India Shelter Finance Corporation Limited (INDIASHLTR) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the India Shelter Limited Q2 FY '26 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that, this conference is being recorded. I now hand the conference over to Mr. Renish Bhuva from ICICI Securities. Thank you, and over to you.

Thank you, Ruchi. Good evening, everyone. Welcome to India Shelter Q2 FY '26 Earnings Call. On behalf of ICICI Securities, I would like to thank India Shelter management team for giving us the opportunity to host this call. Today, we have with us the top management team of India Shelter represented by Mr. Rupinder Singh, MD and CEO; Mr. Ashish Gupta, CFO; and Mr. Rahul Rajagopalan, Head of Investor Relations. I will now hand over the call to Mr. Rupinder for his opening remarks, and then we'll open the floor for Q&A. Over to you, sir.

Thank you, Renishji. Good evening, everyone. On behalf of the company, I extend a warm welcome to all of you. Thank you so much for joining us on the call today. Let me start with some broad macro updates. Headline inflation is expected to stay towards the lower end of RBI's target bank in 2025, '26, after experiencing significant moderation during H1 financial year '26, mostly as a result of sharp correction in food prices. Despite flooding bought excessive rainfall in a number of states, the prospects for agriculture industry remain positive. Adequate reservoir levels, helpful policy actions and above normal monsoons in the majority of regions all contribute to this promising outlook. With significant increase in sales of fast-moving consumer items in rural regions and positive sales of tractors and motorcycles, rural demand is expected to stay solid. GST 2.0 reforms are expected to further boost private consumption and domestic demand. And high festive sales volume and consumer emotions already indicate a revival in household discretionary spending in both rural and urban areas, which should help credit expansion in upcoming quarters. The growth outlook is still supported going forward by reduced inflation, increased capacity utilization, favorable financial conditions. In the short run, the government's persistent emphasis on CapEx spending, GST changes and better lending conditions should increase aggregate demand and support the sector's strong momentum with robust loan demand. On that note, let me move towards the quarterly update of India Shelters. We are pleased to announce that the company delivered another quarter of performance. We delivered an AUM growth of 31% year-on-year, reaching an AUM of INR 9,252 crores. In quarter 2 financial '26, we disbursed INR 931 crores, registering a growth of 12%. In quarter 2 financial '26, we added new branches, 9 new branches as a part of branch expansion strategy. Geographic presence stood at 290 branches as of 30th September 2025. Gross net Stage 3 came at 1.2% and 0.9% as of 30th September '25 as against 1.2% and 9% same year last year, 30th September 2024. On profitability metrics, PAT for the quarter came in at INR 122 crores, registering a growth of 35% year-on-year and 2% quarter-on-quarter. Return on equity stood at 17%. Our net worth now stands at INR 2,914 crores. We continue to see demand and growth potential in affordable housing market in Tier 2 and Tier 3 cities supported by government policies. Our guidance remains same. That is branch addition of around 40, 45 year-on-year, of which we already opened 33 in this financial year, that is H1. Maintained spread of more than 6% in medium term, credit cost around 40 to 50 bps and loan growth of 30%, 35%. Now, I would like to hand over the call to Ashish Gupta, our CFO, to take you through the financial metrics. Over to Ashishji.

Thanks, Rupinderji. Good evening, friends. Let me take you through the key financial numbers. We have ended the quarter September '25 with AUM of INR 9,252 crores. Year-on-year growth in AUM is 31%, quarter-on-quarter growth is 6%. Total income for the quarter is up by 30% year-on-year, largely driven by 31% growth in AUM. Our portfolio yield is at 14.9%, which is stable year-on-year basis. Our disbursement yield is also running at same level. On funding side, we have diversified borrowing with more than 30 counterparties. Average borrowing tenure is at about 8 years. Our bucket cost of fund is down by 10 basis points in Q2 to 8.5%. Total reduction in cost of fund in the last 9 months is 30 basis points. Our marginal cost of fund for Q2 is at 8.1%. Thus, we expect to see another 20-basis point reduction in our bucket cost of fund by year-end. We have received a sanction of INR 550 crores from National Housing Bank, which we expect to draw in the next 2 quarters. Further, we have received a sanction of INR 500 crores from SEBI for the first time. This will help us to further diversify our sources of fund. Our lending margins are consistent above 6%, in line with our guidance for medium term. Net interest income is up by 33% year-on-year, 5% quarter-on-quarter on the back of growth in our AUM and improvement in spread. Coming to OpEx. Our year-on-year growth in OpEx is lower than growth in AUM, resulting in better cost ratios. OpEx to AUM for the quarter is at 4.1%, down by 30 basis points year-on-year. Cost to income for the quarter is at 35%, down by 170 bps year-on-year. On asset quality side, Stage 3 is stable at 1.2%. Our credit cost for the quarter is stable at 0.5%, in line with our guidance for medium term. Net Stage 3 asset is stable at 0.9%. PCR for Stage 3 asset is stable at 25%. Our total ECL is INR 73 crores against the regulatory threshold of INR 43 crores. Thus, we have adequate buffers are in place. PAT for the quarter is at INR 122 crores year-on-year up by 35%. ROA for the quarter is 5.8%, up by 20 basis points year-on-year. ROE for the quarter is 17% on an annualized basis with a leverage of 2.9x. On liquidity side, we are comfortably placed with a liquidity of INR 580 crores and undrawn sanction of about INR 1,500 crores. Our ALM is positive across all the buckets. With this, I conclude, and now we can open the floor for Q&A.

