SRG Housing Finance Ltd Q4 FY2025 Concall Summary

Key Takeaways

• ROA dipped on equity raise, recovery promised: ROA fell to 3.17% from 3.56% as the equity base expanded, but management targets crossing 3.5% in the next year as PAT growth catches up.
• Branch build-out is largely done: The network grew from 67 to 90 branches in FY25, and management now plans a near-total pause, adding only 10 more branches only after AUM crosses INR1,000 crore.
• Credit cost is declining, not rising: Credit cost improved to 1.82% from 2.24%, with management citing stronger SARFESI enforcement and a fully secured book; no stress is visible in asset quality.
• A strategic investor has anchored the equity story: M3 Investment took a 9.17% stake via preferential allotment and has committed to provide equity whenever needed, a signal management frames as a long-term vote of confidence.
• What to watch next quarter: Whether the repo rate cut flows into NIM as promised, the pace of AUM build toward the INR1,000 crore rating trigger, and any sign that the branch expansion pause actually holds.

Profitability & Margins

• ROA mechanics: The decline from 3.56% to 3.17% is purely a denominator effect from the equity raise; management expects PAT growth from the expanded branch network to lift ROA back above 3.5% in the next year.
• NIM tailwind from repo: The company runs a fixed-rate book, so the recent repo rate cut will benefit NIM directly on the existing portfolio; management says next quarter will show a good impact.
• NIM headwind from product mix: The earlier LAP business contributed an extra 2%-3% to yield, but the 70% housing loan mandate now limits that premium; ticket size increases in new states are expected to offset via lower operating cost intensity.
• Cost-to-income guardrail: Management states the ratio will not increase from 60% to 65%, with no branch expansion until AUM rises; fixed costs are now largely incurred and OpEx will reduce from here.
• PAT to outgrow AUM: PAT growth should exceed AUM growth over the next two years as operating leverage kicks in on the fixed branch network.

Jain: "The ROA has reduced due to the increase in equity, but the expansion plan and the growth of the business and the growth of the PAT, the ROA should cross the 4% which has been taken by the equity, and it will cross 3.5% in the next year."

Branch Network & Geography

• The build phase is over: Branches increased from 67 to 90 in FY25; management now declares a 2-3 year pause on branch expansion, with only 8-10 more branches to be added after AUM crosses INR1,000 crore.
• Future capacity is large: On the existing 90 branches alone, management believes the loan book can reach INR3,000-INR4,000 crore, so the focus shifts entirely to branch productivity.
• Geographical diversification is already achieved: The company has moved from 100% Rajasthan to a presence across MP, Gujarat (22 branches), Maharashtra, Karnataka, and Andhra Pradesh; the next 10 branches, to be opened only after the INR1,000 crore AUM threshold, will enter Tamil Nadu and Telangana.
• New states are performing: Underwriting in Karnataka, Andhra, and Maharashtra has posed no problems; Karnataka offers systematic documentation and fast government processes, while Maharashtra uses registered mortgage loans, a format the company already knows from Rajasthan, Gujarat, and MP.
• Rating agencies want more states: The push to reach 5-7 states is partly driven by rating agency requirements; a broader state footprint supports the path to an A minus rating.

Jain: "In the next 2-3 years, there will be no branch expansion program. After that, only your AUM will increase."

Asset Quality & Credit

• Credit cost is improving: Credit cost declined from 2.24% to 1.82%, and management sees no stress in asset quality given the fully secured nature of the book.
• SARFESI enforcement has strengthened: Earlier, DM orders and police support caused delays; those bottlenecks have now reduced, so delinquency resolution should accelerate gradually.
• Stage 2 is contained: Stage 2 assets stand at 0.46%, a level management presents as comfortable, though an analyst question about the quarter-on-quarter credit cost trajectory went only partially addressed.
• Rural demand is resilient: Management sees no demand issues in semi-urban and rural areas; customer earnings are not high enough to be disrupted by broader economic cycles, and business remains regular.

Funding & Ratings

• Rating upgraded to BBB plus: The upgrade reflects the expanded branch network and diversified geography; the next milestone is A minus, which management expects when AUM reaches around INR1,000 crore.
• Lower rating would cut borrowing cost: A higher rating directly reduces the cost of funds, a lever management is explicitly targeting through the AUM build and state diversification.
• FY25 fund raise totaled INR274 crore: INR194 crore came from lenders and INR80 crore through equity, including the preferential allotment to M3 Investment.
• M3 Investment as anchor: M3 Investment acquired a 9.17% stake and has committed to provide equity whenever needed; management frames the investment as a signal of long-term trust, noting that such a large single-block equity commitment implies a long-term vision.
• NCDs avoided for now: NCD borrowing carries higher cost, so the company is not taking it; it would consider NCDs only if available for more than 5 years, consistent with its housing finance company status, and not structured as a bullet payment.

Jain: "Sir, the help in equity is the biggest help. Secondly, they have shown the whole company's trust, they have put such a big equity together, a person puts equity in one piece and if it comes together, then there is no long-term vision till then such a big money cannot be put in the company."

Competitive Position & Customer Model

• Rural and semi-urban focus is deliberate: The company does not want to move to big ticket sizes or urban markets; its team and mindset are aligned to the semi-urban and rural segment where competition remains thin.
• Peers stay urban: Management claims all competitors work in urban areas, leaving rural and semi-urban markets largely uncontested; the company easily generates INR10-15 crore monthly business from Rajasthan alone, though it did not directly address whether peers are now increasing their rural focus.
• Customer acquisition is branch-led: Loan takers do not come from Instagram or YouTube; Facebook is the primary digital channel, but branches drive business through direct outreach and venue marketing (canopy) within a 50-60 km radius.
• Decision-makers are parents, not the Instagram generation: The house makers who decide on home loans are older, making branch-level, in-person marketing more impactful than digital-first approaches.
• Customers are rate-insensitive: The average housing loan portfolio is maintained at 18% and LAP around 20%; management says customers do not negotiate on rate, which supports yield even if the repo rate falls, though management did not confirm whether new loans would be priced lower.

Jain: "Because our customers are rate-insensitive customers."

Guidance & Commitments

Key Metrics