward for this company. In fact, we are also planning from the future point of view, future growth point of view, like our affordable home loans. We will be focusing on the SME segment also going forward specifically branch by branch and state by state. So we see that as a good segment to be pursued in future as well.

Rajiv Mehta — YES Securities — Analyst

And sir, the ticket size average will be what and in the future currently it contributing 21%. How higher can it reach as a proportion of AUM?

Balaji P. — Executive Director and Chief Financial Officer

As a proportion of AUM, it will still be maintained between 21% to 23% on the consolidated book.

Rajiv Mehta — YES Securities — Analyst

Yeah.

Balaji P. — Executive Director and Chief Financial Officer

And the yield is likely to be maintained at 21% because if you look at the competitors, they are charging slightly more than what we are charging. So I think this rate — this yield which we are charging which is at 21%, is sustainable for many years to come.

Rajiv Mehta — YES Securities — Analyst

I was checking on the ticket size as well. If you can tell me what is the average ticket size?

M. Anandan — Chairman and Managing Director

Actually, ticket size for the SME is average around INR7 lakh, and the tenure also is about seven years.

Rajiv Mehta — YES Securities — Analyst

Got it. Yeah. And sir, over the last three, four quarters, how has the disbursement average ticket size moved in home loan? Has it been similar or — yeah.

Mona Khetan — Dolat Capital Market Pvt. Ltd. — Analyst

Despite the inflation, interest rate increase, and inflation, our average size is around INR8 lakhs to INR9 lakhs rupees, only it has not really moved up high. Whatever increase in our disbursement, 48% disbursement growth came mainly with the number of loans rather than the average ticket size moving up. Basically, we find a couple of reasons. One is that as we open more branches, as we go more deeper into geographies at the — from the district level to town level, we find the average loan size also is slightly lower in the deeper markets than in the suburbs of — let’s say, metros of the bigger towns and things like that. That’s one. Second thing is that we are very conscious in our credit underwriting in terms of income installment ratio. So while the — because of inflation, the cost of construction would have gone up a bit, but we also have to look at it from the point of income installment ratio as well.

Balaji P. — Executive Director and Chief Financial Officer

11% and 15%.

Rajiv Mehta — YES Securities — Analyst

Got it. And…

Operator

I’m sorry to interrupt. This is the operator. Sir, we have participants waiting in queue, would you be able to come back with your questions?

Rajiv Mehta — YES Securities — Analyst

Yeah, just one last question, then I’ll come back. Sir, on the rate front — the rating upgrade, what has been the extent of reduction you’ve seen on the credit spread being charged by the banks over the NCLR? The credit spreads which they were charging?

M. Anandan — Chairman and Managing Director

On the fresh borrowings, we were able to get a — secure savings of around 0.25% to 0.5%.

Rajiv Mehta — YES Securities — Analyst

That’s a benefit.

M. Anandan — Chairman and Managing Director

In terms of the bank, and the negotiations which we are doing. So that is one thing which we have got. Tenure is normally six to seven years we are getting from the banks.

Rajiv Mehta — YES Securities — Analyst

Okay. Thank you. I’ll come back.

Mona Khetan — Dolat Capital Market Pvt. Ltd. — Analyst

Yeah.

Operator

Thank you. We have the next question from the line of Kunal Shah from Citigroup. Please go ahead.

Kunal Shah — Citigroup Inc. — Analyst

Yeah. Thanks for taking the question. So, Mr. Anandan, now maybe earlier your reappointment was maybe you were there till 24th December 2024. So if you have a look over here, maybe as an Executive Chairman, would you be continuing till that date? Because it doesn’t mention in terms of maybe for what period and will it be like the transitioning with Mr. Balaji over next 1.5 years. How should we look at this? Yeah.

M. Anandan — Chairman and Managing Director

Actually, thank you. My current employment contract as approved by the Board and with the shareholders for five years period, commenced from ’19 to ’24, December ’24. So I think the month December ’24 and year ’24 as well. Really it is our — in turn I will continue till — my intention is to continue and support the company till December ’24, till completion of my tenure. And to that extent, both I and Balaji will be working together. Yes.