[Operator Instructions] We take our first question from the line of Raghav from AMBIT Capital.

I just have 2 questions. One is what is the bounce rate for the quarter? And if you can give me a split by housing and nonhousing book? That's my first question.

So bounce rate is into a tune of 20%, 22%, which happens, that is on quarter-on-quarter. Sometimes if there is a weekend Sunday or something, it goes spikes by 1% or 2%. Otherwise, range between 20%, 21%. That is something we keep maintaining around basically.

Okay. And what was the split between housing and nonhousing in terms of bounce rate?

So, there is no difference between the bounce rate between the HL and LAP. So broadly, we are catering to self-employed segment in both the loan product category. So, there is no much difference between the 2.

Understood. Second question is a couple of affordable housing finance companies which have reported yet have shown some slippages come through. What are your thoughts on the industry collections and asset quality given that even your Stage 2 ratios have gone up? Just some of your thoughts will be very helpful.

So I think last 1.5 years, there is a discussion which is running around this piece particularly. And there's an obvious reason because of overall industry we see not only affordable housing, but when we talk about rest of the products, whether it's MFI sector, unsecured, so there's a heat around that piece. And if there's a heat around piece, you'll always find that 1 product in other way, some other way do impact the overall ecosystem basically. So, there's a slight spread. But having said so, affordable housing companies do have one strong support in terms of getting selection fast, quicker and better in that piece. And this is a reason that even if customer slippage and moves to further stage, which is 90 degree and above GNK level, the opportunity with affordable housing company, they're always there to bring it back. So, a little bit up and down that keep coming. It's a long-term business. So, every quarter can't remain the way it is earlier, one. But yes, I think most of them are in the range bond basically.

Understood. Just for second half, what kind of disbursements are you budgeting? Sorry, second quarter disbursement growth is only 12%. It was trending at 25%, 30% before this. So, how are you thinking about disbursements in the second half? And then will you still stick to a 30% plus growth guidance on AUM for the year?

Yes, I mentioned during my early commentary that we'll be going to maintain this growth rate of 30%, 35%. This quarter, definitely, like rains and all and because of GST coming late and people try to hold back anything. There are so many answers can be given around. But as I said, a month here and there what impact as the prospect of business and the momentum that has been built, that's going to remain there basically. So, 30%, 35% of AUM growth, you can easily consider that happening in coming quarters also.

We'll take our next question from the line of Darshan Deora from Indvest Group.

Yes. Firstly, congratulations on a great set of results. Actually, the question I also had was on disbursements. I think you've already answered that. So hopefully, the disbursements will pick up in the second half.

So, this normally trend which has been seen in history also in the past also for not only myself, but most of the companies around, H2 is always considered to be optimistic when compared to the H1. H1 has many factors, seasonality factors picking up and things on that streamlining those things. So, I think there is no reason that we should have a notion around that this moment is not going to come up. So effectively, as we are in mid of quarter almost there, we can see that this traction is coming back in terms of taking to the -- as the numbers keep building on. But I think it be more like a forward-looking statement, but always H2 you will find better than H1 in that sense.

Congratulations to the entire team.

We'll take our next question from the line of Sonal from AMSEC.

