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Edited Transcript of L&TFH.NSE earnings conference call or presentation 20-Jan-20 5:30am GMT

Q3 2020 L&T Finance Holdings Ltd Earnings Call

Mumbai Jan 23, 2020 (Thomson StreetEvents) -- Edited Transcript of L&T Finance Holdings Ltd earnings conference call or presentation Monday, January 20, 2020 at 5:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dinanath Mohandas Dubhashi

L&T Finance Holdings Limited - CEO, MD & Whole-Time Director

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Conference Call Participants

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* Aditya Jain

Citigroup Inc, Research Division - Assistant VP & Senior Research Associate

* Karthik Chellappa

Buena Vista Fund Management, LLC - Investment Analyst

* Kunal Shah

Edelweiss Securities Ltd., Research Division - Associate Director

* Nischint Chawathe

Kotak Securities (Institutional Equities) - Senior Analyst

* Piran Engineer

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Renish Bhuva

ICICI Securities Limited, Research Division - Assistant VP

* Viral Shah

Crédit Suisse AG, Research Division - Research Analyst

* Shiv Muttoo

Citigate Dewe Rogerson Ltd. - Investors Relation

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Presentation

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Operator [1]

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Ladies and gentlemen, good day and welcome to the L&T Finance Q3 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I would now like to hand the conference over to Mr. Shiv Muttoo from CDR India. Thank you, and over to you, sir.

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Shiv Muttoo, Citigate Dewe Rogerson Ltd. - Investors Relation [2]

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Yes. Thank you, Janice. Good morning, everyone, and thank you for joining us for L&T Finance Holdings Q3 FY '20 Earnings Conference Call. We have with us today, Mr. Dinanath Dubhashi, Managing Director and CEO; and other members of the senior management team.

Before we proceed, as a standard disclaimer, some of the statements made on today's call may be forward looking in nature, and a note to that effect is provided in the Q3 results presentation sent out to all of you earlier.

I would now like to invite Mr. Dinanath Dubhashi to share his thoughts on the company's performance and the strategies of the company going forward. Over to you, sir.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [3]

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Thank you, Shiv. Good morning, and welcome to all of you, and maybe a little late but wish you all a very, very, very Happy New Year. It gives me great pleasure to report another quarter of good results for LTFH. We will view the past calendar year with a lot of humility and gratitude. It was a difficult year, no doubt. And the difficult conditions in the overall economy in general and the NBFC sector, in particular, gave us the opportunity to test our resilience and the robustness of our business model and principles. We definitely had to do some heavy lifting. There is no doubt about that. And we believe that we have come out much stronger at the end of the calendar year.

Our competitive strengths in our core businesses, ability to run down our defocused portfolio efficiently, ability to maintain margins and fees in difficult conditions, ability to raise adequate liabilities from diverse sources at the right cost, our early warning signals and project management capabilities, our difficult asset resolution capabilities, our portfolio quality, and last but not the least our execution abilities and group synergies have been adequately tested and have crystallized in form of good and steady financial performance.

Let me now make 2 or 3 important observations about this quarter's results before diving into business-wise comments and then opening it up for questions. First of all, we would view these results as 1 more quarter of delivering steady performance in line with our strategy of delivering assurance to all stakeholders. In the quest to deliver steady performance quarter-after-quarter, it is particularly important to do so in turbulent times. And I believe that our performance for the last 4 to 5 quarters demonstrates that.

We generated a steady [NIMs] plus fees at a little up -- a little above 7% in this quarter. And the PPOP, the pre-provision operating profit, stood at INR 1,334 crores, up by almost 12% on Y-o-Y basis. This sustainability is achieved on back of a data analytics-based approach, which has helped us to increase or maintain market share while maintaining asset quality.

The asset quality remained stable with GS3 at 5.94% versus 5.98% last quarter, and NS3 at 2.67% versus 2.83% last quarter, with provision coverage actually going up compared to last quarter.

Steady margins, steady credit costs and asset quality has enabled us to deliver, once again, a top quartile ROE of 16.51%. PAT for the quarter stood at INR 591 crores, keeping its steady trajectory. It must be explained that the PAT of Q2 FY '20 included a tax benefit of lower tax rates for Q1 and Q2 together, and this number after normalization works out to about INR 597 crores, so the profit trajectory is quite steady. ROE was also about some INR 16.8 crores or 88% or something adjusted for this effect in Q2. So both PAT as well as ROE have maintained a steady trajectory.

