Abhay Bhutada, MD, Poonawalla Fincorp, says “in the last eight quarters, there is a consistent performance in terms of disbursement as well as AUM growth. The most important thing here is that the base is very low. It is easy to achieve this number. And we have given a guidance of 35-40%. Considering the current base, I think in the future, we will stick to our guidance of 35-40%. The focus will be on to achieve the asset quality, maintaining superior profitability and at the same time maintain this 35 to 40% AUM growth.
The one thing that struck the most was your highest ever quarterly disbursement figure, highest ever profit, lowest NPA and GNPAs. Before getting into details, what were the drivers for this kind of growth especially at a time when some are saying that the environment is showing some slowdown in the lending space?
Abhay Bhutada: See, this is the outcome of efforts of the last 2.5 years. Post-acquisition, we have clearly articulated our strategy. Our chosen segment is pre-owned car, loan against property, personal loan, business loan, supply chain finance, machinery loan, medical equipment loan, consumer finance. The segment which we are targeting is a very different kind of segment. It is a combination of FinTech, bank, and NBFC.
It requires a lot of courage to target this segment being an NBFC but because we are a CRISIL AAA, considering our less cost of funds, low operating cost being a digital model and less credit cost, we do not give loan to new only credit bureau-tested customers. So technology, system, process, are multiple things out there which are helping us to achieve this growth. The opportunity is huge. First, we have identified what is the total addressable market. And post that, we have started targeting slowly, slowly.
In the last eight quarters, there is a consistent performance in terms of disbursement as well as AUM growth. The most important thing here is that the base is very low. It is easy to achieve this number. And we have given a guidance of 35-40%. Considering the current base, I think in the future, we will stick to our guidance of 35-40%. The focus will be on to achieve the asset quality, maintaining superior profitability and at the same time maintain this 35 to 40% AUM growth.
Help us understand your outlook on future growth. In the next few quarters, momentum is building up in all your spaces.
Abhay Bhutada: See, basically on a quarter on quarter basis, right now we are growing 8% to 9%. I think 7% to 8% quarter on quarter, we will continue to grow. That 35-40% will be our AUM guidance. Same pre-owned car business, loan against property (LAP), in terms of monthly disbursement already we have taken major leadership.
In the pre-owned car segment, we have crossed Rs 225 crore on a monthly basis and in LAP, Rs 350 crore on a monthly basis. Business loan, Rs 250 crore. Out of 100 branches, of which not all are fully operational, a huge opportunity is available. Over and above that, we have consumer finance, personal loan, machine loan, medical equipment loan, so many diversifications in terms of product range. Going further, you can expect 5% to 7% we have an incremental disbursement basis. We have taken market share at top 100 branches, considering that we are confident of achieving this growth.
Let us also discuss your asset quality because there is an assumption that the market is high growth and that leads to risk on your asset quality but you have managed to maintain your asset quality. How has it improved and what is the outlook?
Abhay Bhutada: Very important here to note that it is very easy to grow and it is easy to lend but you need to collect the money also. We are not in the collection business. From day one, we are into risk business. So the breakup of GNPA is 1.33%, net NPA is 0.70%. This is because of the legacy. Our new book GNPA is 0.42%, and net NPA is 0.23%. Credit cost guidance is between 0.8% and 1.2% and the new book is performing well compared to our expectations. We are confident of maintaining net NPA below 1% as per our stated guidance of management vision 2025.
Given RBI’s cautionary stance on unsecured loans, what is your own strategy going forward, especially when it comes to this segment?
Abhay Bhutada: From last quarter to this quarter, we have moved from 46% to 52% on the secured. We have taken major market share in pre-owned cars, loans against property, secured products also. Considering that, we do not see any major impact. Our current leverage is 1.5%, which is the lowest in the industry. Our cost of borrowing is also amongst the lowest in the industry. We are a CRISIL AAA rated NBFC. Our capital adequacy is 38%.
Considering that, even if we grow at 35 to 40%, we do not require any additional capital for the next three, four years. So there is no impact of the new guideline changes on either growth or on the cost of borrowing side.
Are you maintaining your guidance of ROA and what is the outlook here?
Abhay Bhutada: For ROA, we have given a long-term guidance of 4-4.5% but we are constantly reducing our opex that is adding to the profitability. Our year-over-year basis in absolute terms also, there is a reduction in opex. Right now, including ESOP charge, it is at 4%, without ESOP charge 3.5%. So next year, we will be able to reduce it to 3.5% opex to AUM. So That is adding to the profitability. And there is less acquisition cost, less credit cost. And overall, because of the less opex, it is clearly adding to our ROAs. Right now, it is at 5.3%. We are achieving much more than what we have guided. But long-term on a steady basis, we will be able to maintain anything between 4% and 4.5%.
How is it that you are progressing towards your vision of 2025, your long-term goals in terms of financial metrics, profits, AUM growth?
Abhay Bhutada: As per the AUM and as per the overall secured-unsecured mix, profitability guidance, AUM guidance, we have given a guidance of short-term 20 to 25%, long-term 75 to 80%. And we are able to manage that. All the parameters of GNPA, NNPA, AUM growth, and the return on assets, we are able to over-deliver over the guidance. We are giving consistent performance over the last eight quarters. In each of the parameters, we are over-delivering on what we have guided. And we are confident of achieving the long-term metrics that we have stated, as well as the management vision 2025. We have achieved most of the parameters. So now, we will come out maybe six months down the line with a new management vision 2030.
