Muthoot Capital Services Limited (NSE: MUTHOOTCAP) Q2 2025 Earnings Call dated Oct. 30, 2024
Corporate Participants:
Ramandeep Singh Gill — Chief Financial Officer
Mathews Markose — Chief Executive Officer
Analysts:
Shweta Daptardar — Analyst
Lavanya — Analyst
Rajiv Mehta — Analyst
Rishikesh Oza — Analyst
Taran Gupta — Analyst
Ankur Kumar — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Q2 FY ’25 Earnings Muthoot Capital Services Limited Conference Call hosted by Elara Securities Private Limited. [Operator Instructions]
I now hand the conference over to Ms. Shweta Daptardar from Elara Securities Private Limited. Thank you. And over to you, ma’am.
Shweta Daptardar — Analyst
[Technical Issue] Capital Services Limited. From the esteemed management we have today, Mr. Mathews Markose, CEO; Mr. Ramandeep Gill, CFO. We express our graduate towards the management of Muthoot Capital to provide us the opportunity to host this conference call.
Without further ado, I now hand over the call to Mr. Ramandeep Gill, CFO, for his opening remarks, post which we can open the floor for Q&A. Thank you. And over to you, sir.
Ramandeep Singh Gill — Chief Financial Officer
Thank you, Shweta. A very good morning to all of you. Yesterday, we had our audit committee and the results were successfully adopted in the board. I’ll just provide you the glimpse of the results first and then we can have a Q&A session.
So with this, in this quarter, we did INR643 crores of additional sourcing, whereas we can easily say that this would be the highest quarter, right? And maintaining a rate of 75-25 towards MCSL and towards co-lending. Therein, in this quarter, we have taken our book to INR2,381 crores, whereas our GNPA stands at 4.80 percentage and NNPA stands at 1.62%. The PBT for the quarter stood at INR21.62 crores, whereas CRAR stood at 26.93%. The debt to equity of the company stood at 3.37 times.
The overall balance sheet of the company reached at INR2,848 crores, whereas borrowings of the company outstanding at INR2,141 crores. In this quarter, the company had did one ARC deal as the guidance has already been shared during our Q1 results that we want to have a balanced approach because we knew that sourcings are going to be big in this quarter. So we want to have an ARC deal. The ARC deal — portfolio of the deal was close to INR100 crores and the entire portfolio belonged to the pre-COVID era. So we don’t want to impact our AUM much. That is the reason we have decided to do this deal in this quarter itself.
So therein, after doing the deal, we — if we have gone from quarter-to-quarter, we would have reached at a GNPA of 7.2%. But we know that in order to raise funds from PSUs and everything, we need to have a GNPA below 6%. And this pool was something wherein we need — we wanted to take a call. But from March onwards, we wanted to do in Q1, then because of the AUM growth and everything, seeing that, we have took that balanced approach and took the call in this quarter itself.
By doing a number of INR643 crores of additional sourcing, we acquired 75,854 new customers during this quarter, taking our total customer base to 4,46,998 as of September end. This has taken our shareholders’ funds to INR639.42 crores. The company has been successfully able to maintain the yield at 19.96%. Last year, in Q2, at the same time, we were having an AUM of INR1,767 crores. That AUM has been grown to INR2,381 crores now. Last year, at the same time, the company was only approaching with two products mainly, two-wheeler and corporate loans.
Now as we speak, out of this INR2,381 crores, we had a two-wheeler share of INR2,173 crores. Corporate loan share of INR105 crores. We have added — we have taken our four-wheeler portfolio from INR12 crores to INR51 crores now. Our three-wheeler portfolio was nill, now it is closer to INR31 crores. Loyalty loan and personal loan has reached to INR11.68 crores. CV was not even introduced, now it is standing at INR8.70 crores. So we are seeing a remarkable diversification of the business as well in this quarter.
As I said, after taking the call on the GNPA and NNPA number, the GNPA stood at 4.80% and NNPA of the company stood at 1.62%. With this, the company has reported an EPS of INR9.71 compared to INR6.57 in Q1, right? And the ROA of the company for the quarter stood at approximately 3%, 2.91% precisely, as compared to 2.23% in the quarter one. A 27% growth has been recorded in the ROA, 10.31% is the ROA which has been recorded by us in Q2, whereas in Q1, it was 7.39%, thereby recording a growth of 40% in this parameter as well. The total — the company has operated throughout last two years or so at an average LTV of between 80% to 85%. We’ve maintained that. Last year, at the same time, we were having an own funds of INR590 crores. Now we have been able to take it to INR639.40 crores.
Talking about the loan loss provisions, yes, we did one ARC. Plus in terms of recoveries also, we do have a good — we have seen good efficiencies in Stage 0, Stage 1 and Stage 2. Stage 3, we have seen a bit of dip, but that has been recovered in the first week of October due to festivals in September. And we are assured that we’ll be able to improve this in this quarter. The company has taken a target of INR344 crores to INR400 crores at the time of framing the budget for this financial year, but we have been able to — successfully be able to do INR643.50 crores, because by Q1 itself, we felt that the company will be able to clock approximately INR200 crores to INR250 crores a month.
And talking about the retail loans and the MCSL share versus the co-lending share which was the concern in the Q1 call as well. We maintained that from our dealer channel and the group, we have been able to source 75% as an incremental business in this quarter as compared to the other channels or partnership channels, but we continue to work with partnerships as well.
Talking about the source of the collections, the company has been able to increase its eNACH penetration. That was one of the reasons in bringing down my cost of recoveries as well. My total collection from NACH and from bank and electronics mode, first time ever it has cost more than INR100 crores in a month, which is quite a significant achievement for us. Talking about the asset analysis, 78.89% of the book standing at Stage 0 bucket. First bucket, we had approximately 14% of the book. In second bucket, we are earning 2.76%. Whereas if we talk about the third bucket, as I said, the GNPA was 4.80%. So that portfolio is standing in the third bucket.