I mean, there has been this question earlier, but just wanted to check how does the connection trend in October? And also, I mean, disbursements were slightly slow, not just for you but for the entire industry. So, how is the demand per se? I mean, is there any challenge in demand? You just answered that partially saying that previously is better. But anything that we are seeing on the demand side? And also, if you could talk a bit about the rejection rates, how they were in 2Q this year and how is it in the previous year?

So, if you talk about demand, which comes in form of new customers coming for log-ins and all, I don't think any challenges coming around that piece. But as last 1.5 years, everyone has tried to stringent their norms. Definitely, that has reduced certain amount in terms of suspension rates for me as well as most of the people which we keep also sharing along with you guys basically. Going forward, as we see that trend looks that is going to a little -- some more couple of months, and I think it's going to come back because August was not a great month to have basically, if you ask me. But as we see September coming up recently well, that was the quarter. This is the beginning of next quarter. So, I think we'll be able to come back as per the trend what we have seen in the history year or 2 years or 3 years back basically.

Congrats on the quarter.

Next question is from the line of Shweta from Elara.

A couple of questions. Sir, could you throw some light on the LAP portfolio? How has been the foil now? And how are we distinct vis-a-vis industry? Second is also, you sort of alluded to this, but still just don't mind me harping on it. So, 30 DPD has spiked to 4.7%, even Stage 2 has spiked, but we've not seen much of movement in our PCR or ECL provisioning. So, if you can provide color there. And also, any sort of customer cohort or ticket size or region-specific challenges? I remember last quarter, you sort of pointed out Gujarat, Uttarakhand growing slower and certain sort of challenges in particular markets. So, if you can just throw some color there? And lastly, just a data keeping sort of a question, like what is the attrition rate?

Yes. Lot many questions. And if I miss something, please point me out in between, Shweta. So, if you talk about LAP per se, we try to focus again, the norms are not very different, where the FOI in terms of 50%, 55% and LTVs are lower than 50%. That is for the LAP portfolio. Our focus largely in this Tier 2, Tier 3 market that wanted to remain for the self-employed segment. Most of them who are generating their own income in those markets by serving those vicinities and all that to remain there particularly. So, this is a focus area particularly. So, if you talk about month-on-month, we are seeing observing that in some months, there is a spike, which is coming, some months it's dull and there can be various factors around that. Sometimes it's a monsoon, sometimes multiple things. But our thought is not to go break into month-on-month basis. It is ultimately to continue to remain in that segment of 30%, 35% of growth that we are committed and that we are focusing on directly per se. You talk about some terms of Stage 2, right? Can you please take it up, what she exactly said, what numbers she was talking about?

Can you please come again?

Can you repeat, Shweta, once again?

Both 30 DPD as well as Stage 2 saw some material spike, right? And we've been seeing this trend formation like over a year now. So, any customer cohort, any specific ticket size or any geographic challenge you want to attribute this to?

So, I can give -- yes, there's a 20 bps hike than the previous quarter. Obviously, this is hike, which is there particularly. But as we see the traction coming in month of September back, as I mentioned, August was a literally not as a great month. But as we've seen that, we feel that there's going to be sticky around this piece, a little bit more, maybe 4.7% come to 4.5% or something that way. That's what we've seen so in current times. But let's see how the things turn around basically. So, we don't see things going out of proportion or something that we have to worry about it. So this is some trends in market that we're also passing through, but we are confident we'll be able to pass on. So, I don't think that we have to read very much large numbers out of this between the lines basically.

Sir, lastly on the attrition rates – lastly on the attrition rates?

Attrition remains constant in the same range, what is -- we are observing in last year or 2 years. In fact, today, Board has been kind enough to approve the numbers what we discussed last time to include all the branch managers under the ESOP scheme. So almost 13.75 lakh of stock options will be given to the branch level. We are going to increase -- include almost 500 new employees in the ESOP pool, which is a pretty large to cover them under that scheme, which are normally the frontline staff, which includes branch managers, branch collection managers and good performing branch managers. So these are the some tools that we are using it and we are hopeful this is going to support in one way or other way for the efficient site also.

Congratulations on a good quarter.

We'll take our next question from the line of Renish Bhuva from ICICI Securities.

