IndoStar Capital Finance Ltd (INDOSTAR) Q4 FY23 Earnings Concall Transcript

IndoStar Capital Finance Ltd (NSE:INDOSTAR) Q4 FY23 Earnings Concall dated May. 29, 2023

Corporate participants:

Karthikeyan Srinivasan — Chief Executive Officer

Vinodkumar Panicker — Chief Financial Officer

Shreejit Menon — Deputy Chief Executive Officer of IndoStar Home Finance Private Limited

Analysts:

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Digant Haria — GreenEdge Wealth Services — Analyst

Harsh Shah — Reliance General Insurance Co. Ltd. — Analyst

Sumit Bhalotia — MK Ventures — Analyst

Rajat Setiya — ithoughtpms — Analyst

Rishikesh Oza — RoboCapital — Analyst

Anant Mundra — Mytemple Capital Advisors LLP — Analyst

Jehan Bhadha — Nirmal Bang — Analyst

Vignesh Iyer — Sequent Investments — Analyst

Darshan Shah — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q4 FY ’23 Earnings Conference Call of IndoStar Capital Finance Limited. [Operator Instructions]

I now hand the conference over to Mr. Nikunj Jain from Orient Capital. Thank you, and over to you, sir.

Nikunj Jain — Orient Capital — Analyst

Thank you, Selvin. Good morning, ladies and gentlemen. I welcome you for the Q4 and FY ’23 earnings conference call of IndoStar Capital Finance Limited. To discuss this quarter and full-year business performance, we have from the management Mr. Karthikeyan Srinivasan, Chief Executive Officer; Mr. Vinodkumar Panicker, Chief Financial Officer; and Mr. Shreejit, Chief Executive Officer of IndoStar Home Finance Private Limited.

Before we proceed with this call, I would like to mention that some of the statements made in today’s call may be forward-looking in nature and may involve risks and uncertainties. For more details, kindly refer to the investor presentation and other filings that can be found on Company’s website.

Without further ado, I would like to hand over the call to the management for their opening remarks, and then we will open the floor for Q&A. Thank you, and over to you, Karthik, sir.

Karthikeyan Srinivasan — Chief Executive Officer

Hey, good afternoon. Thanks, Nikunj. Good afternoon, ladies and gentlemen. I, Karthikeyan Srinivasan, would like to extend a warm welcome to each one of you for attending our conference call on the earnings for the fourth quarter and financial year ended March ’23. Joining me on the call are Mr. Vinod Panicker, our Chief Financial Officer; and Shreejit Menon, the Chief Executive Officer of IndoStar Housing Finance.

We are pleased to report a profit-after-tax of INR225.2 crores for the full-year FY ’23 as compared to a loss of IINR736 crores for the full-year FY ’22. Disbursements were at INR2,099 crores for the year and INR898 crores for the quarter, up by 72% from INR522 crores in quarter three of FY ’23. The total AUM stood at INR7,813 crores. As an organization, we are focusing on the used commercial vehicle segment and the affordable housing segment. As you are aware, according to the latest reports of CARE as well as ICRA, domestic automobile sales grew by around 20% year-on-year and each of the categories witnessed double-digit growth. We thought two-wheelers moving up by 17%, passenger vehicles by 27%, commercial vehicles by 34%, and tractors by 12%. Particularly in the commercial vehicle segment, the growth of 34% has been robust based on — and have crossed the peak of 2018-’19, making it the second-highest domestic sales. The demand outlook for this segment remains positive due to the continuous focus of the central government on the infrastructure as well as the implementation of the Onboard Diagnostic Device, the Stage 2A price hike, all these have been driving the commercial vehicle segment.

What has happened due to this new commercial vehicle momentum is, this has given a large impetus to the used commercial vehicle market, immediately creating a pool of secondhand commercial vehicles, which is IndoStar latest target segment. Used CV, which has a much lower-ticket size and typically are purchased by medium distant operators between local towns plays to Company’s strength and our branch network reach in the tier 2 and tier 3 towns, is this — the Company’s Retailization strategy. To capture this growth in the used commercial vehicle segment, our focus has been on investing in technology and digitization, to improve our operating turnaround time and productivity. This also helps us drive our operating cost efficiencies.

To capture this, we have launched the new digital process, which will ensure customer convenience and will ensure a quicker turnaround. This will also create a USP for us in the tier 3, tier 2 — tier 4 towns, which we are in, and ensure that our performance is sustained. We’ve also launched a customer service app last year, which makes our customer lives easier through online services, so that he gets whatever the services he requires immediately. We are also strengthening our management team. We have brought in a new business head, Devaraj, who joined in March, and a new product, Deepesh Mehta, who joined in March again. Both have significant experience in the commercial vehicle area, which is our core focus. A new Chief Risk Officer will be joining shortly. And with these changes in place, we have a stable management team, which is well-equipped to ensure this Company goes on a growth path.

Coming back to the business, our collection efficiency reached 126% in the current quarter, reflecting our commitment to maintain high credit standards and efficient operations. The collection against the pool, which we sold to ARC last year also gives us confident in obtaining write-backs in the future. We are a digitally — diligently monitoring our quality of portfolio, resulting in decrease in the gross Stage 3 assets to 6.8% at the end of the fourth quarter from the 13.6% it was last year.

Before I hand over to Mr. Vinod, I’d like to mention that Everstone Capital has fully completed the sale of 14.21% of the company’s total paid-up share capital, making company compliance with the minimum public share holdings requirement. We thank the new investors who have put faith and capital in the Company’s vision, mission and the management execution ability. I would also like to highlight that the rating agency, CARE, has removed the rating watch with negative implications as on March 31, 2023, and assigned a stable outlook to the instruments and facilities of IndoStar.

