CSL Finance (NSE:CSLFINANCE) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the CSL Finance Limited Q2 and H1 FY 'twenty seven Earnings Conference Call hosted by TIL Advisors Private Limited. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Saiyam Pukhana from TIR Advisors Private Limited. Thank you, and over to you, sir. Thank you, Rasuja. Good evening everyone and thank you for joining us today for the Q2 and H1 FY twenty twenty seven earnings conference call of CSL Finance Limited.

0:50 The investor presentation for the quarter two has already been uploaded on the stock exchange and on the company website. In case you wish to be added to our mailing list, please feel free to reach out to us. To take us through today's results, we have with us from the management team Mr. Rohit Gupta, Managing Director Mr. Naresh Chandra Varshney, Chief Financial Officer Mr. Chandan Kumar, Head Strategy and Business Ms. Rachita Gupta, Full Time Director Mr. Rattul Gupta, President Finance and Treasury and Mr. Chirag Gupta, Credit Head, Wholesale Segment. We will begin with a brief overview of the quarter from Ms. Vachita Gupta followed by a Q and A session. Please note that any forward looking statement made during this call should be considered in conjunction with the risks and uncertainties that we face.

1:42 These risk factors have been outlined in our annual report. With that, I would now like to hand over the call to Ms. Gupta. Over to you. Thank you, Saiyam. Good evening, everyone, and thank you for joining us today. I'm pleased to share the highlights of CSL Finance's performance for the second quarter and the first half of FY 'twenty seven. The quarter has seen a continuation of the trends we outlined in our previous calls. The wholesale segment has continued to perform strongly and remains the primary driver of our AUM growth at present, supported by healthy disbursements, robust asset quality and good availability of funds for future growth. SME retail segment has remained in a consolidation phase driven by a mix of internal and external factors. On the external side, the broader SME lending space remains low. The factors we discussed in our earlier calls, over leveraged borrower profile, stagnant income growth across the MSM ecosystem and higher competitive intensity in the smaller ticket segments have not yet eased materially.

2:43 On the internal side, we have used this peer to tighten our credit policy and checks, rationalize nonperforming branches, relocate others, and strengthen the team with the focus on improving productivity in our existing branches rather than on a network expansion. SME retail disbursements remain measured during the quarter, although they were higher sequentially compared to quarter one FY 'twenty seven. As the consolidation measure takes hold and the operating environment gradually improves, we expect better performance on the SME retail disbursement front in the second half of the year. With that overview, let me come to our financial performance. Let me begin with our AUM performance. Our AUM as of 09/30/2026 stood at INR1627 crore, which was up by 15 year on year from INR1397 crore and up 88% sequentially from INR $150.05 crore at the end of quarter one FY twenty twenty seven.

3:44 On book AUMs at INR $15.78 crore up which was up by 21% year on year and 7% sequentially. Growth during the quarter continued to be led by the wholesale vertical. The AUM mix now stands at 27.73% between SME retail and wholesale compared with 34.66% a year ago and 30.70 at the end of Q1 FY27. Total disbursement for the quarter stood at INR385 crore, which was up 31% year on year and 20% sequentially. This is the highest quarterly disbursement in the company's history. For the first half of FY 'twenty seven, disbursements stood at INR706 crores, which is up by 18% over first half of FY 'twenty six.

4:30 Collections stood at INR $2.98 crore in quarter two, which is up 16% year on year and 5% sequentially taking first half of FY 'twenty seven collections to INR $5.80 crore. Collection efficiency improved to 99% during the quarter from the 98% maintained over the preceding four quarters. Apart from on book AUM growth, we continue to work on strengthening our fee income through joint lending structures with select industry partners in the wholesale segment. These structures continued to support growth during the quarter and our off book AUM stood at INR50 crore as of 09/30/2026, which is up from INR33 crores at the end of quarter one FY twenty twenty seven.

5:16 We see joint lending as an important lever for the wholesale segment. It allows us to participate in larger transactions while retaining control over the project and cash flows deepens our relationships with larger NBFCs and banks and adds a fee based income stream alongside our interest income, thus improving our ROEs. We expect activity to build up on this front further over the coming quarters. Now coming to our asset quality, gross NPA stood at 1.13% as of 09/30/2026 compared with 0.95% in quarter one FY 'twenty seven and zero point five one percent in quarter two of FY 'twenty '6. The net NPA stood at 0.71% compared with 0.60% in quarter one FY 'twenty seven and zero point three nine percent in quarter two or FY 'twenty six.