We are — talking about product-wise, with two-wheelers, we have almost entire book in standard assets, except 5.24% specifically in the NPA. With four-wheeler, almost entire book is in standard asset, except 0.55%, which is laying as an NPA. Three-wheeler, we are having a zero NPA. In CVs, which we have introduced, again zero NPAs. Loyalty loan and personal loans, we are having an NPA of close to 2%. Corporate loan and others, we are having a zero NPA.
Talking about the partner-wise from dealer and branch combined together, we are having a GNPA of approximately 4.8%. For others, when we talk about partnerships such as co-lending, we are having a zero NPA as of now. The company had four partners for partnership and three partners for VCs. We are continuing with Wheelsemi, CWC, Manba and EV.fin for our EV financing and Up Money. Whereas for VCs, we are having our group companies supported by Muthoot FinCorp and Muthoot Automotive. Deccan Finance is also our third partners.
Now talking about the ECL portion of the company, the company has adequately provided for the ECLs as compared to the IRAC norm. We can see that INR98.87 crores is the ECL of the company. In all these stages combined together, whereas as per the requirement, we need to maintain INR45.12 crores. Therefore, we are INR53.75 crores higher than what is required as per the IRAC’s norms. The company had done the first ARC transaction with Phoenix ARC, wherein the balance of that investment security receipts at the start was INR102.22 crores. In this September end, we have closed that security receipt investment balance at INR46.10 crores, therefore, making a significant recoveries in that ARC portfolio as well.
Talking about ARC 2, which company had done in September, we have done this with PARAS ARC with an investments in securities balance of INR41.73 crores. And in September only, we had pool recoveries of more than INR3 crores in this pool. Liabilities of the companies, if we have to talk about, promoter group stand strong and they are having a shareholding of 62.60%. Retail is holding 26.24%. The rest of the shareholdings are holding — are held by NRIs, institutions and others.
Talking about the funding position of the company, we have been successfully able to raise INR670 crores during the last quarter. Out of that, almost INR500 crores pertains to long-term funding and INR175 crores pertain to short-term funding. The additional cost of new facilities which company has obtained stood at 9.83%, whereas all working capital demand loan, everything has been rolled over. We have been successfully able to close one impact investment also with GuarantCo. GuarantCo is a UN-based fund wherein we have been successfully able to close the transaction with GuarantCo and Axis Bank amounting to INR100 crores. We had an additional funding from IDFC FIRST Bank also from — for INR120 crores.
Other fundings, we have been successfully able to raise from the PSU either in the form of working capital demand on rollover or in the form of NCD from our partners. The mix is like NCDs stand at INR604 crores, whereas FDs of the company has been increased from INR40 crores to INR42.37 crores. There is a working capital demand loan, term loan from the bank that — which are standing at INR1,100 crores. CPs of the company is standing at INR200 crores and whereas the PTCs and DAs portfolio of the company, it stood at INR189 crores, mostly towards PTC because DA we had only one deal of INR3 crores, which is outstanding.
Talking about the MCLR change vis-a-vis the change in the ROA, we have observed 0.70% increase in the average MCLR, whereas in terms of increase in ROA, it stood at 0.14%. Therein, we have also seen repo rate hikes during this quarter — not this quarter, in the last 18 months, we have seen hikes happen in May ’23, June ’23, August 2023, September again, then Q3 ending then Feb ’24. Considering all this, our borrowing costs, which used to be 9.70% in last September, has gone to 9.84%. Whereas average MCLR rate, which used to be 8.51% of the banks, has gone up by — gone up to 9.21%. So therein, we have made a significant achievement by decreasing the spread, which we are taking from the banks.
In terms of the ALM and the structural liquidity of the company, we have not observed any kind of stress even after providing a severe stress of 15% of the outflows and the inflows, thereby also maintaining the LCR as per the requirement of RBI which is 85%. We are maintaining more than that at any point of time. So there is no stress which we have observed in one to seven days, eight to 14 days, 15 to one month, one to two months, two to three months, three months to six months and six months to 12 months.
For liquidity, we are — we know that in this quarter also we want to do INR300 crores a month. Hopefully, we’ll be closing the same number in October. We are right. And we want this sourcing to be somewhere around INR900 crores to INR1,000 crores in this quarter. By maintaining that, we do have our fund position wherein we do have our term sheets and sanction letters on hand. We are expecting to close this quarter at INR260.31 crores of cash in hand, thereby maintaining the LCR of 85% as prescribed by the RBI.
So that’s it. That’s an overall glimpse from our side in terms of finance numbers. I would like to give this call to Mathews sir now to take you through the business numbers. Thank you.
Mathews Markose — Chief Executive Officer
Thank you, Raman. Am I audible?
Operator
Yes, sir, you’re audible.
Mathews Markose — Chief Executive Officer
Okay. Good morning, everyone. Very, very happy to connect with you all once again. Let me start by wishing all of you and your loved ones a very, very happy Diwali and a very prosperous year ahead. As Raman has already indicated, we had a more than satisfactory or, so to say, a very robust H1. Both Q1 and Q2, we beat our own estimates on all parameters, whether it is disbursement or reduction in NPA, we beat our own estimates and also we beat the guidance that we had given to the investors in our previous earnings call and also to our bankers and other stakeholders.
So as Raman already mentioned, we ended up Q2 — H1 with INR642 crores of disbursement overall. We had given a guidance in our previous call of about INR600 crores. And we had given a guidance on GNPA coming down to 6% level by March ’25. But we are very, very happy to say that in H1 itself, we’ve brought down our GNPA level to 4.8%. And this was supported by very robust growth in our own MCSL business. So the MCSL business alone did INR420 crores out of this overall INR642 crores.
