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Edited Transcript of CHOLAFIN.NSE earnings conference call or presentation 6-Nov-19 4:30am GMT

Q2 2020 Cholamandalam Investment and Finance Company Ltd Earnings Call

Nov 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Cholamandalam Investment and Finance Company Ltd earnings conference call or presentation Wednesday, November 6, 2019 at 4:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Arul Selvan D.

Cholamandalam Investment and Finance Company Limited - Executive VP & CFO

* Arun Alagappan

Cholamandalam Investment and Finance Company Limited - MD & Executive Director

* Ravindra Kundu

Cholamandalam Investment and Finance Company Limited - Associate VP and National Business Manager

* Rohit Gangadhar Phadke

Cholamandalam Investment and Finance Company Limited - Business Head of Home Equity and SVP

* Rupinder Singh

Cholamandalam Investment and Finance Company Limited - Senior VP & Business Head – Home Equity

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Conference Call Participants

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* Digant Haria

Antique Stockbroking Ltd., Research Division - Assistant VP, Equity Research

* Dipen K. Sheth

HDFC Securities Limited - Head of Institutional Research

* Jignesh Shial

Emkay Global Financial Services Ltd., Research Division - Research Analyst

* Nidhesh Jain

Investec Bank Limited (SA), Research Division - Research Analyst

* Nischint Chawathe

Kotak Securities (Institutional Equities) - Senior Analyst

* Ojasvi Khicha

Axis Capital Limited, Research Division - Assistant VP of BFSI

* Piran Engineer

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Shubhranshu Mishra

BOB Capital Markets Limited, Research Division - Analyst

* Sunil Kothari

Unique Investments (Private) Limited - Partner

* Umang Shah

HSBC, Research Division - Analyst of Financials

* Vivek Ved

DSP BlackRock Mutual Fund - DSP BlackRock Constant Maturity 10Y G-Sec Fund - Fund Manager

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and a very warm welcome to the Q2 FY '20 Earnings Conference Call of Cholamandalam Investment and Finance Company Limited hosted by Kotak Institutional Equities. (Operator Instructions)

I now hand the conference over to Mr. Nischint Chawathe from Kotak Institutional Equities. Thank you and over to you, sir.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [2]

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Thank you. Hello, everyone. Welcome to 2Q FY '20 Earnings Conference Call of Cholamandalam Investment and Finance Company Limited. To discuss the financial performance of Chola and to address your queries, we have with us today Mr. Arun Alagappan, Managing Director; Mr. Arul Selvan, Executive Vice President and CFO; Mr. Ravindra Kundu, President and Business Head, Vehicle Finance; Mr. Rohit Phadke, President and Business Head, Housing Finance; and Mr. Rupinder Singh, Senior Vice President and Business Head, Home Equity.

I would now like to hand over the call to Arun for his opening comments.

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [3]

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Good morning, ladies and gentlemen. I have great pleasure in presenting to you the performance of Chola finance for the quarter and half year ended September 2019. At the outset, I am happy to state that we ended the quarter with a business asset base of INR 59,292 crores, registering a growth of 24% over last year.

The following highlights from Q2 and H1 FY '20 performance reaffirms Chola's steady growth despite the prevailing adversities in the external market. Aggregate disbursements for the quarter ended September 2019 were at INR 7,381 crores as against INR 6,899 crores in the same period of the previous year, registering a growth of 7%. Aggregate disbursements for the half year ended September 2019 was at INR 15,954 crores as against INR 13,914 crores last year, registering a growth of 15%.

Assets under management, including incremental cash held in hand grew by 23% from INR 52,486 crore in H1 FY '19 to INR 64,409 crore in H1 FY '20. PBT for the quarter ended September 2019 was at INR 523 crore as against INR 460 crore last year, registering a growth of 14%. PBT for the first half year ended September 2019 was at INR 1,006 crore against INR 898 crore last year, registering a growth of 12%. The PBT-ROTA for Q2 FY '20 was at 3.4%. The PBT-ROTA for H1 FY '20 was also at 3.4%.

PAT stood at INR 307 crore for Q2 FY '20 and for the half year ended September 2019, PAT was at INR 621 crores. Pursuant to the tax -- Taxation Laws (Amendment) Ordinance 2019, the company exercised the option to compute income tax at the revised rate of 25.17% from current financial year and accordingly has remeasured the current deferred tax and the consequential effect has been fully recorded in the current period. Additional income tax expenses of INR 80.21 crore and INR 126.73 crore has been recognized for the quarter and half year ended September 30, 2019, respectively.

ROE was at 19.2% in Q2 FY '20. Book value was at INR 82.2 per share -- sorry, INR 86.2 per share as of Q2 FY '20, up by 19% from INR 72.7 in Q2 FY '19. We have increased our branch network to 1,029 branches, out of which 81% are in Tier 3, Tier 4, 5 and 6 cities. We are well on our way to reach the 1,100-mark by the end of this financial year.

We have maintained continued focus on our efforts to reduce the nonperforming assets. As per the Ind AS, our Stage 3 assets at the end of September 2019 was at INR 1,803 crore as against INR 1,623 crore in September 2018. Stage 3 percentage to total gross assets stood at 3.2% in September 2019 as against 3.4% in September 2018. Coverage ratio for Stage 3 was at 34.4% as of September 2019 as against 34.8% in September 2018.

As per IGAAP, GNPA at the end of Q2 FY '20 was at 2.75% as against 2.95% at the end of Q2 FY '19. In absolute terms, the GNPA as of September 2019 was at INR 1,651 crore as against INR 1,428 crores as of September 2018. Provision coverage ratio was at 43.1% in Q2 FY '20 as against 44.6% in Q2 FY '19.

Let me also share with you the business level performance of Vehicle Finance and Home Equity divisions. Vehicle Finance has delivered a performance with an improvement in disbursements, asset growth, profits and reduction in delinquencies in H1 FY '20. The Vehicle Finance business grew by 3% in terms of disbursement for the quarter and 12% for the half year ended September 2019 and 24% in terms of closing assets year-on-year.

The business recorded a PBT of INR 318 crore for the quarter as against INR 322 crore last year. And for the half year, PBT was at INR 637 crore as against INR 597 crore last year. Due to industry slowdown in commercial vehicle, the business has made a conscious shift in its portfolio mix to increase share of refinance and passenger vehicle segments.