The second important point I would like to make, perhaps, the most important point, is about the demarcation, which has been seen between sound NBFCs and others regarding raising of liabilities. This has become clearer and more pronounced in Q3 of FY '20. Highly rated NBFCs with good parentage were clearly preferred over others by lenders of all genres. As a result, one of the major positive of the quarter, not surprisingly, came from the liabilities. LTFH raised more than INR 10,000 crores, INR 10,400 crores in long-term borrowing in the quarter, the highest ever since FY '17 actually. As I have said before, the market is clearly differentiating NBFCs with high ratings and inherent parent strengths. And any concerns about availability of funds continue to subside with each quarter. LTFH successfully raised long-term funds from diversified sources, may it be the traditional sources of bank borrowings or privately placed NCDs or newer sources like public issue of NCDs, ECBs and priority sector borrowings.

We raised close to INR 1,400 crores through retail NCDs and INR 2,000 crores through privately placed NCDs in this quarter. In addition to this, taking advantage of RBI's on-lending PSL norms, we raised an additional INR 1,800 crores during this quarter. The proportion of CPs has reduced from 16% to 9% in the past year, and which actually gives us a good dry powder for maybe raising it by 1% or 2% as we go ahead because the ALM absolutely comfortably allows for that.

More importantly, despite an increase in proportion of long-term funds in liability mix and diversification in funding sources, the weighted average cost continues to remain stable at 8.54%. In fact, it has been reduced marginally by 7 basis points sequentially. Liquidity in all buckets up to 1 year continues to be positive. And we are very comfortable in terms of cash in hand for funding a good disbursement pipeline we have in Q4.

The third point I would like to make is about growth. Our focused lending book for Q3 FY '20 saw a growth of 14% on Y-o-Y basis. For individual platforms, vis-à-vis that is rural housing infra, the growth has been in the range of 13% to 14%. In line with our strategy, we continue to rapidly run down our defocus book, which now stands at about INR 5,400 crores at the end of this quarter. This represents a reduction of 55% on a Y-o-Y basis and 24% on quarter-to-quarter basis. And this attests our ability to quickly run down businesses, which we have identified as defocused without any significant P&L impact.

So the overall book growth of 5% has to be taken in that context, that it is a weighted average of about a 14% growth in focused businesses and a 55% reduction in defocused businesses. As far as disbursement growth is concerned, our strategy always has been to maintain and/or improve our market share in our core businesses. Degrow less than the market in bad times and try and outgrow the market in good times, while keeping our risk and return parameters tight and robust has been our continuous endeavor.

We believe that any runaway growth in disbursements, when the market is degrowing, is likely to be toxic, and we will always refrain from doing so. Just as an example, as the target -- as the tractor market showed early signs of turnaround, we were able to register our best ever disbursements in tractors. While in other products, we were happy to maintain market share or even moderate our disbursements where we saw reasons to pull back temporarily.

Our strategy will be to keep investing in our strengths, new products, digital and data analytics, network, which will surely enable us to grow better than the market when the growth comes back.

On the topic of new products, it is my pleasure to share with you that LTFH has initiated a pilot of its consumer loan business in the last quarter. The business launch is a testimony to our data analytics and cross-sell ability using the deep database we have on 2 crores plus customers. As a part of the pilot launch, we have disbursed to about 4,000 customers in Q3 FY '20. The pricing to the customer is based on the complete risk profiling of the customer, his ability to pay and competition mapping. The product is 100% paperless, totally digital proposition for our customer, entailing ease, low OpEx and hopefully low credit cost as we go ahead. The book and the disbursement admittedly have been modest at about INR 40 crores, but then now, this is how it is catching speed, and we are confident of much better volumes in Q4 as far as this product [is concerned].

Let me now take you through highlights of individual businesses. The big positive is tractors, our farm business. The late rains last year in September, even October in some areas, resulted in healthy water reservoir levels and ground water levels leading to early signs of revival in select rural belts. We are seeing a delayed but decent kharif crop and the prospects of rabi crop, an excellent rabi crop are very, very good. Overall, the wholesale tractor market, and when I say wholesale, it is the numbers reported by the manufacturers. The wholesale tractor market saw a decline of 6% in Q3 on Y-o-Y basis, which is much lower than the double-digit declines in the previous quarter.

This decline in wholesale numbers viewed with the context of reduction in inventory overstocking translates to a flat retail consumption in Q3. A flat retail growth in this quarter given the large base of Q3 FY '19 and given the negative retail growth in the previous quarter is very impressive. And we believe that even though in December, this -- what happened is even though the pace of tractor sales reduced in December after an impressive festive season, we continue to predict a positive growth in the market in FY '21. We believe that it has the first sign the green shoots in the tractor market. And FY '21, we are quite sure, is going to be a positive growth year.

