L&T Finance: Will Rural Recovery & New Home Decor Fin Product Drive The Growth? MD & CEO Sudipta Roy

Hello there. I'm Sneesha and today we're at the office of L&T Finance. And with me in conversation today is the MD and CEO, Mr. Sudeeptha Roy. Mr. Roy, thanks so much for speaking to us today. Now it's been six months since you've been at the helm of L&T Finance. Tell us how these six months have shaped up for you. What has remained the same in terms of strategy going ahead for the company and what has changed? So thank you for giving us the opportunity and and I think its been a very action-packed last six months never been a dull day and I think what a couple of things which have happened which we are reasonably satisfied about. The first thing is that we launched our new home loan sort of proposition which we call the complete home loan in this product. You know we have tried to reinterpret the entire home loans category with a very if customer focused branded home loan product which explores some of the white spaces he that to sort of not explored by other lenders and create a niche for ourselves and we supported it by a three 60° marketing campaigns. I think that went very well. I think the other thing that we had promised the analyst community was that we will bring a new credit engine to the marketplace and we are told that we will launch the beta version by the last week of June and on 18th June we took it live. This is what we call a three-dimensional credit engine which is does you know customer underwriting by Bureau and one axis account aggregate or liabilities data on another axis. And the third axis is what we call alternate data or trust signals. And these are available in quite a bit of plethora in the Indian industry right now, thanks to, you know, the flow of payments data or digitization of every lines of business. And we are very happy to note that, you know, the initial sort of results from the beta pilot in the last sort of one week to about 8 days has been very, very satisfactory, OK. Our disbursement momentum has remained quite strong. If you look at our last quarter, we ended our last quarter with about 15,000 and 44 crores of disbursement. And this actually on the back of the festive quarter was more than the festive quarter, right, right. So typically what happens is in the festive quarter we have a jump in disbursements and typically the quarter after the festive quarter at times is muted. But for us we maintain the growth momentum last quarter across the festive quarter. And you know we are hopeful that this quarter also we should be able to maintain similar momentum, right. So overall, I think you know, the team is is focused on growth, the the team is focused on delivery, the product reinterpretation journeys that we have taken. We started with home loans, more products will follow our entire tech effort and building what we call finticate scale and really make it finticate scale. For example, the crate engine that we talked about, it's completely built in house, close to 100 developers, data scientists, great people, our crates in our credit policy people and credit science people actually have worked almost nonstop for four months to bring this to production. So overall, I think we also have staffed up all the requisite positions. We have created new positions. You know, we created the position for our chief AI and data officer, our new chief AI and data officer, he came in from Silicon Valley. So in a way, we have created positions for regional business heads now where we will have four very senior business heads managing distribution as well as the PNL in the four regions, right. So in a way the entire sort of framework building for the sort of the go forward journey ahead has got completed. We have strong disbursement momentum and I think the this six months has been a period of consolidation as well as a period of acceleration. All right, Mr. Roy, let's also talk about your Lux 2026 goals. Now you were aiming for retailization of your loan book at 95% by 2026. You're already there two years before time. So now would it be safe to say that the overhang that the unwinding of the corporate book, the impact that it had on your AUM, on your credit cost is now behind us? Yeah. So you know, its, its, its more or less in the past. Yes, right. See, if you look at, you know, our overall sort of wholesale book at the end of last quarter, you know, at the end of the quarter we had about 5 1/2 thousand crores left, right. We started with about, you know, 3536 thousand crores odd right. And then we have we have traversed the journey and, and, and when we went into analysts call, you know, by that time another thousand crores had gone off. So you know at the time of the analysts call around the 30th of the month of of April, we were at about four and a half thousand crores of of wholesale books. So the wholesale book is now a very small portion of our of our entire book. So in a way the retailization journey and is is truly well under the way we are about 94%, we were above 94% retail at the end of last quarter. This quarter it will move even forward. And what had happened was that because we were degrowing our wholesale book at a much faster rate then we are growing our retail book. Actually if you look at the last four quarters trajectory, the book actually fell for two quarters. Overall book at least fell for two quarters, then it reached the bottom and then it has started now going up. Hopefully the growth will be more visible this quarter. So yes, you know I would agree with the statement that the paring down of the wholesale assets is