While we continue to work with all our partners, all our partners still continue to do business with us. Our other businesses — new lines of businesses, which is commercial vehicles and used car loans are also coming up beautifully. Month-on-month, they are growing. And this will grow further in Q3 because on the 1st of November, that is two days from now, we are launching our new LOS, which is going to be the real game changer for this business. So we are moving our both used car and commercial vehicle businesses to our new LOS. This should see a drastic improvement in business growth, reduction in TAT, much more better quality of sourcing and all that.
Two-wheeler business on the whole has been growing steadily for us. Yesterday was Dhanteras, which is considered to be a very, very auspicious day. We delivered 6,000 vehicles yesterday Pan-India. That’s a very, very good number. Sometime last year, we used to do that number in the whole of one month. And yesterday alone, on one day, we disbursed that number, which augurs very, very well for the company.
Our VC model with our group company, Muthoot FinCorp is coming up very, very well. We are now about 25% of our overall business. And Muthoot FinCorp in this year so far has already done whatever they did in the whole of last year. So they’ve already registered 100% growth and we expect a 200% growth from that channel alone. The NPA levels on the portfolio sourced by them is only 0.15%, which also augurs well for us. The other VC partners with Muthoot Automotive and Deccan, all of them are coming up very well without any delinquency on the portfolio. And the growth is also close to 60%, 70% on these two partnerships as well.
All our co-lending partners have grown with us. The co-lending partners have added an AUM of INR280 crores in H1. Our liability side of the book has also seen slight growth. We added our liability book by about 1,200 customers in H1. Our collection efficiency has improved significantly. We are at — on the X bucket — zero bucket, we are at 98% efficiency, which is up 2% over 96%, which was — which we were maintaining in the last year. Even in bucket X — bucket one, we’ve improved from 78% to 82%. So all buckets on collection, we are seeing efficiency as well as a reduction in overall cost.
As CFO already mentioned, electronic mode of collection has come up to about 67% of our overall portfolio. What is noteworthy is also that our digital payment on the new acquisition has come up to 75% now, which used to be about 50% in June and about 45% last year. So today, we collect 75% of the incremental business through eNACH mode, which will further reduce our collection costs in the months to come.
We’ve taken a lot of digital initiatives, including bringing a new CRM solution, lead management solution. We had already tied up with a few ecosystem partners like BikeDekho, Bajaj Finserv. We have added to that list PhonePe. We have also revamped our own website from which we are getting leads. All these leads will culminate now into the lead management platform and where we will be able to manage those leads much more efficiently. The dispositions can be captured much more efficiently. The tracking of the lead end-to-end can be done much more efficiently.
Along with that, our usage of the Muthoot FinCorp ONE app, which is our app for all our customers, acceptance or the absorption of that has improved. We now have about 50,000 downloads on that app. And the usage on that app has also significantly improved. About 4% of our overall collection is now coming through that app and we are making further developments on that app to increase their absorption level much more.
We are creating a self-service journey on our website as well as on the app for customers to take new products of ours, which means, today if a customer wishes to take a loyalty loan, which is a loan which we give to a customer who has paid us well on the two-wheeler loan, he can just get into our website or on to the app and complete the journey on his own. So that is a development, which we will be launching some time in November, which will again boost our ability to go digital and to increase volumes there.
We are starting the cross-selling business. So still now we have focused on — only on our business, but now that that part has stabilized, our productivity levels have gone above 13 numbers on the two-wheeler side. We are now looking at increasing the cross-sell and on the fees. So what we did was we did run a propensity model on our existing two-wheeler base. And we saw that there’s a INR2,000 crores of housing loan and LAP outstanding on our — for our two-wheeler customers from outside of Muthoot ecosystem.
So we tied up with our group companies, which is Muthoot Housing Finance for cross-selling of housing loan and LAP. So we have got into an arrangement with them. We created that propensity model where our customers are — 6,000 of our customers who have shown high propensity to take housing loan and LAP and we will be passing on those leads to our housing loan company and we get a fee income upon conversion. So that arrangement has been approved by our board.
As Raman was mentioning, over the last one year, that is September-to-September, we grew our AUM by INR614 crores, which was about 35% growth of the AUM. So every month, we are growing our AUM by 4% to 5%. And in the next six months, we plan to grow our AUM by about INR640-odd crores toward — our objective is to end the year with about INR3,000 crores of AUM.
So I think overall, the business is robust. Our Q3 happens to be the best season for the industry as a whole. And we’ve already capitalized on that. I mentioned about the Dhanteras delivery. October, we will end up with about INR300 crores of disbursement and the next two months should also be good. So I think the — we look at the next five months of the year with a lot of expectations, a lot of hope and I hope we will be able to deliver on all the fronts as we’ve been able to beat our own expectations and guidance that we’ve given so far in the year. Thank you.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] The first question is from the line of Lavanya [Phonetic], an Individual Investor. Please go ahead.
Lavanya
Good morning, sir. My first question is about the customer acquisition and retention. So with the new customers added in Q2, what are the primary strategies driving this customer acquisition? Additionally, what initiatives are in place to improve this customer retention and enhance lifetime value? This was my first question. And the second question is with respect to ROE and ROA trends. Our ROE increased to 10.31% and ROA to 2.9% in Q2. What are the main contributors to this improvement? And do you expect these levels to be sustainable going forward? Thank you.
Mathews Markose
So I will take the first question and I would request Ramandeep to take the second question. So on the business model today, as I mentioned, we have three broad channels. One is the dealer channel, which every competitor uses. We have a unique channel, which is unique to us basically, which is the Muthoot FinCorp branches, which has about a strength of 4,000 branches and they do cross-sell of our products. And the third channel that we recently introduced is the digital channel.
So about 75% of the business comes from the dealer channel, about 24% comes from the Muthoot FinCorp market channel — FinCorp channel and about less than 1% is through the digital channels and new channels that we have added. So there’s a different strategy that we employ for all these three channels. In the dealerships, we have our executives placed and it is based on — completely based on efficiency level, wherever we are more efficient. We get — our market share over the last one year has jumped up from about 2.5% to about 7.5% in the locations that we operate, which means that we’ve show much more efficiency and we’ve eaten into the market share of other competitors.
