Star Housing Finance Ltd (539017) Q4 FY23 Earnings Concall Transcript

Star Housing Finance Ltd (NSE:539017) Q4 FY23 Earnings Concall dated Apr. 22, 2023.

Corporate Participants:

Kalpesh Dave — Head Corporate Planning & Strategy

Natesh Narayanan — Chief Financial Officer

Ashish Jain — Managing Director

Anoop Saxena — Head – Credit & Operations

Analysts:

Ramjit Jaiswal — Individual Investor — Analyst

Bipin Kumar — Individual Investor — Analyst

Kalpesh Parekh — JSN Advisory — Analyst

Priya Jhadav — DEMAT Broker — Analyst

Anand Rajaram — Azalea Capital Partners LLP — Analyst

Ashok Mehta — Juniper Advisors — Analyst

Bhavik Ahuja — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Company Update Call for the full-year FY 2022-’23 of Star Housing Finance Limited. Today on the call we have Mr. Anoop Saxena who heads the credit and operation functions; and Mr. Natesh Narayanan, CFO of Star HFL; Mr. Kalpesh Dave, Chief Strategy Officer at the company; and Mr. Ashish Jain, Managing Director of Star HFL.

[Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Kalpesh Dave. Thank you and over to you, sir.

Kalpesh Dave — Head Corporate Planning & Strategy

Thank you, Robin. Robin, am I audible?

Operator

Yes, you are audible, sir.

Kalpesh Dave — Head Corporate Planning & Strategy

Thank you so much. So, a very good day to all of you and warm welcome to the FY ’22-’23 earnings call of Star Housing Finance Limited. My name is Kalpesh Dave and I Head, Corporate Planning and Strategy at Star HFL. First of all, I wish all our participants and stakeholders a very happy Akshaya Tritiya and Eid Mubarak. It’s a pleasure to present to you the full-year earnings update, a year that has been special in many aspects, particularly that it has set tone for growth as the Star HFL team steps ahead in its journey. So, on the call, we have our CFO, Mr. Natesh Narayanan, we have Mr. Anoop Saxena, who heads credit and operations and MD, Mr. Ashish Jain.

We would be sharing update and also would be interacting with the participants. We shall be sharing business and financial highlights of the year gone by for your perusal and shall be happy to take questions and interactive with participants post sharing these updates. So, before sharing these updates, let me introduce Star Housing Finance to you. We are a rural focused home finance company and we are operational in semi-urban and rural geographies. Star HFL operates with an objective to enable home ownership amongst the first-time and new to credit homebuyers from economically weaker section and low income group segment. Star HFL has been operational since 2009 and has transitioned to a professionally managed company since October 2019. And since then we have focused our operations in retail space in affordable housing segment.

More than 98% of the overall AUM as of date comprises of 2,500 plus retail customers with an average loan size of around INR10 lakh to INR11 lakh in the semi-urban geographies and in rural geographies it is INR6 lakhs to INR8 lakhs. Star HFL caters to this segment through customized home loan products offered to them under the nomenclature, Star Gramin Griha loan and these products are devised and designed akin to the financing requirements of the semi-urban and rural borrowers. We have strong focus on digitization which acts an enabler to engage and serve the customer throughout the loan lifecycle. We are listed on the main board of the Bombay Stock Exchange since July 2017 and we have registered and corporate office in Mumbai.

So, dear participants, FY ’22-’23 has been 100% plus year-on-year growth for Star HFL. We have taken great strides in building quality AUM through the year. And this growth, this scale-up has been ably supported by the liability machinery and capital raise under the leadership of Mr. Natesh Narayanan. Geographical expansion and domain-based team build-up. has enabled us to achieve the business target that we had set at the beginning of the previous financial year. So, I am summarizing the update for you now.

So, for FY ’22-’23, these are the updates. The gross loan book stands at INR250 crores-plus, which is 140%-plus year-on-year growth over FY 2021-20222. This scale-up come on the back of record disbursements across the branches across the regions during the financial year. Courtesy, the best-in class underwriting processes and the risk management framework, the book continues to get built and backed by quality. Focused in-house receivable management team onboarded locally, bringing strong customer connect throughout the engagement cycle has resulted in portfolio at-risk and when I am speaking about portfolio at-risk, I’m talking about zero plus DPD. It has come down from 27-odd percent as of March 31, 2022 to now 5% as of March 31, 2023. This is a substantial improvement that has happened in FY 2022-’23, courtesy this focused approach of the overall receivable management team and robust review mechanism that we have put up at the head office.

Incremental book generated since October 2019 is 98% plus retail and has portfolio at-risk, now again, when I’m talking about CER, it is zero plus DPD. So, to zero plus DPD of this incremental book generated stands at 0.68% and has zero NPE. As of March 31, 2023, GNPA stands at 1.68% and NNPAs stands at 1.25%. The loan book is spread across the geographies of Maharashtra, Madhya Pradesh, Gujarat, Rajasthan and Tamil Nadu. So, over here, Maharashtra leads with 62% followed by Rajasthan at 18% to 20%, Madhya Pradesh is at 10% to 12% and Gujarat at 6% and Tamil Nadu is at 5%.