more or less over. There's a small long tail left. That long tail will probably take another you know 18 to 24 months to fully go out. One thing I would like to say is that we are not in a hurry to pair of those assets because they're standard assets performing assets, you know they're generating income for the company and only when we get a good valuation to pair of those assets, we will pair of those assets. Otherwise we will let them amortize and run their overtime. All right, perfect. Also, could you tell us what kind of growth CAG are you penciling in, in terms of your credit growth for the next, let's say three years? See as per our Laksha goals, we had said 25% CAG. So our guidance is that we will try to hit that 25% CAGR. So that is what we will try to target target at. So our growth last year has been more than that. It was we have almost hit about close to 30% plus growth, right. And but you know, obviously business conditions change and you know, you know, sectoral product conditions change, right. So overall our guidance is that the 25 percentage here as part of the Lexia goals, we'll try to hit that. All right. Could you give me a percentage figure as to where wholesale and retail are at as a part of your entire loan book? And like you said, 18 to 24 months you're looking at to completely spin off that book. So are you well on course to do that? Yes, as of now it's 94% retail and 6% wholesale, right? So, so we are on course to do that. OK. But as I said, the long tail of the wholesale book will take about 18 to 24 months time to sort of pair off. All right, let's now share focus, talk about the rural segment. And L&T Finance has very significant presence in the rural segment as well. Now, if I look at some numbers, your rural group loan and microfinance loans have made-up roughly 38% of your total disbursements and roughly 29% of your total book in quarter four FI 24. So now you have a lot of trust coming in. You have the budget coming in and India under Modi 3 point O. What are you penciling in in terms of rural demand, especially when you look at farm finance or tractor demand, especially now that even a healthy monsoon has been forecast? So what's your outlook on the rural segment? Yeah, so the outlook on the rural segment is positive. And I'll tell you a couple of markers that we are seeing, right. First and foremost thing, if you would recall, last year the monsoon was very, very patchy, right? And that actually hit demand on the tractor business and our tractor business was quite sluggish last year. But if you see the current progress in the monsoons though in the northern part of the country, the monsoons is still yet to catch up to the extent that it should have, which is slightly delayed in northern part of the country. But the West of the country and the South of the country, it is, it is quite satisfactory so far. And we are seeing healthy uptick in demand at least in the southern part of the country, especially in tractor. So that is one marker. We sincerely hope that whatever sort of the laggardness that the southwest monsoon is showing in terms of covering the northern parts of the country, that gets done in the next two to three weeks, right? We are hoping that. And if that happens, then you know I think the tractor demand will be reasonably better this year than what we have seen last year. And as you know, rains has an overall impact on rural demand, right? So if we have good monsoons, I think we are looking at a good rural demand scenario. The new government coming in and we are expecting that the budget is around the corner and the budget will probably focus on the rural economy quite a lot. I think the the rural economy was in a quite a bit of distress post COVID and consumption levels actually had sort of shrunk. And one of the large markers for rural consumption as well as you know, consumption in the semi urban areas is 2 Wheeler offtake. And if you see two Wheeler demand remains sluggish till about Diwali last year. But post Diwali, we saw an uptick in two Wheeler demand as well. So and fortunately, April was actually very, very good demand for two Wheelers, right? And we did one of our highest, you know, numbers in two Wheelers in April. So I'm expecting the the rural economy to improve. And but again, the caveat is all this is on the back of a successful monsoon, right? So as of now, you know, we are just keeping our fingers crossed, all right. But we are also hearing some news about farm loan waivers being announced in states like you have Telangana that's come out with one. Jharkhand is in the talks to hike their farm loan waiver. And now that Maharashtra is heading into elections later this year, there's some expectation that, you know, there might be some announcement on this front. Do you think this is going to have an impact not only on your company, but also the other players that are heavily into the farm finance segment? And what could be the impact when the government goes ahead or when individual state governments go ahead and announce a measure like this? See, I think whatever has been announced is with respect to crop loans etc, OK. And pure Agri based. So if you look at our microfinance portfolio, it is more of rural business finance. So the linkages are not that much with that. And again, tractors are a secure asset at the end of the day and, and and frankly that is also not 100% like to like links because a lot of the tractors are also used for commercial purposes as well. So this is my feeling that those are parallel exercises and will not have much of demand at least on the lines of business, much of impact on