On the FinCorp branches, what we do is that all the customers that walk in for a gold loan or some other product of FinCorp, we try to do cross-sell. So any — we display two-wheelers and used cars at the branches and the customers who walk in, they are offered special schemes and they get converted, and that’s how we use — exploit that channel. And on the digital space, we have tied up with various marketplaces, like I mentioned in my opening remarks. We’ve tied up with BikeDekho, we’ve tied up with Bajaj Finserv, we’ve tied up with PhonePe and we have a few pipelines — a few tie-ups in the pipeline, which is BharatMatrimony, LinkedIn, etc., whom we are at an advanced level of discussions for a tie-up. All of these platforms will pump in leads to our CRM. And from there, the lead gets disseminated to our frontline sales who go and convert these leads. So that’s on the acquisition strategy.
On the retention strategy, again, as I mentioned, we are developing — we’ve put in a lot of effort and money and investment in people behind machine learning models. And based on that, we’ve created propensity model for different products. So today, we have a propensity model created for used car, for commercial vehicles and for housing and LAP. So the used car and commercial vehicle are our own in-house products. So based on the propensity model, we are passing on these leads to our frontline sales team through the CRM system. And these leads are converted by our frontline sales team. On the housing and LAPs, since this is not our product, we have tied up with our group company, which is Muthoot Housing Finance. And these leads get passed onto Muthoot Housing Finance, who in turn, give us a fee for conversion.
So what this effectively does is that as I mentioned before, in our own base of two-wheeler, we ourselves are pleasantly surprised to see that there was INR2,000 crores of AUM resting in our two-wheeler customer base outside of Muthoot ecosystem, which means the customers that we are acquiring as a two-wheeler have that much more potential because other lenders have given them INR2,000 crores of loans. So we — now as a retention tool, we have started our own propensity model wherein we will keep it within our acquisition so that we don’t lose it to competition. And we are able to upsell and graduate them to higher products like used car, commercial vehicles, housing loan, LAP, etc. So that’s our overall strategy on customer acquisition and retention. I hope that answers your question.
On the ROA, ROE, I would request Ramandeep take that.
Ramandeep Singh Gill
Sure. Thank you, sir. So boss, as far as Q1 and Q2 is concerned, we have done an incremental number of approximately INR1,100 crores. And in Q3 and Q4, we are expecting to do a number of approximately INR1,600 crores to INR1,800-odd crores, which is almost 2.5 times of what we are doing. And this — it’s being a seasonal thing for us. So we are expecting it and we are positive about these numbers as well.
Second thing, talking about this main contributor towards this ROA and ROE. So there is — so one thing which is for sure, if you see, we have also shown in the investor presentation as well, the yield of — the blended yield of the company is going up. Yes, in the season can — we have to pay some special incentives and all. So the yields might get dropped by 5, 10 bps [Indecipherable] which we are expecting. But the only thing, when your denominator will increase, even that dip will get — will not be having any effect.
Second thing, talking about the efficiencies of the company, as I already said, we had some slippages in Stage 3 because of the higher PCR, we are providing 75% on the additional NPA. So with those slippages, which we are expecting to convert on or before September ended, got converted into October first week. So that happens sometimes. But this — if that would happen there, I was expecting — honestly, I was expecting ROA of approximately 3.3% to 3.4%, but which is okay. We learn and we try to improve also. So in Q3 and Q4 as well, I am expecting the same number, but considering if our business goes higher, which — the chances of which are extremely high, I am expecting a level of somewhere around 3.5% to 3.8% of ROA for sure, boss. And I hope this answers.
Lavanya
Thank you, sir.
Operator
Thank you, sir. The next question is from the line of Rajiv Mehta from Yes Securities. Please go ahead.
Rajiv Mehta
Yeah, hi. Good morning. Congratulations on very strong set of numbers. So I have a few questions. Firstly, on asset quality. So I think you talk about how your efficiencies of collections have gone up in zero DPD bucket and the first bucket as well. And we can see that in the flow rates, your flow rates are pretty controlled and your NPAs are pretty controlled. But sir, there has been a lot of noise about stress in lower income households, in urban areas, in rural areas. MFIs stress we can see. I mean, a lot of MFIs are seeing a lot of pain. Credit cards for lower income is showing a lot of pain. So what is — I mean, so do we expect this asset quality trends, which are very strong for us right now to remain strong in H2 also or do you think that some of the stress which is there in the economy in the lower income segment can spillover in our segment as well, in our product?
Mathews Markose
Okay. So thank you for the question. So it could be hubris to say that the external environment is not going to impact us at all. So there would be some spillover effect. But I can tell you what are the checks and balances that we are putting in place to ensure that it does not happen. So of course, there is some stress on the MFI space. So far, we have not seen that translate to any stress on our portfolio. That’s number one.
Two, ours is a secured business. My average LTV is around 80%, which means 20% equity the customer is putting in from his or her side, once the customer has paid in — given 20% equity, then the chances of the customer going delinquent becomes very, very limited unless the customer is an intentional defaulter or a fraud. And that happens to be a very, very, very small percentage of the overall portfolio. That’s an occupational hazard, it comes in how much ever you put in. But overall, by keeping the LTV levels in check, we are ensuring that some of that gets deterred at the very go.
Secondly, the sales team is given the target of collecting. We call the cohort as quick mortality, which is first, second and third EMI. The first, second and third EMI has to be essentially collected by the sales team and we monitor that very, very closely. So our semi non-starter is almost zero. It comes in single-digits, two cases, five cases, six cases and those could be accidental or death cases. And then the next two EMIs also have an efficiency level of about 99% — 98% to 99%. So we ensure that the flow from there is restricted to a larger extent.