With the strengthening of the management team, the strengthening of our processes, improvement in liquidity and a buoyant economy, we are confident of our ability to capitalize on the growing used commercial vehicle market and expand our business. We are also optimistic that these digitization process and the technology which we are driving will ensure that we are able to ride the used commercial vehicle growth in India. Also, the low base which we have will ensure that we exhibit strong growth over the next few years and at a much higher pace than the industry.

With this, now I’d like to hand over the call to our CFO, Mr. Vinod Panicker, to present the Company’s financial performance. Sir?

Vinodkumar Panicker — Chief Financial Officer

Thank you, Karthikeyan, and good afternoon to all of you. We sincerely appreciate your presence on this conference call today. Allow me to provide you with an overview of the financial performance for the past quarter and the fiscal year that went by of March ’23.

The year, as we had communicated in the last quarter conference call also, was a challenging one. Despite these challenges, we are pleased to report a profit-after-tax of INR76 crores for the quarter compared to a loss of INR754 crores in the same quarter last year. Similarly for the full fiscal year, the PAT was at INR225 crores compared to a loss of INR737 crores in the previous year. These improvements were primarily driven by a reduction in impairment costs due to the various issues identified last year. We had to make substantial provision, while, I would say that, many of these were conservative provisions, but that were made by us. We have been able to reverse a lot of these provisions and also the provisioning requirements on the new portfolio have been much lower. This indicates that the new sourcing, which has happened is of extremely high-quality. Our yields have significantly improved and we have shifted our focus to the tier 3, tier 4 markets, with 90% to 95% of our disbursements happening in the used commercial vehicle space, where the yields are significantly better.

In terms of the operating expenses, we recorded a total cost of INR66 crores for the fourth quarter, representing a 22% decrease over the same quarter last year. The reduction in this quarter is mainly on account of reversal of invested ESOPs that were charged to P&L in the previous year. In terms of collection, we have been able to achieve a total collection of INR918 crores during the current the quarter, an increase of 8% compared to the immediately preceding quarter. Our gross collection efficiency reached INR126 crores in the current quarter, reflecting our commitment to maintaining high credit standards and efficient operation. With this, all the four quarters, we have been able to have a collection efficiency of 125% plus, which is definitely speaks — speaking volume of the collection efficiency that we have been showing in the last financial year.

The collections against the pool sold to the ARC have also given us confidence that we are — we will be writing back a lot against the SR in the future, in the coming quarters. We are diligently focusing on the quality of our portfolio, release — resulting in an increase in gross Stage 3 assets to 6.8% at the end of the fourth quarter. This downward trend has continued in each quarter with the Stage 3 reaching INR479 crores in absolute numbers as of end of March ’23 from INR1,203 crores that was there as of March ’22. The Stage 2 assets also experienced a decline coming down from INR1,770 crores to INR1,203 crores as of end of March ’23. These achievements reflect our commitment to maintaining a healthy loan portfolio going forward. Mind you these figures are not strictly comparable as in the month — in the March year-end, there is an higher delinquency due to the ONAN impact, which I would want to mention upfront.

Our consolidated net Stage 3 was at 3.2%, demonstrating effectiveness of our credit risk management strategy. EBITDAs improved from 6.4% as was seen as of 31 March, ’22. In terms of funding, we successfully raised INR900 crores in the fourth quarter of FY ’23 and for the full-year, INR3,967 crores was raised, contributing to the healthy liquidity position. As of 31 March, we have maintained the cash and cash equivalent of approximately INR1,069 crores, representing a 17% increase over the immediately preceding quarter. Our capital adequacy at 31.5% and the debt-to-equity of 1.8 times shows that we have got ample headroom for growth in the future and we are confident that we will be driving profitable growth in the coming quarter and the years to — and the year.

Our assets under management of INR7,813 crores is a 2% increase compared to the immediately preceding quarter. This is the first time our AUM has grown after three consecutive quarters of decline. We have seen an increased disbursement of INR898 crores in the current quarter, up from INR522 crores in the immediately preceding quarter. This growth can be attributed to the strong focus on the retail segment, which on an overall basis, accounted for 85% of INR6,587 crores of our total AUM. Our Retailization effort, which we initiated in 2017-’18 continues to yield favorable results and we are confident in our ability to sustain profitable growth in the upcoming quarters as well.

Moving to the segmental performance. Our Vehicle Finance business reported an AUM of INR3,672 crores, an increase of 6% over the immediately preceding quarter. And as mentioned in our previous interactions, our emphasis will continue to be on growing the used CV segment and the growth in the AUM is increasing and will continue to be so. As regards the retail estate book, we had clearly said at the time of our Retailization strategy — beginning of our Retailization strategy, that this will come down. It was at about INR3,000 crores as of end of FY ’20. Today, it is in the INR1,200 crores range, and it will keep going down over the next few quarters. We are focused on transforming our SME portfolio by changing the composition of our book from a large ticket to a small ticket.

Now, I would like to invite my colleague, Shreejit Menon, to provide further insight into our Housing Finance business, which remains a very key focus area for us. Come, Shreejit.

Shreejit Menon — Deputy Chief Executive Officer of IndoStar Home Finance Private Limited

Thank you, Vinod. Good afternoon, everybody. As many of you already know, IndoStar Home Finance is an affordable home finance company, with primary focus in providing high yielding housing loans, typically ranging from 14.5% to 15.5%. Our portfolio consists of loans with an average ticket size of INR8.9 lakhs. And I’m proud to say that we maintain a best-in class asset quality, with a net Stage 3 rate of close to 0.9% and healthy spreads across our portfolio.

We have made a very strong foundation in this year with our robust branch infrastructure and a dedicated team of employees. With these resources in-place, we are fully committed to expanding our assets under management and doubling it — more than doubling it over the next two years. This is what we have been able to achieve in the last three years as well, including the period of the pandemic.