Now again, within Maharashtra, when we think about Maharashtra too, the book is evenly spread across the three identified regions of our operations, which is extended Mumbai region, extended Pune region and and the Vidarbha region. So, that’s how the segregation has happened even within the Maharashtra. So, within the state also, the book is fairly diversified. Star HFL has doubled its presence during the year and now has 14 physical branches. The overall network consists of presence at 30-plus location which includes digital point of presence as well across our operational geographies.

Staff count stands at 150 employees and out of these 150 see employees, 40% of the staff consist of credit underwriters, processing team in operations and receivable management staff spread across branches and at the head office. Star HFL had two successful rounds of capital raise in FY 2022-’23, courtesy with the net work of 31st March, 2023 has cross INR100 crores. And this is a significant milestone that we have achieved during the financial year. So, these rounds of participation from reputed professionals within the capital market and BFSI space and the shareholding profile accordingly has been augmented with individual investors, institutional entity, family office and an FPI. Star HFL now has an ecosystem of more than 6,500 shareholders. This is an increase from 530-odd shareholders back in 2019.

Star HFL has now qualified the quantum criteria and now awaits to qualify the tenure criteria post which it shall become eligible to list and trade on the National Stock Exchange post receiving all necessary approvals and all compliances being met. Also during the financial year, we have affected bonus and split of the company’s shares, resulting in increase in number of shares outstanding and more shares in the hands of our shareholders. This corporate action is in line with our philosophy to reward our shareholders for the trust that they have reposed in us during out journey.

Star HFL has a strong liability franchise with relationship with public sector bank, FIs and the National Housing Bank. So, in FY ’22-’23, we also saw first term loan received from a social impact fund. So, that activity has also started as an addition to the overall liability franchise. Through the year, Star HFL has developed robust pipeline and shall continue to expand the engagement with other institutions in banking space. Natesh will throw more light on that. FY ’22-’23 saw exercise of first tranche of ESOP I scheme, ensuring participation of eligible employees now becoming owners of the company. And subject to all approvals and compliances in place, Star HFL looks forward to expand the ambit of employee ownership through further ESOP scheme through the growth journey, both receiving all approvals and compliances.

Star HFL is governed by strong and an independent Board comprising of reputed professionals from BFSI and allied space. So, the Board comprises of Mr. AP Saxena, ex-GM of the National Housing Bank, Mr. Ajit Lakshamanan, ex-ED of LIC of India, Mr Pradeep Kumar Das, ex-ED of IDBI Bank and Ms. Neelam Tater, who is a professional chartered accountant and qualified company secretary.

So, these are the updates dear friends I wish to share with you. Now, I call upon Mr. Natesh Narayanan to speak on the financial performance for the year. Thank you and over to you, Natesh.

Natesh Narayanan — Chief Financial Officer

Thank you, Kalpesh. Good evening all of you. Thank you for taking your valuable time and joining us here. It’s a pleasure to connect with you again and share the financial performance for the 12 months ending March 2023. This has been a record year for us at Star and the same is reflected in the financial performance, the highlights of which I hereby share with you.

The gross loan book stood at INR251.39 crores, as of March 31, 2023, as against INR104.94 crores in March 2022, a growth of 140% year-on-year. The total revenue for FY ’23, is at INR37.24 crores as against INR19.26 crores in FY ’22, again near 100% year-on-year growth. The interest income and the net interest income in FY ’23 stood at INR32.35 crores and INR21.06 crores as against INR17.97 crores and INR11.8 crores, respectively last year. Incremental lending happened at 15.5%, while the incremental borrowing cost stood at 10.5% per annum.

GNPA, as of March ’23 is at 1.68% as against 2.99% in March ’22. And the NNPA, as of March ’23 is at 1.25% as against 2.41% [Phonetic] in March 2023. Investment in quality, manpower to augment our growth plan and related expansion in operation geographies has resulted in employee expenses increasing by 28% year-on-year. Total operating expense has increased by 51%, primarily attributable to capacity creation for future AUM build-up and the scale-up that is expected to — and the scale-up that has happened in FY ’23. For the last 12 months period ending March ’23, the PBT increased by 5 times year-on-year. Adjusting for the exceptional non-cash expense related to ESOP, PBT has increased by 220% year-on-year.

For the 12-month period ending March ’23, PAT increased by 10 times year-on-year. Adjusting for the exceptional non-cash expense, PAT has increased by 270% year-on-year. In FY ’23, the company has on-boarded ICICI Bank, LIC Housing, Sundaram Housing, Cholamandalam Finance, MAS Rural Housing and also a social impact fund in the form of development as our new lenders. During the year, the company has raised fresh term loans from 11 banks and financial institutions with the current outstanding of INR111.6 crores. The total outstanding borrowing as of 31st March, 2023 is at INR162.5 crores. The pretax ROE stands at 9.4% and the pretax ROA at 4.5%. Taking a note of the company’s growth, quality of loan book, established processes and risk framework and the management team, the overall corporate government CARE ratings has upgraded our outlook of the company to positive from stable in the fourth quarter of FY ’23.