Moving on to the Home Equity business. The Home Equity business grew disbursements by 17% for both the quarter and half year ended September 2019 over the previous year. PBT grew by 4% for the quarter and 22% for the half year ended September 2019 over previous year. The business recorded a PBT of INR 88 crore for the quarter ended September '19 as compared to INR 84 crore last year; and for the half year, INR 172 crore as against INR 141 crore last year.

Higher recoveries in NPAs supported in the growth. Recoveries continue to be good by leveraging SARFAESI, resulting into higher profitability in this business. The company's capital adequacy ratio at the end of Q2 FY '20 was at 17.09%, with Tier 1 at 12.87%. In the upcoming quarters for FY '20, we look forward to continue on our growth trajectory and ensure value creation for the shareholders. Thank you all for attending the call.

My colleagues and I would be happy to answer any queries now. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Shubhranshu Mishra from Bank of Baroda Capital Markets.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [2]

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Congratulations on the good set of numbers. My first question is with regards to your disbursements. I just want to understand the number of loan contracts that you have done in the Vehicle Financing in this quarter versus 2Q '19 and the number of loan contracts in the Home Equity business in this quarter versus second quarter '19?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [3]

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Yes. With regard to the Vehicle Finance, the total numbers -- you wanted the number of contracts?

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [4]

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Yes. Sir, you are not audible, can you speak up, please?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [5]

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Yes, yes. The Q2 numbers for last year, that is FY '19 is 1,20,105 as against that the Q2 numbers in the current quarter is 1,52,368. Though it may seem very high, this is primarily driven because there has been a spurt in the two-wheeler volumes, which is why the number seems to be very high in the current quarter. On the YTD level, it is 2,36,500 number for last year as well -- against that it is 3,11,200 in the current year. It was 2,300 last year versus 3,044.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [6]

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Can you repeat the number for Home Equity?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [7]

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2,300 versus 3,040.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [8]

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Sure, sir. And YTD?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [9]

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YTD, 4,700 versus 5,900.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [10]

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Sure, sir. And sir, out of your 26,000 workforce, how many are on-role and how many are off-role? And of this, how many people you engage in collections and if you can explain the collection infrastructure as well, sir?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [11]

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We have around 5,000 people on-role, and we have a balance of role. And I don't want to divulge on this collection versus SFE, the sales force details beyond that point.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [12]

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But if you can explain the infrastructure at least sir for the understanding of risk management?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [13]

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Infrastructure in the sense?

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [14]

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What's your risk management infrastructure, how -- what buckets you do through branches? How many -- what buckets do you?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [15]

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Everything is done by branches.

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Ravindra Kundu, Cholamandalam Investment and Finance Company Limited - Associate VP and National Business Manager [16]

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Yes, this is Ravindra Kundu. Good morning. So we do everything through our in-house team. We have like, you mentioned, that some of -- some people are in off-role and some people are in on-role. So in collection, we have a collection manager for soft bucket, they are just divided into 2 segment and then hard bucket and then recovery. And below that, we have a collection executives, who are in the off-role, who are there in across the branches.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [17]

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Right, sir. And if you can give the number of people, if that's okay?

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Ravindra Kundu, Cholamandalam Investment and Finance Company Limited - Associate VP and National Business Manager [18]

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We have around 8,000 collection executives in the field.

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Operator [19]

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The next question is from the line of Sunil Kothari from Unique Investment Consultancy.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [20]

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Congratulations for a really respectable numbers in current situation. Sir, my question is simply how much tax rate we'll be paying over a period? I mean, for this first half, we already provided for some past and some changes? So what tax rate should we account?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [21]

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So what will happen is if you see the current -- if you see the first quarter, we paid the current tax plus deferred tax was working it around 35%. Because we took the full hit of the deferred tax efforts in the current quarter, the rate of tax will be around 41% for this quarter. But in Q3, Q4, it will come down to be 25%, 25.17% in the -- which is the rate that is now going to be used for the next 2 quarters. For the full year, you will see that because of the spike in the current quarter, for this year alone, you can see that the rate will average at around 30%. And from next year onwards, it will be 25%, assuming government doesn't change any rate.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [22]

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Right. Sir, second, just a very broad understanding, how you are seeing the scenario compared to first half now onwards? And do you see any positive things happening or you will be as caution and careful?

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Ravindra Kundu, Cholamandalam Investment and Finance Company Limited - Associate VP and National Business Manager [23]

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Yes, in terms of Vehicle Finance, if you see that first half has been good as far as the disbursement is concerned. I mean, it is not up to the expected level, but we have done better, but the industry did not do well. Going forward, I think, October onwards, we have seen that spurt in the market in terms of sales other than the heavy commercial vehicle and ICV. Across all product segment, the retail sales has improved, and dealer inventory also has come down. So therefore, you will start seeing that the wholesale will also pick up. But the actual -- the real growth will come only after some time. It will take another 2 quarters to come back. I mean maybe it is more than that, but I think it is not going to come so fast. Good thing is that this year, the rain has been so good. So we are expecting that from Q1, Q4 after the Rabi festival also come back, then maybe you will see the light commercial vehicle, the small commercial vehicle, 2-wheeler and 3-wheeler sales will further improve or stabilized at level where it has been seen in the month of October.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [24]

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Got it. And Home Equity, sir?

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Rupinder Singh, Cholamandalam Investment and Finance Company Limited - Senior VP & Business Head – Home Equity [25]

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Good morning. This is Rupinder. Regarding Home Equity, this is directly impacted by how the SME behavior is in market. So first 2 quarters was really tough in that sense, and we were able to manage by prudent funding and having a focus on collection throughout. Our full concentration is more on the retail book than the bigger ticket size. So this was a strategy we adopted around 1, 2 years back, and we are working continuously on that and that is giving some results on that piece.

Post Diwali, there's a lot of positive notion in markets, which people are talking and we are also evaluating that. So the numbers, which we have delivered is around 15%, 17% in the first H1. So if things doesn't improve, we are confident that we will be able to match this number anyway, but if -- there is a improvement in market, in SME, particularly, then we can take it to next level also.