In FY ’22, we witnessed a significant increase in our disbursements, doubling figures compared to the previous year. We used the first-half of FY ’23 to focus on significantly improving our portfolio quality, which you all can see is happening as we got ourselves prepared for ONAN. And in the last quarters, we went back to ramping-up our disbursements. I’m pleased to announce that we disbursed loans worth INR183 crores in Q4, which represented an increase of 71% over the previous quarter of Q3 FY ’23.

We have a clear line-of-sight on liquidity and a robust funding pipeline to support our efforts. Before the re-imposing initiative, we have strengthened our workforce, bringing the total number of employees to 684 in quarter four FY ’23, with a particular emphasis on our feet-on-street.

In terms of financial performance, we’ve achieved positive results. As of March ’23, our AUM increased by 6% over the previous quarter, reaching INR1,623 crores compared to INR1,526 crores in December ’22. Additionally, we recorded a net total income of INR33.2 crores for Q4 FY ’23 and INR144 crores for FY ’23. Our PAT at INR3 crores for Q4 FY ’23 and INR38 crores for FY ’23, which is an increase over the previous year.

I’m delighted to report that our efforts in managing asset quality have been indeed successful. Our gross Stage 3 rates have trended downwards to 1.3% as of March ’23. This is including the new ONAN norms, marking a significant improvement from the 1.8% levels in March ’22. This achievement is even more noteworthy, considered that we implemented these new norms on October 1, 2022. Maintaining a healthy capital adequacy ratio is of utmost importance to us. I’m proud to share that our ratio currently stands at 80.5%, highlighting our ability to support business growth, while ensuring ample capital results.

Over the last FY, we’ve also strengthened our leadership team by onboarding accomplished professionals from the industry to oversee critical functions such as finance, HR and technology. We firmly believe that this infusion of talent will enable us to scale-up our business operations even further.

In conclusion, I want to express my sincere appreciation to each and every one of you. Your continued support and trust in IndoStar Home Finance is invaluable. We will now open the floor for Q&A.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]

The first question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Good afternoon, and congratulations on steady performance. My questions were twofold. One was on the stressed portfolio that you sold and you have some — and you also retained a certain component of that. How is the collection efficiency in that portfolio working out? That’s question number one.

And question number two is, on a standalone basis, if you take-out the ESOP which you have done, sequentially, the costs — operating costs seem to have come down, if I read it right, from INR48 crores to INR44 crores. What would you see is the trend — going to be the trend in operating costs in the future? Thank you.

Vinodkumar Panicker — Chief Financial Officer

Thanks, Vivek. Thanks for being on the call. Vinod, here. To answer your queries, I will take the second question first. Operating — last quarter, we — in terms of the employee cost, I think, we had included some bit of incentive and bonus provisioning for the first couple of quarters, because that’s the third quarter was the first time and we saw things steadying. And therefore, we wanted to create those provisions which would be payable. So, that is the reason Q3, Q4 — in the fourth quarter, you have seen some bit of reduction versus the third quarter. Going forward, it would be more in-line with the fourth quarter number.

On the collection against the stress pool, like both Kartik and me, both of us have told at the — during our speech, the collection against the sold portfolio has been excellent in a sense that — it’s the last transaction that we did, not only the amount that we received in cash against the sale, that has got collected via — we have been able to collect substantial amount of collection against the SRs as well. We had actually felt the — we had actually given a commitment that against the INR250 crores that we got upfront would get collected by June of ’23, we’ve actually ended-up collecting the whole thing by the end of November or early December ’22. So, we expect the SRs collection also to happen and large chunk of it has got collected. We have not reversed any of the provisions, it is still in the books against the SRs. And that would get collected and we would — we are expecting against the INR120 crores of SR, the voting would get collected and something more would also get collected.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Sir, thank you very much and wish you good luck.

Vinodkumar Panicker — Chief Financial Officer

Thanks, Vivek.

Operator

Thank you. The next question is from the line of Digant Haria from GreenEdge Wealth. Please go ahead.

Digant Haria — GreenEdge Wealth Services — Analyst

Yeah. Hi, everyone. My first question is that, CV Finance and Housing Finance are going to be our focus areas. But in that context, can you just elaborate a little bit on what kind of tie-up are we looking with JM Home Finance, like, is it eventually going to be an outright sale or — anything on this particular news item which was there?

Shreejit Menon — Deputy Chief Executive Officer of IndoStar Home Finance Private Limited

The Company announced on April 24, 2023, that we were engaged in preliminary discussions with JM Financial Home Loans to explore potential strategic options, including potential combination and listing of the retail mortgage portfolio of JM Financial and the Home Finance business of IndoStar Home Finance, including other mortgage-backed businesses of IndoStar Capital.

Now, these discussions are ongoing. Evaluations are on, due-diligence is going on, and we will come back to you when there are further developments.

Digant Haria — GreenEdge Wealth Services — Analyst

Okay. Fine. So, my second question is that now with the new management has already spent two or three quarters in the Company. So, on the commercial vehicle finance bit, I just want to know that as investors, what are the two or three things that you have identified so that the mistakes of the past don’t repeat? When I say that, our CV finance portfolio, let’s say, it has to grow from INR3,800 crores to something like INR6,000 crores, INR7,000 crores over the next few years. How have we ensured that the management oversight controls, these are much better than what has been the case in past? Any such trackables or any dope would be really helpful for all of us.

Karthikeyan Srinivasan — Chief Executive Officer

Yeah. See, we can — two, three things we have started doing. First and foremost, we have started putting — we have put a very robust hindsighting system, which immediately escalates any kind of deviation on the policy front that has been taken by the credit team. Second, we have launched the — on the digitization front, we have business rule engine, which throw up any kind of errors, which have — the credit manager could have potentially done. These are two things which we are doing in terms of monitoring.

