Star Housing Finance Limited (539017) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the earnings conference call of Star Housing. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Saxena. Thank you, and over to you, sir.

Thank you, operator. Good afternoon, everyone, and a warm welcome to Star Housing Finance Limited's Earnings Call for the quarter ended June 30, 2025. Thank you for joining us today. Before we begin, a brief information note, our Chief Financial Officer; Mr. Natesh Narayanan has left the organization. We thank Natesh for his contribution and wish him well in his future endeavors. In his absence, I will be covering both the operational and financial highlights for this quarter. Our leadership and finance team remain fully engaged and committed to transparent disclosure and continued delivery against our strategy. Let me start by briefly introducing Star Housing Finance Limited for the benefit of new participants. Star Housing Finance Limited is a retail-focused housing finance company committed to enabling first-time homeownership in semi-urban and rural India. Our focus remains on economically weaker section and low income group, providing housing loans for purchase, construction and incremental housing needs. We are headquartered in Mumbai and operate through a network of branches across the states and regions where we serve our customers. Now I will walk you through the operational and financial highlights for Q1 FY '26. Asset under management as at 30 June '25, stood at INR 546.58 crores. This represents a year-on-year growth of 16% compared to June 30, '24. Disbursement in quarter 1 FY '26 aggregated to INR 24.41 crores. Our live customer base now stands at 5,400-plus borrowers. The average incremental loan size in semi-urban market remains around INR 10 lakhs, while in rural center, it is approximately INR 8 lakhs. Our branch network now totals 37 locations across Maharashtra, Gujarat, Madhya Pradesh, Rajasthan, National Capital Region, Tamil Nadu and other operating regions. Our employee base stands at 280-plus housing finance professionals with strong local market knowledge. We have an upgraded lending suite now enables end-to-end loan processing, improved receivable management and better credit monitoring, resulting in improved turnaround time and operational productivity at the branch and individual level. Portfolio at risk stands at 5.18% as at June 30, '25. Gross NPA and net NPA are 1.65% and 1.13%, respectively. These metrics demonstrate the team's continued emphasis on credit selection, underwriting discipline and collection effectiveness. Total borrowings of the company stands at INR 391.91 crores sourced from diversified mix of banks and financial institutions. Debt-to-equity ratio remains as at June 30, 2025 is 2.69x. In the liability pipeline comprising committed limits, undrawn facilities and partners' proposals, remain robust and calibrated to support our planned asset growth. On shareholder front, the Board has recommended a final dividend of INR 0.10 per share, subject to shareholders' approval in the upcoming Annual General Meeting. The Board has approved fundraise through issuance of nonconvertible debentures of up to INR 50 crores and also approved the increase in authorized share capital of the company to INR 125 crores from current INR 50 crores, subject to shareholder approval in the upcoming Annual General Meeting. India Ratings has affirmed our rating of BBB stable for the proposed nonconvertible debentures. I will now summarize the key financial numbers for quarter 1 FY '26. Assets under management is INR 546.58 crores. Total income for quarter 1 FY '26 is INR 21.81 crores. Net interest income for the period is INR 8.25 crores. Disbursement for the quarter was INR 24.41 crores. Profit after tax for quarter 1 FY '26 is INR 1.38 crores. Return on equity is 3.83%. These results reflect continued traction in loan origination, healthy lending spreads and disciplined cost management, while we invest selectively in branch expansions, onboarding talent and digital capabilities. Our business momentum and the strategies focus being our priority remains building a high-quality asset under management, expanding reach while maintaining stringent underwriting standards and robust collection processes. We will continue to scale both direct branch origination and co-lending partnerships to diversify funding and reach, focused investment in our lending platform, digitization of loan processing and analytics to drive operating leverage and reduce unit cost. We remain committed to improve financial behavior among our borrowers, many of whom are formal credit users for the first time. This should expand lifetime customer value and cross-sell opportunities. I will now hand over the call over to our CEO, Mr. Kalpesh Dave, for his closing remarks and guidance on the path ahead. Thank you, and over to you, Kalpesh.

Thank you, Anoop. Thank you so much. And thank you all the participants for joining us today. I just want to keep this interaction pretty much non-scripted, so allow me to just express my thoughts in a very unedited manner. So you must have experienced that the lenders in this particular space, HFCs, NBFCs, specifically the sub-INR 500 crore AUM category lenders, have faced enormous headwinds in the last financial year, more specifically in the H2 side of it, which is Q3 and Q4. Ideally, H2 is a time where the scale-up is envisaged but Q3, Q4 was a miss for many HFCs, many NBFCs. And given that we are a part of the fraternity, we also were impacted by the same, reason being the liability pipeline, the liability offtake, which was envisaged, that kind of suddenly got stopped for smaller HFCs and NBFCs. And hence, we also got impacted because of that. So what we did at that point of time, more specifically in Q4 is, we basically had a direct assignment being done with the Vastu Housing Finance, which gave us the liquidity, helped us to reset the overall branch engagement process and courtesy that Q1 was the period in which we've gone back into business again. So if you see Q4, we registered a profit, but the majority of the profit was from the DA transaction, but Q1, again, back to the operating profit, which we have registered. Obviously, it is lower than the Q1 last year because of the onetime income, which we had registered in the Q1 last year. This time, we have not registered it. So if you remove that one-off effect, the results are pretty much in line. So that is something which I want to tell you. With respect to exit of our deal colleague, Natesh, Natesh had personal exigencies facing him. And when the call has to be taken between what to do and family, family comes first, so we basically wished him best of luck. And right now, he is taking care of the family engagement, which he is running right now at this point of time. However, Natesh continues to be the part of overall ecosystem and he guides us, he advises us as and when required. So that is the update on Natesh. Some of the key things that we have done in the Q1 quarter is basically applying to the NSE platform. So NSE platform becomes a natural succession for us, given that we're a BSE mainboard listed company. We have applied to the NSE on 16th of July. I'm sorry. I think I was cut off.