We — even if a customer at some stage stops paying since it’s a secured asset, we are — we always have the option — recourse of reprocessing the asset. And we’ve put up a team for that as well. Earlier, we used to be — maybe about two years back, we were selling off as a loss of about 50%. Today, we have brought it down to 35%, 30% to 35% is our loss on sale. By which time, we are able to recover quite a bit of the principal amount of the loan. And the entire process of repo and sale has been revamped now. So we take an online quote, we take an offline quote. We’re tied up with all the used two-wheeler brokers or dealers in the ecosystem. And we take an offline quote from them and take an online quote by all the players who are online. And then there’s a valuation that is done for the asset and we ensure that we are able to sell it off at the best possible value also. So thereby, we are able to reduce the losses.
Another thing that we very, very closely monitor is the registration certification — certificate pending, so RC pending. So that is very, very closely monitored so that we have a check and balance on the number of vehicles that are registered and that is always kept below 2% to 2.5%. So that we ensure that the RCs are in place and there is a check on that as well. So all these checks and balances we’ve put in place which are some of the industry-best practices. And therefore, we don’t see the lower and middle income stress cascading to our business to a large extent. But as I said, it would be hubris to say that nothing is going to happen. As and when we see market scenarios, we will take appropriate steps to reduce that.
Rajiv Mehta
Sure, sure. Thank you for this elaborate answer. But just two quick follow-ups on this. So October — see, September, the numbers are there, but October is just — October is just getting completed. So in terms of October, has the collections held up as well as what we saw in Q2? So far, we haven’t seen any increase in flow or something so far in October?
Mathews Markose
Not at all. Not at all. So far, we are — so what we do both in business as well as in collection, we have a LMTD, which is last month till date comparison. So that it keeps giving us an indication whether we are on the track or not. So of course, business is way ahead because this was season. But on collections also, against LMTD, we are ahead so far in the month. So we should end up with the similar numbers if not more.
Rajiv Mehta
Great. And sir, what percentage of two-wheeler customers or two-wheeler households would have an MFI loan as per the bureau for our customer?
Mathews Markose
Honestly, we have not looked at the MFI component. As I mentioned, we have — as a part of building the propensity model, we looked at housing, LAP, used car and CV. But we have not looked at MFI as such. Maybe that’s a data point that we should look at. It’s a good idea. Thank you. We will have a look at it.
Rajiv Mehta
Sure. Can I just ask one more question, please?
Mathews Markose
Yeah.
Rajiv Mehta
Sure. And sir, on disbursement, I think in the initial commentary, you spoke about the second half being much heavier or even better than first half. And I think somewhere the number was spoken that the business volume can even be INR1,500 crores to INR1,800 crores in H2. Did I hear that right?
Mathews Markose
Okay. So to give you a perspective, we disbursed INR642 crores in Q2, okay? Again, that in October alone, we have disbursed INR300 crores. So 50% of that we’ve disbursed in one month. And the next two months are also expected to be big. As I mentioned, yesterday was Dhanteras, we have delivered 6,000 vehicles, which is more than INR50 crores of business in one single day. So that used to be my overall volume in Q1 of last year.
So that’s the kind of numbers that we have so far seen. And November should be very good because there is a spillover effect of the Diwali, Dhanteras and then you have Chhath Puja in UP, Bihar, those parts. So all these actually are very, very emotional festivals for the people there and it see the corresponding increase in sales. So in November also we should be looking at similar numbers like in October.
December, it may slightly taper down because of the effect of model change in January and so on and so forth. But we should do more than I think INR800 crores to INR900 crores in Q3. Then Q4 doesn’t — is not normally as good as Q3, but it generally is better than Q2. So Q2 was INR640 crores for us, I think should do about INR700-odd crores in Q4 as well. So I think overall, yeah, I think about INR1,500 crores should happen in the second half.
Rajiv Mehta
Great, great. I’ll come back in the queue, sir, I’ve got more questions. But wonderful numbers, and best of luck.
Mathews Markose
Thank you so much.
Operator
Thank you, sir. The next question is from the line of Rishikesh from RoboCapital. Please go ahead.
Rishikesh Oza
Yeah, hi. Thank you for the opportunity. Sir, my question is with respect to the NII. So our NII currently is in INR56 crores to INR58 crores range per quarter. So when can we see NII start growing around in the range of 20%, 30%? And by which quarter can we say it can reach in the range of INR70 crores odd?
Ramandeep Singh Gill
Okay. Sir, I’ll take it. Hi, Rishikesh. Thank you for your question. So as I said at the start of the call itself, we want to have — so NII has two components for us. One is at what yield we are operating? Second is, what is my cost of funds, right? So these are the two main factors on which we rely. So first, what we have done is first target was to bring our GNPA down. And it’s not because of the fact that we are having a GNPA, it’s because we had an erstwhile book and we know that recovery can be done from that book. So that is the reason we took a conscious call of going ahead with an ARC.
How it will help us now? Whenever we apply for any PSU bank or anything, they have a criteria — specific criteria that you should have GNPA of lower than 5% or 6% some banks have. So we wanted to have that criteria to be met. How it will help us now? Then all the incremental raisings, which we are planning to do or there are — which we are in talks right now, we will be having a lower cost. I am expecting INR0.50 to INR0.60 down in Q3 only from my incremental cost of funds.
Second thing is, as I said, in Q2, we do have some special scheme, special incentives as well, which we have paid, but that is not something which is a trend for the whole year. So in Q3 and Q4, we’ll be operating at a normal yield and/or more than that. So these are the two sectors wherein I can see top-line is getting increased. I can also see because of the borrowing costs, which is now one of the key factor, it will also did dropped in Q3. The effect might start to come from Q4 onwards. But yeah, the trend can easily be seen in the Q3 only.
Rishikesh Oza
Okay. So would it be fair to say the range around, let’s say, around — from here INR10 crores, INR12 crores jump you can see by Q4?
