Asset Reconstruction Company (India) Ltd (ARCIL) Q1FY27 Concall Transcript - Jun-2026 Qtr
Moderator (IIFL Capital): Ladies and gentlemen, good day, and welcome to Asset Reconstruction Company India Limited Q1 FY '27 Earnings Conference Call hosted by IIFL Capital. 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. Should you need assistance during this conference call, please signal an operator by pressing "*" then "0" on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rikin Shah from IIFL Capital. Over to you, sir.
Rikin Shah (IIFL Capital): Thank you, Iqra. Good evening, everyone. Welcome to Asset Reconstruction Company (India) Limited's 1Q FY '27 Earnings Conference Call. From the management side, we have with us Mr. Phanindranath Kakarla, CEO and Managing Director, and Mr. Pramod Gupta, CFO. They will be discussing with us the 1Q FY '27 earnings results summary and the outlook for the business going ahead. Without taking any more time, I will hand it over to Mr. Phanindranath Kakarla for his opening remarks. Thank you, and over to you, sir.
Phanindranath Kakarla (Asset Reconstruction Company (India) Ltd): Good evening ladies and gentlemen, and welcome to the earnings call of Asset Reconstruction Company (India) Limited for the first quarter ended June 30th, 2026. I am Phanindranath Kakarla, Chief Executive Officer and Managing Director of Arcil. Joining me today are Pramod Gupta, our Chief Financial Officer. We also have IIFL Capital, our call host, and Strategic Growth Advisors, our Investor Relations advisors, on the line. This is our first earnings call since our equity shares were listed in September 2026, and I would like to thank our shareholders, analysts, and the wider investment community for joining us. The listing matters to us for another reason. Asset reconstruction companies have been an important and growing part of India's lending ecosystem for two decades, helping lenders clean up their balance sheets and recycle capital into new credit. Yet, the industry has remained largely out of public view. As the first ARC to be listed, we hope to bring greater visibility to the role ARCs play and to the opportunity ahead of them. That opportunity is substantial. With more than two decades of resolution experience, a strong balance sheet, and a platform built for scale, we believe Arcil is well placed to take advantage of it. Our approach to the stressed assets business can be summarized in one line: Buy with discipline, resolve with urgency, and deploy capital with a clear focus on returns. Today, I will cover three points: the size of the opportunity in front of the ARC industry, the capabilities Arcil has built, and the track record that shows these capabilities at work. Pramod will then take you through our Q1 results and explain why our standalone financials are the right lens for Arcil. How the ARC business works: For those newer to our industry, here is how it works. An ARC acquires stressed loans from banks and other financial insti- institutions, usually at a discount to the dues outstanding. Each acquisition is held in a separate trust, which issues security receipts to fund the purchase. The ARC must invest in a minimum share of these security receipts, and the selling lender or other investors may hold the rest. The ARC then works to resolve the loans through settlement, restructuring, enforcement of security, or proceedings under the insolvency framework, and the recoveries are used to redeem the security receipts. Lenders get a way to transfer stressed exposures and release capital for new lending, and a specialist institution brings its capital and resolution expertise to recovering value from them. Let me start with the market. Stressed assets are a structural feature of any growing credit system, not a feature of one particular cycle. As India's credit market has expanded, so has the pool of stress within it. According to a CRISIL report, total stressed assets across banks and NBFCs, including special mention accounts, NPAs, and written-off loans, are around 24 lakh crores. Of this, around 12 lakh crores is written-off books, which no longer appears in lenders' reported NPAs, but still holds recovery value. The composition of this pool is also broadening. Retail stress has roughly doubled from about 3.5 lakh crores in FY20 to about 7 lakh crores in FY26. MSME stress stands at about 9.2 lakh crore, and the corporate pool remains large and steady at about 7.6 lakh crores. The point at which ARCs can engage is also moving earlier. ARCs can now acquire special mention accounts before loans become NPAs. And according to the CRISIL report, these accounted for about 30% of new ARC acquisitions in FY25, up from about 14% in FY24. Earlier participation widens the resolution options, because the borrower's business and the collateral are often in better shape. Each year, ARCs acquire only a small share of this pool, below 10% as per our estimates. With most stress still on the lenders' books, a well-capitalized, well-equipped ARC has substantial room to grow.