Third is, we are communicating to the team why it is not healthy to keep going and funding overdue, so the customer when he becomes overdue, we are saying that because we are going to operate at 18%, we are going to have a particular kind of delinquency and the field team need not panic. That confidence is something which, as senior management, we are continuously giving to the team. So, the — automatically, the team now realizes that there is going to be delinquency and that delinquency has to be within the boundary levels which we have defined for ourselves. These are the three actions, which we are taking.

Vinodkumar Panicker — Chief Financial Officer

And last but not the least, Digant, what we have done is, we have told the team that businesses could be bad in a month, it could be bad in a quarter, everything is fine, but policies need to be added to the way it is actually meant to be added to. So, very clearly, we are putting a lot of emphasis on policy adherence, a lot of emphasis on compliance of ability.

So, all this put together, along with the technology and the processes and other things that Karthik did — just mentioned above, we are fairly confident that anything that had happened in the past was the aberration and that will not get repeated.

Digant Haria — GreenEdge Wealth Services — Analyst

Right. Just fair to say that you internally, as a team, also feel confident enough to start growing this portfolio at a reasonable rate, say, after maybe one or two more quarters, or these measures have already been done and we feel confident enough to start growing the CV book organically?

Karthikeyan Srinivasan — Chief Executive Officer

Digant, and we are very confident that these measures are holding, because whatever is the disbursements we did in October, November, December also, we are closely monitoring. So, we know that what is the kind of underwriting which we should not do. But those things are getting removed from the policy, say, like a particular asset not behaving well in a particular market, we are immediately removing those assets so that we don’t repeat those kind of funding. We are pretty confident that with the growth in the market, we will be able to capture that and start growing. Our controls are in-place.

Only thing is, we need to strengthen our distribution and start growing. That’s the action which we are taking now.

Digant Haria — GreenEdge Wealth Services — Analyst

Right. Thank you, gentlemen, for this detailed answer. I’m sure these measures will also help you reduce the borrowing cost in FY ’24. So, my good wishes to all the management. Thank you.

Vinodkumar Panicker — Chief Financial Officer

Thanks, Digant. Thanks for being on the call.

Operator

Thank you. The next question is from the line of Harsh from Reliance General. Please go ahead.

Harsh Shah — Reliance General Insurance Co. Ltd. — Analyst

Hello, sir. Sir, congrats on the good set of numbers. Sir, what I would like to understand largely is that, how is the cost of fund behaved in the quarter and what kind of increase or decrease in cost of fund can we expect going forward?

Vinodkumar Panicker — Chief Financial Officer

Hi, Harsh. In the fourth quarter, the total– the cost of fund was in the range of about 10.5%. And we believe that this is possibly the peak for the cost of funds, because in the recent past, we have been sourcing funds in form of NCDs and things like that. We were all waiting for the Q4 results to come so that we can — with the financials go to the banks and ask for funds, the — we had been speaking to most of the banks and their ask was the simple thing that, come back to us after the fourth quarter, we are very keen to look at it. We are very confident that the banks funding would come to us and overall cost of funds should start going down, and then — after the next couple of quarters.

Harsh Shah — Reliance General Insurance Co. Ltd. — Analyst

Okay, sir. Got it. Sir, and on the yields, so if we have to look — so, how would the portfolio yield shape up going ahead? So, if I understand that corporate and SME book, we are running it down.

Vinodkumar Panicker — Chief Financial Officer

Correct.

Harsh Shah — Reliance General Insurance Co. Ltd. — Analyst

So, any impact of that, which you will see on yields or margins?

Vinodkumar Panicker — Chief Financial Officer

See, currently, our focus is on two lines of businesses. One is CV, and the next one is Housing Finance. The corporate and the SME are the portfolios that we are saying that we will try to reduce it over a period of time. And those are the ones, which possibly the yields are lower. CV, we have said in the past, I’m repeating it, it’s in the — the yields are in the range of 18% and — 18% to 18.5%. And Housing Finance is also equally good.

With Housing — CV business as of end of March, the CV portfolio was at about 47% of the total. And we expect that as a percentage to go up significantly, and then that goes up. The overall yield, because that becomes a larger portion of our total AUM. Our overall yields will start looking up. CV is at about 47%, Housing Finance was at about 21%. So, then the 47% becomes higher and which we are confident of, because we are looking at the major growth in the current year. The overall yields will start going up to. We have said that — to the previous question, we have said that the interest cost of funds will come down and that will help us to increase our overall net interest income.

Harsh Shah — Reliance General Insurance Co. Ltd. — Analyst

Okay, sir. Sir, thank you for answering my question. I’ll come back in the queue for further questions.

Vinodkumar Panicker — Chief Financial Officer

Thanks, Harsh.

Operator

Thank you. The next question is from the line of Sumit Bhalotia from MK Ventures. Please go ahead.

Sumit Bhalotia — MK Ventures — Analyst

Sir, congratulations for the good set of numbers. Can you…

Vinodkumar Panicker — Chief Financial Officer

Thank you.

Sumit Bhalotia — MK Ventures — Analyst

Yeah. Can you elaborate on the guidance that you’ve given on the full-year disbursements for FY ’24? So, this INR350 crores average monthly disbursement target that you have given, this includes housing as well?

Karthikeyan Srinivasan — Chief Executive Officer

No. CV, we want to do INR4,000 crores, that’s the average INR350 crores, which we have mentioned. Housing will be a separate number, which will be INR1,100 crores [Phonetic].

Sumit Bhalotia — MK Ventures — Analyst

Okay. Housing will be INR1,100 crores. So, broadly INR5,100 crores, INR5,200 crores for the entire Company. The segments, corporate and SME, would be fair to be growing, right?