Ramandeep Singh Gill
INR10 crores, INR12 crores would be slightly higher expectation in Q3. Definitely, in Q4, we’ll be able to do it. But Q3 — one more thing in Q3 which is going to happen that at the end of the Q3, as per the RBI, now we have to maintain an LCR of 100% of all the NBFCs. Unlike housing finance companies which used to operate at 60%, NBFCs have been advised to keep it at 100%. So therein, we could have some additional funds to park in. But yes, from Q4 onwards, the impact can be seen. Half of the impact can be seen in Q3 as well.
Rishikesh Oza
Got it. Also, in our current incremental book quarter-on-quarter around INR200 crores of incremental book, how much of it is by our own franchise, which is MSCL? And how much is from co-lending?
Ramandeep Singh Gill
Okay. So I’ll tell you, as far as first of all, boss, incremental was somewhere around INR320-odd crores. The AUM, which we are seeing is after subjecting the ARC component. So if I have to total, I can easily say that approximately INR400-plus crores has come out of INR643 crores of sourcing, which we have done, INR400-plus crores have come from MCSL sides. And remaining has come from the partnerships.
Rishikesh Oza
That is in disbursement terms, right? But in loan book terms, we have INR320 crores incremental book quarter-on-quarter. How much of that was MCSL and how much is other — co-lending?
Ramandeep Singh Gill
Okay, okay. Sir, following the same trend since entire book in terms of incremental is of two-wheelers, which has an average time period of two years. So I can easily say that 70% to 75% of the book came from MCSL itself. Discount will also happen in the same proportionate, boss.
Rishikesh Oza
Got it. And on a total book basis, would it be same, 70%?
Ramandeep Singh Gill
Yeah. So I’ll say this, see, from Q1 and Q2, I can easily say that 70%. But yes, since the effect of the past two years wherein we used to operate at 50%-50%, we jumped to 60%-40%. Now at incremental, we are at 70% of our own. So we can easily say that we — on the overall book, we can see the trend at 65% as of now. But yes, by Q4, it would be — happily we can say that it would be somewhere around 70% to 75% of the overall book.
Rishikesh Oza
Got it. And one more — one last question. On a two year basis, could you share what is our target for in terms of loan book, ROEs, ROAs?
Ramandeep Singh Gill
Okay. I will go with — first of all, with first — one year time and what changes we are expecting. So right now, during most of the call we were speaking about two-wheelers as of now. But as I said at the start of the call, we have also introduced CVs, which is clearly a long-term product. We are also increasing our used car as well from INR12 crores to INR51 crores in Q2. So we are expecting these books to grow as well heavily from Q3 and Q4 onwards.
By next September, I’m targeting INR5,000 crores of AUM. And yes, by that, the ROE operations, which we are doing as of now, we are considering only two-wheeler effect as of now because both books are very small to say anything about it. So — but considering the trends and considering how industry operates on these books, we might get additional advantage from these books, which I’m 100% sure.
Second thing is how these two books will help me in terms of — as compared to my existing book. The credit cost of these books are fairly lower than what we have. So there are positives also. Negative, I’ll not say like that anything is — but these books operate, say, my two-wheeler has a blended yield of 20%-odd. For used car and LCV, I might operate it between 17% to 18%.
So therein, we can say that these two books are very separate. But yes, in AUM growth, my new products will be helping me in contributing. I will be having additional income from them as well. And then going forward, right now, I can easily say that I want to operate at somewhere 3.5% to 4% in terms of my ROA. But going forward, the trend can be predicted well from quarter four onwards once these books will grow and some seasoning can be done, especially for the used cars.
I hope I am able to answer, boss.
Rishikesh Oza
I’m sorry. Yes, sir. I was on mute actually. Thank you very much. That is from my side. Thank you.
Ramandeep Singh Gill
Thank you.
Operator
Thank you, sir. The next question is from the line of Taran Gupta from Elara Capital. Please go ahead.
Taran Gupta
Thank you for taking my question. So my first question is, so how do you expect your net interest margin to look like in a lower interest rate environment?
Ramandeep Singh Gill
So boss, as I said, NIMs are going to improve based on the fact that last two years, two and a half years, we operate at a very high NPA. Basis on that, we have also seen that increase in the cost of funds as well. Now we are at par with how an industry according to a PSU would look like and should operate in terms of NNPA side. So therein, a reduction in the borrowing cost is expected. Whereas we have also said that we will also be hearing good improvement in our yields as well because our contribution from the own books are increasing now. So I’m expecting a fairly good jump in this.
Taran Gupta
And what percentage of your liability is currently linked to EBLR?
Ramandeep Singh Gill
Sorry, what percentage of liability currently to?
Taran Gupta
EBLR.
Ramandeep Singh Gill
So I’ll say 50% consists of bank loans. And I’ll just give you the exact percentages. Just wait for a second. So my bank loans and bank fundings out of total INR2,140 crores, we have INR1,100 crores only from the banks. It’s a combination of PSUs and the private banking. And my INR600 crores odd of funding, which is roughly about 40% of the book is between NCDs, MLDs and CPs. So therein, these two are the major contributions towards my fundings. Then we have a portfolio of approximately INR185 crores, which is around 15% — 12% to 15% of the total funding. That contributes towards my PTC and the DA portfolio.
Taran Gupta
Thank you. So my last question, you mentioned that Dhanteras was strong in term of business. So how this year festive season demand compared to last year performance, particularly during Dhanteras?
Mathews Markose
I’ll take that question, Raman. See, festive season typically in our country starts from Onam in Kerala and then you have Ganesh Chaturthi, etc., in Maharashtra and then we have Dhanteras, Diwali and moves on till Christmas. So if you look at, say, August, September, I think Onam comes in Kerala. But this time, Onam was okay. I think it was at par with what was it last year. But September month as a whole for the industry was bad. So industry was down by about 8% to 9%. And it could be attributed to the Pitru Paksh and Shradh happening in north of India and there were heavy incessant rains in many parts of the country. There were floods in Gujarat, etc., etc. AP, Telangana, all those places, there were floods. And therefore, I think that has hit the sentiments.