Congrats on a good set of numbers especially during current time. So, my question is actually related to that thing. So, we have more than 40% share between INR 5 lakh to INR 10 lakh ticket size. And most of the players especially in the LAP segment or a few of them from the affordable housing segment as well, highlighting stress or they have changed the strategy to disburse on stop below INR 7 lakh ticket size loans, which essentially means that the stress in that segment is relatively higher. So what is the performance of this particular pool? And also how confident you are that over the next 2 to 3 quarters, this segment should not sort of result in a hard it than what we [ indiscernible ] currently?

So, Renish bhai, if we compare the same quarter compared to the last year, typically in this ticket size, what we're talking about INR 5 lakh to INR 10 lakh and around that fees, our numbers largely remain same, that fees. I can understand that a few of the institutions which are not -- may not be part of housing finance company, they might be finding this problem because it is a point of discussion which happened many times in the past also that, if you don't have a SARFAESI rights, then there is always scope of struggling on that fees. So, I think that challenge does come, because those rights are not for the institution which are not a housing finance company or the bank. So, there they find this kind of challenge while doing that fees. So yes, it is slight stress, that stress percolate with a -- more intensity if you don't have tools to control that piece. So fortunately, as a housing finance company, there are some role which has been played by the SARFAESI that way to curtail that fees. So that remains almost same when we compare year-on-year. Same September numbers continue to remain the same number when it's a 1993.

Got it. Okay. So concluding this, I mean, we don't foresee any risk from this pool in coming quarters.

So we are continuing with this pool. We are not stopping it because we get a better yield than in the market where we operate Tier 3, Tier 4 self-construction houses, someone who want to extend his home. There are quite a few cases where we get this opportunity around.

Got it. And just a last question on the return on equity front, right? So we are already touching 17%, been sustaining that number from the last few quarters. And now given your growth guidance of 30%, 35% with increasing leverage, where do you see ROE settling in near term?

I think there are many aspects to that. But I think what we focus is not something we just focus on ROE alone. So the guidance remains same on the typical 3, 4 points. And you can easily calculate. It's not difficult to make it up. So we want to continue where credit cost remains in the same segment of 40, 50 bps. That's our thought. And again, going with the loan growth of 30%, 35%. So more than focus, our objective is more on the operations side. But what is running around, I think that is something -- it doesn't look out of scope that is quite manageable. So we don't want to comment on ROE per se, but I think in a range probably where there's expectation around.

We'll take our next question from the line of Shreepal Doshi from Equirus.

My question was pertaining to the BT out rate for the quarter. If you could give that detail.

Yes, Shreepalji, I think when you see the market trends are a little tough, you always find there is some green shoots also, and I think BT out rate is one of that. What we're realizing BT out rate is curtailed well decent in the range bound what we talk about. I think that is again 4%, 4.5% of BT out range, what we can see around basically. That is the thought, which is comparatively slightly better than what it was a year back or 2 years back basically.

Okay. Got it. And sir, on the cost of fund side, so how do you see that number ending for FY '26? And what percent of our bank borrowing is linked to repo and T-bill? So how do you see that benefit flowing in on the cost of fund side? And where do you see it ending for the full year?

So on the borrowing side, about 32% of the borrowing is linked to repo rate or T-bill, wherein largely the benefit has already flowed in. And remaining borrowing, about 15% of the borrowings are at fixed rate and rest of the borrowings are linked to MCLR rate, wherein the benefit is coming in a very gradual form. But the good part there is that if we see our bucket cost of fund, that is at 8.5%, incremental borrowings are running at about 8.1%. So the blend of the new borrowing and the old borrowing will keep changing. So we expect that by year-end, we should be having another 20 basis point reduction in our overall bucket cost of fund.

Okay. So further 20 basis points of benefit is what we expect for the full year.

We'll take our next question from the line of Subhranshu Mishra from PhillipCapital.

Just wanted to check on the BT out. What is the percentage of AUM which goes out on a monthly basis? What's the total teams --

I'm sorry, your voice is not very clear. Subhranshu, can you use your handset mode, please?

Yes, Shubhranshu. So, BT out as a percentage of average AUM is in the range of about 4.5% to 5% briefly and that is consistent in last 2 quarters. But if you compare it year-on-year level, it is down by about 100 basis points.

Okay. And do we have a dedicated team to address this attrition?

Yes. So we have a centralized team who is engaged in the customer retention. So whenever we come to know that customer is looking out for a loan, our team proactively connect with the customer and try and retain the customer.

Okay. And what is the major reason of still the people who are going out? Is it just a drop in interest rate because they again have to pay fees any which ways for the loan, right?