Phanindranath Kakarla (Asset Reconstruction Company (India) Ltd): the capabilities to take advantage. Capturing this opportunity takes a combination of capabilities: pricing and underwriting at the point of acquisition, resolution expertise across very different classes, legal and on-ground infrastructure, and technology to operate at scale. This is where Arcil's history of building expertise and capabilities matters. Arcil was India's first ARC incorporated in 2002. We have resolved corporate stressed assets for more than two decades and have acquired and resolved retail loans since 2008, so we have operated through several credit and resolution cycles. In corporate and SME, we use the full range of resolution routes, restructuring, negotiated settlement, enforcement under SARFAESI and the DRTs, and the resolution under IBC. In retail, the model is different. It is about scale, data, and execution. Today, we manage more than 3.29 million retail borrowers on our technology platform using proprietary scorecards, skip tracing, segmentation, automated settlement workflows, and digital payments. This platform is also the foundation of our collection-as-a-service business through which we intend to offer our collection capabilities to banks and NBFCs. Underpinning all of this are relationship built over two decades. Lenders come back to us because they've seen how we price, how we resolve, and how we treat our borrowers. And over the years, we have worked with more than 140 lending institutions, many of them repeatedly. We work with a nationwide network of lawyers, valuers, and collection partners who know our standards and processes, and we work with borrowers to find resolutions that preserve value wherever possible rather than defaulting to enforcement. And we do it with a lot of empathy and understanding of the borrowers. In a business built on trust and access to deal flow, these relationships are hard to replicate and they are among our most durable advantages. Finally, we structure transactions flexibly, flexibly from all-cash acquisitions to structures in which sellers invest alongside us. And we commit our own capital in every deal. As of June, Arcil's own investment in its AUM stood at about 4,200 crores, roughly 22% of AUM. Our income follows from this model. We charge management fees and recovery incentives for managing and resolving the assets. We also earn returns on our own investment in security receipts, including upside income once they are fully redeemed, as well as interest income, write-backs when we recover amounts written off in earlier years, and mark-to-market changes on our SR investments. Put simply, recoveries drive our income and we have built this expertise of over 20 years, close now close to 25 years. The test of this capability is the is the track record and I would point to four things. First, scale. Our AUM has grown from 15,230 crores in March 2024 to 20,150 crores in March 2026, about 15% a year, while our only investment in that AUM has grown about 26% a year. Second, we are gaining share. Over the last two years, Arcil's share of industry AUM rose from 11% to 15%. Our share of new acquisition grew even faster from 6% in FY24 to 10% in FY25 and 17% in FY26, a year in which we acquired close to 6,000 crores. Third, disciplined pricing. Across the portfolio we manage, we have acquired assets at about 26% of their outstanding dues and our AUM today represents only around 14% of the 1.4 lakh crore of dues we manage. That discount is our margin of safety and it is the main reason credit risk in our book is contained. Fourth, consistent recovery. We have recovered more than 20% of our opening AUM every year,
Phanindranath Kakarla (Asset Reconstruction Company (India) Ltd): 21% and 25% and our cumulative SR redemption ratio stood at 52.5% in June. That consistency shows in how we have grown. Over the last 3 years profit profit after tax has grown about 20% a year from 239 crore in FY23 to 408 crore in FY26. We have grown without stretching on price with acquisition cost holding at 26 to 27% of dues every year. We have diversified the book with Retail and SME rising from about 21% to 31% of AUM since March 2024. And we have kept the balance sheet conservative with debt to equity of 0.34 times and capital adequacy of 72.5% today. That is growth that is steady, calibrated, and risk managed. And is how, and it is how we intend to keep growing. Before I hand over, one point about how to read our results. Our business has a seasonally seasonality similar to that of the lending industry. Lenders sell most stressed assets towards the end of the financial year as part of the asset quality and provisioning reviews they carry at, they carry out ahead of year end. In FY26 Q1 accounted for just 8% of our acquisitions for the year and Q4 was almost half. Recoveries in our corporate book, meanwhile, come in chunky amounts that are difficult to time exactly because they depend on resolution events. Given the seasonality of acquisitions and chunky nature of corporate recoveries, our performance is best read over longer periods and trends rather than quarter by quarter. Quarter 1 reflects both, a recovery led quarter in a seasonally light period for acquisitions. With that, I will hand over to Pramod. Thank you. Pramod?