Karthikeyan Srinivasan — Chief Executive Officer

See, corporate, there are — as I mentioned last time also, there are few deals where we are the only lender, though incrementally small kind of disbursements will keep happening. But it will not be a major portion. Major portion of INR4,000 crores — the INR4,000 crores will be CV and roughly INR1,100 crores will be on the Housing.

Sumit Bhalotia — MK Ventures — Analyst

Okay. And as the existing — can you include the AUM, but we have — we are roughly growing at 30% of rundown, if I just go by the [Indecipherable] in collections. Okay. Good.

Karthikeyan Srinivasan — Chief Executive Officer

[Technical Issues] down by 30%.

Sumit Bhalotia — MK Ventures — Analyst

Understood. And on the cost of funds perspective, you give the, obviously, detailed explanation of our costs, you’re planning to bring it down. So, what is our current incremental spread that we’re generating and what is our internal target for, say, by March and what is the spread that we will be generating?

Vinodkumar Panicker — Chief Financial Officer

Sumit…

Sumit Bhalotia — MK Ventures — Analyst

On a consolidated basis?

Vinodkumar Panicker — Chief Financial Officer

Yeah. Sumit, currently, I would say that my incremental or my cost of funds is in the 10.5% range. And on the CV business, I will have to keep it separately so that on the CV business, if the — with an yield of around 18% to 18.5% that we expect, and on an overall basis, it would be in the range of about 15% on the standalone business, 15%, 15.5%, there we would expect the cost of fund of — including the year, we expect that the cost of funds would be in the range of about 7% to 8%, so leading to a net interest income of roughly about 6.5%, kind of, it. That’s the way we look at it.

Sumit Bhalotia — MK Ventures — Analyst

So, basically, the 10.5% is including the equity cost you’re saying, blended cost of…

Vinodkumar Panicker — Chief Financial Officer

Yeah. That has a blended [Technical Issues].

Sumit Bhalotia — MK Ventures — Analyst

Okay. So, by [Technical Issues]?

Vinodkumar Panicker — Chief Financial Officer

Yeah. From about about 6.0% — 5.6%, I think we should go to about 6.5% kind of net interest income.

Sumit Bhalotia — MK Ventures — Analyst

Sure. Just to understand, so we are back on a growth track, which is really quarterly visible in this quarter and going forward now, we will be seeing a big growth. On a steady-state perspective, say, FY ’25, what is the normalized spreads, NIM and, say, OpEx to happen, and credit cost that one should assume to have some sort of benchmark for the ROAs and ROE?

Vinodkumar Panicker — Chief Financial Officer

See, I think, on a steady-state basis, we expect the operating expenses to be the 4% kind of range. I think, that’s something which we had communicated and we’ve been 4% of AUM. We expect the credit cost to be in the 1.5% to 2% range. And that — this 1.5% to 2% is without any reversals that we would come in the current year also. And net-net, we are looking at an ROE of about 1.5%.

Sumit Bhalotia — MK Ventures — Analyst

This 1.5% for FY ’25?

Vinodkumar Panicker — Chief Financial Officer

No, ’24. Well, ’25 would be much better. It should be in the range of about 2.25% to 2.5% ROE.

Sumit Bhalotia — MK Ventures — Analyst

Okay. Great, sir. Great. Thanks so much. I will come back in the queue with other questions.

Vinodkumar Panicker — Chief Financial Officer

Thanks, Sumit.

Operator

Thank you. We shall take the next question. The next question is from the line of Rajat Setiya from ithoughtpms. Please go ahead.

Rajat Setiya — ithoughtpms — Analyst

Hi, thanks for the opportunity. Sir, with regards to the announcement that you made with JM Financial — something to do with JM Financials. So, can you help us understand what is our intention? Do we want to sell our business or do we want to collaborate in someway?

Shreejit Menon — Deputy Chief Executive Officer of IndoStar Home Finance Private Limited

So, the Board of Directors had kind of provided an in-principle approval to the business review committee to engage in discussions, because the way our business has trended over the last five to six years, and we’ve withstood the test of time and COVID and underwriting has held fast. We did receive interest from prospective investors. And so, we got that approval to explore options for value unlocking, which will help the Housing Finance Company deliver long-term growth. Also, these are multiple corporate action that we are exploring as part of that.

And we made several prospective candidates, who are looking at this in the last two quarters. JM is one such conversation that has progressed more than the others. And this continue to be ongoing at this stage as I mentioned earlier.

Rajat Setiya — ithoughtpms — Analyst

All right.

Karthikeyan Srinivasan — Chief Executive Officer

Currently — Rajat, currently, it is very fluid. I think, once it takes some shape only we can possibly say which way it is going and what will be a final shape.

Rajat Setiya — ithoughtpms — Analyst

Sure. And what is the size of our loans in the segment that with which we are going to explore the some, sort of, collaboration?

Vinodkumar Panicker — Chief Financial Officer

Sorry. I don’t think we got your question. Can you be — can you repeat please?

Rajat Setiya — ithoughtpms — Analyst

What’s the loan book size there, in our retail side, which we are exploring with JM?

Shreejit Menon — Deputy Chief Executive Officer of IndoStar Home Finance Private Limited

So, cumulatively, it will be about INR1,800 crores of assets under management.

Rajat Setiya — ithoughtpms — Analyst

So, is it on housing loans or non-housing loans and some other sort of…

Shreejit Menon — Deputy Chief Executive Officer of IndoStar Home Finance Private Limited

Yeah. And there will be a part of the business at IndoStar Capital, right, that entire business there. So, that will be a cumulative component.

Rajat Setiya — ithoughtpms — Analyst

Okay. All right. So, you mentioned multiple options you’re exploring. So, one could be selling it off, other could be probably listing out separately, merged entity, so new entity will be formed. Anything else that, that could be on the table?