So September was 9% down. October so far, the figure is not out. But overall, the way the figures are coming in, October is also slightly lower than last festive season. Also, the last festive season, one advantage was that you had Durga Puja and Diwali coming in two different months. So Durga Puja was in October, Diwali was in November. So we could take advantage of both these festivities. But this around, both these festivals came in October. So Durga Puja was towards the beginning of October and Diwali is tomorrow. So both of them came into the same month, so that also needs to be seen how the overlap of business would have happened because of that. But we await October numbers — final numbers. It seems to be slightly subdued.
However, the positive is that we at MCSL have been growing and our market share have been growing. So, so far, we have not seen any impact of the market per se. We were some time — we were at around 2%, 2.5% market share, that’s at around 7% market share. So even if there is an overall impact, the industry is about 13 lakh, 14 lakh per month, so for us to reach our numbers should not be a problem at all. So we are not looking at industry at least for the time being since we are, so to say, an outlier there this year. So maybe also because of our lower base of last year, that we’ll continue to do.
Taran Gupta
Thank you, sir. Sir, one more last question. So given the earlier guidance of AUM target of around INR28 million to INR30 million — INR28,000 million to INR30,000 million and disbursement target around INR20,000 million, are we currently on track to meet this objective or are we going to surpass it?
Mathews Markose
We are on track for that number. Earlier guidance was about INR2,800 crores. We should cross INR3,000 crores, God willing.
Taran Gupta
Okay. And last one — last question. So could you please provide an update on any change to the co-lending partnership? If not, are there any plans to establish new tie-ups in the near future?
Mathews Markose
There will not be any change. We will continue with all these partners. Since our own business is also growing, we may not add new partners for the time being at least.
Taran Gupta
Thank you. Very helpful.
Operator
Thank you, sir. The next question is from the line of Rajiv Mehta from Yes Securities. Please go ahead.
Rajiv Mehta
Yeah, hi, for giving me the opportunity again. So sir, when you speak about 3.5%, 4% ROA, it is on what level of AUM we can achieve that? I mean, INR3,000 crores is the target for March ’25. And then I’m sure — I think somewhere in the call you also spoke about INR5,000 crores AUM. So when do you — when do we think that INR5,000 crores AUM can be achieved on a conservative basis? And with that level of AUM, is 3.5%, 4% ROA possible?
Ramandeep Singh Gill
Yeah. So boss, hi. So I would like to spread this into two parts now. One is basically, on a conservative basis, I am expecting this INR5,000 crores to happen by Q3 of next year for sure. Second thing is, if you see, when we take right now present book on what yield we are operating and what is our expectation of the yields on a book of INR5,000-odd crores. So there is an incremental yield of 1% to 1.5% which we are expecting, right, on that 5.5 — on that INR5,000-odd crores of book. That would be the sole reason in contributing my 3.5% — in converting my 3.5% to 4%. That is what I’m expecting. Second thing is…
Rajiv Mehta
And sorry, what will drive this yield improvement, sir? Sorry.
Ramandeep Singh Gill
So yield improvement, as I said, our MCSL business and share has increased a lot significantly. Therefore, our overall blended yield on the book is going up. So on a scale of INR5,000 crores, it would be around INR3,500 crores to approximately INR4,000 crores would be on our MCSL book. So that is something which is giving a momentum to our yields.
Second thing is, as I said, with this number and I hope that we are able to maintain these numbers and continue this number. We are expecting good PSUs to pitch in with a significant lower cost of funds. So all these sectors will become a contributor. Third thing, wherein we told, as our CEO has also explained on the efficiencies. We are good of what we are maintaining. Yes, there is some improvement, which is not a very significant improvement, we seen in Stage 0, 1 and 2. Stage 3 is something which is on the focus as of now, but still we are way ahead of what we have done in last month.
We are expecting these numbers to be maintained or not to have any excess flow if ever happens. Good part is that even if that excess flow happens, as I said during the start of the call itself, we do have a provision. We are carrying additional INR58 crores for that as well. So there is a conservative approach, we have approached. We have — right now we have applied. Along with that, we know that what sort of yields and NIMs we can operate on if things remain the same from here on.
Rajiv Mehta
No, clear. Thank you. And then if this is the kind of growth we are expecting, then would there be a requirement of raising capital — equity capital by the end of next year or in FY ’27 early?
Ramandeep Singh Gill
Right, right. So right now, sir, we are operating at a leverage of 3.37 times, right? We expect to take this leverage to 4 times by March. We wanted to — we want to do — basis on the valuations or other things, so we are getting proposals honestly. We have two options now. One, to have a sub-debt at the start of the year or by Q2 so that we — that by the time our valuations can be rectified, we’ll be able to go for an equity tranche or if we get a good offer or something we can start evaluating debt from Q4 to Q1 itself so that we can have some sort of chunk by the end of the Q2, so as to maintain our same leverage below 4 times.
Rajiv Mehta
Understood. And this — and just, when you talk about this market share gain, I mean, I think one of the very important statements you made was that in the existing locations, at existing dealerships, the market share in two-wheeler loans of yours has gone up from 2.5%, 3%, maybe a couple of years back to 7%. Now what has driven this increase in market share? I mean, is it slightly — we being slightly more assertive on the LTVs or pricing or we’re taking some risk — there is some risk calls here? And incrementally, do you see competition coming back and then maybe not allowing us to further gain market share?
Mathews Markose
Okay. So basically, market shares have been driven by efficiency. So we — some time last year, in October, we moved to a new LOS, loan origination system. Earlier, we were on a very primitive LOS which used to be just a workflow kind of thing, where you’ll upload documents, credit would look at each and every file. So we used to have a turnaround time — approval TAT of about 24 hours.