The farm equipment disbursements of LTFH in Q3 were the highest ever in our lifetime, where we achieved a disbursement growth of 6% Y-o-Y. And you will recollect that the last festive season, we have seen the largest ever disbursement then. So over that, it was 6% more. Equally impressive on the other side was our highest ever CD collection, the current demand collection of 91% in December '19. These are levels which even surprise us sometimes. 91%, we believe that, yes, market is improving, plus I think our concentrated collection efforts based on data analytics is showing continuously improving results, which led to a reduction of NPA from INR 462 crores in Q2 of FY '19 -- sorry, Q3 of FY '19 and INR 382 crores in Q2 of FY '20 to INR 342 crores.

You will remember that last time, I had indicated that this is what may happen. And excellent collections has led not only to good NPA levels, but very good collections in early bucket, which bodes extremely well for the portfolio as we go ahead. We owe our good disbursements to our strategy of doubling down on counter shares with dealers, which our data analytics throws up as good and also to the success of our refinance to old tractors product, which now accounts for 14% of our total disbursements.

Our average LTV continues to remain at about 70%. This, along with an extensive use of data analytics for collection, has helped us to keep an excellent portfolio quality, and we are very confident of maintaining this in the future as well.

The Two-Wheeler business. The momentum gained by the Two-Wheeler industry in the festive season failed to sustain, especially in October. This time, you will remember that both Dussehra and Diwali were in October, so the festive season was largely in October, failed to sustain over the remaining part of the quarter. The last quarter saw a market decline of 13% in volume terms.

Retail demand in Q4 little confused is expected to be driven by the inventory clearances due to cost differentials between BS-IV and BS-VI. You will be knowing that the industry is moving to BS-VI on 1st of April, and it has its own nuances. Let me not go into that on this call. LTFH achieved highest ever monthly disbursements in October '19, backed by festive demand, and we maintained our market share during the quarter.

The book grew by 23% on a Y-o-Y basis. We are taking conscious calls on enhancing business quality in this sector, primarily by maintaining LTVs at about 75% in a very competitive market and identifying the right metrics of OEMs, geography and dealer classification using data analytics.

Micro Loans. In Micro Loans, we always follow the strategy of moderating our disbursements in areas where we see increasing association of borrowers with multiple lenders, increasing total indebtedness and delays in payment to the industry as a whole. In fact, these rules are hardcoded in the credit metrics and the number of credit rejects PIN code-wise provides us with excellent early warning signals. And I have talked about some of these in my previous calls.

On the other hand, growth comes from areas where penetration of finance and hence leverage of customers is relatively lower, and we will continue to do -- grow like this in future. As a part of this strategy, we have launched operations in Punjab and Haryana in Q3. Disbursements there obviously been modest in Punjab and Haryana. It was just launched in Q3. We expect good volume for there as we go ahead. Overall, in Q3, Micro Loans disbursement degrew by 8%, while book grew by about 11%.

For the overall rural business, higher mandi prices of kharif crops and significantly improved rabi sowing signals gains for farmers and rural India in Q4 FY '20 versus the previous 9 months. We are able to see early green shoots of rural recovery, with a pickup in rural consumer spending.

Sales of tractors. We'll see maybe a minus 7% to 8% in H2 versus a minus 12% in H1 of FY '20.

Reservoir levels. And our analytics shows that this is the single most important factor pushing sentiment and demand that reservoir levels are 41% better than long-term averages and we see strong signs of revival in rural market in FY '21 and believe that with the strengths we have built, LTFH is in a very strong position to benefit from this.

Housing and LAP -- retail housing and LAP. Some uptick in the housing sector has been seen and it was concentrated around mid and affordable housing segment. We have seen number of projects in mid, and I'm not saying affordable as in the government scheme affordable, but yes low- and mid-income housing segment has -- we have seen good sales after launch. And major players have started focusing on this segment. And new project launches have dropped by 60% since H1 of FY '15 and 40% since H2 of FY '19, majorly due to focus of the industry of completion on ongoing project and definitely lack of liquidity for new project approvals.

LTFH showcased a disbursement in retail housing of growth of 8%. And within that, a growth in salaried segment of 31%, in line with our strategy. The overall share of salaried customers grew from 51% to 62% on a Y-o-Y basis. Direct sources contributed to 70% now of home loan cases in Q3. We continue to maintain a tight credit policy for LAP segment, leading to a conservative disbursement approach there. The average LTV of our LAP portfolio remains at 54%.