I conclude with the following points. Net worth as of March ’23 stands at INR106.41 crores and the leverage at 1.53 times. The company is very well-capitalized and shall subject to all approvals in place should look to strengthen the capital and its further to enable a find explore AUM scale-up in the next four to six quarter thereby becoming a systemically important housing finance company. The investment in infrastructure, manpower and technology has created a capacity for a monthly disbursement of INR25 crores to INR30 crores and which shall be used for scale-up in FY ’24. Through the year Star HFL has developed a robust funding pipeline and shall continue to expand the engagement with other institutions in banking space and in the capital market space to support the AUM growth envisaged in FY ’24.

With this, I hand over the call to our MD, Mr. Ashish Jain. Thank you and over to you, Ashish.

Ashish Jain — Managing Director

Thank you, Natesh. Thank you, Kalpesh. Dear participants, a warm welcome and best wishes from Star HFL leadership team. It is always a pleasure to address and interact with you. The object of arranging these earnings calls regularly is to share updates on the company’s progress. We are pleased to say Star HFL leadership team had resolved that from FY ’20 to ’23 we shall grow and this year has been 100% plus Y-on-Y registered across key business and financial parameters. In fact, the growth of gross loan book passed INR250 crores given record disbursement last year is equivalent to the growth that had been achieved in the previous 12 years in the company’s operational history.

We are happy to have paid down PAR, that is zero plus DPD to not low single-digits. Star HFL team is now 150-plus members strong with all of them having requisite domain and vintage for the respective functions. The role and responsibility of each and every member is clearly defined as a part of their KPI, courtesy with FY ’22-’23 was the first year of synchronized and record growth. We’ve expanded and shall continue to expand to new geographies in North and South in FY ’23-’24, while digging deeper in existing states where we are present. We are happy to have raised capital regularly through our growth phase courtesy with the network crossing INR100 crores, bodes well from the perspective of capitalization levels and as Natesh mentioned, we shall continue to strengthen these levels subject to all approvals to enable scale-up becoming systematically important home finance company by end of ’23-’24.

Our liability machinery of course has scaled-up and is expected to build through further FY ’23-’24, building reasonably acceptable leverage levels through the journey. We keep our ears and eyes open, listening to what the borrower needs and we continue to incorporate those wishes in our product planning and rolling out rural focused customer-centric home loan products. I believe that Star HFL is a symbol of growth and represents tremendous opportunity that lies ahead in rural India’s residential mortgage space. Aspirations of rural India are changing as this segment across states and regions is now starting to get included in the financial mainstream. One feels the driver of rising income levels, nuclearization and infrastructure development in rural India should see next wave of demand for housing in rural and associated semi-urban geographies.

At policy level too, the focus of the Government of India in rural housing is evident from the outlay of INR54,487 crores under the PMAY Gramin Yojana for the current financial year, which is almost the double the outlay for urban version of this scheme as it targets to build incremental 8.3 million households in rural India by March ’24. These tailwinds should work not only for Star HFL, but even for our peers who wish to operate and grow in this space. The sheer size of the opportunity not only gives every player an even platform, but also to innovate and bring out products akin to requirements of home loan borrowers in these geographies.

One feels that at policy level too rural focused HFCs should be supported as given their monoline and focused business model enabling credit access to these first-time homeowners. For Star HFL, we are happy to have walked the talk, assuming the targets that we had set for ourselves from the beginning of FY ’20 to ’23. These 100% Y-on-Y growth has been systematic process-driven and backed by quality, led by strong leadership team of Kalpesh, Natesh, Anoop, the regional directors and location heads across all geographies. We look ahead from here on and would remain focused in affordable housing space, providing housing finance assistance to target EWS, LIG families in semi-urban and rural geographies of our operations, as they aspire to purchase, construct their own homes.

Given the favorable drivers and the potential addressable market segment, Star HFL through its domain-rich teams across the functions and geographies is well-poised to continue this growth momentum in FY ’23-’24. I thank all our stakeholders, including our regulator, the RBI, the National Housing Bank, bankers, rating agencies, business associates, customers, employees and of course, their families to have supported us in this journey. We look forward to create value for all our stakeholders.

Thank you. Have a lovely day. Happy Akshaya Tritiya, happy Eid. Operator, over to you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Ramjit Jaiswal, an individual investor. Please go ahead.

Ramjit Jaiswal — Individual Investor — Analyst

Hi, everyone. [Technical Issues] The first is what is our current portfolio at-risk? And second, how do you [Technical Issues]? Thank you.

Kalpesh Dave — Head Corporate Planning & Strategy

So, I guess the question is on the portfolio risk and second one if I heard correctly, because you were a bit muffled was how do we source our business, right?

Ramjit Jaiswal — Individual Investor — Analyst

Yes correct.

Kalpesh Dave — Head Corporate Planning & Strategy

Okay. So, Anoop, you want to answer this question, please.

Anoop Saxena — Head – Credit & Operations

Look, I would like to answer that question. So, to answer question number one, which was related to portfolio at-risk. That was clearly mentioned by Kalpesh during this conversation that our portfolio at-risk, which is a zero plus DPD stands at sub-5% as of now. And as far as second question is concerned, how do we source our businesses, our 90% business is sourcing through direct sales team, which is in-house sales team and deployed in our physical branches. This in-house sales team are supported by in-built LOS system, tap-based application. So, they go door-to-door of the customers and source application from there. So, 90% business are coming from our direct sales team and 10% business are coming through referral business.

