Fedbank Financial Services Ltd (FEDFINA) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator (Equirus Securities): Ladies and gentlemen, good day, and welcome to the Q2 FY '27 Earnings Conference Call of Fedbank Financial Services hosted by Equirus Securities. 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. Shreepal Doshi from Equirus Securities. Thank you, and over to you, sir.
Shreepal Doshi (Equirus Securities): Thank you, Alleric. Good evening, everyone. We welcome you all to the earnings conference call of Fedbank Financial Services to discuss the Q2 FY '27 performance of the company. Today, we have with us the management of the company represented by Mr. Parvez Mulla, MD and CEO, Mr. CV Ganesh, CFO, along with other senior members of the management. I would now like to hand over the call to Mr. Lokesh Parikh, Investor Relations Head at Fedbank Financial Services. Over to you, Lokesh. Thank you.
Lokesh Parikh (Fedbank Financial Services Ltd): Thank you, Shreepal. Good evening, everyone. I would like to welcome all of you for joining our Q2 FY '27 results earning call. Before we start, I would like to highlight that some of the statements made on this call may be forward-looking in nature, including those related to our financial performance, business strategy and growth plans. These statements reflect our views as of today and may evolve with changing business and market dynamics. With this note, I now hand the call to our MD, Mr. Parvez Mulla, for his opening remarks. Thank you, and over to you, sir.
Parvez Mulla (Fedbank Financial Services Ltd): Thank you, Shreepal. Thank you, Lokesh. Good afternoon, everyone. I would like to extend a warm welcome to all of you for joining the Q2 FY '27 post-results earning call. I'm accompanied by Mr. CV Ganesh, Mr. Jagdish Rao, Mr. Shardul Kadam, Mr. Suresh Kumar, Mr. Vikram Rathi and Mr. Lokesh Parikh. For the last six quarters, we have articulated the same set of priorities, and they remain unchanged. We continue to allocate capital to businesses that earn a strong and consistent return, to continue to grow a fully secured book, to scale our twin engines of Gold Loans and LAP, to grow our core income even as we consciously reduce our reliance on direct assignment, to transition to an efficient cost structure and to hold credit cost below 1%. This consistency is the foundation on which we have built this business over the past two years. Against these priorities, the quarter has progressed well. Our total disbursements grew 28% YoY to Rs. 6,676 crores, and our AUM grew 37% YoY to Rs. 22,035 crores. On the business front, our gold loan business continued to, continued its growth trajectory. Disbursements stood at Rs. 5,822 crores, a growth of 31% YoY, and the gold AUM grew 77% YoY to Rs. 11,917 crores. Our doorstep gold loan offered, offering maintained its momentum, with AUM growing to Rs. 1,851 crores. Our AUM per branch, after the branch openings, stood at Rs. 16.9 crores, and the gold tonnage grew 16% YoY. We continue to maintain a prudent risk profile with 68% LTVs, well within the regulatory limits. We have opened 74 branches this quarter, taking our total gold branch count to 831, total branch count to 831. We expect to continue our, expand our branch network in H2. This quarter also marks our entry into Eastern India, expanding our geographical footprint into newer and promising markets. The revised gold lending LTV framework continues to work its way through the system. Our gold GNPA at 0.5%
Parvez Mulla (Fedbank Financial Services Ltd): Steady progress this quarter with disbursements growing 12% YoY to 855 crores and the AUM grew 13.5% YoY to rupees 9982 crores. Our focus remains on disciplined underwriting and portfolio quality. Within mortgage, our medium ticket lab disbursed rupees 645 crores reflecting 16% YoY increase while maintaining the yields at stable levels. Our small ticket lab and housing business disbursed rupees 210 crores as a investment in credit policy leadership and BRE driven under underwriting engine begins to translate into lower credit cost. Our on-book portfolio remains fully secured with the unsecured loans constituting less than 1% of our on-book assets. Turning to profitability and asset quality. Credit cost for the quarter came in at rupees 27 crores, approximately 0.6% of the average total assets as on annualized basis, continuing to track well within a guided range of around below 1%. The quarter concluded with a profit after tax of rupees 130.8 crores, a YoY growth of 63%, an ROA of 2.8% and an ROE of 17%. On the asset quality, our GNPA stood at 1.8% moving from 1.6% in Q1. The movement is primarily attributable to the ongoing transition in gold loan lending practices and the sluggish AUM as we did our direct assignment and colending business normalized in the quarter. Our NNPA stands at 1.2% with the provision coverage ratio at 35.4%. On a YoY basis both the GNPA and NNPA have improved. Capital adequacy stands at 21% and book value per share stands at 84.4. Taken together, the quarter reflects a business that is growing well with improving asset quality, resilient core earnings, our highest ever ROE at 17%, the foundation we have built over the past two years, a fully secured book, a scaled gold loan franchise, a stabilized mortgage business, and a strengthened collection organization is now in place and we believe it positions us well for the quarters ahead. I will now hand over to our CFO, Mr. C.V. Ganesh to take you through the numbers in more detail.