Real estate. A topic of a lot of discussion. Definitely, while the difficulties in the real estate sector continue, it showed reduction in inventory overhang to 32 months from a peak of 45 months 2 years back, now 32 months is also large. Excluding -- if you exclude stuck projects, which are from small builders and just completely stuck, not moving projects to be just left on their own, inventory overhang is 25 months. There is a higher preference for ready units. And this has even lower inventory overhang of 17 months. Now 17 months, as such, for ready units is high, but some other figures quoted like 45 months, et cetera. 17 months for ready units is reasonably less than that.

In projects launched since Jan '18, with a higher share of Cat A developers, have seen about 30% to 40% of the project sold from Jan '18 already. LTFH has continued disbursements to existing projects with focus on project completion. 97% of our projects, we are sole financier and confident of completing, selling and getting out of these projects.

As I have always said, our group synergy places us in a very advantageous position for project and client selection, project monitoring, and most importantly, project completion and resolution if the project faces any issue. We have -- I had detailed this out how we are doing it, how we have formed a committee along with L&T Realty, and we are working absolute hands on project by project, wherever it is required with L&T Group.

The current scenario has also opened up an opportunity for us to lend to the best of the best developers. In the market, commercial absorption has been steady over the last 5 years. And we are also increasing our share of commercial projects. And this has, over just the last 1 year in our portfolio, the weightage of commercial has increased from 6% to 17%. So definitely, real estate, as we all say, continues to be high risk at this point of time, as the sector as a whole, but we believe, given our portfolio, we are well in control of the projects that we have, confident of completing and selling it.

Infrastructure finance. The government has recently unveiled the plan under the national infrastructure pipeline of INR 102 lakh crores for an enhanced push on infrastructure sector. This includes projects of INR 42.7 lakh crores, which are already under implementation. The pipeline has allocated INR 29 lakh crore for renewable energy and rural sector, 2 of the focus areas of LTFH.

Let me talk specifics. In solar itself already 7.4 gigawatt capacities have been allocated in the first 9 months of FY '20, implying the uptick in solar capacity additions. Most importantly, people were very worried about the low tariffs, et cetera. Open competitive bidding have yielded higher tariffs in the last quarter, going up to INR 3.29 per unit in UP. It varies between INR 2.6 or so in Rajasthan to INR 3.29 in UP. But generally, they are on -- they have seen an upward trend from the INR 2.43 low point, which was seen.

Andhra Pradesh state discounts have already cleared their dues up to June 2019 at INR 2.44 per unit and have further committed to clear dues up to September '19. NTPC may buy 300 megawatts of renewable power from AP, further helping the resolution. Details of this scheme are still awaited.

We continue to maintain our market leadership position in our identified sectors with a strong pipeline in place for Q4 FY '20. Our portfolio continues to perform excellently with new Stage 3 in our focus areas on projects underwritten in the last 7 years.

Mutual fund. Last but not the least, despite the recent volatility in the market, our mutual fund business continues to grow and deliver -- and generate steady profits. The average AUM for Q3 stands at little more than INR 71,500 crores, which is up above 4% Y-o-Y basis. We command the equity market share of about 3.6%, with the equity AUM at 57% of the total AUM. More importantly, against an industry average of 53%, our mutual fund business has a higher proportion of individual customer share, that is noncorporate share in AUM of 66%. This has helped us in creating a long-term stable customer base, which has contributed to higher AUM growth and better profitability.

I will just go into a quick conclusion and then throw open the meeting for questions. I will summarize the results in a few lines. True to our commitment of assurance like the last 5 quarters, LTFH remains on the path of consistent financial performance through steady profit margins, stable asset quality and growth in focused businesses. We have delivered a top quartile ROE of 16.51%, strong NIM plus fees and fairly stable to reducing GS3 of 5.94%.

Our CRAR, the capital adequacy ratio, stands at 20% now, giving us enough firepower to fuel growth when the tide turns. We have demonstrated the ability to raise funds in the right quantum and at the right price, which is the market's testament to the strength of our business model, balance sheet and, of course, our parentage and rating.

Steadiness is the hallmark of companies which exist in the market for perpetuity. Backed by strong data analytics-based approach, we continue to build our strength in our focused businesses and deliver steady performance quarter-on-quarter.