Kalpesh Dave — Head Corporate Planning & Strategy

Does that answer your question?

Ramjit Jaiswal — Individual Investor — Analyst

Yes, thanks.

Anoop Saxena — Head – Credit & Operations

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Bipin Kumar, an individual investor. Please go ahead.

Bipin Kumar — Individual Investor — Analyst

Yeah, hi, good to hear about the growth of the company. So, my question is what effort are you taking on the digital front, as you see the world is moving towards digitization of processes?

Kalpesh Dave — Head Corporate Planning & Strategy

Okay. Thank you so much. Anoop, again, you would want to answer the deployment of lending suite that we’re doing?

Anoop Saxena — Head – Credit & Operations

Yes. Sure, sure. I would like to answer that, Bipin. So, as correctly mentioned that the world is moving towards digitization in a rapid manner, so posing the same thing, earlier we were deploying the systems through one of the old LOS suite. Now that has been — we are transiting that LOS suite to new technology software. We have already tied-up with one of the renowned vendor based out of Bangalore and the technology implementation is under process wherein the one part of the technology has already been made light to the branches. So, this is in-house built-in LOS application, which is obviously integrated by different APIs. With the help of these APIs, we are — currently, we are able to serve our customer within four to five working days time period.

And I would be happy to announce that the most toughest thing into the lending business, which is title search, we are able to search titles within 15 minutes time period after putting records in place. So, that is how we are working on digitization and happy to share that perhaps by the end of May, we will be completely end-to-end digital — we will be based on completely end-to-end digital platform.

Kalpesh Dave — Head Corporate Planning & Strategy

I hope that answers your question.

Anoop Saxena — Head – Credit & Operations

Yeah, thank you.

Bipin Kumar — Individual Investor — Analyst

Yes, yes. That was fine. Thank you. Thank you so much for the answers.

Kalpesh Dave — Head Corporate Planning & Strategy

Thank you.

Operator

Thank you. The next question is from the line of Kalpesh Parekh from JSN Advisory. Please go ahead.

Kalpesh Parekh — JSN Advisory — Analyst

Yes. First of all, congratulation to the management team for reporting a very, very strong set of numbers. I have few questions on the business model and on the growth trajectory what we should anticipate for in the next few years. The last year was very good and I think we did a phenomenal job. But would it be fair to assume on a lower base that we can continue with such type of growth for next few years, particularly on the disbursement front, particularly on your — the the AUM front and all that things?

Kalpesh Dave — Head Corporate Planning & Strategy

Sure. So, I’ll take that question Kalpesh. See, obviously, you have hit it very right that the base of the company has been low. And on that all the numbers that basically would come would be 100% plus, but you will understand and appreciate that it is this journey of zero to INR500 crores, which is the most difficult for any HFC to get transitioned from a small HFC to let’s mid-size HFC and become up entity to reckon with across the [Indecipherable] section. So obviously, that small slide deck we had resolved, that we will take, that we have already taken.

And just to answer to your question. Yes, FY ’23-’24, we are resolving to become systemically important owned finance company by 31st of March, ’23-’24, which means that this one more year if we are able to achieve it, I’m not giving any guidance over here, but if we are able to achieve it, that would be again 100% year-on year growth on the back of FY ’22-’23 numbers. What gives us confidence from the fact of the matter as Ashish clearly mentioned that that is tailwinds which is associated. And more importantly. we have seen on the ground how the rural India is kind of emerging, is getting connected with the urban counterparts through the infrastructure development that we’re seeing across the regions.

So, as they get embedded into the overall mainstream, their income levels, their activities will continue to get increased. And with that the drivers that Ashish had mentioned, nuclearization, the family getting split into two, home owning aspiration increase, that thing, you must be tracking this sector very closely. So, the same wave resulted in creation of multiple satellite cities across Mumbai, across Delhi and other places and that gave birth of top four to five players in the HFC space namely, HDFCs of the world.

So, I see similar kind of thing happening in the rural area and more importantly, even the post COVID scenario that the reverse migration has resulted in demand for incremental housing over there. People basically going back to their native, their abandoned villas requiring refurbishment or even a rundown and creation of bigger ones to accommodate a bigger family and even within that someone wants a bigger house for that matter, they would be basically look out for a bigger piece of unit. So, those ground level changes are happening and we are constantly hearing from our regional directors and our location heads that there is a bit demand. It is now up to us, up to Star Housing, how we can fulfill that particular demand, how we can organize ourselves well to cater to that demand. But I do feel that Star HFL as an entity is poised very well to register another 100% year-on-year growth.

If you talk to me about the long-term plan from strategic perspective, I would say up to ’26-’27, we should have a CAGR of 50% plus, which should basically give us a loan book of around INR2,000 crores, INR2,500-odd crores. I’m not giving again, I’m not giving any guidance, but this is what the opportunity size is there. And what gives us confidence is that we have the specific domain. We have both our regional directors who have 20, 25 years of experience in those local geographies yet able to differentiate between whatever it well reported and well-poised.