Pramod Gupta (Asset Reconstruction Company (India) Ltd): Thank you, Sunny, and good evening, everyone. I will cover three things: our Q1 performance and how to read it, our balance sheet, and why we present and manage the business on a standalone basis. Q1 FY27 in context. Q1 was a recovery-led quarter. Recovery rose 150%, profit after tax more than doubled, driven by strong corporate resolution, while acquisitions followed our usual seasonal pattern. Starting with scale: as of June 30, 2026, our AUM state stood at 19,574 crore, up 16% on the year, and dues outstanding under management rose 20% to 140, 1.40 lakh crore. Corporate, Retail and SME represented about 68%, 24% and 8% of AUM, respectively. Our acquisitions, our business builds through the year. In FY26, we required acquired about 502 crore in Q1, about 2,538 crore across Q2 and Q3 and over 2,900 crore in Q4. Q1 FY27 follows the same pattern. We acquired 353 crore of stressed assets with Arcil investing 143 crore of its own capital. This is about 150 crore less than last year Q1, roughly 2.5% of what we acquired across FY26. The activity and pipeline we are currently seeing give us a give us confidence that acquisitions through the year will be strong. As always, price remains central to every acquisition we make. Recoveries, meanwhile, rose sharply. Total recoveries were 1,066 crore against 425 crore in Q1 FY26, an increase of 151%. This is the core of our model. Value is created, not by acquiring stressed assets, but by resolving them and converting them, that those resolutions into cash. Our cumulative SR redemption ratio rose to 52.5% from 50.8% in March 26. The size of this increase also reflects the nature of our corporate recoveries. These are chunky
Pramod Gupta (Asset Reconstruction Company (India) Ltd): Our corporate book is about 13,000 crores. So resolutions there will always come as individual, sizable recoveries. Because they are event based depending on milestones such as settlements, court orders, or asset sales. There can be timing difference from one quarter to the next. Retail recoveries, being granular, are far steadier. A strong corporate resolution in one quarter does not mean the next quarter will match it, and a lighter quarter does not signal a weak book. Put simply: Q1 acquisitions were about 6% of last year's full year level, below the usual Q1 share, while Q1 recoveries were 31% of last year's total and Q1 profit, 35%, both above. Financial performance, standalone: Revenue from operations was ₹274 crores, up 128% on year, and total income was ₹276 crores, up 115%. Fee and other income more than doubled to ₹118 crores, reflecting the larger AUM and higher resolution during the quarter. Recovery of Security Receipts fee and expenses written off in earlier years contributed ₹120 crores. I want to be clear about this item. Recovery value from assets we have previously written off is a recurring part of our business. It contributed about ₹288 crores in FY '24, ₹100 crores in FY '25, and ₹66 crores in FY '26. The amount varies with timing of resolution, and this quarter was a strong one. So it is best assessed over several years, i.e., for the longer period. Net is an unrealized mark-to-market gains were ₹23.6 crores. On expenses front, finance costs rose to ₹25 crores from ₹3.2 crores as we move to moderate borrowings since the second-half of FY '26 to fund the strong acquisition activities. And those acquisition acquisitions have yet to contribute fully in terms of the collections and the income. Major use of leverage support our return on equity. We made an ECL provision of ₹32 crores which relates to certain receivables that we expect to realize in the near term, at which point the provision would be reversed. Employees expenses were ₹21 crores, reflecting the impact of New Wage Code and normal increments, and other expenses were ₹11 crores. Profit before tax therefore was ₹192 crores, up 106%, and profit after tax was ₹143 crores, up 107%. A PAT margin of about 52% of total income. Diluted EPS for the quarter, not annualized, was ₹4.41. Balance sheet: As of June 30, 2026, our net worth stood at ₹3,222 crores and net owned funds are ₹2,792 crores with CRAR of 72.5%. Borrowings reduced to ₹1,100 crores from ₹1,200 crores in March, giving a debt equity ratio of 0.34x and cash and bank balances stood at ₹252 crores. With modest leverage, we have ample capacity to fund acquisitions as the year progresses. Why standalone is the right lens? Finally, I want to address our consolidated results, which you will also see in our filings. Consolidated profits after tax for the quarter was ₹59 crores against standalone profit of ₹143 crores. The difference arises because under Ind AS, we consolidate about 220 trusts in which Arcil is deemed to have control. These trusts are not operating subsidiaries in the usual sense. These assets are held for the benefit of all SR holders and Arcil acts as trustee. Consolidation removes the fee those trusts pay us, which are expenses in the trust books, and brings in trust-level resolution expenses and fair value movements of the financial securities, which largely belongs to the other SR holders. Our standalone results, by contrast, capture what accrues to Arcil's shareholders: the fee we earn and the returns on our
Pramod Gupta (Asset Reconstruction Company (India) Ltd): ment of security, security receipts. It is also the basis on which our regulatory ratios, CRAR, and net-owned funds are monitored. For this reason, standalone is how we manage and measure the business. And slide 21 of our presentation reconciled the two. So effectively, standalone financial results produce the true value of the state of affairs for our shareholders. Closing. To summarize, we operate in a large market in which we have steadily gained shares with our share of industry AUM rising from 11% to 15% over two years. We have built the capabilities to take advantage of that market and our disciplined pricing acquiring at around 26% of the dues gives us a margin of safety. Q1 was a recovery-led quarter in a seasonally light period of acquisition, and we would encourage you to assess us for the full year and on a standalone basis. Our objective remains straightforward, buy with discipline, resolve with urgency, and deploy capital with a clear focus on returns. With that, we conclude our opening remarks and would be happy to take your questions. Thank you.
Moderator (IIFL Capital): Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles.
Moderator (IIFL Capital): The first question is from the line of Rikin Shah from IIFL Capital Services. Please go ahead.
Rikin Shah (IIFL Capital Services): Thanks. So, I had a couple of questions. The first one is on you know the recovery rates, a to begin in the ARC industry itself. So, in your presentation, you have disclosed that the recovery rates for the industry itself has gone up from 35% to almost 85% levels in the last few years. Wanted to understand what's driving this stark improvement in the recovery rates for the industry as a whole and why do you expect that to improve further even from current levels? So, that's question number one. I have a couple of other questions, then I'll come back. Thank you.
90 more turns of this transcript: log in to Stocksigma to read the full call.