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Sunil Kothari, Unique Investments (Private) Limited - Partner [26]

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Sir, my last point or maybe next question, just my thought is, you being a very conservative group and management and we have our past experience also since many years, my request, humble request is, if you can, being a prudent management, we don't chase growth and be careful about whatever things are happening. And I'm very sure you will not take any risk. So not to try to match whatever projections you said, but you will be very careful about balance sheet and your P&L. So these are just my thoughts as a long-term investor.

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [27]

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Yes, yes, absolutely. I think asset quality is our primary focus and that will remain our focus also.

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Operator [28]

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The next question is from the line of Jignesh Shial from Emkay Global.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [29]

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Firstly, any -- we had witnessed a sharp rise in the OpEx during the quarter both on the employee expense side as well as other OpEx side. Is there any one-off or the trend is expected to continue going forward as well similar sort of a rise? That is my first question.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [30]

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See, what happens is in the Q2, we always have the employees' annual increments coming in. So from July to July, it is effective every year. So you will see this is what happening and that is in the salary cost, and it will remain at these levels for the next 3, 4 quarters, which is up to Q1 of next quarter (sic) [year.] The salary cost will more or less be flat after this. Also what has happened is in the expectation that there's BS-VI, I mean, there will be prebuying, et cetera. We did have certain amount of SFEs on the ground in Q1, which is now being corrected. So there had been a little bit of a spike in the fixed rate expenses of this SFEs in this quarter. But due to normal attrition, we are not refilling them, and we are bringing down this number to suitable reported -- yes, around 1,200 people had been moved out into collections also, they have been moved into -- so to more -- to give more focused to the collections. And we -- apart from that, the other expenses is we are spending quite a bit now on the IT side to bring more analytics and more -- to strengthen our underwriting as well as on the ground-level information flow. So this is also -- this is more or less a onetime expense. This you will not -- happening going forward.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [31]

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Okay. So the other way for the current quarter cost to income is around 39.4% or cost leverage assets around 2.8%. So earlier we used to have around 2.5%, 2.6% with some spike happening in between quarter. So is it fair to assume we should stay somewhere around 2.5%, 2.6%? Or it will be at levels of 2.8% around? I'm thinking of OpEx leverage assets, will that be a comfortable ratio?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [32]

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Yes. 2.6% will be an okay number. See, this is like a -- it's like a double impact, while the numerator increase, the denominator has not grown substantially because as you see the disbursement has been muted. So these are like more -- very cyclical thing and restricted to quarter-on-quarter impact. So if those volumes pick up, you will see the denominator effect automatically flowing through.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [33]

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Understood. Secondly, though our disbursement growth has slowed down this quarter, our AUM growth is still remaining pretty, pretty stronger. So any specific reason behind that? Is it -- because the repayments I don't see the trend has improved quite substantially, though there is a bit of an improvement. So is it to do with that we are indulged now into a little longer tenure products? Or how is it? If you can give some light over this? And if this disbursement remains weaker, will the AUM growth also should -- now going forward, should ease out? Or how do you see that doing?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [34]

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See, disbursement fluctuation in 1 quarter won't impact the AUM growth significantly. So you -- the drops in disbursement, even in the first quarter, we did a reasonably good disbursement. And at last, when you're comparing Q2 of last year versus Q2 of this year, there has been a Q3, Q4, which is always where that are always we expect. So if this de-growth continues on the next 2 quarters, yes, you will see some slippage on the -- or the slower growth in the area. Hopefully, I think, we see some turnaround now and so we don't see that happening. But we'll have to wait and watch on the -- how the industry performs.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [35]

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Understood. And the margin seems to have improved, but that too also has to do with your assignments has also been there. So any guidance over margin? Do we see that cost of funds should stabilize from here on? Or you think there will be some more pressure coming up on margins? And are you able to pass it on to the end guys? Or how is it?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [36]

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See, cost of funds, we are able to pass on in the case of Vehicle Finance, but that is more on the margin of the book, that is proportionately growing, and you will see the yields improving as we talk both from increasing the yield as well as shifting in the portfolio mix. On the cost of fund side, most of the resets will happen only in Q4. If you recall, bulk of the bank borrowings had been in Q4 last year. And that is the 1-year reset period for our long-term loans. And lot of banks' MCLRs have come down, but those MCLR reductions are not, currently, we are enjoying the benefit because the reset will happen only in starting December to March, that is where the bulk of our borrowings are. So you will see a good amount of cost of funds drop in Q4, provided nothing adverse happens in the environment. Otherwise, the Q3 will be more or less at similar level, but maybe marginally better -- lower cost of funds and a better mix.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [37]

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Understood. And just lastly, any plans of QIP because we're already at 15% sort of Tier 1 if I'm seeing it correct. So any plans for raising money in this year or any plans going forward? Any idea about this?

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [38]

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The Board is discussing it, and we will come back with firmer plans soon.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [39]

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Understood. And there is no core lending arrangement being done with any of the bank till now, right?

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [40]

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No, not yet -- not as yet, but we are looking at tying up with -- and we are in the process of really doing our IT systems with couple of banks. So once that gets done, then we'll roll it out.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [41]

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But if the core lending happens, your fee income will start surging. So your AUM won't be growing. Is my understanding correct?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [42]

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See, what will happen is fee income will grow, but expense will also grow because then you are spending for the entire book, which is not on your balance sheet.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [43]

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Understood.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [44]

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The predominant -- and predominant ratios will change, NIM will be looking better, the expense ratio will look slightly worse. It all depends on how much difference I'm getting from the fee income, I'm getting versus the expense I'm incurring that will flow to the bottom line.

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Operator [45]

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The next question is from the line of [Sandeep R] from L&T Mutual Fund.

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Unidentified Analyst, [46]

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Two of them. One is partly answered already, but I'll still ask the same question again. Tier 1 has been falling, sir, over last couple of years. It is now getting done at around 12.30%, 12.40% kind of a level. Of course, as of now, this is not a problem, but what would be the Board-approved policy, sir? What is our comfortable level that you would like to maintain on the Tier 1 fund, given that the gearing itself is already very high at 8x-plus number? So that's one.