So, our underwriting processes also are local in nature. It is in line with whatever is there on ground. So, we do feel that we should be able to sustain this particular momentum. Obviously, a lot depends on macroeconomic environment, how the COVID pans out, how other things happen. But if you talk to me, my calculation would be that the capacity is already created for one more year of 100% revenue growth and we would take one step at a time to robust becoming a systemically important home finance company in ’23-’24. Our current run rate just to mention to you is around INR15 crores to INR18 crores of monthly disbursals, which should go pass around INR25 crores to INR30 crores on a steady-state basis during this financial year.

Kalpesh Parekh — JSN Advisory — Analyst

Super. So, my second question will be on your spreads basically. I understood is is somewhere around 4.5% to 5%, 15 and 10, so going forward, are you facing any headwinds in the form of borrowing cost or anything now since you have started moving more towards the other NBFCs and banks as such, so what is the scenario over there on the borrowing cost front?

Kalpesh Dave — Head Corporate Planning & Strategy

Natesh, you want to answer on that. Borrowing cost?

Natesh Narayanan — Chief Financial Officer

Yeah, I’ll take that. On the spreads front, we are enjoying about 500 basis point to 525 basis point of spread. The average cost of borrowing around — being around the 10.5 and lending it around 15.5. While the bulk of the interest-rate cycle, increase in interest-rate cycle has been seen in this financial year, however, if you see today, the borrowing profile, we have about 30% to 35% of our funds coming from NHB, another 30% to 35% coming from PSU banks and then the remaining rest, 30% coming from the NBFC side, which is typical in the financial institution side with a small portion from the social impact funds.

So, if we maintain this color given the broad interest scenarios that involves I think for this financial year, maintaining the spread will not be, while it will be challenging, but I don’t think there will be a huge pressure as far as the spread is concerned. It will still be around the same number for the — we foresee the same number to be maintained at least for the forthcoming financial year of FY ’24.

Kalpesh Parekh — JSN Advisory — Analyst

Okay.

Kalpesh Dave — Head Corporate Planning & Strategy

And Kalpesh, just to add to what Natesh is saying, yeah, obviously there has been margin contraction in the balance sheet level given that there has been an increase in repo rate cycle, obviously, with the lenders — the lenders will pass on their cost hike to us and our cost of borrowing on that particular account has increased from around 9.5, 9.25 to around 10.5, 10.25 quarter for that matter. But we do feel that this margin contraction should be kind of more or less offset by the volumes that we are going to generate over FY ’23-’24 and obviously, you know one view that internally within the strategy team also holds repo cycle kind of will at some point in time speak out in the foreseeable future. So, that should bode well.

But again, we are not counting on the things that are not under our control. What we are focusing on is that the margin contraction should be offset by the skill of the business that we generate and that’s how we’re looking at it. Just to answer to your question that new lenders getting on onboarded obviously FIs are there, but there are other engagements with public sector banks, there are engagements with private sector banks, which are right now underway and our pipeline in terms of liabilities is anywhere between INR100-odd crores are right now in different stages of discussion with these banks and FIs. So, that should not be an issue. And as I said during the call that we should look forward to further capitalize also subject to all of those in place, so with that thing coming into — on to the balance sheet, the overall borrowing cost per se inclusive of entire money should be under control and that should get translated into the CP2 [Phonetic] if we do our operations and manage our cost very well.

Kalpesh Parekh — JSN Advisory — Analyst

Okay, so going by this logic and in your earlier remarks also you had mentioned that you got some good manpower and we have already added on the opex front as well. So, it would be safe to presume that the cost-to-income ratio probably in all possibility should decline from hereon?

Kalpesh Dave — Head Corporate Planning & Strategy

I would say on an incremental level, yes, but if you talk about an overall level, we still thing that we should be building up capacity in FY ’23-’24 as well and as we said, we are aiming to double our capacity subject to our growth plans being approved. So, one more year of increasing our capacity and from thereon incremental volume that we generated these branches getting profitable over a period of next five to six months, then the cost-to-income ratio rationalization would happen. As per our plan, we do feel that we should hit that suite spot of 20% plus masking around 10 to 12 quarters from hereon.

Kalpesh Parekh — JSN Advisory — Analyst

Okay. So, what would be — I mean, if I can ask couple of questions more, what would be the ROE presumptions with which we are going for the next few years? Are we looking at something like 15%, 17% type of ROE? Is it sustainable, that type of ROE would be sustainable for the business?

Kalpesh Dave — Head Corporate Planning & Strategy

That’s right. So, that’s right. So, again to answer to your question, ROE, I would again, see right now, my pretax ROE is at around 9.4-odd percent. Just short of getting double-digit. So, that build-up, we have seen Kalpesh from 4%, 5% ROE to now because that investment is now getting fructified. So, answer to your question my steady-state ROE as we are planning post getting all the growth capital and everything and I’m talking about, company being in the next level of at that point we are obviously targeting of ROE in the range of 18% to 22%. But this is a long-shot for us right now at this point in time, we want to build book. We want to ensure that the return ratios should get associated with it only after the capacity is in place and the book gets starts kicking in the income for the entire financial year.