6:12 Gross Stage three assets stood at INR17.84 crores, again INR13.92 crores at the end of the first quarter of FY 'twenty seven. Total ECL provision stood at INR 19.67 crore or 1.25% of the loan book with the provision coverage ratio at 110.29%. Write offs during the quarter were INR 2.05 crore lower than the 2.87 crore in quarter one of this financial year while recovery stood at 1.44 crore. I would also like to provide some context on recoveries. Major of our book is of AC compliant and we expect recoveries to improve in the future as case resolution progress through the legal process.

6:59 Now moving to our P and L performance, net interest income for quarter two FY twenty seven stood at INR49.6 crore which is up 21% year on year and 10% sequentially driven by a high... Higher average AUM during the quarter. Total income stood at 77.4 crore, also up 21% year on year and 10% sequentially. Profit before tax stood at 35 crores, which is up 21% year on year and 18% sequentially. Profit after tax stood at 25 crores, which is up by 2% year on year and 13% sequentially. The gap between PBT and PAT growth on a year on year basis is on account of a lower effective tax rate in the base quarter of quarter two FY twenty six.

7:45 Hence PBT is a better comparison in this quarter. The annualized ROA improved to 6.30% from 5.86% in quarter one of FY twenty seven and annualized ROE improved to 14.86% from 13.82. For the first half of FY 'twenty seven, total income stood at INR147.7 crores, which is up 20% year on year. Profit before tax at INR64.7 crores, up 15% and the profit after tax is INR 47.1 crore, which is up by three percent. Now finally, the operational and funding front, our branch network stands at 35 branches across seven states. During the quarter, we continued with the rationalization of nonperforming branches and the relocation of others, in line with our focus on improving branch level productivity and operational efficiency in SME retail.

8:39 On the funding side, we continue to make progress in strengthening our lender base. Our lender base stands at 35 comprising a well diversified mix of public sector banks, private banks, SFCs and NBFCs. The total borrowing stood at INR 962.90 crores as of 09/30/2026. Importantly, we have good availability of funds to support growth in the coming quarters as well, especially on the wholesale front. Undrawn sanction limits including the NCD stood at INR210 crores as of 09/30/2026 compared with INR90 crores at the end of quarter one of this financial year FY27 over and above balance sheet liquidity of INR76.8 crore.

9:27 Our ALM remains positive across all buckets. The leverage ratio stands at 1.5x, well within our thresholds and leaving meaningful headroom for growth and our capital adequacy ratio stands at 40.87. Our credit rating continues to be A minus stable from equity rating and research, enabling access to capital on competitive terms. Together, these gives us the funding capacity and the confidence to keep growing the wholesale segment through the rest of the year. To conclude, quarter two FY 'twenty seven has been a quarter of strong operating performance with record disbursement, 15% AUM growth and 21% growth in both NII and PBT and an improvement in return ratios over previous quarter.

10:16 Looking ahead to the second half of FY twenty seven, we expect the Wholesale segment to continue to drive AUM growth for the remainder of the year supported by our funding operation and the opportunity we continue to see in our core markets. Alongside on book growth, we will continue to build off book AUM and fee income through joint lending structures. In SME retail, we expect these investments to improve in the second half as the consolidation measures of the past few quarters begin to yield results and the operating environment gradually improves. We will continue to pursue disciplined growth in both business verticals with asset quality and conservative leverage remaining our priorities. Thank you. And now we can open the floor for questions. Thank you very much. We will now begin the question and answer session.

12:15 The first question is from the line of Himanshu Pattaya from Steadford Investment Managers. Please go ahead. Am I audible? Yes, you are. Yes. My first question was on the wholesale business. How much of approvals are there and disbursements are pending on the wholesale side of the business? And what we are seeing is or what we are hearing is there is some slowdown on the residential real estate business. So what is your thoughts or outlook? And how are you seeing the growth in loan book? And let's say the repayments, some thoughts on that will be helpful.