the lines of business that we are in. All right, let's talk about home loans. Now home loans has been a sizable chunk of your disbursements in the year that went by. Now the Pradhan Mantri Avas huge, now the PMAY has been extended to three crore houses, more houses in urban and rural areas as well. What kind of impact are you seeing or what kind of impact are you expecting to see rather on the home loan segment? Yeah. So see one thing I would like to clarify is that we LNT Finance is an organization. We are not in the affordable space. So the PMAI doesn't exactly apply to us. So we normally do home loans about 25,00,000 of ticket size or average ticket size around 770 lakhs. So we are focusing on more or less the prime or the near prime segment. But you are absolutely right, our home loans disbursements have shown a satisfactory growth. Our complete home loans program especially our branded home loan program together with the home Deco finance product that we have added as an adjunct to the entire home loan proposition. I think it's getting very good response from the market. So we are very, very positive about the go forward trajectory of our home loans business as well. As you know we're not only presented home loans loan against property is also a robust business. We have launched micro loan against property in the rural areas as well. So overall, I think we are looking at encouraging growth growth this year. Yes, obviously you know the demand remains robust. And if you look at the inventory of home loans, inventory of finished homes or the inventory of under construction homes, they're actually at maybe about two or three-year low in many of the cities, right. So I think the end user demand is quite strong and robust and, and, and I think overall this segment is paused for very strong growth in the next couple of years. All right. So very strong growth is what you're penciling in for the entire home zone as well as the lap segment. All right, let's talk a little bit about your financials now. If you, if I take a look at what the quarter 4 numbers were like, you had made a sufficiently high provision and you've also provided a buffer. Now going ahead, would you say that the company is sufficiently provisioned for against any contingencies and can we expect your PAT momentum to improve going ahead from quarter one and then all throughout a 525? Yeah. So if you see the last quarter, the last quarter we took a special provision and and this was primarily again some of our senior assets that we had. And we wanted to sort of create a floating provision which sort of insulated or the normal trajectory of performance from any sort of haircut impact that might have come from the senior portfolio. And that was the primary reason of doing that. We, we, we really feel that, you know, that amount which, which has been kept aside about 720 crores or which has been kept side is sufficient to sort of, sort of nullify the impact of any hacker that might compromise our portfolio. Though we do not expect it because we, we see a very healthy demand in, in revival in real estate, both commercial as well as residential. And many of the projects that are in the air seas are actually seeing construction having started and, and, and moving forward. So we have a as I have said in the analyst call, we see a pathway to resolution, but this was to give the entire investor community as well as to a great deal of comfort. Similarly, we have 980 crores of prudential provisions which have been kept aside for our for our micro loans portfolio. So, yes, so credit cost remaining, you know, set respirables normal and and not having any sort of any impact of any unknown sort of air pockets in in the business scenario, right. We expect that sequentially we should have consistent profitability going forward. Mr. Roy, I have to ask you quarter one FI 25 earning season is right around the corner. So give us a sense of what this quarter has shaped up for you. If you could share some numbers with us, especially what the quarter has looked like on the back of elections. Without going into specifics, you know I would say that the quarter we have been able to sort of do what we set ourselves out for the quarter, right. We took some goals at the beginning of the quarter and typically the first quarter, the first quarter, the first quarter is very, very important for every sort of going concerns. So we set ourselves some aggressive goals. What happened was that the beginning of the quarter, especially in the month of April and May, we had tremendous heat related issues issues. It was a very torrid summer. Yes, for example, I give you an example, you know some of our branches especially as you know micro loans branches or bare bones branches, right, typically many of them do not have air conditioning. It became so hard that actually we had to ship over 2000 air coolers to all those branches, right. So we saw a little bit of weakness in in April, primarily because of the heat, but which again normalized between May and June, correct. So, so we, we, we are fairly certain that the quarter is not yet out. We are fairly certain that we will achieve whatever we set ourselves to achieve during the quarter. All right, Sir, it was great interacting with you today. Thanks so much for giving us a growth outlook and you know, a sense of a demand picture of what you're forecasting for your different segments going ahead. Be a tractor, be it home loan, be it loan against property. So thanks so much Mr. Roy for taking the time out and speaking to us at 18 out today. Thank you so much. It's been a pleasure talking. Thank you.