SRG Housing Finance Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Disbursements surged 136% YoY, but income lags: Q4 disbursements hit ₹79.14 cr, yet the P&L does not yet reflect this because housing loans disburse in tranches over up to 24 months and are back-ended within each month.
• Branch network nearly doubled, with more to come: 25 branches added in FY23 (total 62), and management plans 15 more in FY24, including entry into three South Indian states.
• Spread compressed as repo rates rose: Fixed-rate lending in rural segments meant the company absorbed the rate increase; management pledges to defend spread from here and will keep the benefit if rates fall.
• Equity raise deferred until AUM crosses ~₹650 cr: No equity needed this year; a long-term investor at good terms could accelerate it, but the base case is next year.
• What to watch next quarter: Whether the ₹25 cr/month disbursement run-rate holds into FY24, progress on the NSE listing, and any movement on the credit rating upgrade as AUM nears ₹500 cr.

Disbursement & AUM Growth

• Disbursement engine: Q4 FY23 disbursement grew 136% YoY to ₹79.14 cr, driven by business expansion focus, new branch openings, and post-COVID demand recovery in rural and semi-urban areas.
• AUM trajectory: Loan book grew 28% YoY to ₹438.36 cr; management expects it to reach ~₹650 cr in FY24 on ₹250–300 cr of disbursements.
• Income recognition lag: Housing loans disburse in tranches over up to 24 months, and within any given month disbursements concentrate in the last 5–10 days, so the full income benefit from the disbursement surge is yet to flow through.
• Demand backdrop: Post-COVID rural development and rising incomes have revived home-building activity; demand increased in Q4 and both old and new branches showed growth.
• New branch ramp-up: New branches take 6–8 months to build a team and start generating meaningful business, so not all 25 new branches are at full run-rate yet.
• Sourcing mix: Direct sourcing now dominates at 91%, with DSA sourcing at around 10%.

Branch Expansion & Geographic Strategy

• FY23 expansion: Branch count rose from 37 to 62, with 25 new branches opened after April 2022 across Rajasthan, Gujarat, Madhya Pradesh, and Maharashtra.
• FY24 plan: 15 new branches will be opened, entirely in new geographies; if necessary, a few may be added in existing territories.
• South India entry: Planning to enter Karnataka, Telangana, and Tamil Nadu with 5–10 branches per state; teams are being built and interviews are ongoing, targeting experienced local hires with 5–10 years in the state.
• PAN-India team: A central team will operate from Mumbai to support the expansion.
• Operational consolidation: The new headquarters brings the entire team into a single building with a 100-person auditorium, reducing communication gaps and improving business process smoothness.

Margins, Spread & Cost Structure

• Spread pressure: Spread reduced in FY23 because banks’ interest rates increased; management states they will work around the repo rate so that spread is not reduced further.
• Fixed-rate exposure: In the rural segment, lending is done at a fixed rate; when the repo rate was high, the loss was booked, and when the repo rate is low, the benefit remains in the books with no pass-through to customers.
• Cost-to-income ratio: Jumped above 60% because of the repo rate impact on cost, plus the cost of new teams and new branches; expected to decline as new branches mature and business volumes increase.
• Borrowing cost catalyst: A one-notch credit rating upgrade, expected when AUM crosses ₹500 cr, could reduce borrowing cost by 0.25 to 0.50 basis points.

Jain: "No, whatever we do, we do it at a fixed rate. Because in the rural segment, it is done at a fixed rate. If the repo rate is high, then we have booked its loss... And if this repo rate is low, then the profit will remain in our books."

Credit Quality & Risk Management

• Low credit losses: Attributed to strict credit underwriting and a low LTV cap of 50% per individual client, which provides a recovery margin in case of default.
• Average LTV: Running at 40%, with a declining trend partly driven by mix (clients with higher property values taking smaller loans).
• Customer profile: Mostly first-time borrowers for whom SRG is the single lender; CIBIL history often starts from SRG’s finance.
• BT out dynamics: Balance transfer out is a normal industry process driven by borrowers seeking lower rates; SRG also receives BT inflows, with roughly 10% incoming to offset outflows.
• Credit process: Will remain centralized with a credit manager in every state; differences across states are limited to 5–10% in legal documents, government rules, and DLC requirements.

Jain: "Firstly Sir, I believe if your credit is good, then you will have less losses. Secondly, our LTV ratio is anywhere near 50%. So, we have a margin in that. Because of that margin, what happens is, if there is any default, then it recovers."

Funding & Liquidity

• FY23 fundraise: Total of ₹177.40 cr raised from PSU banks (31%), private banks (8%), financial institutions (46%), and NHB (14%).
• Liquidity position: Company holds ₹100 cr in liquid funds, of which ₹80 cr are undrawn sanctioned lines; policy is to maintain roughly three months of liquidity.
• HDFC sanction: Received but not availed because the terms provided only short tenure.
• Fundraising ease: Management states fundraising is no longer an issue and they can get ₹300 cr very easily; borrowing mix in FY24 is not expected to change materially.
• NHB borrowing: Will increase a little more, utilizing whatever limit is available (20–25% of book).

Long-Term Vision & Competitive Positioning

• AUM ambition: Management targets ₹1,000 cr AUM in 3–4 years, citing 20–22 years of experience in housing finance, a strong capital position, and a confident team.
• Business model continuity: Core focus remains housing finance only; the model will stay the same at ₹1,000 cr AUM, though another vertical or entry into urban areas, tier-1 or tier-2 cities, or capital areas is possible if the opportunity is right.
• Next generation: The next generation is working together in the business.
• Competitive landscape: Management views the market as large enough for all players and does not see direct competition as a constraint on growth at current rates.

Jain: "So, now stress, pressure, things, everything is over. And the company has been running since 2002, in housing finance segment so we have around 20-22 years of experience. So, now the confidence of the team is also full, and we have to move forward. So, in 3-4 years, we will give you the AUM of 1000 crores."

Guidance & Commitments

Key Metrics