Kunal Shah — Citigroup Inc. — Analyst

That’s great. Yeah. That’s very helpful. And secondly, in terms of maybe the branch expansion which you have highlighted. So when we look at it, what could be the extent of presence which we are planning to have, say, in Orisa, Maharashtra, as well as Telangana compared to where we are today? Because generally we are seeing maybe in the mature markets around about say 85 and 90 odd branches. And given that at least Mahrashtra and Telangana would have equal potential, where would we want to reach in terms of the deepening the presence? Yeah.

Balaji P. — Executive Director and Chief Financial Officer

See, last year we have opened 23 branches. This year we are planning to open at least 30 branches. Of that, three — our three more branches, as was stated earlier, will be in Orisa and two or three will be in Maharashtra. And the balance will come in either Telangana — in Telangana and Karnataka, because that’s going to be our focus states where we’ll be growing. Because Tamil Nadu, and Andhra Pradesh, we already have 86 branches each. And they are contributing. They will always contribute to the growth. So basically the other maybe 24 branches will come in mostly Telagana and Karnataka.

Kunal Shah — Citigroup Inc. — Analyst

Okay. And in terms of the employee cost, so obviously that was higher. If you can just highlight in terms of maybe any annual incentives, one off which could have been there, the extent which is there, and what could be the normalized run rate over there?

Balaji P. — Executive Director and Chief Financial Officer

See, if you look at the Q-on-Q employee cost increase, it’s basically, there are two reasons why it got slightly increased. One is we had added more branches. So because of that, more employees came in and because of that, that cost added up. Plus, because of the increase in the volumes, we had to provide for a higher incentive. And that is what is getting reflected in the salary cost. And I think I answered the question or you want the — I don’t think I can guide it — give a guidance on that, because obviously it will be quite as a 10% increase in the salary cost can be assumed.

Kunal Shah — Citigroup Inc. — Analyst

Yeah. Because overall, in terms of the growth, it was very much in line with the guided range of 30 odd percent. So maybe the additional incentives for higher volume, so yeah, so that was the only question in terms of I think we have been getting in that range and the number was also similar. Yeah.

M. Anandan — Chairman and Managing Director

One other element is that we’ve been making certain investments in our — strengthening our middle management category in terms of managers and senior managers, as I mentioned in the beginning,

Kunal Shah — Citigroup Inc. — Analyst

Yeah.

M. Anandan — Chairman and Managing Director

In functions like sales credit and collections and things like that. Consciously, we are really preparing for the next level of growth. And to the extent we have really gone for both by numbers and more importantly, by the quality and seniority, we have really strengthened our middle management significantly in the last six months or so.

Kunal Shah — Citigroup Inc. — Analyst

Okay. Got that. Okay. Yeah. Thanks a lot.

Operator

Thank you. We have the next question from the line of Siddharth Jain, an investor. Please go ahead. Mr. Siddharth Jain, please go ahead.

Siddharth Jain — Private Investor — Analyst

Hi, so I just wanted to check on the MPA thing. The 30% plus that we see in the presentation has gone down from, say, 6.27% in December ’22 to 5.9% in March ’23. However, the reduction in NPA in correspondence to that has also been significant. So if you can guide the differential between the two?

Balaji P. — Executive Director and Chief Financial Officer

I didn’t get your number question. What is it? The NPA reduced from 1.19% last year to 1.15% now, and last year it was 8.72% Stage 2, it has come down to 4.75% as of now.

Siddharth Jain — Private Investor — Analyst

So basically, the point is that the 30 plus DPD is 5.9%.

Balaji P. — Executive Director and Chief Financial Officer

Yeah.

Siddharth Jain — Private Investor — Analyst

However, the NPA is 3.15% so, you know the differential between the two is slightly higher as compared to the competition. So I just wanted to understand, is it because of the bloating in the middle buckets or what is the reason for that?

Balaji P. — Executive Director and Chief Financial Officer

If you look at it, in the last year, also because of the Covid like all other companies, we also got affected and we had given a lesser moratorium as compared to other companies at that point of time, which RBI had announced. Because of that, the DPD fees which was available for the other companies was not available to us and with the result that the Stage 2 assets slightly ballooned, that’s what has reflected in us on 31 March ’22, it was at around 8.72%. So the efforts are on now to reduce that from 8.72% to our pre-Covid levels of around 4% to 5%. So that’s what is directionally happening. And from 8.72% it has gone down to 4.75% on this Stage 2, it will further come down.