If you ask me about the target for — as per the business plan, 18% to 22% ROE should hit again somewhere in around ’25, ’26 so on and so forth. So, three years from now again 10 to 12 quarters from now, I should see this ROE of 18% to 22%. Obviously, a lot depends on how good we are leveraging on the initial — on the capital that we are generating, that we are raising. Right now, our leverage level is at around 1.5, 1.6 times. We look forward to increase this leverage levels to 2.5, 3 times and concomitantly bringing in capital at the same time, so that you know again, there is one set of increase in the leverage opportunity that we want to cash in. So yeah, just to answer to your question 4.5% — 4%, 4.5% ROA and 3, 3.5 times leverage should see us through that number. And from thereon the growth should be linear in nature, in line with whatever industry is doing.

Kalpesh Parekh — JSN Advisory — Analyst

Okay, so the fund requirement or money requirement will like anything, we would be looking at it in next couple of years as such?

Kalpesh Dave — Head Corporate Planning & Strategy

Yeah, that’s right. So, just to answer your question, current year also as per the plan, we need to further strengthen the capital and this year we are looking to engage with distributions for getting that institutional capital. At least get the talk ready and engage with them, because that’s the process, you also know that Kalpesh, it takes time. But yeah, we would look forward to raise capital subject to — again, subject to all approvals and things, no guidance being given by me, but we are looking forward to strengthen the capital levels further.

Kalpesh Parekh — JSN Advisory — Analyst

Okay, fair enough. And wish you all the best to the team. Thank you.

Kalpesh Dave — Head Corporate Planning & Strategy

Thank you. Thank you, Kalpesh.

Operator

Thank you. We have the next question from the line of Priya Jhadav from DEMAT [Phonetic] Broker. Please go ahead.

Priya Jhadav — DEMAT Broker — Analyst

Hello.

Kalpesh Dave — Head Corporate Planning & Strategy

Operator, I just want to — I just want to, Priya just a sec, I just want to announce to the participants that I’m very happy to share that this earnings call is right now being attended by 125-plus participants across banking, rating capital market space and more than happy to interact with this group that we are having and look forward to have you in future calls as well. Yeah, Priya.

Priya Jhadav — DEMAT Broker — Analyst

Hi. My question is that what are your…

Operator

I’m sorry to interrupt, ma’am. But there seems to be an echo that is coming through on your line.

Priya Jhadav — DEMAT Broker — Analyst

Hello, can you hear me?

Kalpesh Dave — Head Corporate Planning & Strategy

Yeah, we can hear you. You can ask the question.

Priya Jhadav — DEMAT Broker — Analyst

Hello?

Kalpesh Dave — Head Corporate Planning & Strategy

Yeah.

Priya Jhadav — DEMAT Broker — Analyst

Hello?

Kalpesh Dave — Head Corporate Planning & Strategy

Yeah, yeah, we can hear you, Priya.

Priya Jhadav — DEMAT Broker — Analyst

What is your guidance on business building in the next financial year?

Kalpesh Dave — Head Corporate Planning & Strategy

Business building, as I said, Priya we are — we are planning to achieve INR500 crores AUM by 31st March, ’23-’24, which means that incrementally for the year, we should be planning around INR250 crores to INR300 crores of disbursement.

Priya Jhadav — DEMAT Broker — Analyst

Okay. Yeah. And second is that what are your funding plan in the next financial year?

Kalpesh Dave — Head Corporate Planning & Strategy

Natesh, you want to answer that, fund-raise plan?

Priya Jhadav — DEMAT Broker — Analyst

Fund raising plans in the next financial year.

Kalpesh Dave — Head Corporate Planning & Strategy

Yeah, sure, sure. Natesh, you want to answer that?

Natesh Narayanan — Chief Financial Officer

Yes. I’ll take that. Hello, Priya. As Kalpesh rightly pointed out, if you are looking at a 100% growth of the AUM, that’s our target for this year, that’s our aim for this year. We are looking at — we’ll be having a minimum disbursement of around INR350 crores to INR375 crores after — even if you adjust for the capital raise that we are planning, which will be close to $0.5 million to $1 million. I think we will raise about INR300 crores of debt and about $0.5 million to $1 million of equity.

Priya Jhadav — DEMAT Broker — Analyst

Yeah, thank you.

Operator

Thank you.

Natesh Narayanan — Chief Financial Officer

$5 million to $10 million, not $0.5 million, $5 million to $10 million of equity.

Operator

Thank you. [Operator Instructions] The next question is from the line of Anand Rajaram from Azalea Capital. Please go ahead.

Anand Rajaram — Azalea Capital Partners LLP — Analyst

Hello. Can you hear me?

Kalpesh Dave — Head Corporate Planning & Strategy

Yes, we can, Anand.

Anand Rajaram — Azalea Capital Partners LLP — Analyst

Yeah, I would like to congratulate the Star team for excellent set of numbers. Couple of questions from my side. You had mentioned the NIM currently is about 4.5% to 5%. How has NIM moved in the last couple of years? That is point number one. Point number two is since the company is going to double its AUM in the next one year, and since the company is also sourcing business from internal resources and the credit team is built. Would that would mean that there will be a pressure on the cost-to-income ratio?

