SRG Housing Finance Ltd Q4 FY2024 Concall Summary

Key Takeaways

• AUM hit ₹600 cr, disbursements up 49%: The branch expansion begun in FY22-23 is now delivering, with monthly disbursement volumes matching what used to be annual volumes.
• Branch network set to nearly double: 25-30 new branches planned across Maharashtra and four southern states in Q2 and Q3, taking the network toward 90 branches by FY25-end.
• Asset quality is mixed: Gross NPA improved to 2.29% from 2.50%, but net NPA rose to 0.69% from 0.51%, a divergence worth tracking.
• Equity raise imminent: Board approval secured for ₹50-100 crore, expected to close in one to two months, to fund the next leg of growth.
• What to watch next quarter: Pace of new branch openings, whether the equity raise closes on time, and the trajectory of net NPA as the loan book scales.

Branch-Led Growth Engine

• Expansion is the story: After COVID-19 disruptions, the company opened 25 branches in FY22-23, and the impact became visible from Q3 onward. All those branches have now attained break-even, with even branches generating ₹20-25 lakhs in monthly business reaching that threshold.
• Next wave mapped out: 15 branches in Q2 and 10-15 in Q3, concentrated in Maharashtra (two clusters: Pune and Nashik-Aurangabad-Nagpur) and the south (Karnataka, Tamil Nadu, Telangana, Andhra Pradesh). 10-12 branches are already finalized, with possession expected in the next month.
• Ramp-up is fast by design: New branches typically begin disbursing within two to three months, because the company hires experienced branch managers and teams who already know the industry. Break-even takes 4-6 months, with full potential reached in 6-7 months.
• Q4 reserved for consolidation: By opening branches in Q2 and Q3, management leaves the entirety of Q4 to focus on development rather than setup, a deliberate sequencing choice.
• Existing branches carry the FY25 target: The ₹400 crore disbursement and ₹700-780 crore AUM targets for FY25 are based solely on existing branches; new branches have not been factored into the projection.

Vinod Jain: "Our current monthly disbursement volume is equivalent to what we used to disburse in a year in the past, and our quarterly disbursement is now equivalent to our previous annual disbursement."

Portfolio & Credit Philosophy

• Loan mix is stable and fully secured: Housing loans make up 70% of the book, LAP 30%. The self-employed segment dominates at 75% of loans, with salaried at 25%. Every loan is backed by property collateral, a co-applicant (typically the wife), and a guarantor.
• Conservative LTV is a deliberate collection tool: The company maintains a 50% LTV threshold, well below the 80-85% industry norm. Management argues that exceeding appropriate LTV risks property value falling below the outstanding loan in a default, destroying the owner's equity interest and leading to potential property abandonment.
• LTV policy may loosen slightly in larger towns: For populations below 10,000, the 50% cap stays. For areas above 10,000, a deviation of 5-10% may be allowed, a modest concession to competitive dynamics in denser markets.
• Fixed-rate dominance is a margin risk: The rural client base overwhelmingly prefers fixed-rate loans because even a ₹50 fluctuation in instalments can trigger confrontations. This means rising repo rates compress spreads temporarily, while falling rates expand them, a dynamic management acknowledges and accepts.
• Credit is centralized even as branches spread: Credit operations are run from the Mumbai office, with the head of credit overseeing decisions for all five new states. Field staff conduct physical verification, which management argues reduces errors more effectively than documentation-heavy processes in rural areas.

Vinod Jain: "Even a minor fluctuation in instalment amounts, such as a ₹50 change, can prompt confrontations, as clients expect consistency in their payments."

Asset Quality

• Gross NPA improved, net NPA worsened: Gross NPA ratio fell to 2.29% from 2.50% year-on-year, but net NPA ratio rose to 0.69% from 0.51%, suggesting provisioning coverage may have declined or write-offs slowed.
• Collateralization provides a floor: The entire book is secured by property, and the conservative LTV policy means the company has a buffer before collateral value falls below exposure, a structural protection that matters more as the book scales into new geographies.

Funding & Capital

• Equity raise is near-term: The board has approved raising ₹50-100 crore in equity during FY25, with management targeting closure in one to two months. The capital will support the branch expansion and AUM growth toward ₹1,000 crore in FY26.
• Leverage capacity is ample post-raise: Management estimates that with the equity infusion, the balance sheet can support AUM of ₹1,000-1,500 crore without needing additional equity, and up to ₹1,500-2,000 crore before another round becomes necessary.
• Borrowing cost rose with the rate cycle: Average borrowing cost increased to 11.13% from 10.82% in the prior year, reflecting the repo rate hikes. Management expects potential repo rate reductions in the foreseeable future to offset the temporary margin compression from the fixed-rate loan book.
• Borrowing dynamics will vary by state: Interest rates in new states will generally align with rural norms, with adjustments for larger population centers where rates may differ slightly, reflecting each state's unique developmental trajectory.

Competitive Position & Operating Model

• Fintech is not a threat in this segment: Management draws a sharp line: fintech operates in unsecured loans where property documents, valuation, and legal reports are not required. Housing finance demands detailed credit assessment, physical verification, and legal due diligence, a model fintech is not built for.
• Rural presence is a moat: Few housing finance companies operate in rural areas because of the extensive fieldwork required. SRG's 22-year track record, centralized credit with physical verification, and branch managers recruited from the industry create a barrier that is hard to replicate quickly.
• Opex should lever as the network scales: While the Mumbai corporate office and pan-India team expansion have pushed costs up, management expects overall costs to decline as the branch network reaches 25-30 units. Even a doubling of AUM may require only a 10-20% increase in team size, given the fixed-cost nature of the head office and corporate team structure.
• CEO is deeply embedded in the field: Archis Jain, designated as CEO, spends 20-22 days per month at branches or in the field, overseeing operations, developing business plans, and managing teams. He has built his own dedicated team responsible for target achievement.

Vinod Jain: "In rural areas, there are relatively fewer housing finance companies due to the extensive fieldwork required. Additionally, the fintech model is not applicable in housing finance companies."

Monsoon Sensitivity

• Good monsoon is a tailwind, not a base-case input: Favorable rainfall stimulates agricultural income, which in turn drives housing investment and business expansion. However, management has not built any monsoon assumption into its FY25 growth plan; the ₹200 crore additional AUM is the base that should come regardless.
• Excess rainfall is a real risk: Management explicitly flagged that there is no certainty with the monsoon, and excess rainfall can be detrimental, a candid acknowledgment of the volatility in its operating geography.
• Prepayments do not spike with good monsoons: When rural customers come into funds, they tend to invest in furniture and home upgrades rather than downsizing or prepaying loans, so the tailwind shows up as new business demand rather than portfolio churn.

Guidance & Commitments

Key Metrics