Lionheart Holdings Q1 FY2024 earnings call

• Appointed Boston Consulting Group to upgrade digital lending processes, expecting benefits in the second half.
• Deposits grew 6%, advances grew 4%.
• NPA accounting change led to elevated slippages, but spike is one-off; recoveries and upgradations after quarter end not considered.
• Provision coverage ratio reached 70% including technical written-off; aimed for 70% with technical written-off and 50% without in second half, but achieved 70% in Q1.
• SMA 2 and standard restructured assets reduced from peak levels.
• Yield on advances increased to 9.53%, cost of deposit at 5.36%, net interest margin 3.67%.
• Other income lower due to fewer major recoveries; cost-to-income ratio 41.98% in Q1, expected 42-44% for FY '24.
• Focus on succession planning, accelerating digital lending, and strengthening leadership team.

Advances grew by 4% in Q1 '24 compared to Q1 '23, reaching INR 42,405 crores. Deposits stood at INR 51,655 crores in Q1 '24, a 6% growth from Q1 '23. Net interest income grew by 15% in Q1 '24, increasing to INR 1,266 crores from INR 1,099 crores in Q1 '23. Other income for Q1 '24 was INR 191 crores, down from INR 218 crores in the prior corresponding period. Gross NPA was 4.91% (INR 2,081 crores) and net NPA was 2.51% (INR 1,039 crores). SMA 2 numbers to total advances stood at 2.45%, and standard restructured assets reduced to 2.69% of total advances. Yield on advances was 9.53% in Q1 '24, up from previous quarters. Cost of deposit was 5.36%, and net interest margin was 3.67%.

• Aim for double-digit advance growth (12-15%) skewed to year-end.
• Expect digital lending benefits to translate into growth in second half.
• Target PAT growth, substantial reduction in net NPA, improved coverage ratio, and ROA close to 1.5.
• Cost-to-income ratio expected to be between 42-44% for FY '24.

• Regulatory changes affecting NPA accounting led to elevated slippages in the quarter.
• Slower recovery from technical written-off pool due to legal system issues.
• Potential challenges in implementing new segments like co-lending and retail lending, which may take time to show meaningful growth.

Q: In the opening remarks, you mentioned evaluating co-lending opportunities. Elaborate on what kind of businesses and partnerships you're looking at?

A: Looking at co-lending opportunities in secured advances, predominantly in gold loan, vehicle loan, or housing loan fronts, especially with NBFCs in Tamil Nadu dealing with vehicle and gold loans.

Q: When do you intend to launch digital lending and what customer profile?

A: Initially starts with existing customer base, focusing on MSME lending < INR 5 crores, then extends to housing loans, loan against properties, etc., with digitalization aiming to reduce TAT to 1-2 days.

Q: Why was the tax rate lower this quarter?

A: Taxable income was INR 133 crores after provisions and write-offs, with tax rate applied to that amount resulting in lower tax.

Q: On staff cost growth for FY '24?

A: Expect around 10-12% incremental salary growth in tune with headcount, as not part of IBA and moving to CTC structure.

Q: Explain slippages and why this quarter was higher?

A: Regulatory change in NPA accounting led to not considering recoveries and upgradations after quarter end, causing elevated slippages, but spike is one-off and will normalize.

Q: Guidance for NIM in FY '24?

A: Current level plus or minus 10 basis points.