And when you have an approval TAT of 24 hours, what you’re getting is the leftovers because there were players who were giving approval in 0.5 hours, 15 minutes, etc. So today, with the new LOS and all the BRE rules configured, we have about 40% STP, which is straight-through process. Which means that for 40% of cases, I’m able to give approvals in 15 minutes, in line with some of the bigger players do.
Now to give you a very good from within our ecosystem, we have our VC partner, which is Muthoot Automotive, which is also a group company. There, we have a first right of rejection because it’s our group company. So whatever we don’t do, that only goes to competition and we have about 60% market share in their counter. There my NPA is zero, which essentially means that wherever I am able to turn around or I’m able to get the cream, I will have a better portfolio as well. So efficiency is also linked to the portfolio quality.
So if I’m able to give a good TAT, I will get the first customer walking in, and therefore, it could be — the chances of that being a much better customer would be much higher than if I am giving an approval in 24 hours, which means I’m only getting the leftover cases. So improving efficiency is a constant motive of ours, and that is what we constantly work on. So my aim is to take this 40%, 45% to 70%, 75% of STP. And that’s what we will do in the next four to five months for sure.
Rajiv Mehta
So this is good, sir. Thank you so much. I mean, best of luck. And I’m sure the numbers will keep on improving every quarter.
Mathews Markose
Thank you.
Operator
Thank you, sir. The next question is from the line of Ankur Kumar from Alpha Technologies. Please go ahead.
Ankur Kumar
Hello, sir. Congrats on a good set of numbers, and thank you for taking my question. Sir, my first question is on the — this ARC sale quarter and the credit cost, as in Q2, our credit cost is coming negative. And — so what should be our assumption going forward in the second half as well as next year? Given we have some INR50-odd crores extra provisions also, so how should we look at this credit cost impairment numbers?
Ramandeep Singh Gill
Hi, Ankur. Thanks for your question. First, talking about the ARC sale, yes, when the ARC sale happens, you do the reversals of the entire book from your AUM. Second component we reverse is basically to — reverse the impairment component also from the book. That’s the sole reason of having minus in that impairment cost. Second thing, how do we look at? If we talk about at a steady state, we — as I said in Q1 itself, we are looking at a credit cost of somewhere around 1% to 1.25% on an overall number as of now. And even if we have seen this slippage in past also, it was around 1.75% on a very higher side. We are not seeing that trend.
We — some of you have also told us early trend of NPA, which is not even by 1% of the cases which have sourced in the last one year — of the cases which we have sourced in the last one year. So therein, I’m expecting the credit cost to remain at 1% to 1.25%. Even if that increase, that is the reason I told that we have an excess in that provision, which will help us in meeting our targets.
Ankur Kumar
Got it. So in case it increases, we will have that buffer available.
Ramandeep Singh Gill
Yeah. Right now, we don’t have any such trend of any increase and we don’t have any such indications also.
Ankur Kumar
Got it, sir. And my second question is on the growth, sir. We are talking quite good AUM numbers for next year as well as the INR5,000 crores, which should happen by December. So two-fold question on this, sir. One is on the two-wheeler industry slowdown. So are we saying it will not have much impact on us and we will continue to grow? And second is, sir, there is this RBI soft target — soft indications by RBI that you should not grow that fast at least to the unsecured business. So are we — any worry on both these fronts, sir, on our growth numbers?
Mathews Markose
Okay. So I’ll take that question. So this month, we should do about — we will do about INR300 crores, which is about 35,000, 36,000 numbers. The industry is — about this month, industry should be about 15 lakh units. So I don’t think that 35,000 number I should be worried about the industry shrinking per se because it may not impact. If I am a 1 lakh, 1.5 lakh player in the market per month, I should be worried about the industry shrinking. But as of now, I have enough headroom there for growth because there are a lot of smaller NBFCs whose market share I’m currently being able to capture easily. So as of now, industry shrinking is not a worry for me. When I reach the 60,000, 65,000 or say 1 lakh unit per month number, I will be worried about that.
Two, on the RBI, I think I — we already had a similar question before to which I said that so far I have not seen — we’ve not witnessed that micro finance indebtedness coming as an impediment to two-wheeler business as yet. And again, I repeat my statement, it would hubris to say that nothing is going to impact. All the changes in the economy will have some cascading effect on all the businesses therein. But the checks and balances that we are maintaining in terms of there’s a secured asset, our LTV is at around 80%, 20% equity is paid by the customer, first three EMIs are collected by the sales team essentially. All that reduces the residual value and then we have a much better repo mechanism and a resale mechanism.
Some time next year, maybe we will start used two-wheeler business also. That’s in the plan. Maybe it’s slightly premature to announce it now. But yes, since the question came up, I’m saying, we will have that. In which case, we will have an added advantage where we will be able to maybe have a stock of these vehicles and also sell it at a finance. And therefore, we will further reduce our loss on sale from the current number of 35% to maybe single-digit number because then we will not be auctioning it, but we may be selling it on finance to someone else also. So those are all the — when we are — the entire end-to-end of the supply chain we are catering to. So these are some of the measures. So we will keep abreast of the situation and the emerging situation in the market, and we will take action as deemed fit.
Ankur Kumar
Got it, sir. And sir, on the ROA side, you said that 3.5% to 3.8% is possible that would mean an ROE of around 15% for us. Is that the right assumption?
Mathews Markose
Yeah.
Ankur Kumar
Got it, sir. Thank you, and all the best, sir.
Operator
Thank you, sir. Ladies and gentlemen, due to time constraints that was the last question. I now hand the conference over to management for closing comments.
Mathews Markose
Thank you so much, everyone. It was wonderful talking to all of you and such interesting — and some of the questions are really thought-provoking. You’ve given us new ideas to go back to the drawing board and implement. Thank you so much. It’s always a pleasure connecting with you. And once again, wish you all and your loved ones a very, very happy Diwali and an extremely prosperous year ahead. Thank you.
Operator
[Operator Closing Remarks]