Siddharth Jain — Private Investor — Analyst

I understood. Thank you. Any guidance on the future numbers?

Balaji P. — Executive Director and Chief Financial Officer

It’s slightly difficult to predict because the efforts are on and it is for these kind of customers what happens is paying one EMI is easy, but if you are asking them to pay two or three EMIs at one point of time, it becomes difficult. So our endeavor is to bring this down to 4%. So hopefully we’ll be there.

M. Anandan — Chairman and Managing Director

Overall our — see overall our NPA — we are really working towards an NPA of around 1%, that is 90% plus And we are also working towards Stage 1 of at least about 96%, around 96%, Stage 1. So the balance 4% to 5% will be there in within 60% to 90% and above 90% also. And we are progressing very well in the direction.

Balaji P. — Executive Director and Chief Financial Officer

Yeah.

Siddharth Jain — Private Investor — Analyst

Okay. That helps. Thank you.

Operator

Thank you. We have the next question from the line of Ankit Bhansoli from AB India. Please go ahead.

Ankit Bhansoli — AB Investment Group — Analyst

Hello.

M. Anandan — Chairman and Managing Director

Yeah, Ankit.

Operator

Please go ahead.

Ankit Bhansoli — AB Investment Group — Analyst

[Foreign Speech] Sir, congratulations on good set of number and for the whole year. Sir, my question is like RBI is causing the interest rate, sir, will we be able to see the credit cost decreasing and what is your future rate of interest are you taking? How is it planned for year ’24, ’25? What are the — can you please explain on this?

Balaji P. — Executive Director and Chief Financial Officer

You are talking on the yields or you are talking on the borrowing cost?

Ankit Bhansoli — AB Investment Group — Analyst

Borrowing cost.

M. Anandan — Chairman and Managing Director

Yeah. With the interest rate now as we have already noticed, all of us have noticed that the tenure paper, G-sec paper, there is softening of interest rates by 5 basis points, 10 basis points, 15 basis points and all. So at least the increased interest environment seems to be possibly, I won’t say use the word behind, but at least the path is very much there. So the increase in interest rate situation possibly it’s not there, but definitely there the softening will happen maybe one period of time, related to the inflation as you are aware. But then as far as our pricing policy is concerned we normally — while this reduction if any in interest rate will benefit us, at best we will pass on that to our variable contract. On the fixed contract, also, normally we will get the benefit whatever interest rates are coming down. On the fixed contract, we will get the benefit. But in the variable we will possibly pass on whatever the reduction is.

Ankit Bhansoli — AB Investment Group — Analyst

Okay. Sir, what will be the future growth, areas of growth that will drive the company into higher levels? Are there any plans of converting from housing company to a bank? I mean for a plan of 20 years — 15 to 20 years, is there any plan or just sticking to a housing company?

M. Anandan — Chairman and Managing Director

No, actually I won’t be able to — I don’t know when people will be able to really talk of 15, 20 years over, but then definitely in the immediate term there is no plan at all for the company to really get into any unrelated financial services activities, including our banks. We’ll say unrelated. The bank is different, a totally different animal as you are aware, we would — our focus will continue to be in home loans and our focus will also be in SME to the same profile of our customers who are really largely informal, Tier 3, Tier 4, self employed against their essential property. So we will continue to be largely in the secured loans and we’ll continue to be largely in the home loans, affordable home loans, and we’ll continue to be and maybe enhance a bit on our SME and we’ll continue to enhance our presence with a deeper penetration in our existing branches and see for new branches but here now in the adjacent states as we grow further. So our growth will be largely around home loan and the SME loans and our growth will be largely around deeper penetration in geographically.

Ankit Bhansoli — AB Investment Group — Analyst

Thank you sir. [Foreign Speech] Congratulations and hope your investment will grow also with the company.

M. Anandan — Chairman and Managing Director

Yeah. Thank you.

Balaji P. — Executive Director and Chief Financial Officer

Thank you.

Operator

Thank you. We have the next question from the line of Mona Khetan. Please go ahead.