And second, sir, I have the observation of the ALM profile, while I think, you'll be one of the very few NBFCs, who have been able to raise the funding at ease from the market, but still looking at the ALM profile, up to 6 months bucket seems to be very constrained in terms of the positive ALMs that you may have over there on a balance sheet size of almost INR 60,000 crores, we have a positive ALM of only INR 740-odd crores. So any view that you may have on the liquidity profile of the company?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [47]

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Okay. To answer the first question, we are currently, our Tier 1 is at around 12.9%. Internally, we have a guidance that if it reaches 12%, we will immediately seek the -- seek to infuse capital. But even though it is not -- it is still a little far away from the 12%, as Mr. Arun spoke now, the Board had discussed even during the current meeting about what are the possibilities and you will soon hear something in this regard once the Board takes the final call on that. So we still have some headroom before we really think we need to take action even as per the internal guidelines.

With regard to the ALM, what you are seeing is the number. It does not factor in any more credit lines or sanction limit. As we closed September, we had almost INR 7,000 crores of approved credit lines from -- long-term credit lines from 2 of the leading public sector banks, of which -- which has been drawn. Because we did not want to unnecessarily draw and keep cash as such we were sitting on almost like INR 6,000 crores of cash, which is incurring negative carry. So this is why we are -- we have been conservative. Otherwise, our ALM is -- we are comfortable on the ALM. Even now we have drawn some part of this INR 7,000 crores. In the meanwhile, we have got fresh approvals from other banks to the extent of another INR 2,000 crores.

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Unidentified Analyst, [48]

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Sure, sir. So I'm assuming, sir, you would ever drawn down these lines after September, so the liquidity profile would have become much better as reported on the September '19 numbers.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [49]

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No. As we talk now, we have drawn only INR 2,000 crores out of the INR 7,000 crores. So I have -- still I'm sitting with INR 5,000 crores because I really don't need to draw down that much because I'm using some amount of the cash, which I'm keeping. The internal guidelines is I need to carry 2 months of cash in hand to meet my 2 months of the -- subsequent 2 months maturities, which is what we target and keep as cash in hand. So we are quite comfortable on that. And many of the banks are now even willing to reduce the rates and offer us. The other advantage is also with the new RBI guidelines, which allows us to borrow against PSL assets, which was in between stopped for some time. That also helped us to negotiate with some banks to get the interim phase lending at finer rates even lower than the MCLR. So we are working on those things and we will -- we are surely -- we are confident about that there will be no issues.

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Unidentified Analyst, [50]

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Sir, just one last question. How has been your experience in terms of being able to get plain vanilla and conventional term lending from the banking channel as opposed to, of course, you have been able to do the securitization and also getting the loans under PSL too. But over last couple of months, given that we have tightness in the market of -- for the liquidity of NBFCs, you have been able to get the term lending from the banks at ease?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [51]

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Absolutely. Actually, as I said, the INR 7,000 crores just come from 2 banks, which is willing to give us large chunks for 5-year tenure and 4-year tenures. And apart from that -- I just spoke about these 2 banks. Apart from that, we have another 4 or 5 banks, which are giving us anywhere in the range of INR 500 crores to 1,000 crores each of them and willing to give us at that base MCLR itself. So I don't see any constraint in money coming to us either from the banking channel or even on the same lines, we have tied up certain, you'll see shortly some amount of foreign currency loans also coming through. So these things are also helpful to us in the long run to sort of diversify the investor base and keep the funds coming through from multiple sources.

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Operator [52]

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The next question is from the line of Nidhesh Jain from Investec.

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Nidhesh Jain, Investec Bank Limited (SA), Research Division - Research Analyst [53]

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Sir, firstly, on the asset quality, can you share the gross NPA number for Home Equity and Vehicle Finance?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [54]

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Okay. Just give me a minute. You want us for the Stage 3 or you're only asking about the GNPA?

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Nidhesh Jain, Investec Bank Limited (SA), Research Division - Research Analyst [55]

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Stage 3, sir, Stage 3.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [56]

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For the Vehicle Finance, Stage 3 is 2.34%; and on the Home Equity, it is 5.88% in September.

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Nidhesh Jain, Investec Bank Limited (SA), Research Division - Research Analyst [57]

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5.88%. And secondly, sir, in the presentation, you have given disclosure on assets -- on managed assets and on book. So what is the key difference there because absolute profit number is also different across these 2 disclosures?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [58]

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So that is because when we -- you're talking about the business profitabilities, right?

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Nidhesh Jain, Investec Bank Limited (SA), Research Division - Research Analyst [59]

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Yes, Home Equity and...

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [60]

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What happened is that the managed assets, we measure internally on managed assets of the business performance. And from a segmental reporting perspective when we give it for the listing purposes, we need to split even the gain on assignment into the respective businesses. We don't put the gain on assignment into the respective businesses because what happens is, these are like, it depends on whether I do an assignment or not. So the business profitabilities will fluctuate depending on whether I do an assignment in a particular quarter or a particular period or not. It will -- it does not help us measure the trending of the business profitability over periods because these things will influence the number. That's why we try and we've given you 2 -- because there are some people who came and asked, your segmental number and this is not matching. So we have given both. The Ind AS number, which is on the Page 41 for Vehicle Finance, for example, will match with the segmental profitability. While what you see in Page 40 is based on the managed assets is what is the normal trend without considering such onetime movements. Does it clarify?

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Nidhesh Jain, Investec Bank Limited (SA), Research Division - Research Analyst [61]

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Sure. Sure, sir. So from a license perspective, we should focus on managed?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [62]

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Correct, yes, that is because that is what you will look at overall period -- more subsequent periods trending, et cetera.

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Nidhesh Jain, Investec Bank Limited (SA), Research Division - Research Analyst [63]

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Yes. And thirdly, sir.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [64]

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The Ind AS confusion is the major reason.

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Nidhesh Jain, Investec Bank Limited (SA), Research Division - Research Analyst [65]

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Yes, yes. Thirdly, sir, we have also given disclosure of high-yield, medium-yield and low-yield products. There, you have specified refinance under mid-term yield, I was under the impression that refinance will also be high-yield segment. So what are the yield range in the refinance?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [66]

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Refinance -- see, the refinance yield will differ based on the underlying asset. If it is a heavy commercial -- see, it is generally 100, 150 basis points higher than the base new product yield.