Kalpesh Dave — Head Corporate Planning & Strategy

Yeah, so, Anand, just to answer your question. The NIM, I’m talking about the spread because you know for a company like us wherein we have raised regular equity, NIM probably would not do justice to the numbers because it would be in double-digits. But if you talk about the spread, the spread has always been — our endeavor is maintaining the spread at 450 basis points to 500 basis points. Now, when I talk about erstwhile avatar of the company, even the incremental spreads was at around — at 10%, 11% because it was in a different segment. We basically have rationalized our interest rate offering. So, our incremental lending rate has come down to around 15-odd percent whereas borrowing rate has basically come down from 40-odd percent previously, I am talking about FY ’18-’19, ’19-’20 to now at around 10.5%, 10.75%.

So, this is something, which are maintaining. Obviously there has been a contraction. Previously, before the increase in repo rate, we used to have a highest spread of around 550-odd basis points. That has now come down to 475-odd basis points. But as I said that margin contraction should get offset by the scale-up that we should be in FY ’23-’24 and as we are focusing even on the equity and we are focusing on social impact fund, also there is regular credit line being given from the NSE, we do feel that the borrowing costs should remain steady at this particular level, it should not go beyond this. And we should be able to maintain this particular spread of 450 basis points to 550 basis points. So, I’m talking of giving you a broad range irrespective of repo rate increase, Between 450 basis points to 550 basis point is something which we should maintain as the spread going ahead through our growth channel. I’m talking about over the next eight to 10 operational quarter. So, that is on that side of it.

To answer to your question on the plans that we want to execute in the next financial year in terms of doubling our loan book. See, you have to understand, we have doubled our branches. So, from seven it is now 14. So, now these 14-odd branches would be now operating in full throttle, full capacity with an average run-rate of around INR22 crores to INR25-odd crores, okay. Obviously, that does not happen in Q1, it is basically gradually built. But as we increase Q1 to Q2 to Q3 to Q4, the build-up should ensure that, you know, the current network should give us around more than 80% of whatever we are envisaging at this point in time. The increase in branches, again in ’23-’24 as I said, we wish again to double our spreads subject to also [Indecipherable]. That will again put in pressure into cost-to-income ratio. Obviously, I agree on that part of it.

But we do feel that from FY ’24-’25 onwards, the cost-to-income ratio should start to get stabilized and end of ’25, should see us reaching up to that envisaged level of 20%, 25% of cost-to-income ratio is behind the study. And also wanted to share that Anoop said that the current digital platform that we are deploying, internally in our next strategic meet when the GM meeting, we would be having serious discussion on ensuring that at least 10% to 15% of my incremental lending should be hassle-free, should be without any — without any assistance from externally connected as such. So, that digital lending if you’re able to crack that well, we should be able to pre-pone that cost-to-income ratio target that we’ve set for ourselves.

Anand Rajaram — Azalea Capital Partners LLP — Analyst

Thank you, Kalpesh. And wishing the Star team all the best for their growth plans in the next year.

Kalpesh Dave — Head Corporate Planning & Strategy

Thank you so much. Thank you, Anand.

Operator

Thank you. The next question is from the line of Ashok Mehta from Juniper Advisors. Please go ahead.

Ashok Mehta — Juniper Advisors — Analyst

Sir, I would like to congratulate the entire Star HFL team for reporting very strong numbers. And I have two questions from my side. Sir, what was the provision coverage ratio as of March ’23? And how does the ALM stand as of March ’23 given we have a borrowing from NBFCs as well, where the tenure might not be as long as what NHB offers?

Kalpesh Dave — Head Corporate Planning & Strategy

Sure, sure. So, Ashok, I will answer on the PCR part of it and I will ask Natesh to answer on the ALM part. See, on the provision coverage ratio, if you consider the provisions that we have made, the overall provision as mandated by the NHB, the PCR currently stands at around 48% as we speak as of March 31, 2023. However, one — couple of things I want to mention, in the PCR part of it is that what we have done excess over and above provisions as mandated by the RBI and the NHB. Within that, excess solutions into account and including some of the write-offs which we have done on a cumulative basis, this PCR, existing for all these things is in excess of 100%. So when I say that my GNP is INR3.82 crores, it is totally provided for on the balance sheet and in the P&L.

Ashok Mehta — Juniper Advisors — Analyst

Thank you.

Kalpesh Dave — Head Corporate Planning & Strategy

And on the ALM side, Natesh, you want to answer.

Natesh Narayanan — Chief Financial Officer

Yeah. So, on the ALM side, while you’ve had the discipline, even if you’re borrowing from a financial — irrespective of whom you are borrowing from, a financial institution or a bank and NHB is a different volume altogether, who may give us more than 10-year money or near close to 10-year money. Even from the banks we’ll manage to get money for more than seven years. In terms of financial institutions, our average tenure — average tenure that we have borrowed from most of the financial institution is close to five years or more. Thus our ALM is fairly robust. We have had no miss factors in any of our buckets at least up to five years, all of them are positive and on the balance sheet, since we’re sitting on close to INR29 crores, INR30 crores of cash, covering up for two month of disbursement.

Ashok Mehta — Juniper Advisors — Analyst

Thank you, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Bhavik Ahuja, an Individual Investor. Please go ahead.