Shreejit Menon — Deputy Chief Executive Officer of IndoStar Home Finance Private Limited

Well, this is where we are — I mean, whatever we have stated is what it is. And like I said, these are very initial days with the conversation with JM. And we will come back to you if there is anything more in terms of development.

Vinodkumar Panicker — Chief Financial Officer

Rajat, you know these things better than us, saying that these things would — the shape can keep on changing till the time it actually conclude. So, I think, we should leave it for time to decide how it goes.

Rajat Setiya — ithoughtpms — Analyst

All right, sir. Thank you so much.

Vinodkumar Panicker — Chief Financial Officer

Thanks, Rajat.

Operator

Thank you. [Operator Instructions]

The next question is from the line of Rishikesh Oza from RoboCapital. Please go ahead.

Rishikesh Oza — RoboCapital — Analyst

Hi, sir. Thank you for the opportunity. Sir, the question is, if you could guide us [Technical Issues] and what kind of products which are we looking out to?

Vinodkumar Panicker — Chief Financial Officer

Sorry, Rishikesh. We — your line was breaking. Could you repeat it again?

Rishikesh Oza — RoboCapital — Analyst

Sir, my question is, you could give any guidance on loan book growth for two, three years, and also indicate on the product?

Karthikeyan Srinivasan — Chief Executive Officer

Products will be used commercial vehicles and the affordable housing, on the [Technical Issues].

Vinodkumar Panicker — Chief Financial Officer

We — our intention is to have a book of roughly about INR9,000-odd crores in the standalone business, that is the ICF, which is — which would largely be commercial vehicle and a book of about INR4,000-odd crores in the housing finance system, that’s in FY ’25.

Rishikesh Oza — RoboCapital — Analyst

Okay.

Vinodkumar Panicker — Chief Financial Officer

We have a…

Rishikesh Oza — RoboCapital — Analyst

Yes, you were saying something?

Vinodkumar Panicker — Chief Financial Officer

No, I — that have we — while you asked for three years, we have actually more, I would say, clarity on what would be in two years from now. So, we thought we should mention that.

Rishikesh Oza — RoboCapital — Analyst

Okay, sir. No problem. That will do. Thank you.

Vinodkumar Panicker — Chief Financial Officer

Thanks.

Operator

Thank you. The next question is from the line of Anant Mundra from Mytemple Capital Advisors LLP. Please go ahead.

Anant Mundra — Mytemple Capital Advisors LLP — Analyst

Hi, thank you for the opportunity. My question was more on the qualitative side. I wanted to understand both the products that we’re trying to focus on, who are our customers and who are our competitors and how are we trying to differentiate from our competitors, or what do we think is our competitive strength vis-a-vis our competitors’?

Karthikeyan Srinivasan — Chief Executive Officer

Yeah. I’ll take this. Thanks, Anant. Thanks for the question. In the used commercial vehicle segment, our key critical competitors will be the larger players, like Cholamandalam, and smaller players in niche markets, like IKF Finance in Andhra or [Indecipherable] Western Maharashtra or SK in Rajasthan, plus, Shriram is also there. These are the major competitors. Our segments will be retail and FT profiles who are customers who have just taken a vehicle or who are planning to buy vehicles, these are our major focus areas in the commercial vehicle segment.

If you look at it, the used commercial vehicle segment in India is very large. It is around INR1.7 lakh crores market and 40% of business is with an organized player. The balance 60% is with unorganized players only. Our ability to go and tap this unorganized segment will help us achieve the numbers what we are committing. The unorganized segment players operate at much higher rates than what we are offering and also don’t provide a seamless processing to these customers. That’s the USP, with which we are entering the tier 3, tier 4 markets, so that we can capture the tier 3, tier 4 with our digitized product, which will be our USP, wherein the customers will be able to understand if a proposal will go through or not. That’s the second USP with which we are doing.

We’re not saying that it is vastly different from what a large competitor is doing, but the reach at the tier 3, tier 4 market, where he will be having a different reason between us and we the unorganized players will help us achieve the numbers. This is the strategy on the used commercial vehicle.

On the housing liquid, I’ll request Shreejit…

Shreejit Menon — Deputy Chief Executive Officer of IndoStar Home Finance Private Limited

So, on housing, very clearly, we are focused on the informal segment, which is the informal self-employed segment, primarily residing in tier 3, tier 4, and looking at constructing their own house. So, our average ticket sizes are perfectly in sync with the affordable housing to true-blue definition of some 1 million. And our competitors would largely be players like Aptus and Aavas, which are similarly focused on these markets and these customer segments.

And we’ve actually been able to build a strong foundation in South, which is well-recognized as a bastion for affordable housing in the country, and that’s where we will continue to put our investments in.

Anant Mundra — Mytemple Capital Advisors LLP — Analyst

All right. Thank you for the detailed answers. On the CV side, I just had one more query. So, typically, what is the loan tenure that we are looking at?

Karthikeyan Srinivasan — Chief Executive Officer

Typically, used commercial vehicle is around three years tenure — three to three and half.

Anant Mundra — Mytemple Capital Advisors LLP — Analyst

All right. And how does the recovery in this business work? Is it like more by calling the customer and trying to — if a loan goes bad, this calling the customer or trying to take possession of the vehicles or how does it work?

Karthikeyan Srinivasan — Chief Executive Officer

It is typically calling the customer, meeting him, when he has the money. That’s the, say, what you call the fastest finger first category, wherever you are along with the customer, that’s how the CV industry works. Recovery through stopping the vehicle is a very small portion, 2% to 3% of the portfolio will go through that process also. But typically, if you are there along with the customer in the hinterland market, the customer tends to come and pay you on-time.

Anant Mundra — Mytemple Capital Advisors LLP — Analyst

Okay. And the current book that we have, the CV book, what would be the vintage of that book, like how old approximately would that book be?