Very difficult to judge that at the moment when it's moving out basically. But largely, there are 2 reasons. One is going for the more loan amount. And yes, obviously, rate drop is also the option which is there. And when you are operating these markets, there are nationalized banks and all, which does operate at very, very lucrative rate, that's an option given. So irrespective of paying fees again and all, that location is good enough to move out some way sometime.

Understood. And given the fact that you spoke about the nationalized banks, are these guys also chasing us in treasury to take up loans? Are they coming up with a cheaper pricing for us? What is the translation of these cuts till now for us?

So if you talk about the PSU bank specifically, so PSU banks, if you -- if you see the borrowings are linked to MCLR. And there is not much movement in the MCLR of PSU banks at this point of time. So the benefit of rate cut from PSU Bank is limited to about 20 basis points till date. But we expect that as the deposit ratio between the new and old will keep changing, the benefit will keep coming gradually over the year. So as and when the reset of those borrowings will come, the benefit will keep coming on that borrowing.

Right. And have they become more -- both PSU and private banks, have they become more aggressive towards the treasury?

So, liquidity in the overall market is quite good at this point of time. So, everybody is looking for like quality lending. So, we are seeing like good aggression from the bank side to fund at this point of time.

Next question is from the line of Abhijit Tibrewal from Motilal Oswal.

I joined about 15 minutes late, apologies. So, in case my questions are repetitive, please let me know. I'll look up the transcript. So just 2 things I wanted to understand. One is, I mean, a lot of participants in this call have already asked about asset quality, the fact that Stage 2 is inching up. And we are seeing that across some of the other affordable housing finance players as well. Again, I mean, pardon me, but I don't think this is just a seasonality what we are seeing today because somewhere there is an acknowledgment that in addition to seasonality, which is about maybe range in the second quarter, there is also some spillover that is being seen from MFI micro LAP into affordable. Somewhere we see an acknowledgment that, hey, there are pockets like maybe Chennai, Surat, Tiruppur, right, which are exhibiting some localized stress, again, primarily because of tariffs. So, I mean, I understand, I mean, like in last year, right, but pulled back very, very strongly in the fourth quarter. But this year, is it looking like any different? Or do you think that this is just a 1H deterioration and things will definitely get better once we move into the second half?

Thank you, Abhijit. I think we answered this question. But yes, we have not only said only seasonality. We said when overall industry is impacted. So, some heat gets fed into entire ecosystem, and that does affect a little bit. But what you have to see how -- what are the growth rates and how we are reacting to that piece. That's an important piece. Fortunately, the market where we operate, the ticket size is the tune where we can apply various norms. And this is a reason though there are certain slippage in certain buckets. But when you talk about the overall number, whether it's a credit cost or this thing, we are able to maintain. So, dynamics keep changing month-on-month, quarter-on-quarter, that's bound to happen when you're running a long-run business. So, does it going to affect it? It is only help you to prepare better. That's our thought. That's our philosophy working around that piece. You have seen since especially the last quarter of previous year. And I think that was the obvious reason that preparation helped with that side. So, I think that keeps building our capacity and appetite to face these kind of changes which is happening and which are very dynamic particularly. So, I don't think that we have to overly concerned about it. But yes, operationally, how to execute that is more important that we on the job. And maybe that's why this set of customers moves to 90 plus, bringing them also become easier because the tools which are available in form of SARFAESI or in form of LTVs and all, and that's being used very effectively. And you can see also even there is some inching which happen in certain DPD certain buckets. But if you see the GNP is very well in control, that happens particularly that way. So instead of going month-on-month basis or quarter-on-quarter basis, there may be a little flip here and there, but our focus is more on execution and we are confident around that side.

Got it, sir. And then the last question I have is, I mean, earlier in the call, I saw that, I mean, you continue to guide for that 30%, 35% year-over-year growth in AUM, I think which is a very good premium. I think that at our current size, which is about INR 9,200 crores of AUM, we should do that. Having said that, sir, don't you think given that, I mean, at the overall industry level, if there are some concerns emerging, maybe -- and also because we have a good exposure to the self-employed customer segment as well, don't you think it will be maybe a little prudent to slow down a little bit, see how things evolve and then kind of maybe grow strongly after things have settled down. So just wanted to hear your views on how we are approaching this given that I -- for one thing that the self-employed customer segment, right, in case some of the things that we've seen in the last 6 months, they continue for some more time, will exhibit vulnerability going ahead.