IIFL Holdings Q2FY18 Concall Summary

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Macro Environment

  • Management believes the macro environment is looking good and positive
  • India’s rank in ease of doing business improved by 30 notches.
  • Management believes that the global investors are bullish on India’s growth given the government’s policies and initiatives
  • Bank Recapitalisation which was the only big bang reform left unfinished is now completed
  • Impacts of Bank Recapitalisation would be:
    • Monetary transmission of lower interest rates
    • Trigger the credit off-take, which has been slow and sluggish, to pick up
    • With demands revival it is also expected to  see the private sector investment cycle coming back
  • On the negative side, the Brent oil has crossed $60 mark and that’s not good for India’s fiscal
  • SBI has reduced the MCLR rate by 5 basis points
  • In long term i.e. in  three years, five years or ten years inflation has to be headed downwards.
  • India is a globally integrated and linked economy and nobody is expecting global inflation to be high in the foreseeable future.
  • For financial services industry the firm believes it has a very positive outlook and is seeing tailwinds at this point in time, and as the economy grows faster will see a leverage impact on the financial services industry.
  • PSU recapitalisation would not have an adverse Impact on NBFC’s as NBFC like IIFL operate in very niche verticals where banks don’t have specialised skills.

 Financials Highlights

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  • 40% YoY growth in the group’s net profits to Rs. 291 Crores.
  • Net profits after minority interest have grown by 25% YoY to Rs. 229 Crores.
  • Net worth: Rs. 4,740 Crores.
  • ROE : 19.7 % and ROA : 2.5 %
  • The average cost of borrowing declined by 12 basis points QoQ and 110 basis points YoY to 8.5%, with the borrowing rate being at an average cost of 7.9%.
  • NPA ratios in all segments were flat or declined QoQ except for NBFC segment wherein it grew from .94% to 1.09%.
  • The firm won’t raise capital before September, 2019.
  • Borrowing is Rs 29,000 Crores.
  • Liquid Asset and Investments is around Rs 4000 Crores.
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 Financial Service Industry

  • For Medium to Long term, the firm sees three mega trends and those three mega factors are the foundation for the growth strategy for the firm too.
  • The first trend is financialization of savings: Started with demonetisation but there are much stronger underlying factors driving that. The other main reason for this is the lower interest rates on bank deposits , which , if adjusted for tax gives the investor less than 5% of returns.
  • Real estate and Gold has become unattractive investments with demonetisation being one of the reasons and the abysmal returns from these asset classes. Real Estate as an investment has become even more unattractive with RERA.
  • The next mega trend is Housing, as trillions of dollars would be required for Government’s plan of housing for all by 2022.
  • The company plans to launch an AMC platform, a Real Estate fund which is targeted at investing in the affordable housing projects.
  • The third  mega trend in terms of growth would be SME; they will drive growth in next 10 -20 years.

NBFC Segment

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  • NBFC segments’ Net worth is Rs 3712 Crores.
  • Loan AUM grew 27% YoY and 12% QoQ to Rs. 26,033 Crores.
  • Profit after Tax grew by 30% YoY to Rs. 132 Crores.
  • The firm’s Tier-1 CAR stands at 17.0% and total CAR at 18.4%.
  • Due to a favourable CAR the firm can remain well-capitalized to the growth requirements.
  • AUM growth is driven primarily by small ticket home loans which grew by 64% YoY.
  • Small ticket SME loans grew by 65% YoY.
  • Small ticket housing and SME loans are the firm’s focus segments and will remain its primary growth drivers.
  • Capital market loans have grown largely due to short tenure IPO funding
  • AUM growth was moderate or negative for LAP and Gold segments
  • In home loans, the focus remains primarily on the self-employed section which constitutes 60% of the loan portfolio.
  • The fastest growing segment in home loans is the affordable home segment i.e. Swaraj loans with average ticket size of 10 lakhs to 12 lakhs.
  • More than 15% of the incremental quarterly home loan disbursements are as Swaraj loans.
  • The firm has recently been sanctioned an additional refinance of Rs. 500 Crores by NHB taking the cumulative amount to Rs. 825 Crores.
  • As on 30th September 2017 the firm had nearly 5,000 approved housing projects up nearly two fold from 2,700 approved projects a year back.
  • LAP has been impacted by GST in some of the SMEs and in Real Estate sector.
  • Overall portfolio risk is on the decline as our portfolio mix continues to become more granular, with greater share of small-ticket home loans and SME loans
  • Retail loans including consumer loans and small business finance below Rs. 1 Crores constitute nearly 85% of the firm’s loan book.
  • Average ticket size is Rs 22 Lakhs for Home loans.
  • About 40% of the firm’s home loan 60% of LAP, 90% of CV, 20% of SME and nearly all of the MFI loans are PSL compliant.
  • In aggregate nearly 35% of loans are PSL compliant which the firm can sell down to banks at attractive rates.
  • Share of securitized books stand at 12 % of AUM, the aim for the aim for the next 12 months is to bring the share of securitized books to 15-20%
  • NIM (Net Interest Margin) for the firm is 7.2% up 56 basis points QoQ.
  • Cost to income ratio was at 35.8%
  • OPEX to average loan book ratio was at 3.05%
  • The firm believes Cost to Income and OPEX to loan would fall due to better economies of scale and digitization.
  • Gross NPAs a1.95% of against 2.04%  previous quarter
  • Net NPA 1.09% of loans up from 0.94% in the previous quarter
  • The NIM was around 6.6% in last quarter.
  • The total borrowings were about Rs. 21,000 Crores in the NBFC consolidated books.
  • Rs. 6700 Crores is in the form of borrowings.