The overall market growth, generally of FY '20, may remain negative in the climate, in economy, majorly on account of growth slowdown in H1 of the financial year. However, we expect FY '21 to be much better based on all the factors outlined by me till now, and of course, a lower base for FY '20. We will continue to invest in our strength, backed by a strong capital structure and liquidity. We will be in a position to grow faster than the market when growth returns.

I thank you all for your patience listening and open the floor to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We take the first question from the line of Piran Engineer from Motilal Oswal Securities.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [2]

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Congrats on the quarter. I just have a couple of clarification questions. Firstly, when you mentioned that your share of commercial in real estate is 17%, so is that lease rental discounting or commercial construction finance?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [3]

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It's mostly commercial construction.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [4]

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Okay. And that happens at higher yields than residential or lower, generally?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [5]

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No, nothing like that. Perhaps, if you take on the average, a little lower.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [6]

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Okay. Okay. Sir, secondly, I noticed...

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [7]

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It's not just commercial residence, it is -- now it is done for absolute top of the line developers only. So more or less, I would say the disbursement that you see this quarter, 50% more or less is for our existing projects to complete and remaining 50% is for new. And those are entirely to absolute top of the class developers. So that itself will see yields coming down a little bit.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [8]

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Okay. Okay. Got it. And in terms -- your liquidity on the balance sheet, I have noticed that generally you all have INR 3,000 crores, INR 3,500 crores, but this time, it's gone up to INR 7,000 crores. I'm not counting the [unavailed] bank sanctions and the credit line from L&T, just the actual cash on the balance sheet has gone up quite a bit. So is there something to read into it? Or is this just a one-off quarter and...

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [9]

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Okay. I don't want to pretend any great strategy there. Frankly, it is not. You are absolutely right, that INR 3,500 crores to INR 4,000 crores is a good level. 7% of balance sheet is not a good level. So 2 things happened. There was one large disbursement in one of the business line, infra actually, which didn't happen on the last day of the year, right? And what it means is that we will show it in Q4. That is number one. Number two is the PSL. As we draw the PSL lines, they are very specific purpose lines. So they are drawn, and then it has to wait for the tractor disbursement to happen. So as we draw lines at the end of the quarter, it will be used all in Q4. So very tactical end of the year phenomenon, don't read too much into it. The message I would like to give 2 messages in that is that: one is that we have adequate liquidity, definitely; and second is that decent disbursement should be seen in Q4 with that liquidity.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [10]

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Okay. Got it. Sir, just last question. You mentioned that reservoir levels are up 41%. Is that like pan India or particular geographies?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [11]

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They are up pan India, definitely. But certain geographies, they are more better than others.

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Piran Engineer, Motilal Oswal Securities Limited, Research Division - Research Analyst [12]

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So 41% is for specific geographies?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [13]

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No, no. 41% is pan-India average. And in certain geographies, it is even higher.

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Operator [14]

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Next question is from the line of Kunal Shah from Edelweiss.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [15]

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Congrats for good set of numbers. Sir, I have 3 questions. So 3 questions. Firstly, if I look at the entire net worth, okay, I think almost INR 1,000-odd crores have been allocated to Infra segment this quarter. So I just want to get the sense maybe the focused businesses would still be more of rural and housing, but incrementally net worth is flowing into Infra, so what's the thought process behind it? And in fact, it's a relatively lower generate -- ROE generating business where net worth is going, so how should we look at it? So that was the first question.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [16]

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Okay. You want to ask other questions? Okay, let me answer this, okay? So you are absolutely right in a way that we will put generally based on -- in the long term based on ROE, based on what is focused, et cetera, but let me reiterate that our focus is on all 3 businesses: Infra, housing and rural. The retailization is also a drive, which is on the long term. At this point of time, we are seeing excellent disbursement pipeline in Infra, at this point of time. And at that point of time, we thought that reducing the leverage of the Infra entity is a good measure for the next 1 year. There is another thing happening because as you would have -- our sell down has been good this quarter. But obviously, it is not as good as what it used to be before. And we will have to maybe temporarily support the excellent infra pipeline with the balance sheet, and that is the thinking.

The equity has been put now, which will be used well over the next 1 year. You would also see that we have got into another area in Infra, which is sort of retail infra to say. We have mentioned one line in our business presentation. It is City Gas Distribution. We have done our first 2 sanctions there. Excellent business. We will talk in details about that based on your interest one-to-one. But in very short, this is where private sector gets a particular district allocated like Mahanagar Gas in Mumbai or Indraprastha Gas in Delhi. They have 8 years of monopoly. And even after that, any player coming will have to use and pay for their net worth and the money comes directly from retail user, either CNG or PNG, and we get access to their -- that escrow account.

