CSL Finance Ltd (CSLFINANCE) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator (TIL Advisors Private Limited): Ladies and gentlemen, good day, and welcome to the CSL Finance Limited Q2 and H1 FY '27 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. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sanyam Pokharna from TIL Advisors Private Limited. Thank you, and over to you, sir.
Sanyam Pokharna (TIL Advisors Private Limited): Thank you, Rutuja. Good evening, everyone, and thank you for joining us today for the Q2 and H1 FY '27
Sanyam Pokharna (TIL Advisors Private Limited): having earnings conference call of CSL Finance Limited. 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. Atul 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. Rachita Gupta followed by a Q&A session. Please note that any forward-looking statement made during this call should be considered in conjunction with the risk and uncertainties that we face. 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.
Rachita Gupta (CSL Finance Ltd): Thank you, Sayam. Good evening, everyone, and thank you for joining us today. I am pleased to share the highlights of CSL Finance's performance for the second quarter and the first half of FY27. 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 slow. The factors we discussed in our earlier calls, namely over-leveraged borrower profile, stagnant income growth, across the MSME ecosystem, and higher competitive intensity in the smaller ticket segment have not yet eased materially. On the internal side, we have used this period to tighten a credit policy and checks, rationalize non-performing branches, relocate others, and strengthen the team with the focus on improving productivity in our existing branches rather than on our network expansion. SME retail disbursements remain measured during the quarter although they were higher sequentially compared to quarter 1 FY27. As the consolidation measures 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 September 30, 2026 20 stood at 1,627 crore, which was up by 16% year-on-year from 1,397 crore and up 8% sequentially from 1,505 crore at the end of quarter 1 FY27. On-book AUM stood at 1,578 crores up which was up by 21% year-on-year and 7% sequentially. Growth during the quarter continue 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 disbursements for the quarter stood at 385 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 FY27, disbursements stood at 706 crore, which is up by 18% over first half of FY26. Collections stood at 298 crore in quarter two, which is up 16% year-on-year and 5% sequentially taking first half of FY27 collections to 580 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 continue to support growth during the quarter, and our off-book AUM stood at 50 crore as of September 30, 2026, which is up from 30 30 30 33 crore at the end of quarter 1 FY27. We see joint lending as an important level for the wholesale segment. It allows us to participate in larger transactions while retaining control over the project and its 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.
Rachita Gupta (CSL Finance Ltd): 18% as of September 30, 2026, compared with 0.95% in Q1 FY '27 and 0.51% in Q2 of FY '26. The net NPA stood at 0.71%, compared with 0.60% in Q1 FY '27 and 0.39% in Q2 of FY '26. Gross stage 3 assets stood at INR17.84 crores against INR13.92 crores at the end of the first quarter of FY '27. Total ECL provision stood at INR19.67 crores or 1.25% of the loan book, with the provision coverage ratio at 110.29%. Write-offs during the quarter were INR2.05 crores, lower than the INR2.87 crores in Q1 of this financial year, while recoveries stood at INR1.44 crores. I would also like to provide some context on recoveries. Major of our book is SARFAESI compliant, and we expect recoveries to improve in the future as case resolutions progress through the legal process. Now moving to our P&L performance. Net interest income for Q2 FY '27 stood at INR49.6 crores, which is up 21% year-on-year and 10% sequentially, driven by higher average AUM during the quarter. Total income stood at INR77.4 crores, also up 21% year-on-year and 10% sequentially. Profit before tax stood at INR35 crores, which is up 21% year-on-year and 18% sequentially. Profit after tax stood at INR25 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 Q2 FY '26. Hence, PBT is a better comparison in this quarter. The annualized ROA improved to 6.30% from 5.86% in Q1 of FY '27, and annualized ROE improved to 14.86% from 13.82%. For the first half of FY '27, 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 INR47.1 crores, which is up by 3%. Now finally, the operational and funding front. Our branch network stands at 35 branches across 7 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. 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 borrowings stood at INR962.90 crores as on September 30, 2026. Importantly, we have good availability of funds to support growth in the coming quarters as well, especially on the wholesale front. Undrawn sanctioned limits, including the NCD, stood at INR210 crores as on September 30, 2026, compared with INR90 crores at the end of Q1 of this financial year, FY '27, over and above balance sheet liquidity of INR76.8 crores. 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- Stable from Acuité Ratings & Research, enabling access to capital on competitive terms. Together, these give us the funding capacity and the confidence to keep growing the wholesale segment through the rest of the year. To conclude, Q2 FY '27 has been a quarter of strong operating performance with record disbursements, 16% AUM growth, and 21% growth in both NII and PBT, and an improvement in return ratios over the previous quarter. Looking ahead into the second half of FY '27, we expect the wholesale segment to continue to drive AUM growth for the remainder of the year, supported by our funding proposition 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 disbursements 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.
Rachita Gupta (CSL Finance Ltd): 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.
Moderator (TIL Advisors Private Limited): Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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 will wait for a moment while the question queue assembles. Participants who wish to ask a question, please press star and one. Ladies and gentlemen, to ask a question, please press star and one now. Participants, you may please press star and one to ask a question now. The first question is from the line of Himanshu Upadhyay from Steadview Investment Managers. Please go ahead.
Himanshu Upadhyay (Steadview Investment Managers): Am I audible? Hello?
Moderator (TIL Advisors Private Limited): Yes, you are. Please go ahead.
Himanshu Upadhyay (Steadview Investment Managers): Yeah. 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 slow down 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.
Rohit Gupta (CSL Finance Ltd): Yeah, 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 300 to 400 crore kind of a pipeline we are already doing the due diligence and 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, 4 years, where the sales and the price rise was there. Yeah. And we as a lender, we are more 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 the we we do cash flow backed lending only and where the we have a complete control over the their cash flows 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 5 to 10x. It's a kind of a draw of lottery system that is prevalent here. And the builder 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 100% day one. Even if the project get sold 30% to 40% in 2 to 3 months and there are some reasonable sales over a period of next 24 months, the saleability of the product is always there and it is better for the all the stakeholders of those projects. So, yes, 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 12, 13 years, we have a strong insights and strong relationships 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 lastly, our size is too small and the kind of pipeline we have always, we get a choice of to whom to lend and we only pick and choose customer according to our who fulfill our parameters. Chandan can add more on this.
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