Sorry for that. No, sir, you're live, please go ahead.

So what I was saying is that NSE was a natural progression for us. We're applying formally to get direct listing on to the NSE platform of July 16, 2025. We got two rounds of queries, which we have replied to. And we continue to engage with the NSE team for further resolution of queries and see that we get onboarded onto the NSE in the optimal time, subject to all approvals in case. So that is the first update I wanted to give you. Second update I wanted to give you is, we have also initiated co-lending with Vastu Housing Finance. So that is something which we are very much keen in terms of the business buildup as we envisaged. In our previous calls also, we had said that co-lending with Vastu gives us a good pipeline and a good synergy in terms of overall operation. So that is something which we're looking forward to. That's the second thing I wanted to tell you. The third thing is increase in the authorized capital. We have increased authorized capital in the last Board meeting. And now the authorized capital, subject to shareholder approval in place, will get increased from current INR 50 crores to INR 125 crores. So that is something which I want to tell you. Dividend payout, we have agreed to have a dividend payout given to our shareholders. This time, it has increased as well from INR 0.075 to INR 0.10 and that also is subject to shareholder approval in the coming AGM. Liability now builds up well. So we have a good pipeline getting built up from our existing lenders as well as from the couple of new lenders also in terms of instruments as well. So we are hopeful that we will not miss the bus in H2, which happened unfortunately in the last financial year due to the macroeconomic conditions. I mean, we were not the only one, as I said to you. So that is something which I wanted to tell you. On the capitalization front, obviously, increase in authorized capital, we give a fair bit of idea of what we want to do. But again, that is subject to all approvals in place. And as and when the time comes, the consummation of discussions and everything happens. At that point of time, we will be sharing the new subject to all approvals in place. So right now, it's too early to say, but nevertheless, we are engaging to strengthen the capitalization levels as well. So with this in place, the purpose remains unchanged, that is to responsibly enable homeownership among the first-time homeowners and create long-term value for the customers, employees and shareholders. And I am confident that with the Board's guidance, strength of our team and the support of our partners and regulators, Star HFL is well positioned to translate the current momentum into sustainable, profitable scheme in the periods ahead. I would like to end this call by extending my thanks to all the stakeholders, that includes RBI, NHB, banking partners, rating partners, business associates, our customers, our dedicated staff and their families and our shareholders, who have stayed with us throughout and each one of them have played a pivotal role in making this company, and we look forward to their continued support as we march ahead. As a committed, responsible lending organization, we are dedicated to creating value for our stakeholders as we strive to become a respected housing finance institution. Thank you for your attention. Over to you, operator.

[Operator Instructions] Our first question comes from the line of Vinil, an investor.

Can you hear me now?

Yes, sir, please go ahead.

From the recent press release, I just learned that disbursements were around INR 20-odd crores for the last 3 months. Can I know what the disbursement is in the next 1.5 months of the current quarter?

Vinil, Anoop this side. So for the current quarter, we are poised to disburse approximately what we have disbursed during the last quarter. More specific to during the last 1.5 month, we have disbursed approximately INR 20 crores until now. I mean, very specifically I'm talking about for the month of July and mid of August. So during 1.5 months, we disbursed approximately INR 20 crores.

So the same run rate would continue or we are going to ramp up?

This is going to ramp up. Yes, this is going to ramp up because of the reason, if you have heard our CEO, Kalpesh Dave's remarks, so there was some -- in terms of debt raise, there were some issues in terms of debt raise, specifically conditions related to market conditions. Now since those conditions are over, we have raised funds from financial institutions as well as from the regulator, and we are trying to ramp up the business.

Next question comes from the line of Natasha Shetty from Star.

My question is, sir, what is the geographic and product wise contribution to AUM growth this quarter?

Natasha, if I heard you right then, product wise contribution you're talking about, right?

Geographic and product wise.