13:02 Yes. In terms of our pipeline, if you are asking, so we have a reasonable good pipeline at the end of September where roughly, you can say, it's around INR 300 crores to 400 crores kind of a pipeline. We are already doing the due diligence and some sanctioning has already been done. And so the second part of the question, which is more important, is that what is the scenario in the wholesale and what you are hearing around the market is no doubt. We had a very good year, four years where the sales and the price rise was there. Yes. And we, as a lender, we are more concerned with the specific projects where we visualize the cash flows, which are the most important part. In all our projects, it is a we do cash flow back lending only and we are there we have a complete control over the their cash flow through the escrow mechanism. So our focus is on, you can say, affordable housing, where even if there is no kind of any slackness and the projects are getting oversold five to 10x, it's a kind of a drop lottery system that is prevalent here.

14:09 And the price has been fixed by the government. And the second is the mid income housing, where even if the location and the pricing is right, we are seeing that the sales are sufficiently good. And something doesn't make any reason which getting sold to 100% day one, even if the project gets sold 30% to 40% in two to three months and there are some reasonable sales over a period of next twenty four months, the scalability of the product is always there, and it is better for the all the stakeholders of those projects. So yes, we have as a lender, we have to be cautious. We have to project specific, location specific and the borrower specific. Being in this lending industry in this specific region for last twelve, thirteen years, we have a strong insights and strong relationships.

14:56 And that help us. And yes, as a lender, we have to be on toes and always see the scenario what is around, and we always keep on and we have been very conservative in that way, and we are always very we keep those scenarios in view and do lending according to that. And last year, size is too small and the kind of pipeline we have always, we get a choice of whom to lend, and we only pick and choose a customer according to our who fulfill our parameters. Chandan can add more on this. Just to add two, three points, Imanzu. As an strategy, CSL Finance always focused on kind of affordable in group, in large segment itself. The CSL is really focused on the affordable housing segment, while the sales is not going to be any challenge. Until date, whatever the projects have been launched in anywhere in affordable housing project itself, the sales in all those projects itself.

15:57 Now coming on your point and dividing the CSL portfolio as on date, we find that 30% or to 40% of the portfolio belongs to the affordable housing segment. And where the sales is not going to be challenged, reason being the sales will happen through the lottery system, and it happens on the day one of the launch itself. Other than that, out of rest, 60% to 70% of the portfolio, 35% belongs to the small housing, Where there is no slowdown in the we don't find any kind of slowdown into that segment. Reason being that are the small plotted projects and majorly the locations which we fund are very much marquee. So there is no kind of slowdown to that space. Only 30% of the portfolio where you are telling that the portfolio as the sale could be the challenge. So being like a conservative lender, we keep on focusing on those locations only or the geographies which are like moving or the infrastructures are good. We are not experimenting with any kind of the new geographies or the new locations where the infrastructure is yet to be developed. So we are very much like confident that the projects which we are voting in that 30% segment itself would not face any kind of challenges in the terms of sales or like churn in coming like years, market goes down by 10% or 20%.

17:18 One thing on this wholesale, we have written there are 128 active accounts, okay? So active accounts means 121 projects which we are funding or these would be 121 separate builders whom we are working with? Some... No, it's a 128 project. Like the 128 project that is under currently under our funding is funded by us. Okay. So one builder can have three projects also for on which we are working with him? Yes, yes, two, three projects. But generally, in case of the large, we keep on exposure limit. For the small projects, like where the exposure size is around INR $23.05 all kind of thing, we used to fund like the whole as a kind of SPP kind of such a single plotted project, which others call it as a housing loan. We used to keep on that as CRE exposure and that we used to fund two or three projects simultaneously for a single group forward.

18:20 So out of these 121 projects, how many would be the, let's say, the builders or separate builders to... You want to ask the number of customers? Yes, number of customers or builders whose these 121 projects would be there? Around 80, 80 to 80, 90 builders are there. Okay. Okay. And one more thing. What I see is that gross NPA, whatever it is, is not on the wholesale side, it is on the SME side, okay? We have seen a lot of, let's say, write offs and all those things, and we have also chosen not to grow, which I think which is very appreciable.

19:12 But still, the gross NPEs are around 3% if I take everything on the SME side of the book, okay? At INR 17 crore on, let's say, the overall SME book, okay, which is around INR $4.50 crore, okay? So what is the outlook from here on? And secondly, we have chosen to grow slowly, steadily and hired a new CEO also for that business. But what would be our strategy from here on when we, again, start growing that book? Or how are you thinking about that business? What are we going to change in that particular product?