So very retail infra kind of net worth, we are supporting that in players, which are very good international players. So all in all, we see a good infra pipeline and the equity has been put there for maintaining a fairly low leverage, given the chunkiness of the book in that business. Does that answer your question?

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [17]

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Yes. So should we expect in terms of the disbursements in infra should be much better, maybe given the sanctions...

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [18]

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I would think so in the immediate terms, definitely. In Q4, I mean, I know it's very difficult to predict. But in Q4, we will actually see a good growth in infra disbursements because there is something which we could not do in Q3, also. Some permission which are required. So Q3, you see the infra disbursements are very low at INR 2,000 crores. Part of it actually got postponed to Q4, and we will do it in [Q3].

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [19]

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Sure. Secondly, in terms of the overall rural segment. So MFI, maybe there is some bit of lower disbursements, and we are maybe going slow in few geographies. So just want to understand which would there be, is there any addition which is happening besides the eastern and the north eastern? And what's the overall sense in terms of the Assam portfolio? So I think we have INR 600-odd crores, so how is the behavior of that? And how we are doing vis-à-vis the other players in this region?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [20]

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Okay. I will talk about myself. Kunal, thank you for asking this question. So let's keep the overall growth, et cetera, aside. Anything about our retail business, let me explain for any retail business, we don't aim for a particular growth and go there. We have moved away from that. That is the way we used to grow, like everybody else, maybe 3 years back now, that okay, industry is growing by so much, I have to grow faster than this, et cetera. Now every aspect of the growth comes through bottom up. Not bottom-up based on what target branch gives. Targets we only give, but data analytics shows especially since it is hardcoded in the credit metrics is that how much business is possible to rate us.

Especially in microfinance, the credit metrics itself starts throwing rejects. So what are our -- generally our credit metrics is in microfinance, what are the total number of associations the person has, what -- how much is the total indebtedness that the person has and how is the delayed track record for a default, but delay of the person with the whole industry. This data is available very regularly, very high -- extremely high, in fact, heat rate with credit bureaus in microfinance, and it is very easy to do this, right? So why I'm saying so is growth will depend on that. It's not like we aim for a particular growth and go for it. So that's very important. So the portfolio will always remain in control.

Assam. I would like to talk about Assam in some detail because we are looking at Assam as the certificate or the -- actually we are very happy that it is almost industry best, best-in-class early warning signals which are working. So let me give you some history. And I'm going into a little bit detail. Realize that these are not numbers which are largely known, I'm giving it on a public call, so please note, okay? In Q3 of FY '19, our book in Assam was INR 750 crores, close to it, and our disbursement was up to INR 230 crores a quarter, disbursement in Assam. Assam was doing extremely well, very low delinquency, fairly low indebtedness and it was doing very well.

As Q4 came, Q4 of FY '19, this is the first time I started talking about we are seeing something in eastern India, credit rejections in Assam. And there was no talk of any agitation, nothing. But this is how the hard coding in credit works as early defaults. And we would like to really put it in public space because a lot of talks is, they said about microfinance business has not done this way, it is the business of [halt], et cetera, et cetera. We don't believe so. We believe it is database business. So I will just give you the case study.

In Q4 of FY '19, our credit rejections increased by 40% over the previous quarter, and increase in early warning signals of customers started coming. We immediately put 9 meeting centers identified on rundown and disbursements from INR 230 crores in Q3 automatically came to INR 166 crores in Q4, okay? Further, in Q1, credit rejections increased by further 20%. Now this doesn't come in portfolio. This is credit rejection. So obviously, they don't come in portfolio. But good early warning signals read out of the -- not out of your portfolio because early warning signals as they read out of your portfolio they are not early anymore, right? So they have to read out of credit rejections. So as credit rejections increased by further 20%, we put even more MCs, meeting centers on rundown and disbursements noted came down to INR 87 crores in Q1 of FY '20.

Similarly, Q2 of FY '20, there were early floods in Assam, situation (foreign language), we reduced disbursements to INR 80 crores in Q2. Portfolio that is why kept coming down. Because if you know the big issue in Assam actually happened about some agitations in Dibrugarh, et cetera, in October. And anybody who reacted at that time, simple mathematics of amortization. If you had reacted in October, you can do a [s ] about your portfolio at this point of time, okay? Very simple. So this is what our peak portfolio was INR 800 crores. It is down to INR 600 crores because we could react early. The disbursements in Q3 came down to about INR 34 crores from a peak of INR 213 crores. And that INR 34 crores is also happening in the best of areas. That is number one.

