SRG Housing Finance Ltd Q2 FY2025 Concall Summary

Key Takeaways

• GNPA improved to 1.96%: Gross NPA fell from 2.40% YoY, driven by strong collections and recovery of previously written-off cash in rural markets.
• Cost-to-income rose to ~65%: The ratio climbed as 23 new branches were opened and senior hires were made; management expects a 4–5% improvement once new branches begin contributing.
• LAP disbursements slowed by regulation: NHB now requires ~70% of the portfolio in housing loans, forcing a deliberate reduction in higher-yielding LAP and a slight rate cut on housing loans.
• All loans are fixed-rate: A repo rate cut would flow directly to profit, as borrowing costs fall without any pass-through to borrowers.
• What to watch next quarter: Whether the 15 new Maharashtra branches start producing, whether the cost-to-income ratio begins its promised decline toward 60%, and whether housing loan disbursement growth can offset the LAP drag.

Asset Quality & Collections

• GNPA dropped to 1.96% from 2.40% a year ago, helped by a dedicated collection team and a strategy that recovered some previously written-off cash.
• Rural recovery advantage: Borrowers' families and extended relatives live close by, so the company can involve the family and settle accounts quickly, often before property possession is needed.
• Rural property saleability: Even if village property values decline 10–20%, prices of ₹2,000–5,000 per square foot mean the company can still recover money with relative ease through auction.
• Housing loans vs microfinance: Housing loan borrowers are more settled and far less likely to default on a home where their family lives; the secured nature of the loan adds a structural safety layer.

Regulatory Shift & Portfolio Mix

• NHB mandated ~70% housing loans: The company's housing loan share was 58% last year in Q2, so it must reduce LAP focus to comply, sacrificing the 2–3% extra yield LAP provided.
• Housing loan disbursement grew 18% YoY in H1, and management sees no problem in increasing it further to meet the 70% target.
• LAP disbursement shows a decreasing trend by design, not because of demand weakness: the slowdown is a compliance-driven choice.
• Rate cut on housing loans: To grow the housing book to 70%, the company will have to cut rates a bit; a lower borrowing cost from a repo cut would cushion that margin impact.

Vinod Jain: "NHB has made it clear that you have to give housing loan at around 70%. We used to get 2%, 3% extra money in the LAP, so now we will have to cut the rates a bit in housing loan, so if borrowing rate will cut down, we will benefit there and we will be able to do better business."

Branch Expansion & Operating Costs

• 23 new branches opened, 15 of them in Maharashtra and the South; these are still in setup stage and will take ~6 months from inception to begin producing business.
• Cost-to-income ratio hit ~65% as branch setup costs, hiring, and senior management additions flowed through; management expects this to fall to ~60% as new branches start working.
• Branch productivity is healthy: most branches perform well, with only 2–5 branches showing variation; the second challenge is the housing loan mix shift, which has already been reflected in disbursements.
• Target of 100 branches by March, after which no new branches are planned for 2–3 years, implying the cost base should stabilize.

Vinod Jain: "It takes two to three months just to set up a branch, followed by another couple of months to find the right location and then another two to three months to build the team. So, about six months are spent on these activities before the business actually begins."

Disbursement Mechanics & Turnaround Time

• Sanction-to-disbursement gap is structural: construction loans are sanctioned upfront but disbursed in stages over months as construction progresses, so a gap between sanction (e.g., ₹65 crore) and disbursement (e.g., ₹62 crore) is normal.
• TAT varies sharply by state: in Rajasthan, registered mortgage takes 10–12 days; in MP and Gujarat, it can stretch to 45 days due to external registry processes outside the company's control; customer document delays add further variability.
• Online document verification is now live via government initiatives, significantly reducing verification time; management expects most documents to be fully accessible online within a year.

Interest Rate & Funding Structure

• All loans are fixed-rate: if RBI cuts the repo rate, profit increases immediately because borrowing costs fall while loan yields stay locked.
• Fundraise of ₹50 crore completed in Q2 FY25, with 40% from banks and the rest from financial institutions.
• Plan to raise another ₹50 crore in equity by March to fund expansion and support branch operations.
• High leverage confidence: management stated 100% confidence that the company can achieve a high leverage ratio in the future, though no specific ratio or timeline was given.

Leadership, Strategy & Long-Term Ambition

• Archis Jain is now CEO, spending about 15 days a month in the field focusing on housing finance in rural areas; Harshil Mehta has joined as business strategy advisor.
• A pan-India HOD team has been established in the Mumbai corporate office, bringing in experts from across the country.
• Geographic mix evolution: Rajasthan may contribute ~40%, Gujarat ~30%, MP ~15%, and Maharashtra will start at 5–7%, with growth expected in all four states over time.
• 5-year ambition framed but not quantified: management said if the business grows 5x from current levels "it will not be an exaggeration," but declined to provide specific FY30 targets when asked, saying it would be more appropriate to review short-term commitments first.

Vinod Jain: "It is not that I am running after AUM, and I am increasing my book. My focus is that my company should have more profit with less expenses and less efforts."

Guidance & Commitments

Key Metrics