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Ravindra Kundu, Cholamandalam Investment and Finance Company Limited - Associate VP and National Business Manager [67]

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Those are refinance.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [68]

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Those are refinance. So it will -- it depends on the mix running at any point in time. So what happens is while the refinance yield is lower, the profitability is very high. What we have presented here is more from a yield perspective, because it is a repayment track record, the customers will be refinanced, if they have got a good repayment track record, et cetera. The NCL is low. Similarly, the transaction cost is lower, very minimal sourcing cost, very minimal collection. So even if the yield is little lower, it will be slightly higher profitable. So from a profitability perspective, it is higher. But I think maybe the context in which you would have heard us talk in the earlier questions.

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Nidhesh Jain, Investec Bank Limited (SA), Research Division - Research Analyst [69]

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Sure. Sure, sir. And just lastly, on the segmental disclosure in the financials, sir, the segment, which is others, there, we see very sharp improvement in profitability for the 6 months, while in the un-allocatable segment, the profit and PBT has declined. So can you just explain what is the reason for these 2 numbers?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [70]

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See, we have not categorized home loans as a separate segment, primarily because it doesn't at -- it is a very small number still. But home loans have been growing significantly over the period, and that is why you're seeing the sharp increase. The other reason is also that while we are awaiting the NBFC license now with -- from RBI, very soon, it will move off into the subsidiary, and so that is -- we didn't want to split this segment separately. But this primarily represents the home loan segment.

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Nidhesh Jain, Investec Bank Limited (SA), Research Division - Research Analyst [71]

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Okay, okay. So for the first half, our PBT is around INR 97 crore, that is primarily a home loan business?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [72]

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Not all of it. There is some treasury gains and there is some investment income, et cetera. But the big movement is in the home loan.

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Nidhesh Jain, Investec Bank Limited (SA), Research Division - Research Analyst [73]

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Okay. And un-allocatable segment, what all is included, sir, there?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [74]

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See, those will be mostly like your HO expenses, which is not allocated to the respective or CSR amount, which is not relating to the business, but something you have to incur.

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Operator [75]

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The next question is from the line of Digant Haria from Antique Stockbroking.

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Digant Haria, Antique Stockbroking Ltd., Research Division - Assistant VP, Equity Research [76]

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Congratulations to all of you for the results. Sir, 2 questions, one for Kundu sir. Sir, this -- every week, I think, in our investor group, there is some message which comes that you know some transporter has 80% of their trucks lying idle and I think it's a standard thing we also saw in the 2014-'15 cycle. Sir, anything you would want to highlight on this heterogeneous nature of this transport segment like what segments you see are doing okay, what segments are really stressed and what are the implications for us in terms of existing portfolio and future growth that we are targeting? So that's question number one. Question number two is on the Home Equity business. How are these SARFAESI resolutions progressing for us? Yes, so that's 2 questions from my side.

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Ravindra Kundu, Cholamandalam Investment and Finance Company Limited - Associate VP and National Business Manager [77]

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Yes. So heavy commercial vehicle, if you see the sales also has come down by 40%, 50% as compared to the last year. It is because there is no demand for heavy commercial vehicle, and there is a scarcity of the load and the people who are having the heavy commercial vehicle irrespective of the profile of the customer, with a retail customer market, load operator or the fleet operator. They're not able to utilize their vehicle fully and, therefore, there is a impact in the cash flow. That is because due to some -- due to extended rain, due to slowing economy and also due to the mining activity, road construction and other things are also basically slowed down during last 6 months. Whatever increase from the March month to now in the Stage 3, it is mainly because of the heavy commercial vehicle, which is not basically able to serve their EMI and they're flowing slowly 1 to 2, 2 to 3. And that is what is our challenge now. Rest of the -- and good thing about it that for last 2 years, we have been reducing our focus on heavy commercial vehicle quarter-on-quarter. Our portfolio size used to be -- portfolio mix of HCV used to be 20%, which has come down to 15%. But our disbursement mix is less than 10%. That is because we actually expected that this is going to happen, but whatever we have funded, all the people who are having a repayment track record for many years, they are not able to serve the EMI, that is the fact.

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Digant Haria, Antique Stockbroking Ltd., Research Division - Assistant VP, Equity Research [78]

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Right, sir. And then on the LAP part?

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Rohit Gangadhar Phadke, Cholamandalam Investment and Finance Company Limited - Business Head of Home Equity and SVP [79]

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Yes. For LAP part, I would like to tell on the SARFAESI piece particularly. So the process is on basically the SARFAESI piece and day in, day out, this action is helping us out. Last year because there's a lot of cherry picking which we did and we're able to resolve almost INR 100 crore of GNP to SARFAESI. This year also the trends are positive, may not be the kind of pace and speed, which we -- it was there during last year because the market trends and situation is not as conducive in that sense, but definitely, there is a lot of impact in terms of that you can see in financials also because of these support only, the ECL for this financial is still under very well controlled.

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Operator [80]

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The next question is from the line of Umang Shah from HSBC.

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Umang Shah, HSBC, Research Division - Analyst of Financials [81]

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Congratulations on a stable quarter. I just had a couple of questions on the Home Equity business. So if we look the proportion of the self-occupied residential property business has been going down compared to last year and commercial has gone up. So just wanted to understand, is there any sort of change in terms of our business strategy? Or what sort of commercial business are we underwriting?

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Rohit Gangadhar Phadke, Cholamandalam Investment and Finance Company Limited - Business Head of Home Equity and SVP [82]

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So there is no change in business strategy as such. If we see the SORP is 80% plus, which was there, 1% or 2% comes basically when we are focusing more on retail side. So we have commercial shops and against that, we fund it up. So there is a small aberration. That is nothing like there's a change in strategy like that. It is only focusing on retail and that (technical difficulty) commercial property, which is again a self-occupied. So there is no change in strategy we are moving away from something. So we will continue to maintain 80% plus SORP, that is something, which we always focus on.

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Umang Shah, HSBC, Research Division - Analyst of Financials [83]

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Okay. So the commercial property is also self-occupied?

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Rohit Gangadhar Phadke, Cholamandalam Investment and Finance Company Limited - Business Head of Home Equity and SVP [84]

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Yes. They're self-occupied. Ticket size is coming down. Obviously, that is a only change, which is evolving as of now. But apart from that, rest of the things, we are maintaining the same rate.

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Umang Shah, HSBC, Research Division - Analyst of Financials [85]

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Okay. Sir, broadly what would be our ticket sizes in the commercial and SORP of the residential segment?