Number two, against the industry ticket -- average ticket size of about INR 30,000, our average ticket size in Assam is INR 17,000, okay? That is another data piece. If you see -- and this is data coming from Highmark, et cetera. If you see various categories of loans, which is less than INR 20,000, INR 20,000 to INR 40,000, INR 40,000 to INR 60,000, more than INR 60,000, almost 100% of our initial -- the first disbursement at the time of disbursement is in the INR 20,000 to INR 30,000 range, which is very different than the industry. The industry is way higher than that. And our average outstanding is in INR 17,000 range.

Last but not the least, as we had done in Orissa, and that is where you will see, and somebody will ask the question of increased credit cost, as we had done in Orissa last time, and I will talk about Orissa in a day -- in a minute. As we had done in Orissa, exactly 1 year back, anything more than 31 days DPD in Assam, we have taken aggressive provision. So out of this INR 600 crores, whatever is 31 DPD, it is about some INR 120 crores or so, INR 130 crores. We have taken provisions of 80% of that. So we believe in dealing with -- one dealing with issues whenever they come immediately, but most importantly, this time, we were able to call really early the early warning signals, and we are, as you rightly said, INR 600 crores at the end of the quarter.

As we go ahead, we are already lower further. We are, of course, waiting. There are still developments happening. How politics will go, we will see to that. But we believe we are fully ready and done quite well in reacting to the Assam situation even before the industry started talking about it. As far as Orissa is concerned, the industry is once again talking about Orissa. 12 months back, we were the lone horse perhaps criticized for our Orissa issue. You remember we have taken a large provision in Orissa calling the problem early. We believe that some parts of the industry are having a problem now. And in this quarter itself, our Orissa collection efficiency is back to 99.9%, plus we have recovered in this quarter itself about INR 25 crores from the amount that we had written off 1 year back.

So we believe that the microfinance business, the micro loan business is, of course, it has a higher ROE because it is subject to event risks but it is all about how you manage event risks, how you get early warning signals, how you react to those early. And then, of course, when there is a issue, how you take provisions and stop giving -- don't give shocks to P&L. So Kunal, thanks for asking the question. I was able to clarify a lot to that.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [21]

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So does it mean that we have provided INR 90 crores to INR 100 crore on this INR 600 crores...

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [22]

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Correct, correct. INR 112 crores something -- INR 112 crores.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [23]

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In this quarter itself, in INR 276 crores?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [24]

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That is right.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [25]

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Okay. Cool. And just last one question in terms of the OpEx. So the overall OpEx growth has also been quite high this particular quarter. So what's been the reason for this?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [26]

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Okay. So one is just technical and other is strategic, okay? Technical is the last quarter had a GST credit of INR 23 crores, okay? So that is just comparison-wise, and there is no GST credits -- large GST credit this quarter. So that is just one technical, just to get your models right. But there is something that I will explain, 2, 3 things. One, as I always said, when disbursements are down, especially in the areas like rural retail housing, where you have to keep your network in place with dealers, with builders, et cetera. Yes, you can change them, can adjust them, but that's not as fast always as volume going up and down. Secondly, as I had explained last time, if in one dealer and a good dealer, if I have put one person. If I put 2 persons and the volume is down 40%, I can reduce it one.

But if I put one person, I can't reduce it 0.4 or 0.5, right? So these are things which will happen normally at the time when business is down. And as the disbursement starts picking up, our productivity in farm has actually gone up this quarter from about 9.8 or 9 per month per person to around 11 per month per person. Whereas in Two-Wheelers, it has come down. Micro Loans, as you can imagine, in Assam, and all the productivity is [weighed on] naturally. I mean, disbursements have been down from INR 200 crores to INR 34 crores a quarter, right? So it will happen. Temporarily, still we either increase business or adjust manpower there. So that is reason number one. Reason number two is we have paid tremendous amount of attention to keep portfolio and especially early collections in check.

Having said that, the most important and cheap method of doing early collections is call center and asking the customer to come to, what we call, a branch or a meeting center or, what we call, a collection center to come and pay. As situation becomes a little difficult, higher percentage of accounts are not closed by the call center and given to the branch team or collection efficiency to collect the payment, and that reflects in the expense column. It also -- we also recover a part of it through fees, through delayed collections. It comes in the income column. So the delay in interest, for example. So you will also see the margins a little bit higher than what we have been guiding you, right? We have been guiding you between 6.7% to 7%. The margins are 7.26%, right? It has some -- I will not be able to go into details, some elements of delayed payment collections, delayed interest, et cetera.

