Asset Reconstruction Company (India) Ltd (ARCIL) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to Asset Reconstruction Company India Limited Q2 and H1 FY '27 earnings conference call. 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 the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. Without taking any more time, I will now 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 morning, ladies and gentlemen, and welcome to the earnings call of Arcil for the second quarter and half year ended September 30th. At the outset, my warm wishes to all of you for the festive season. I am Phanindranath Kakarla, CEO and MD of Arcil. Joining me is Mr. Pramod Gupta, our Chief Financial Officer and Strategic Growth Advisors, our relation Investor Relations advisors. I think we continu- You may have noticed the image on the cover of our presentation. Kintsugi is the Japanese ar- art of repairing broken pottery with gold so that the restored piece carries more value than before. That is a fair picture of our work. We take assets that are broken and restore their value guided by the same approach. Buy with discipline, resolve with urgency, and deploy capital with a clear focus on returns. This half year also marked a milestone for us. In September,
Phanindranath Kakarla (Asset Reconstruction Company (India) Ltd): Arcil became India's first listed ARC. Since then we have multiple investors and more than one lakh shareholders, and we take seriously the transparency that comes with being a listed company, including being clear about how our business should be read. Given our recent listing, it has only been a few weeks since our first call. So, I will keep the context brief and spend most of my time on what this half year tells us. Pramod will then take you through the numbers in detail. The scale of the opportunity has not changed, in fact, likely to grow. CRISIL estimates total stress across banks and NBFCs at about 23.7 lakh crores in FY26. About 15.9 lakh crores of it two thirds is NPAs and written off loans, which is this which is what stress lenders actually sell. The remaining 7.8 lakh crores is special mention accounts. Over the last couple of years, we've seen that banks and NBFCs have also started selling special mention accounts. In fact, in the retail book across the industry, close to over 25% of the accounts being sold by number of accounts is of special mention accounts. Corporate written off loans alone account for about 6.4 lakh crores and retail and MSME for the remaining about nine and a half lakh crores. This pool has been growing by around a lakh crores a year, while ARCs buy below 10% of it, which is our own estimate, internal estimate, each year as per our estimates. That gap and the growing stressed asset market is the industry's runway. As India's first and largest private ARC, we are well equipped to use that runway. We price with discipline. Our AUM is is about 14% of the one 1.4 lakh crore of dues we manage. And in this half year, we acquired assets at about a fifth of their dues. We draw on more than two decades of resolution experience and relationships with more than 140 lending institutions. Our technology platform serves more than 3.29 million retail borrowers supported by 15 offices across 12 states. And with net worth of over 3,300 crores, debt to equity of 0.37 times and capital adequacy of 70.5%, our balance sheet has clearly room to grow. These strengths are visible in our market position. Between FY24 and FY26, our share of industry AUM rose from 11% to 15% and our share of industry acquisitions from 6% to 17%. Compared with the half year of last year, our AUM grew 21% to 20,274 crores. Acquisitions rose 18% to 1,707 crores and recoveries rose 21% to 2,135 crores. Total income rose 48% to 516 crores and profit after tax rose 54% to 290 crores. The half also shows the pattern we described on our first call. Acquisitions build build through the period. Quarter two acquisitions were nearly four times those of Q1 and 43% higher than the same quarter last year. Recoveries crossed 1000 crores in both the quarters, even though the timing of individual corporate resolutions left Q2 below the strong Q2 last year, and the ECL provision taken in Q1 has been partially reversed. That is why we ask you to look at our business over longer periods. Resolution cycles are long, corporate recoveries are lumpy, and acquisitions are seasonal, concentrated in the second half as lenders review asset quality ahead of their year end. A half year smooths some of that variation, a full year smooths it more. We've also made progress on collection as a service, which puts the platform we built for our own retail book to work for banks and NBFCs. We have started pilots with with a couple of lenders, and we expect to scale it through the second half. We go into the second half, seasonally our strongest period for acquisitions, with a healthy pipeline. Our priorities are to grow our corporate book,
Phanindranath Kakarla (Asset Reconstruction Company (India) Ltd): and underlying value, to increase the share of retail and SME, to scale collection as a service for banks, to evaluate stress microfinance portfolios selectively, and to keep investing in technology and analytics to lift recovery outcomes. With that, I will hand over to Pramod. Thank you.
