Arman Financial Services Limited Q3 FY22 Earnings Conference Call Insights

Key highlights from Arman Financial Services Limited (ARMANFIN) Q3 FY22 Earnings Concall

 Management Update:

• ARMANFIN’s consolidated loan book as on 31 Dec., 2021 crossed the INR1,000 crore milestone, reaching INR1,045 crores. The company also closed a INR100 crore direct assignment transaction in January 2022, representing the largest DA transaction in the company’s history.

• ARMANFIN’s branch expansion plan is on track and expects the total branch network to reach 280-290 branches by March 2022.

Q&A Highlights:

• Anish Goyal from Goyal Services asked about the reason for the percentage cost of funds increasing as compared to previous quarters. Alok Patel Joint MD replied that overall weighted average cost of borrowing is decreasing but comparing QtoQ, there might be some timing differences here and there which is making it appear to increase.

• Anish Goyal of Goyal Services also asked about the reason for the company’s microfinance yield also falling. Alok Patel Joint MD said these yields are falling simply because of government regulations. One, the interest rates are falling in the market and there is a cap on interest rates the company can charge. Secondly, ARMANFIN has taken money under the government CGS scheme.

• Anish Goyal with Goyal Services asked about new branch openings. Alok Patel Joint MD replied that the company has opened up about 24 new branches, mostly in UP, Bihar and Rajasthan. The plan is to add at least another 15 odd branches by month end. Now the company is operating in eight states.

• Savi Jain from 2Point2 Capital asked about the reason for negative pre-provisioning operating profit growth. Alok Patel Joint MD answered that there is combination of reasons. The margins have been falling down and operating costs have been increasing for branch expansions and also for collecting of money. ARMANFIN expects that by 4Q22, these issues will be streamlined.

• Savi Jain from 2Point2 Capital asked about provisioning for the back book and if ARMANFIN expects another quarter of higher provisioning.  Alok Patel Joint MD said the ARMAN book is completely provided for. In the micro side, there might be some minor level of provisioning that comes in. The company is also expecting the repayment rate to normalize by 1Q23.

• Balkrushna from Axanoun Investments enquired if the company does any percentage of loan disbursements that the company does in cash. Alok Patel Joint MD clarified that the company is 100% cashless in all segments.

• Balkrushna from Axanoun Investments asked that in the consolidated balance sheet there is a loan of around INR956 crore and what’s the percentage of pre-COVID and post-COVID loan book.  Alok Patel Joint MD replied that about 75% is post COVID and the pre-COVID is less than half.

• Srinath V from Bellwether Capital asked about the growth outlook for MSMEs. Alok Patel Joint MD answered that it’s a great business to be in. ARMANFIN added that the disbursement levels are increasing and company is continuing opening branches in that segment as well. And plan to open about 10, 12 branches.

• Srinath V from Bellwether Capital also asked that for MSME book, the loans given post April, are they 99% collection efficiency similar to MFI. Alok Patel Joint MD replied that it’s 99% plus collections.

• Sachit Motwani of Param Capital asked about competitive intensity pre-COVID and post-COVID. Alok Patel Joint MD answered that competition is just as high as it was pre-COVID, more on the MFI side. There isn’t any relief from that, which is fine for ARMANFIN. It can manage competition.