Arman Financial Services Limited Q3 FY23 Earnings Conference Call Insights

Key highlights from Arman Financial Services Limited (ARMANFIN) Q3 FY23 Earnings Concall

Q&A Highlights:

• [00:12:50] Amit Mantri from 2Point2 Capital asked about the reason for finance costs increasing significantly QonQ. Aalok Patel MD said that it’s a combination of both. Interest on the CCDs and the provisions on the OCRPS. And also due to the consistent repo rate increases by the RBI.

• [00:19:04] Sahil Sharma at SS Capital asked about the GNPA going up and if it’s due to any problem on asset quality. Aalok Patel MD clarified that it’s a small variation and a blip that happened in Maharashtra.

• [00:23:46] Alok Shah of Srinath Securities enquired about the growth expectation for FY24 with funds coming in. Aalok Patel MD replied that ARMANFIN don’t give growth targets. Typically the target is between 35-40% growth on a long-term CAGR basis. So, it would be similar to somewhere around that neighborhood in the coming year.

• [00:24:17] Alok Shah of Srinath Securities also asked about the comfortable leverage levels. Aalok Patel MD answered that the company tries not to go beyond 5 times on a debt equity ratio.

• [00:25:05] Devendra Pandey from DP Financial asked about the MSME segment strategy and the growth target with govt.’s various schemes. Aalok Patel MD replied that most government schemes are not applicable to MSMEs due to the range of loans they offer, but there have been some initiatives backed by CBD to help these low scale MSME workers.

• [00:28:58] Devendra Pandey from DP Financial queried if ARMANFIN is able to pass on this increase in avg. cost of borrowing to the end customers. Aalok Patel MD answered that due to the new RBI guidelines, ARMANFIN has been able to pass it on to its customers.

• [00:30:23] Kuneh Ghelani from Vivriti AMC asked about the factors that are influencing the increase in ticket size for MFI over the last 12 months. Aalok Patel MD replied that factors influencing the shift from lower cycle to higher cycle ticket sizes include customer trends, industry trends, and the fact that customers who repaid during COVID are more likely to afford a slightly higher risk. Data shows little correlation between ticket sizes and default rates.

• [00:37:59] Shubham Ajmera of SOIC Ventures asked how much finance cost is due to CCD and OCRPS, and will this be a one-time or ongoing expense. Aalok Patel MD said that the amount was about INR5 crores. ARMANFIN added that it will continue for the period of about 13.5 months the CCDs finally convert.

• [00:43:35] Akshay with InCred Capital enquired if the company has any co-lending arrangement currently. Aalok Patel MD clarified that ARMANFIN doesn’t have any co-lending arrangement as of today. On a commercial basis, if there is an opportunity available on co-lending or DC, ARMANFIN will be happy to explore it.

• [00:44:50] Akshay with InCred Capital asked if ARMANFIN is planning to add new products like personal loans etc. to the portfolio. Aalok Patel MD said that as an NBFC, it’s important to find a balance between the number of products offered and how well they are done. IBM and MSME have been added in 2017, and micro labs can be considered down the line.

• [00:52:42] Savi Jain from 2Point2 Capital asked if the company is seeing some recoveries on loans that were written off sometimes back. Aalok Patel MD replied that in the Arman book, there is a kind of negative impairment cost that is being collected, but it isn’t as much as is being written off.