Karthikeyan Srinivasan — Chief Executive Officer

That is around 19 MOV [Phonetic].

Anant Mundra — Mytemple Capital Advisors LLP — Analyst

All right. Okay. Thank you. That’s it from my end. Thank you.

Vinodkumar Panicker — Chief Financial Officer

Thanks, Anant.

Operator

Thank you. The next question is from the line of Jehan Bhadha from Nirmal Bang. Please go ahead.

Jehan Bhadha — Nirmal Bang — Analyst

Yeah. Good afternoon, gentlemen. So, my question is on the ROA guidance for FY ’25. So, what would be the levers that would help us increase ROA from, let’s say, 1.5% in current year, to 2.5% next year?

Karthikeyan Srinivasan — Chief Executive Officer

We had actually said about — there’s an echo. Can you correct it?

Jehan Bhadha — Nirmal Bang — Analyst

Hello? Yeah. So, I’ll repeat my question.

Karthikeyan Srinivasan — Chief Executive Officer

No, I got your question. I will — it’s only the echo which is bothering me, nothing anything. So, what I’m — the levers for the change in the ROA would be mainly on account of increased yield — overall yield, which would be based on the higher yielding CV business that we’ll be focusing on.

We are saying that over the last one year or so, we had limited, I would say, funding, which would — which was coming from banks, and we are confident that a lot will start coming from — coming going forward. And our focus on ensuring that the operating expenses are under check. To do this, one thing that we have emphasized on is, we have told each and every branch of ours that we will look at the branch profitability, that is something which will ensure that our overall cost is under check, because each of the branch would want to be seen profitable and their KRAs will be determined basis that. So, their achievement of the KRAs will be determined basis that, that could be a one big component.

So, we are looking at all these factors together to ensure that the ROA goes up from 1.2% in the current quarter — current year to about 2.5% in FY ’25.

Jehan Bhadha — Nirmal Bang — Analyst

Got it. Okay. Fine. Thank you, sir.

Karthikeyan Srinivasan — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Vignesh Iyer from Sequent Investments. Please go ahead.

Vignesh Iyer — Sequent Investments — Analyst

Hello, sir. I just want to — wanted to understand — on the AUM side, what is the kind of size are we looking for in, say, another eight quarters? I mean, need not be — if it’s — it is okay if you don’t give the mix as well, but what is the size we are looking — what is the book size we are looking in eight — six to eight quarters?

Vinodkumar Panicker — Chief Financial Officer

Yeah. I think I had mentioned in one of the previous queries. I think, we have said that we will be, by end of FY ’25, we are looking at roughly about INR9,000-odd crores for the standalone and on a consolidated basis, at about INR13,000 crores.

Vignesh Iyer — Sequent Investments — Analyst

Okay. Standalone, INR9,000 crores and INR13,000 crores for consolidate, right? And if I’m not wrong, around INR6,000 crores out of this would be CV Finance, right, or it will be more?

Vinodkumar Panicker — Chief Financial Officer

It should ideally be more, because let us say, currently, out of INR13,000 crores, roughly, 50%, about 47% is CV. So, that will possibly go to 60%, 65%. So, I think, you should look at a much larger number.

Vignesh Iyer — Sequent Investments — Analyst

Right. Thank you, sir. Thank you.

Vinodkumar Panicker — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Darshan Shah, an Individual Investor. Please go ahead.

Darshan Shah — — Analyst

Thank you for this opportunity. So, as you mentioned that your Housing Finance business will be key area of focus. So, I had just a couple of questions on that end. So, my first question was, your guidance for FY ’24 with regards to AUM growth, disbursements, OpEx, credit costs, etc.

Shreejit Menon — Deputy Chief Executive Officer of IndoStar Home Finance Private Limited

So, on the Housing Finance Company side, we should be looking at around INR1,100 crores of disbursements, and we should look at a 50% growth rate over the previous year, that’s our endeavor, in terms of our assets under management. Our credit costs, as you know, are held quite steady over the last few years, and so we expect our credit costs to be similar and to be under the 0.5% range in terms of overall credit costs.

Darshan Shah — — Analyst

Yes, sir, and operating expenses?

Shreejit Menon — Deputy Chief Executive Officer of IndoStar Home Finance Private Limited

So, let me put it this way. Our endeavor will be to be at the return on asset of around 2.6%, 2.7% for the next financial year.

Darshan Shah — — Analyst

Okay, sir. Thank you. And another question, do we see any pressure on our net interest margins, considering there are many players in the Housing Finance segment?

Shreejit Menon — Deputy Chief Executive Officer of IndoStar Home Finance Private Limited

Not really. So, one of the advantages we’ve had, if you see our growth over the last few years, have been that we have largely been a home loan-led portfolio and you’ve seen lot of the players have a inclination towards small ticket, non-home loan products as well.

So, we’ve been about 82% on home loan rating percent of LAP. And over the last year, we’ve seen some opportunity in the smaller markets to increase the higher yielding smaller ticket LAP part of the business, which is by the way done very well for us. So, while we continue to remain focused on home loans, we will look at some uptick in the LAP, the small LAP business, which will help to keep our yields and our spreads intact. We’ve always been at a 5.5% to 6% spread range and we don’t see any challenge in keeping that range.

Darshan Shah — — Analyst

Okay, sir. Thank you.

Operator

Thank you. The next question is from the line of Sumit Bhalotia from MK Ventures. Please go ahead.

Sumit Bhalotia — MK Ventures — Analyst

Yeah. Thanks for taking the question again. I wanted to get some sense on the Stage 2 movement. In the presentation, you’ve started reporting Stage 1 and Stage 2 combined. One year back, when the crisis will happen, this number usually was 20% to 28% and that says the bulk of the recognition had come through. So, can you give some sense on where these numbers are currently and what kind of provision do we have excluding Stage 1 provisioning? So, Stage 2 movement and provisioning.