C.V. Ganesh (Fedbank Financial Services Ltd): Yeah, thank you, Parvez. Thanks everyone for your participation on the call. Before we begin with the financial highlights, I would like to extend my warmest Navratri greetings to all of our equity and debt stakeholders as well as all the participants on this call. Wishing all of you a joyful and successful festive season ahead. In spite of the turbulent headwinds over this quarter and lack of momentum in gold prices, we continue on our theme of building resilience across business cycles. Quarter 2 '27 has been our strongest quarter to date in terms of profitability and operating metrics. Over the last eight quarters we have been on the journey of building a business model which results in consistent, non-cyclical and predictable earnings. The linear upward trajectory of ROA and ROE expansion over the last eight to nine quarters is a validation of the resilience in that model. We shared last quarter that we had crossed the interim ROE milestone of 15%. I will reiterate four headline numbers that summarize our performance for quarter two. The first one is on the ROA. The ROA expanded sequentially quarter on quarter by 24 bps to 2.8%. The last nine quarters have seen ROA slowly but steadily inching up from 2.1% to 2.8%. The ROE expansion sequentially has been 153 bps quarter on quarter to 17% in Q2. This also represents a steady increase from 10.9% ROE to 17% ROE over the last nine quarters. We remain optimistic on continuing on this trajectory. We started the fiscal with an AUM of a little over 20,000 crores. We crossed the milestone of 22,000 crores in September representing a 9% increase in the first half of the year. The credit cost shrank by 18 bps from 0.78% to 0.6% of total assets
C.V. Ganesh (Fedbank Financial Services Ltd): fund the loan book expansion through internal accruals and put us on an accelerating journey of book value compounding. Let me now walk you through a little more details on the numbers. First, on the P&L items. Core NII grew 5.2% quarter-on-quarter to 404.8 crores and 40.9% year-on-year. Pre-operating profit of 205.1 crore is up 9.4% sequentially quarter-on-quarter and 47.5% year-on-year. Our credit costs declined to 27.1 crore in Q2, down 20.5% quarter-on-quarter from 34.1 crore in Q1 due to improving collection efficiencies on the mortgage book. Consequently, the PAT came in at 130.8 crores, up 14.3% quarter-on-quarter and approximately 63.1% year-on-year. Now on yields and the cost of borrowing. Our overall yields on the core loan book remained constant in Q2 compared to Q1 at 16.40 levels. The optical increase in yield by 29 bps is because the last quarter had a higher DA unwinding impact of around the same magnitude. On the cost of borrowing, in spite of headwinds, we were able to keep our weighted average cost of borrowing for Q2 flat at the same level as the previous three quarters at 7.80. This is represented in the funding profile slide in the deck. Our fixed rate borrowings form 33% of the book. This coupled with the MCLR linked loans, which constitute another 24% of our borrowings and have had a lesser magnitude of transmission historically, give us some insulation against headwinds of increasing interest rates. We did direct assignments of approximately 700 crores of the gold loan book to deleverage. This, aided by higher co-lending in the gold portfolio, helped in bringing down the debt-equity ratio from 4.9 to 4.6 and improved capital adequacy to 21%, up from 20.7% in Q1. Now on asset quality. Our mortgage delinquency numbers across stages are flat to better than the previous quarter. On the gold side, we had guided in Q1 that the shift to the periodic interest due model instead of the earlier bullet loan model was likely to result in technical delinquencies across stages going up as customer behavior may take some more time to adjust. The increase in stage two from 2.7% to 3.6% and in stage three from 1.6% to 1.8% are entirely on account of this change construct in gold loans. We are sufficiently collateralized and do not see these optical indicators as indicating any enhanced risk on the portfolio. We have had a record low level of net slippages in the mortgage book. It has been our best quarter till date. The decrease in PCR from 38.4% to 35.5% is due to a higher proportion of gold loans in stage three. These gold loans carry a much lesser provisioning coverage for ECL. Our mortgage PCR continues at similar levels. Now on the operating leverage. Opex as a percentage of average total assets in the ROA tree stood at 4.9% in Q2 compared to 4.8% in Q1, reflecting the full quarter impact of the branch and headcount additions. This is materially down from 5.5% in FY '26 and the structural reduction in cost intensity over the medium-term remains intact. Our cost to income came in at 52.5% in Q2, marginally better than the 52.8% in Q1. For context, the annualized cost to income in FY '26 was 57.2%. The step-up in operating expenses this quarter is primarily driven by the branch expansion program. In addition to the 74 branches we added in Q2, we proposed to add at least another 150 branches in the second half of the year. While this will add to the investment opex, we are hopeful of containing any material increases in cost to income over current levels by focused effort on our BAU opex. To summarize, our expanding ROAs and ROEs and our focus on the productivity and operating leverage levers
C.V. Ganesh (Fedbank Financial Services Ltd): as the shock buffers to potential headwinds on the interest rates or any insurance distribution related changes. We remain deeply grateful for the continued support of our investors, both old and new, and all of you on this call who have been with us thus far on this journey. With that, I now hand it over to the floor for Q&A.
Moderator (Equirus Securities): Thank you. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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. The first question comes from the line of Shubhankar Mishra with PhillipCapital. Please go ahead.
Shubhankar Mishra (PhillipCapital): Hi, Parvez. Hi, Ganesh. So one quick question So sorry, there are two questions. One is about the gold loan growth. How do we manage the growth plus the yields? Because the competitive intensity, not just from our peer NBFCs, but also from banks including PSU and private, both are increasing by the day. Couple of peer NBFCs are resorting to very low rates in multiple states. So that is point number one. Point number two is do we have a product ready for income generation loan in gold loans? And if yes, how wha- what is the product roll-out timeline and what are the various features of that particular product? Thanks.
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