Pramod Gupta (Asset Reconstruction Company (India) Ltd): Thank you, Phani, and good morning, everyone. I will take you through our performance for the half year, touch briefly on the second quarter, and then cover our balance sheet and our consolidated results. Unless I say otherwise, all comparisons are with the first half of FY '26. As of September '26, our AUM stands at 20,274 crore, up by 21% from 16,788 crore as of September 30, '25. Corporate, retail, and SME represented about 66%, 25%, and 9% of our AUM, respectively, against about 69%, 24%, and 8% earlier, as retail continues to grow share. Dues standing under management rose 20% at the same period to about 1.4 lakh crore from 1.17 lakh crore. During the half year, we are first time crossed our retail AUM to 5,000 crores. We acquired 1,707 crore of stressed assets in H1, compared with 114 1,445 crore in H1 FY '26, an increase of 18%. The build through the half was marked 353 crore in Q1 and 1,354 crore in Q2, with Q2 up 43% on the 949 crore of Q2 F '26. Arcil invested 718 crore of its own capital in H1 acquisition, an investment ratio of 42%. Recoveries for H1 were 2,135 crore, compared with 1,765 crore in H1 FY '26, an increase of 21%. Q2 recoveries were 1,069 crore, compared with 1,339 crore in Q2 FY '26, a quarter that included large corporate resolutions. That is the lumpiness of corporate recoveries at work and why the half-year comparison is more meaningful one. SR redemptions for H1 were 1,583 crore, compared with 1,500 crore in H1 FY '26. And our cumulative SR redemption ratio remains at about 52%, up from 50.8% as of March 31, '26. Revenue from operations for H1 were 512 crore, up from 4 330 from 337 crore in H1 FY '26, a total income of 516 crore, up by 48%. The strongest line was fee and other income, which rose 82% to 227 crore from 125 crore on the back of large AUM, higher and higher resolutions. Other operating income, essentially investment upsides, were 122 crore, compared with 87 crore in the previous half. Write-backs, the recovery of security receipts, fees, and expenses written off in earlier years, contributed to 129 crore, compared with 37 crore at crore earlier. As we noted earlier, this this month, these recover the recur every year, but timing can vary. Net unrealized mark- mark-to-market gain were 26 crore, compared to 72 crore in the H1 '26. On expenses front, expenses and finance costs were 43 crore, compared with 7.5 crore, reflecting borrowing down drawn from fund acquisitions. Impairment, depreciation, and amortizations were 13 crore, compared with 4 crore. This is ECL provision made in Q1. A part of that was reversed in Q2. Employee expenses were 39.2 crores, compared with 30.8 crore in H1 FY '26, net of 3.5 crore reversal of an excess provision for the previous year. Other expenses were 25 crore, compared to 18.3 crore. Profit before tax for H1 was 390 crore,
Pramod Gupta (Asset Reconstruction Company (India) Ltd): 54% from 189 crore. A PAT margin of about 56% against 54% in the H1 FY26. Our diluted annualized EPS comes around 18.5 rupees. On an annualized basis, return on equity for the half year was 18% and ROA of 12.6%. compared with 14% and then 10.6% respectively for FY26. And these are annualized from a half year that included strong write-backs that best read alongside our full-year returns. For the second quarter compared with the same quarter last year, total income was 240 crore, up 220- 8% to from 222 crore, and profit after tax was 146 crore, up 23%. As of September 30, 2026, our net worth stands at 3,337 crore compared to 3,079 crore in March 26 and our net owned funds are at 2,882 crore compared with 2,540 crore a year earlier. Capital adequacy was very comfortable at 70.5%. Our borrowings rose to 1,224 crore from 1,100 crore as of June 30, 26 as we funded Q2 acquisitions taking debt-to-equity to 0.37 times, which is quite moderate. That leaves us well placed to fund the second half, seasonally our stronger period for acquisitions. Consolidated results. Finally, our consolidated results for H1, consolidated profit stands at 219 crore against standalone profit of 290 crore and consolidated income stands at 496 crore compared to 516 crore. As explained in the earlier, the reason for the difference between the standalone and consolidated financials are that it's the timing issue as well as the gap between standalone and consolidated financials is about 84 crore and 71 crore, which means consolidated financial exceeded standalone in Q2. Standalone remains the measure of what accrues to our shareholders and the basis of our regulatory ratios, CAR and net owned funds. It is how we run the business. We would therefore ask you to focus on our standalone results, which where you access ARCIL performance, that and the reconciliation of is given on slide 22 in our presentation. To summarize, compared with the first half of the last year, acquisitions rose 18%, recoveries rose 21%, and profit after tax rose 54%. And the half year half allowed the seasonal pattern we described. We would ask you to judge us on these standalone numbers and our and over longer periods. We enter the second half with a strong balance sheet and a healthy pipeline. Our approach is unchanged. Buy with discipline, resolve with urgency, and deploy cap- capital with a clear focus on returns. Once again, thank you to all for joining early morning. And we now open for the questions. Thank you.
Moderator: Thank you very much, sir. We will be now begin a question and answer session. Anyone who wishes to ask a question may press "*" and "1" on the touchtone telephone. If you wish to remove yourself from the question queue, you may press "*" and "2". Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Murli from Oman Investment Advisors. Please go ahead.
Murli (Oman Investment Advisors): Hi. Good morning pallav and the team. So the revenue part I think this time we have some other operating income, last time we have recoveries. So because some some component is like a big chunk in every quarter, so how to look at this fine fee fee is consistent, but other components, so how to look at on an annual basis, sir?
Phanindranath Kakarla (Asset Reconstruction Company (India) Ltd): I think this is what we've been talking about, the ARC industry still has large corporate assets and and that
Phanindranath Kakarla (Asset Reconstruction Company (India) Ltd): that it is lumpy in recoveries. But given our large corporate book itself of about 13,000 crores of AUM, we will continuously have one or the other asset which will keep getting resolved. And I think that is what you should be looking at rather than analyse any one single recovery. Because these because given our large portfolio of corporate assets we will continuously have assets being resolved and given the size of those assets there will always be one or two large assets on a regular basis which will show. I think that regularity is what you should be looking at rather than looking at individual large items. Yeah, hope I've answered you.
Murli (Oman Investment Advisors): Okay. Yeah. Yeah. And secondly, on our strategy of entering into microfinance industry as a recovery, so how did we differ from normal bank NPFs? So do you think that that we have some better pie over there?
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