Digitisation of NBFC

  • Out of 4.25 lakh loans on boarded in the last quarter
  1. 95% digitally boarded
  2. 92% acquired through Aadhar based e-KYC authentication.
  • Over 37% loans being digitally signed thereby reducing turnaround time and on-boarding the customers seamlessly in paperless mode
  • IIFL mobile app had 1.65 lakh downloads
  • The latest business vertical ‘Digital Finance’ on boarded 16,500 customers last quarter all acquired digitally.

Analytics used in the firm

  • The company generated 2 lakh plus leads from internal customer base in Q1FY18
  • Analytics have also been used for early detection and deterrence of frauds.

Wealth Management Segment

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  • PAT grew by 67% YoY to Rs. 95 Crores.
  • Assets under advice, management and distribution have grown 47% YoY and 5% QoQ to reach Rs. 1.33 trillion.
  • Hired thirty RMs during the last quarter taking the total number of RMs to 283.
  • In second quarter raised around Rs. 4,000 Crores in net new money compared to Rs.11000Crores in last quarter.
  • Garnered 1600 Crores in focused equity AUM’s and 700 Crores in focused debt and equity mutual fund products.
  • Raised 2400 Crores in the Special Opportunity Funds which invests in pre-IPO and IPO.
  • The total commitments in these funds are now over Rs. 6,500 Crores.
  •  AIF assets grew 53% YoY to almost Rs. 9,000 Crores.
  • Total assets under management  Rs. 22,848 Crores comprising
    • Rs. 11,484 Crores  in  domestic AMC
    • Rs. 11,364 Crores in offshore AMC.
  • The loans given to HNI clientele against margins grew 13% QoQ and 2.1 fold YoY to Rs. 4,852 Crores and lending rate for them is 10.5 %.
  • IIFL had a onetime mark-to-market loss of about Rs. 15 Crores on investments which resulted in lower fund based income in this quarter.
  • The effective tax rate for first half FY18 was about 25% and for the whole of FY18 the firm expects the effective tax rate to remain at this level.
  • Significant cost increase in last quarter as employee cost has gone up by 20% QoQ and 50% YoY and other operating expenses have gone up by almost 55% on a YoY basis.
  • Average ticket has fallen to about less than Rs. 8 million vs. the earlier Rs. 9 million.

Capital Markets segment

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  • During the quarter average daily cash turnover was up 14% YoY to Rs. 1,220 Crores.
  • Daily cash turnover is Rs 1220 Crores up by 14% YoY.
  • Average daily total turnover including F&O was up 47% YoY to Rs. 13, 269 Crores.
  • NSE market share in the cash segment remains around 4% and in total around 2%.
  • Mobile trading app IIFL Markets had over 1.1 million downloads.
  • 37% of retail broking clients trade through the mobile app.
  • Investment banking tail completed six transactions during the quarter including four IPOs
    • ICICI Lombard
    • Dixon Technologies
    • Capacite Infraprojects
    • SIS India
    • Completed IPP of Questcon

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