Okay. So geographical concentration is still in the state of Maharashtra. And when I'm stating state of Maharashtra that typically means, in Maharashtra, we operate through 3 centers. One center is based out of Akola, another center is based out of Pune, which handles rest of Maharashtra and third center is based out of Mumbai, which is in Vashi. So though there is portfolio concentration in Maharashtra state per se, but these 3 centers are culturally different to each other in terms of cash flows, in terms of customer economic scenario and in terms of underlying collateral. So up to now, my majority of portfolio comes from the state of Maharashtra, followed by Rajasthan, then followed by Madhya Pradesh and rest other regions are contributing approximately equally in terms of portfolio. In terms of the strategy, we are trying to ramp up our business in National Capital Region, in Tamil Nadu which is deep South. So these 2 states are there, wherein we are trying to ramp up business more efficiently and effectively. In terms of product-wise contribution, our major product, since we are affordable housing finance company, so as a vision of the company, approximately 95% portfolio comes from individual housing loans only. So that is the major product for you.

Okay. And sir, going forward, are you going to like there will be any diversification or more products product wise?

See, Natasha, since we are affordable housing finance company, so within the ambit of housing finance definition, whatever is there, we are doing those products in terms of affordable housing only. And whatever is allowed by regulator, within the definition of affordable housing finance, we are happy to serve those products to the customer.

Okay. And sir, one more question. Sir, the NIM is 6.61%. So do you see that this level is sustainable going forward? Or will there be any moderation given the rising borrowing cost?

Okay. So the thing is, if you will look at my debt profile during last financial year, my equity could not be raised because of, again, some market economic scenario. Because of not raising equity plus the key base fund from a regulator, those funds could not be availed again because of market economic scenario. Because of that reason, we can see a slightly increase in my cost of funds, cost of borrowing. Though since now regulator funds have been availed plus equity is also on the verge of closing, if I may quote that, so we can see a slight decrease in upcoming quarters or in H2 per se, in terms of cost of borrowing. I hope that serves the answer?

Our next question comes from the line of Ganesh Kumar.

Thank you for the update. I want to know you explained a reason for declining profitability and disbursement? And do you share your guidance on assessment quality, particularly expected on NPA levels for the coming period?

That's right. Ganesh, your question is not clear. If I may...

What he was asking is about, why there has been a decline in the profitability, Anoop, and numbers getting decreased. So profitability decline, as I said in my talk also, that there was a onetime income, which we had booked in Q1 last year, which we have not done this time, okay? Obviously, for the fact of the matter that disbursements are getting scaled, getting restarted at that point of time, obviously, other activities take a backseat and your focus becomes on ensuring that the branches come to the optimal level. So our focus is right now getting back on track, not running, not sprinting, but basically walking slowly to get back on track. So hence, there has been optimization in the profitability. But if you compare it with Q4, we have registered a profit at the operating level once again, okay, which is not in the case in the Q4. So that is something I want to tell you. The second thing is it with respect to decrease in disbursement, as I said that the raw material is money and liability eases up over a period of time. It does not happen that financial institution decide to restart the lending and we are the first ones to receive, no? Unfortunately, the size and the scale of the company makes us way back in the line to receive the funds even when the credit offtake happens. So slowly and steadily, the disbursements are getting built up. And again, we don't want to have that kind of a scenario wherein we disburse around INR 30 crores, INR 40 crores in 1 month, and we go high and dry in the next 3, 4 months. So we don't want to do that. We want to calibrate it very effectively right now, make judicious use of funds. And hence, the scale-up has been planned in that particular way and fashion. So that is the second thing we wanted to tell you. In terms of the asset quality, there has been an improvement if you compare it with respect to the Q4 numbers. And we are hopeful to maintain this particular level. And again, when we decide to scale up, go full throttle at that point of time, we will have that asset quality getting improved further also. So that is what I would want to say.

Our next question comes from the line of Anushka Bothra from CARE Ratings Limited.

Actually, my question has already been answered by Kalpesh in his talk right now in the previous question, so I would not want to make any questions further.

Thanks, Anushka. You can connect us in case you have any more questions.

Our next question comes from the line of Sanaa, an investor.

Can you please let me know borrowings have increased to INR 391 crore. What is the current average cost of funds? And where do you see it trending?

So current borrowing cost is 12.5%, and we expect it to be at the similar level itself. The major, major kickers for decrease in borrowing costs, while many of us would theoretically say that decrease in repo rate would result in reducing the borrowing cost, but there is a lag effect to that. And as I said, the size and scale demands us that we'd be last to have that kind of any benefit to be passed on. So the trigger would be having a rating upgrade and once that happens, we should aim for a reduction of around 25 basis points to 50 basis points in terms of borrowing cost. That's the first thing. Second thing, as Anoop mentioned, that the refinance lines as well as the funding from public sector banks basically will also help us to rationalize the borrowing costs, which did not happen in the last financial year. As I said, Q3, Q4 was a miss. So this time, I think we should be able to achieve those particular numbers. But again, it would be too farfetched for me to say that the borrowing costs will come down. My first indicator would be an upgrade to get the borrowing cost down. And I'm happy with maintaining it at 12.5%, 12.75%. I mean it should not be an issue unless and until the time we are running a good spread out of it.

Okay. And sir, one more question. Which are the new products or geographies or customer segments?