Bhavik Ahuja — Individual Investor — Analyst

Hi, team. Firstly, congratulations on great set of numbers, just like the name of the company. My question is, I’m not sure whether it’s already been covered, but any view on the spectrum of the credit quality of the borrowers and in terms of, if you could quantify it in terms of percentage of money lent to different credit quality of borrowers, please.

Kalpesh Dave — Head Corporate Planning & Strategy

So, to answer that question, our — current, our occupation spread we offer home loans to salaried as self-employed customers. Currently incremental split between salaried and self-employed is 35 to 65, so one-third of my borrowers are from salaried profile, two-thirds are from self-employed profile. In terms of their repayment behavior, as we mentioned that our portfolio at-risk currently is at 5%, which is zero plus DPD and within that the new book that we are generating is at around 0.68%. So, the risk the emanates from a self-employed customer is I would say around 40 basis points to 50 basis points more than what would be from a salaried customer, typical salaried customer and that is what is getting encapsulated on to my the portfolio at-risk when I split it between salaried and self-employed.

Obviously, the delinquency is part of it, the INR3.82 crores that we are talking about, again out of, if you’re talking about debt NPA, 80% of the customers within that segment is self-employed customer and 20% are salaried customer. So obviously, as a profile and application type suggest also self-employed customers are more prone to income fluctuations, given the nature of their business, but as we say that we are deploying very strong review mechanism and whatever learnings that we are doing in the incremental lending that we are incorporating in our credit policies. Because of which, the newer centers that are coming up is very interested.

The newer centers, the seven-odd locations that we have opened up and the loans that we are doing there, obviously very early signs. Again, the book has to be seasoned but that book even in that there are no early warning signals as such. The bounce ratios which is basically the main indication is equivalent for salaried and self-employed for these nuances. And if I am extrapolating on that, I should be able to control those kind of delinquencies that emanate from a self-employed customer. But yeah, as I said, this is the break-up on the delinquency level of salaried and self-employed, and we are constantly monitoring health of the portfolio within the occupation type, within the ticket size type, within the regions, so on and so forth, just once you get [Technical Issues].

Bhavik Ahuja — Individual Investor — Analyst

Thank you. Thank you so much.

Operator

Thank you. As there are no further questions, I would now like to hand the conference over to Mr. Kalpesh Dave for closing comments. Over to you, sir.

Kalpesh Dave — Head Corporate Planning & Strategy

Thank you, Robin. So participants, thank you so much for coming, for taking time out on a Saturday, on a holiday to attend to this call and hearing us. It is always a pleasure. Our endeavor is to be extremely transparent with you and share not only our hit, but even our misses. We are a growing housing finance company, there is a long way ahead and we intend to become a meaningful player in the affordable housing space within the geographies that we operate in. We’re not looking for gaining market share or becoming number one, number two in that race we are not there. We want to ensure the build-up of book is backed by quality, build-up by solid processes and guidelines and that is what we are — that is what we have been doing in FY ’22-’23.

There would be a lot of euphoria in 100% plus growth, even if the base is low, but our heads are firmly on our shoulders and we look forward to continuing the growth momentum as we move on. So, just encapsulating the overall business performance, the loan book is crossing — gross loan book is crossing INR250 crores. Our AUM is in lower-single digit, which is — our PAR, I am so sorry, our PAR is at lower single-digits, which zero plus equity, is at 5%. Our GNPA is 1.65%, our provisioning coverage ratio inclusive of all the provision and excess provisions that are there is 100% covering the entire book, the GNPA that is being given. So, that is there.

Our build-up is diversified. We are present across the state of Maharashtra, Madhya Pradesh, Gujarat. Rajasthan and Tamil Nadu. We look forward to expand north and south as we move ahead in FY ’23-’24. Our net worth has crossed INR100 crores. We are now well-poised to capitalize on qualifying the tenure criteria, so that gets listed on the NSE subject to all approvals in place. I do feel that we are now one step away from that much needed upgrade that we are envisaging and even you, some of people have been asking us, as you know, when is that due. So, we do feel that ’23-’24, Q1 or Q2, I would say Q1 would be — should be the quarter wherein we should get that much needed upgrade based on the merit tech we are deserving, based on the business performance that we are showing.

Liability under under the leadership of Natesh is doing well. Capital raise and the debt that we have reached should be able to continue that particular momentum and support the AUM scale up as we grow. Top line, bottom line growth is 2 times adjusting for the non-cash items, adjusting for the use of expenses. We do feel, now again, I’m not giving any guidance, but we do feel that if you are able to register similar 100% year-on-year growth, the PAT, the bottom line should also increase in that particular way and fashion. All we need to do is we need to continue what we’re doing and ensure that the book is built-up backed by quality.

So, this is the encapsulation of the overall performance that we have done during the year. Once again, thank you all the stakeholders and we look forward to engaging with you as we grow from hereon. If you have any queries, any suggestions, any thing to ask even post call, please reach out to our investor relations, you can reach out to me or either Natesh, Anoop or Ashish individually and we’ll be more than happy to interact and answer any of the questions.

So, that’s it from my side. Thank you so much. Once again, very happy Akshaya Tritiya and Eid Mubarak to all of you. Thank you so much. Over to you, Robin. Thank you.

Operator

[Operator Closing Remarks]