Mona Khetan — Dolat Capital Market Pvt. Ltd. — Analyst

Yeah. Hi, sir. Good evening. So firstly, on the cost of fund side, assuming that there are no further rate hikes, what sort of rise in cost of fund could we expect this fiscal and also do we have any high cost debt maturing in this fiscal?

M. Anandan — Chairman and Managing Director

Yeah. There is around INR100 crore to INR150 crores of high cost debt getting matured. So that will get replaced with a lesser cost of funds borrowings. That is — that will happen in the second quarter, beginning of the second quarter, July, okay? Then as regards the — as you know the total of the total borrowing, we have almost 50% of the borrowings as a fixed rate borrowing. So there will not be any change on that. And whatever is the one which is related to the variable rate which is linked to the one year MTLR, all the whatever is the increase that has happened, that has to happen, has already happened. So it will — if an increase — if there is a reduction in the MTLR, that is going to happen, that benefit will come in the first quarter and fourth quarter of this financial year. Yeah

Mona Khetan — Dolat Capital Market Pvt. Ltd. — Analyst

Okay. And incrementally, at what rate are we borrowing from bank?

M. Anandan — Chairman and Managing Director

Currently it is at 8% to 8.2% and currently — I mean we have not drawn some of the funds because we are anticipating a lesser interest rate. So we are still negotiating with the bank. Yeah. The last drawn rate was at 8% without considering NHB, obviously.

Mona Khetan — Dolat Capital Market Pvt. Ltd. — Analyst

Right. Right. And as far as your customers are concerned, it’s fair to say that they’ve not gone through any EMI increase so far?

M. Anandan — Chairman and Managing Director

Yes. Not much, only as I mentioned, we have gone for a small 50 basis point increase in our EMI from November. That is only for the variable contract, this is around 23% of our portfolio.

Balaji P. — Executive Director and Chief Financial Officer

Actually, there is only tenure increase we are not transferring EMI.

M. Anandan — Chairman and Managing Director

Okay.

Mona Khetan — Dolat Capital Market Pvt. Ltd. — Analyst

Right. Okay. Okay. Got it. And somewhere in the opening and you mentioned about strengthening the middle management as well, so if you could highlight if there are any specific changes that have happened around that?

M. Anandan — Chairman and Managing Director

Yeah. We — our — and let’s say our sales and marketing organization, our entire business development, business sourcing department. The hierarchy is really we have the branches, we have the cluster manager, and we have the area managers and then area managers reporting Mr. Manoharan who is the Chief Business Officer. What we have done is that to really strengthen, we have really gone for state head level position. In other words for the four states. Now we’ve decided to go for a state head. For example, now we have a person to head the Tamil Nadu state, another person to head the Andhra, of course, we have divided into one is a Coastal Andhra, second Rayalaseema. For Coastal Andhra, we already have a person in place and Telangana, we have a person in place and even the Rayalaseema and Karnataka, we have identified the person. And so in other words, we brought in under Mr. Manoharan who is our Chief Business Officer, four state heads, in fact, five state heads to drive the business and to be closer to every branches. Also what we have done is that through larger training and exposure, we have really strengthened our — the branch managers and the area managers. And given the other geographical issues, wherever is required, we have added a few more of we have probably around 54 cluster managers, which we have added another five, six to have a better performance of business, not only disbursement, but collections as well. So in other words, if you really look at the entire sales and marketing, we have really strengthened in a way that it can function well and be able to pursue good growth. Similar steps we have taken on the credit as well. For example, in HO, we have about 30 and our credit officers who are really clearing or approving all the credit files we had gone for as state wise and product wise, like SME home loan. And we have strengthened the entire team. So similar they have been done for the collection area and in the collection area as well.

Mona Khetan — Dolat Capital Market Pvt. Ltd. — Analyst

Got it. Sir, that was useful. Thank you. And since we are running out of time, we’ll just close the call as well. Thank you everyone for joining us today. And thank you to the management for this opportunity to host the call. Sir, over to you for any closing comments you may have.

M. Anandan — Chairman and Managing Director

Yeah. Thank you, everyone. Thank you, Mona for our event. I would like to pay my sincere gratitude to all the analysts and friends who have taken time out in their busy schedule to listen to us today. Please feel free to connect with us. In case you have any further questions, we would be happy to get back to you. Thank you.

Operator

[Operator Closing Remarks]