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Rohit Gangadhar Phadke, Cholamandalam Investment and Finance Company Limited - Business Head of Home Equity and SVP [86]

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So we try to maintain less than INR 50 lakhs for the month-on-month ticket size, and we see most of the places if property is already mortgaged for home loan somewhere and is a commercial shop, which is already self-occupied, there, we'll also take a call, but there, we take a lesser LTV than the SORPs.

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Umang Shah, HSBC, Research Division - Analyst of Financials [87]

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Okay, okay. And the second question is, there is -- in terms of the Home Equity business, there is some 8% of our book is classified as others. Is this the home loan piece, which is being clubbed as others?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [88]

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No, not home loans. These are like mixed properties where there is a -- it's a rented -- it's a residential plus rented.

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Rohit Gangadhar Phadke, Cholamandalam Investment and Finance Company Limited - Business Head of Home Equity and SVP [89]

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Residential mix along with commercial. So you can find many of the Tier 2, Tier 3 towns, particularly, ground floor will act like a shop and first floor will act like a residential property for them. So that gives basically combo of both of the things. And on basis of that refunds, the entire LTV is taken care that way. So we don't segregate separately their commercial and residential, but as others property.

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Umang Shah, HSBC, Research Division - Analyst of Financials [90]

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Okay. And this is also self-occupied?

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Rohit Gangadhar Phadke, Cholamandalam Investment and Finance Company Limited - Business Head of Home Equity and SVP [91]

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So. Yes, most of them you'll find as self-occupied. And this is the way, I'll give you a instance like, (foreign language) types. You understand Tier 1, Tier 2, Tier 3.

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Umang Shah, HSBC, Research Division - Analyst of Financials [92]

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Understood. Understood, understood.

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Rohit Gangadhar Phadke, Cholamandalam Investment and Finance Company Limited - Business Head of Home Equity and SVP [93]

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More like. Sometime you may find that, that property is partially rented also, that you will find deep in south, right? So there, a portion of the property, we view them as a residential, partially it is rented and partially as a shop, right? So categorically looks little difficult, that's why we put it in others category.

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Umang Shah, HSBC, Research Division - Analyst of Financials [94]

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Okay. And my last question is that for the first half, as you rightly highlighted that the credit cost for the Home Equity business has been fairly under control, but given the fact that the resolutions, let's say, under SARFAESI kind of slowed down a little bit. In the second half, should we expect some sort of a pickup in the Home Equity credit cost? Or how should we look at that?

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Rohit Gangadhar Phadke, Cholamandalam Investment and Finance Company Limited - Business Head of Home Equity and SVP [95]

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So we are finding same trend what it was last year also. Last year, first half was (technical difficulty) second half. So we expect that this fee should go little up because second half specifically in the property business is always on a upper side. The sale purchase happens largely, and the property that is in possession, we try to sell it off. So generally, second half is always a little better than the H1, and we are hoping that this prevail to us also.

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Operator [96]

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The next question is from the line of Ojasvi Khicha from Axis Capital. Ojasvi, you're not audible.

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Ojasvi Khicha, Axis Capital Limited, Research Division - Assistant VP of BFSI [97]

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Hello. Am I audible now?

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Operator [98]

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Yes, a bit.

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [99]

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Yes.

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Ojasvi Khicha, Axis Capital Limited, Research Division - Assistant VP of BFSI [100]

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Okay. Sure. So my question is with regards to branch count, so while Q-on-Q, it has gone up by 30 branches. If you could just highlight in Category D, it has can come off by 30 branches Q-o-Q. So what could be the reason behind that?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [101]

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That moves on into the other categories. See, if you look at it, you're saying in Category D, it is 280, okay? From 226, it's...

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Ojasvi Khicha, Axis Capital Limited, Research Division - Assistant VP of BFSI [102]

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I'm sorry, actually, I was referring to Category B, my mistake. Category B, which has come off from 257 to 226 in the current quarter.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [103]

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Category B, you are talking?

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Ojasvi Khicha, Axis Capital Limited, Research Division - Assistant VP of BFSI [104]

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Yes.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [105]

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See, it's because what happens is, when this -- this is measured primarily based on disbursement. So when disbursement has dropped as we saw like the growth has been very minimal, some branches slip back into the Category C. So that's what will happen. This does not show up here because something has moved up from down to below also. That has moved up from D to C. So you're not seeing that as a difference here.

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Ojasvi Khicha, Axis Capital Limited, Research Division - Assistant VP of BFSI [106]

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Okay. And if you could just also confirm the branch number -- branch count guidance for F '20, you mentioned at the start of the call, I believe, 1,100 or 1,200, I just missed it?

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [107]

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1,100.

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Ojasvi Khicha, Axis Capital Limited, Research Division - Assistant VP of BFSI [108]

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1,100. And that's it from my side.

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Operator [109]

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The next question is from the line of Dipen Sheth from HDFC Securities.

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Dipen K. Sheth, HDFC Securities Limited - Head of Institutional Research [110]

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Two or three questions actually, some of them have been kind of partly addressed, but I'm not sure. So maybe I'll give it another shot. So first, on this OpEx bump up, I think Arul or someone mentioned that it's a seasonal thing, but actually there's not much evidence that it's seasonal. And in any case, the absolute amount now does look a little tough. And the reason I'm saying this is that this will now preclude meaningful uplift from kicking in further. So is it because you're opening new branches -- you're keeping on opening new branches? Or is it that there are some slices in this cost which are different from what they used to be. You did mention investments into analytics and all of that. So you also mentioned that once growth picks up, this would probably get lost in the denominator going up, but I don't know how to now interpret this.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [111]

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Last year, what the way we did was we had branches coming up in the second half. So the first half improvements were low. You are comparing 290 versus 402, if I'm looking at company's investment. You will see that the Q3, Q4 itself, our expenses has moved up a bit because we hired more. And in Q1, we are at 350. Now I was comparing more from 350 versus 402, when I was talking about -- explanation about that being the seasonal number. So it is not like 290 versus 402. So if you see the manpower count, we would have moved up also in between Q2. See that is unfortunately last year, the Q1 -- the way the whole thing is moving now is first half versus second half seems to be always reversing in many factors, whether it is cost of funds, whether it is growth or similar expenses. In this case, it is more to our own performance. Here, if you see, correct me if I'm wrong like, Ravi knows that bulk of the hiring happened in the second half last year on the Feet on Street. So that's where you'll see the Feet on Street increase happening in the second half.