Vinodkumar Panicker — Chief Financial Officer

Stage 2, as of — on a standalone basis, because I am talking about the standalone, because that is the area where we had actually seen some issues last year. On a standalone basis, we had a total book of about INR1,709 crores as of March ’22, that has gone down to about INR1,172 crores. Against that — that time, we had to keep the higher provisioning of 20.7%, that has now come down to 15.1%, at about INR177 crores.

Sumit Bhalotia — MK Ventures — Analyst

So, I mean, this number, it’s INR1,022 crores as of March ’23?

Vinodkumar Panicker — Chief Financial Officer

INR1,172 crores.

Karthikeyan Srinivasan — Chief Executive Officer

INR1,172 crores. [Speech Overlap]

Sumit Bhalotia — MK Ventures — Analyst

Okay. INR1,172 crores. Okay.

Karthikeyan Srinivasan — Chief Executive Officer

And we will [Technical Issues] one account, we explained it to you last time also, because of one large account registration.

Sumit Bhalotia — MK Ventures — Analyst

Okay. So, basically this is — includes the corporate PAT also, and if I have to just look at the retail part and the retail book, what would be the Stage 2?

Karthikeyan Srinivasan — Chief Executive Officer

Only the CV portion you’re asking?

Sumit Bhalotia — MK Ventures — Analyst

Yes, sir. The CV portion.

Vinodkumar Panicker — Chief Financial Officer

Can we separately take it offline with you, Sumit.

Sumit Bhalotia — MK Ventures — Analyst

Sure, sir, absolutely. No issues on that front. Sir, two questions on the CV front. One is the disbursement, yields. I was just looking at the blended number, which is reported, that has slightly come down on a quarterly basis. And second is on the bounce rate. I think you reported it on a monthly basis. From September ’22, it has slightly inched up from 10.5% to 12.8%. Any specific reasons for these two?

Karthikeyan Srinivasan — Chief Executive Officer

See, the first question, I didn’t understand. The second question, bounce portion, I’ll answer. The first question, can you can repeat?

Sumit Bhalotia — MK Ventures — Analyst

It’s the — the disbursements yields on CV book has slightly come down on a quarterly basis, whatever is reported in the presentation. In the current setup, yields are not moving down, it was revised upwards. So, any reason for that. And secondly, on the bounce rate.

Karthikeyan Srinivasan — Chief Executive Officer

Yields have remained almost flat only. There is no much difference between the yields. I will just take it out.

The bounce rates, because many of these customers have just entered into the banking space, the — always the initial portion of it, there is always an increase in the bounce rate. After some amount of learning, these customers learn how to bank, and then — so, many of our competitors offer a non-PDC mode, where in every month you go on connect. We are not offering that mode as a practice. Now, we are pushing everybody to give a match, basically their repayment happens.

So, the initial period for these customers to understand why it is important to come and pay on-time. The initial months, we’ll see some bounce, then it’ll automatically stabilize.

Vinodkumar Panicker — Chief Financial Officer

Yeah. To answer your first part of the question, why there has been a reduction in the yield on the disbursements in the fourth quarter versus the third quarter, fourth quarter did see some 6% to 7% of the disbursements in the form of new CVs. And therefore, the yield actually came down to 19.1%.

Sumit Bhalotia — MK Ventures — Analyst

Okay.

Vinodkumar Panicker — Chief Financial Officer

Now, maybe, to answer your other question, on that — you had asked about, on a — on Stage 2 for CV, specifically, because INR789 crores as of 31 March, ’22, that has gone down to INR182 crores as of 31s March ’23.

Sumit Bhalotia — MK Ventures — Analyst

So, only INR182 crores left. Great.

Vinodkumar Panicker — Chief Financial Officer

INR182 crores, yeah.

Sumit Bhalotia — MK Ventures — Analyst

Yeah. This is very helpful, sir. Thanks so much. If time permits, I had two more questions. One on the Housing Finance part, the other expenses have shot up. And despite of AUM growth and lower employee expenses and provision reversal, our PAT has come down. So, what is the reasoning behind that?

Vinodkumar Panicker — Chief Financial Officer

You’re specifically looking at the fourth quarter?

Sumit Bhalotia — MK Ventures — Analyst

Yeah, specifically for the fourth quarter.

Vinodkumar Panicker — Chief Financial Officer

Yeah. See, it is specifically on account of certain additional charges that we have taken, because there is a process of, I would say, cross charge, which happens on certain fixed cost. So, the figures have finalized in the fourth quarter, so some additional charge has been taken.

Sumit Bhalotia — MK Ventures — Analyst

Understood. Sir, lastly question on net worth reconciliation. We did a profit of around INR76 crores — we reported a profit of INR76 crores and our net worth has gone up by only INR26, INR27 crores. So, why is that?

Vinodkumar Panicker — Chief Financial Officer

Just a sec. We will separately revert to you on that, Sumit.

Sumit Bhalotia — MK Ventures — Analyst

Sure. No issues. Thanks for the responses. Thank you.

Vinodkumar Panicker — Chief Financial Officer

Thanks, Sumit. Thanks for being on the call.

Operator

Thank you. In the interest of time, this was the last question. I would now like to hand the conference for to Mr. Nikunj Jain for closing comments. Over to you, sir.

Nikunj Jain — Orient Capital — Analyst

Thank you, everyone. I would like to thank the management for taking the time-out for this conference call today, and also thanks to all the participants. If you have any queries, please feel free to contact us. We are Orient Capital, advisors — Orient Capital, investor relation advisors to IndoStar Capital Finance Limited. Thank you, everyone.

Operator

[Operator Closing Remarks]

Vinodkumar Panicker — Chief Financial Officer

Thank you.

Karthikeyan Srinivasan — Chief Executive Officer

Thank you.