19:58 Yes, yes. So broadly, there is no change in the product line, only that we have made few changes. So earlier, we used to do certain accounts beyond INR50 lakhs, which we have stopped in last eighteen months. So that is one because in INR 17 crore NPA, you will see there are seven, eight accounts, which are more than INR 50 lakhs. So we're and what we are seeing that the good accounts we used to get taken over, the foreclosure used to happen within nine months to fifteen months and little stressful account used to remain with us. So we completely stopped. And most of these accounts, the NPAs have come up during the book for one period between '22 to '24. And in last eighteen months, there is no NPAs which have come in last eighteen months.

20:45 So that was one in terms of fact that we have stopped 50 lakh plus. Our focus on less than 10 lakhs has also reduced because we have seen these are marginal borrowers and having only one property, which is coming to us as a collateral and that would completely rural kind of a property. And where any mishap in terms of his businesses or any education wise or maybe any marriage in the family or any health issues, that borrower becomes delicate and becomes difficult to roll back. So the focus is more on the 10 to 40 lakhs, which are more compliant towards surface fee also. That is one of the most helpful tool in recovery. So that is one change we have done. Second change, we have relocated and certain branches.

21:33 All these were mostly branches, which are doing less than 10 lakhs, certain Akhani properties, branches in Gujarat and certain completely rural property branches in Rajasthan. So we have done consolidation of those. And where we were lacking, I think we have built one of the finest technology platform, our legal operations and all teams are very good. So the distribution and the attrition, which was we were facing a lot, a bigger issue, which was there with us. Now that attrition rates are stabilizing, our team is stable. We have a now complete senior middle level team with us. And the focus now going forward will be on the distribution side, and that is where we need to strengthen ourselves.

22:19 And with the new CEO coming, and we are very hopeful, he's a young passionate and who has seen all the verticals of the SME who will stay in this vertical as a they have also seen that because their CV was there and all the SODs were there, but on full time person was not there to oversee on day to day basis and to bring the cohesiveness of all the divisions of the SME and to strategize more and to take forward those what we have projected ourselves in the management meetings. And so now we'll have the complete one person who will take forward these things. So I would not like to say too much and would like to speak in the next quarter when we see a three month of change that will happen and after that, and but we are hopeful that the things should be better. And last two months have been the best two months of this financial year for SME.

23:18 And we hope that post Diwali, our numbers will be better. And one last thing. Would we like to increase the bucket, let's say, like a gold loan or a two wheeler type of loans or the product what we have on the small ticket size SME that would be the only product for us at least for next twenty four to thirty six months? Or you are also thinking of increasing the product span over, let's say, next two years to three years? Sir, we don't want to we are not seeing any new product in last at least fifteen, eighteen months. The reason being, we still have scope to grow ourselves in the existing product. And those are specialized for the gold loans, unless until we have a vision and we want to open, make it a huge vertical. And those verticals require a huge, I would say, they start performing in terms of operational profitability, start coming after two, three years of investing into those verticals.

24:21 We still want to as a company, which we have told earlier so many times that knowledge is very important, building the knowledge in the company through technology and the operating platforms, that will be a little edge. So in gold loans, already the bigger companies are there. And still, we want to grow our SME first in the lab business with the self employed customers. So and then we would like to see whether we want to go into vehicle finance or gold loan or any other variant of that. But it will not make any sense start focusing on the newer one without still be a lot to grow and build our existing SME lab portfolio. So neither it will make any operational metrics, and it will also it will take a lot of bandwidth on strategizing the new vertical and still we have to consolidate a lot our existing SME vertical.

25:18 So as a company, with the size we are in and it doesn't make any sense to open a new vertical. So just for sake of building a new, I would say, product line and without having a clear strategy will not make any sense. And so we don't want to open in the immediate fifteen to eighteen months. Okay. Okay. Thank you and happy Diwali to everyone. Thank you. Thank you. Same to you. Thank you. As there are no further questions from participants, I now hand the conference over to management for closing comments.

26:30 Yes, yes. So I think the one person who was asking question has covered most of the things I think which have been so yes, we have already in the opening speech, we have given our performance, and we are hopeful that this quarter will be better on SME, where we are working a lot. And so wish you, everyone, all our stakeholders and a very happy Diwali and we will see you all in after six months with I think better set of numbers. Thanks to everyone. Thank you. Ladies and gentlemen, on behalf of CSL Finance Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.