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Ravindra Kundu, Cholamandalam Investment and Finance Company Limited - Associate VP and National Business Manager [112]

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That is also supported to diversify our (technical difficulty) product.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [113]

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Correct. So in two-wheeler, we went in there, we needed more manpower on the ground. This is compensated by yield increases happening on the top line. But this is we need to pre-recruit and sometimes again lead to -- if the performance is not there, it will lead to attrition. And that's what Arun was also talking a little while back. Between Q1 and Q2 to Q3 now, we have almost -- we shifted some people to collections because more focus is needed on the collection also. Less on sales that is lesser activity. So we have moved them to collection, whom we would like to retain. And others who we are not seeing performance either under a sales category or under a collection category, we let them move out of the system.

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Dipen K. Sheth, HDFC Securities Limited - Head of Institutional Research [114]

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Yes. Okay, okay. So we'll take this philosophically for now this OpEx bump up and we'll watch it very closely. I mean that's all I can say. The second thing is on your broader strategic thing, not just slicing dicing the numbers. So on growth, so we know it's a tough world out there and things have slowed down a bit, but we've had a good monsoon, but we are looking at a good festive season. So first of all, I suppose you would have felt the first vibes of this in the festive season. And based on that, is the growth outlook getting a little better? Or is it that you're gaining market share and that's why you're confident on growth? What's happening out there? Can you perhaps even give examples, which might be anecdotal, but which tell us what's happening in the business?

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Ravindra Kundu, Cholamandalam Investment and Finance Company Limited - Associate VP and National Business Manager [115]

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So in the industry, if you see that, the number of vehicle sales has gone up in, especially in two-wheeler, 3-wheeler, cars and MUV and a little bit in tractor. We have been doing this product for quite some time, but we were maintaining ourselves very, very small player and cautiously, we are increasing the market share. So we have also improved our market (technical difficulty). But these products are actually low in ticket size and high in the numbers. So it actually increases the cost. And over the period, if you continue to do it without any failure in terms of the portfolio quality, then we start getting the good return as well. So this is going to continue due to the -- a better monsoon, and also, the rural economy going to improve due to the better kharif and better rabi subsequently. But ultimately, we are -- our overall business of like heavy commercial vehicle from the new side or used side or light commercial vehicle, we are depending on that product as well. So overall growth will come only when those products also start doing well. For ICV/LCV, I'm comfortable and confident that it will start doing well from Q4, but HCV, I'm not at all comfortable and confident that it will start doing well so early.

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Dipen K. Sheth, HDFC Securities Limited - Head of Institutional Research [116]

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No, no, I'm confident it won't do well. That's -- I'm with you there.

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Ravindra Kundu, Cholamandalam Investment and Finance Company Limited - Associate VP and National Business Manager [117]

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This might see (technical difficulty) in time.

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Dipen K. Sheth, HDFC Securities Limited - Head of Institutional Research [118]

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Yes, yes. So but you are gaining market share from others. Are you seeing some of the competition kind of withdraw and stuff like that?

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Ravindra Kundu, Cholamandalam Investment and Finance Company Limited - Associate VP and National Business Manager [119]

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So there are some players who have actually like whenever these kind of portfolio issue comes, some people starting actually getting occupied in that. And in that sense, we are gaining a little market share. But our gain in the market share is like what we lost during the up cycle, we'll gain it in the bad cycle and then we lose it in the up cycle because they come back and start...

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Dipen K. Sheth, HDFC Securities Limited - Head of Institutional Research [120]

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Because then they come back and the euphoric lending takes over and all of that. Yes. Yes, I understand this. So I'm obviously not going to ask you names at least not right now, but that's okay. And finally, this deterioration or at least apparent deterioration in the liquidity position, so it is there. I mean the numbers are telling me this. So it's just that you're running a tighter liquidity profile for the immediate next 6 months, I'm not saying it is alarming or disturbing. It's just that when you run that tighter liquidity profile, is that also one of the reasons for the slight impact on margins or should we not read it like that?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [121]

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No, certainly, you should not read it like that, Dipen. And actually I don't know -- see, I'm telling you we have undrawn lines. And today, vis-à-vis, last September, when undrawn lines retaining them was -- it might not happen if we don't draw it and we were drawing and keeping it. Here, I'm sitting with undrawn lines, which we can draw. Apart from that, I'm having INR 7,000 crores of cash.

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Dipen K. Sheth, HDFC Securities Limited - Head of Institutional Research [122]

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Yes, that is true.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [123]

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That for my next 2 months requirement only I should hold, I can't always. Irrespective of what my next 2 months requirement is I can't be holding like...

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Dipen K. Sheth, HDFC Securities Limited - Head of Institutional Research [124]

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Yes, I'm just looking at the June-end arithmetic versus the September-end arithmetic, it looks a little tighter, but yes, if you have undrawn lines and so it doesn't make a difference from a liquidity risk management perspective. But I'm saying just that the fact that you are carrying that much lesser surplus means that arithmetically, it would have some positive impact on margins. But I don't know, maybe that's not the way I should look at it.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [125]

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No, we don't try to bring positive impact on margin by reducing...

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Dipen K. Sheth, HDFC Securities Limited - Head of Institutional Research [126]

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Through that, yes.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [127]

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Playing the ALM. I want to just keep that interest data point upon your mind. That's playing ALM to get margin improvement is not our game.

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Dipen K. Sheth, HDFC Securities Limited - Head of Institutional Research [128]

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Okay, okay. And final comment I know this hasn't been a big issue in terms of confidence on the way forward. It's not a question, it's a statement I'd like to make, but now that the -- whatever little gap was visible on the leadership issue and now with Arun's appointment, I must congratulate him and the rest of you guys for just putting that in order. And you and he have my best wishes now for the next 5 years and much more.

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [129]

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Thank you.

