Equitas Small Finance Bank Q4 FY23 Earnings Conference Call Insights

Key highlights from Equitas Small Finance Bank (EQUITASBNK) Q4 FY23 Earnings Concall

Management Update:

• [00:06:46] EQUITASBNK Vehicle Finance delivered its highest-ever disbursement in a quarter, and CV sales have grown by 38% year-on-year.

Q&A Highlights:

• [00:17:17] Darpin Shah from Haitong India asked how the bank sees the cost to assets trending over the next couple of years and the drivers for it. P. N. Vasudevan MD said cost to assets will decrease gradually in the next few years due to new product introductions with less touch and feel credit processes and higher ticket sizes. Current average ticket size is INR 640,000-650,000 per customer. The decline will occur over the next 3-4 years.

• [00:19:39] Darpin Shah from Haitong India enquired will the proportion of microfinance in growth trends remain the same or trend down. P. N. Vasudevan MD answered that microfinance is currently around 18.7% and is expected to decrease by 4-5% over the next 5 years.

• [00:20:22] Shreepal Doshi from Equirus asked about the amount of additional provisions taken for the purpose of strengthening and what policy change does it relate to. P. N. Vasudevan MD clarified that the policy change involved increasing the percentage of provision at an earlier stage of NPA. This change will remain consistent going forward.

• [00:21:50] Shreepal Doshi from Equirus asked about the function or business segments the 3,000 employees were added in the last 12 months and the branch expansion strategy going forward. P. N. Vasudevan MD replied that the plan is to add 15 liability branches and 30-40 asset branches to the existing network. Out of the 550 new employees added, 300 were on the asset side and 200 on the liability side, with 50 for selection and the rest for business and strengthening roles.

• [00:23:44] Shreepal Doshi from Equirus queried about the timeline for the next project to become a universal bank. P. N. Vasudevan MD clarified that the merger of the bank was completed in the last quarter to meet the licensing condition from regulators. The company is in touch with regulators and will apply for a universal bank when given the green signal.

• [00:30:10] Savi Jain from 2Point2 Capital Advisors asked if there will be any further provisioning on the ARC sales income recognized this quarter. P. N. Vasudevan MD said there will not be any further provisioning on the ARC sales income recognized this quarter as the security receipts have been 100% provided for. Any collection or realization on NAV basis will be accounted as income.

• [00:33:52] Renish Bhuva from ICICI Securities enquired how should the decrease in Retail TD share and increase in Bulk TD proportion over the last 6 quarters be interpreted. P. N. Vasudevan MD replied that three factors are contributing. Firstly, increase in the number of customers added to Retail TD in last 6 months, resulting in a decrease in average ticket size. Secondly, individuals opting for Bulk TD, including NR and individuals giving more than INR2 crores. Lastly, there was a base available in the last quarter for noncallable Bulk TD with a high duration of 1 year or more.

• [00:38:07] Abhishek Murarka at HSBC asked for credit cost guidance for FY24 within the new provisioning policy. P. N. Vasudevan MD answered that the credit cost for the current year is budgeted to be between 1.2-1.25%.

• [00:39:07] Abhishek Murarka at HSBC enquired about the increase in vehicle rates over the past year and the ability to pass on rates in the current market. Rohit Phadke said Vehicle Finance has a product mix consisting of 50% Used CV, 35-40% New CV, and 10% Used Cars. The pressure on margins is on New CV, but Used Car and Used CV are high-margin products with no pressure on margins. The company intends to scale up Used Cars further, and this product mix will work in favor of Vehicle Finance.

• [00:40:26] Nidhesh Jain from Investec asked about the growth of CASA in FY24 and when the cost of CASA will trend downwards. Murali Vaidyanathan said the bank is seeing an increase in customers opting for TD due to the arbitrage between SA rates and TD. Optimum pricing will be achieved once interest rates start to decrease. The company has a laddering approach with pricing at 3.5% for up to INR 100,000 and 5.5% for INR125,000. The focus is on acquiring new customers and cross-selling TD for a longer duration to bring down the cost of funds.

• [00:43:22] Nidhesh Jain with Investec asked about the bank’s success in getting salaried accounts. Murali Vaidyanathan said the company has created a corporate code to target 1,800 corporates with 30% of employees going through the bank. 38-40% of the SA book is salaried individuals holding balances due to the proposition. The focus is to target individuals and get them on board. The third stage is to target specific CAT A and CAT B corporates through a digital route.

• [00:48:27] Aravind R at Sundaram Alternates enquired about the credit growth expectation in the coming few years and the mix expectation in each segment. Rohit Phadke replied that the company expects Advances growth to be between 25-30% in FY23. Mortgages will be about 50% of the book, Microfinance will come down to 15%, and Vehicle Finance will be at 20-25% of the book.

• [00:57:04] Ashlesh Sonje from Kotak Securities asked about the decline in slippages and what is driving this decline. Rohit Phadke replied that slippages have decreased from INR 286 crores to INR 190 crores. And the improvement is due to enough cash flow with the customer and improving collections in the field. This trend is expected to be maintained.