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Operator [130]

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The next question is from the line of Piran Engineer from Motilal Oswal.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [131]

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Congrats on the quarter. I just have a couple of questions. Firstly, on the liquidity front, we're getting a lot of sanctions from banks, but what about from capital markets because I've noticed that our NCD borrowings have been continuously going down and some of the good players like HDFC and all are getting money much cheaper than banks right now. So are we getting money from the capital markets and if so, at what rate?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [132]

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See, the money market behaves in this particular fashion, they just withdraw and then when they come out, they come out in a very progressive style, they come out first with doing only government or where they have a full or the presumed assurance that there is a lot more security available. Then they come on into AAAs. And then they move on to AA+. It's more or less a -- it's a very progressive movement. So right now, it is -- they are now coming into the AAA side of the investor profile. And they won't act -- touch, well, they are testing the waters on AA platform. They have done a little bit on the NCDs on -- but it is not coming in quantum. So the key is, today, I cannot be dependent on the NCD market when I want quantum. So I need to still go and borrow from the bank. And banks, unfortunately, do not wait for a long-time sanctions remaining undrawn. While I can push the drawdown dates by, let's say, 1 month or 2 months, but beyond 2 months, it's difficult to push the bank. So at this sort of a scenario, trying to rely on the capital market is not very advisable. So that's why we are not -- on the NCD side.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [133]

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But in your assessment, how far are we from mutual funds and capital markets moving to AA+ rated players like you? Is it more of a 2, 3 quarters phenomenon? Or it is probably sooner than that?

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [134]

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That is for your assessment.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [135]

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See, if all things remain, say, stable, it should happen in 2 quarters. But the problem is, every other month or every other quarter, we are getting some bad news, though it is not even some of them related to NBFC per se, but any bad news sort of shakes the confidence and then the redemption pressures on the mutual funds increases. So the investors are trying to hold much more on liquid levels rather than on trying to lock themselves up on a higher tenure paper. So to the extent what they are, whatever is happening in the NCD market is more from insurance companies rather than from mutual funds. And the insurance companies because of their own investment committee and the investment criteria prefer to police and that's what is the demand that we are seeing happening in the market.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [136]

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Okay. But is our high leverage also hindrance to raising money from capital markets?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [137]

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See, this higher leverage is more a reporting issue because today, we are having securitized book on the balance sheet. It looks like it is high leveraged. So we need to discount the securitized book out of this to find the right leverage. So if you look at it, yes, I'm not saying we are very under leveraged or moderately leveraged. Yes, we are a little bit leveraged on the higher side, even if you would remove the securitization book, but that is why we are looking at some sort of a capital infusion, I mean, in the near future. But that will also depend on growth, et cetera.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [138]

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Okay, that's great. And sir, last question, how has Stage 2 trended over the past 1 or 2 quarters?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [139]

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Stage 2, I can give you the numbers. Just give me a minute.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [140]

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Sure.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [141]

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Stage 2, today, we are at 5 -- 4.68% on the overall.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [142]

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Versus last quarter?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [143]

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Last quarter or...

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [144]

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Last quarter, 1Q.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [145]

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1Q, we were at around 4.4%, and last (technical difficulty), we were at 5-point.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [146]

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5-point? Hello?

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [147]

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5.6%.

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Operator [148]

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The next question is from the line of Shalini Vasanta from DSP Mutual Fund.

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Vivek Ved, DSP BlackRock Mutual Fund - DSP BlackRock Constant Maturity 10Y G-Sec Fund - Fund Manager [149]

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This is Vivek here. I think my question got somewhat answered, but congratulations on good performance. The one thing I wanted to know is you are able to swing between segments very seamlessly in the sense that two-wheelers go up now and CV is being pulled down. And then there's a related question on OpEx that was asked. How is your core infrastructure able to handle these things between various segments?

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Ravindra Kundu, Cholamandalam Investment and Finance Company Limited - Associate VP and National Business Manager [150]

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So, this two-wheeler, 3-wheeler, cars and MUV, we have been doing it or rather learning it for last 5, 6 years. And now the opportunity comes wherein we can increase the volume to compensate the drop in the volume from other segment. So this, we have been doing it, and we have created a separate collection, separate sales team, created an underwriting model for each and every product. So as and when it is required, then only we expand it. And till such time, we don't get a confidence that we cannot expand, we continue to learn the product. That is the reason for moving from one product to other product.

And second is that the OpEx, the OpEx when we go to the small ticket size product like two-wheeler, 3-wheeler, automatically, it increases the OpEx in the beginning. And when you get the volume in line with the productivity defined for each and every person, then it starts coming down in terms of percentage of extra asset. So we are hoping that these products are going to grow from here. And OpEx, which we actually gained in the time of expanding it, it will come down in terms of percentage of asset over time.

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Vivek Ved, DSP BlackRock Mutual Fund - DSP BlackRock Constant Maturity 10Y G-Sec Fund - Fund Manager [151]

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So, in essence, there will be no commonality of collection people, say, across, let's say, in HCV segment and there will be completely different teams. So if HCV drops in size, you will have staff for, I mean, the capacity -- the levels -- some capacity left in that, right?

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Ravindra Kundu, Cholamandalam Investment and Finance Company Limited - Associate VP and National Business Manager [152]

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So heavy commercial vehicle, we were not having so great focus on that product, we had been always doing lesser only. But the capacity get vacated from the drop in business in light commercial vehicle because industry is going down and so. And that manpower definitely we can actually move in, move out to the collection, but getting the manpower for two-wheeler from the light commercial vehicle for doing the sales is not possible. We can use them for the collection of the same product.

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Operator [153]

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That was the last question. I now hand the conference over to the management for their closing comments.

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Arul Selvan D., Cholamandalam Investment and Finance Company Limited - Executive VP & CFO [154]

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Thanks, everybody. I know it has been a tough quarter, and we had done our best and we expect to keep our performance up and running in the coming quarters. And we will be coming up with better numbers as we talk -- as we go on into this financial year and thereafter. Thanks, everybody, for your interest in this company. Thank you.

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Arun Alagappan, Cholamandalam Investment and Finance Company Limited - MD & Executive Director [155]

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Thank you.

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Ravindra Kundu, Cholamandalam Investment and Finance Company Limited - Associate VP and National Business Manager [156]

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Thank you.

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Operator [157]

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Mr. Nischint, anything from your end?

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [158]

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No, that's it. Thank you, everybody, for joining us on the call today, and thanks for the management to giving us the opportunity to host the call.

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Operator [159]

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Thank you. Ladies and gentlemen, on behalf of Kotak Institutional Equities, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.