So when you see margins and expenses, some part of it will go hand-in-hand. So you cannot look at just one thing in itself. So that's about it. I can assure you that the management has full -- it's in its full control, and I always will admit that while there are very good explanations, our push will always be for efficiency, for measuring efficiency that our data analytics and digital provides, and any wastage, we will control. And as a person, I always believe that there will be wastage, and there will be ways to reduce it as we go ahead. I wouldn't like to commit next quarter how much we will reduce, but you can rest assured that we have done it before and we will try and make efficiency gains as we go ahead. Having said that, till the situation in the market remains difficult.

I mean, I wouldn't like to make a political statement, but the protest which happened in the country in December, we had to invest a lot manpower, double kind of expenses to check collections. Assam, for example, 8 to 10 days, Internet was closed. So then you have to have a manual process. So these things also take expenses. Last but not the least, we will continue to invest. So don't forget that we are investing in a new product, building of state-of-art systems for the new product. That is another aspect. So does that answer your question? Short of giving you guidance as to what the expenses will be in Q4, I have given you a lot of explanations.

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Operator [27]

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Next question is from the line of Karthik Chellappa from Buena Vista Fund.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [28]

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Congrats on the quarter. Two questions from my side. The first one is, if I were to just look at our weighted average costs on the funding side, so for the first time after 7 quarters, it is actually down sequentially Q-on-Q. And at the same time, we have raised about INR 10,000-odd crores long-term money, which is like you put it earlier in your comment that the highest in any quarter since FY '17. I'm just trying to reconcile the 2. We have raised a significant amount of money long term, but yet sequentially our weighted average cost is down, which is, again, a first in 7 quarters. So how should we reconcile this?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [29]

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Sure. So very simple. I can be very modest and say that, okay, the industry cost itself has gone down, which is true. The spreads, the triple A spreads on bonds has gone down quarter-on-quarter, no doubt, and full credit to that. But also, I can be a little bit immodest and say that we have almost cornered the priority sector raising market, which is at a substantially lower cost. I will not go into exactly how much, but reasonably sub-8 cost for this priority sector. So that is available at least till 31st March, and we will take full advantage of that.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [30]

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So can we say that from here on, on our weighted average cost curve basis, things will only improve for you?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [31]

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Maybe more steady at this point of time is what I will -- last time I had given a guidance of actually 10 basis points increase and we reduced it. And very frankly, it will depend on how much money we will be able to raise on this PSL further. Also, whether we increase our CP by maybe a percentage or so, I think I will conservatively take it at the same rate and try to do better than that. I will put it like that.

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [32]

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Okay. Perfect. My second question is on the microfinance portfolio, sir. Thank you very much for the detailed explanation on Assam. And you have been articulating your strategy pretty clearly that you want to go into less penetrated geographies like Punjab or Haryana or so. But on the data points that you just had, I just have 2 follow-up questions. Firstly, you said that as early as in the fourth quarter of last year, your rejection rates started to go up and that continued in the first quarter as well. Just as a principle for microfinance business, could you share what all signs did you see in your database for the rejection rate to actually go up?

Was it like multiple lending -- the number of lenders are pretty high? Or was there an aggressive player crowding out everybody with larger ticket sizes? Or was it related to income? Any color on that front would help. And secondly, on a rundown INR 600 crore portfolio, essentially our 31-day DPD is like about INR 120 crore to INR 130 crore, which is basically 20% of the portfolio is what we have kind of classified at risk and taken in 80% provisions. I would think that looks like a slightly high number. So any color on why that number turned out to be so high? It would effectively mean that certain districts or certain meeting centers effectively the whole amount needed to be written off basically?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [33]

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No, no, no. It is not written-off. So let me take one by one. I'm not going to take that nice bad debt bet that you provided of aggressive player lending so much, et cetera, et cetera. I'm not going to comment on that, okay? But everything else, I will talk about. So very, very simple thing. The early warning signals as a principle and please see the nuance of what I'm saying. As a principle, cannot be based on our portfolio. Because if it is seen as our portfolio, it is not early, simple. If it is one DPD in my portfolio, it is not an early warning signal. It's a late signal. So that's the first thing. It has to be based on overall market data. And as I said, the 3 things that we see: one is number of associations, overall indebtedness and my credit rejects.

So okay, number of associations, overall indebtedness and any delay happening somewhere else. So customers either not with me or good with me and bad outside, okay? These kind of metrics is seen, based on that credit rejects increase in a particular area. And based on -- so these 3 and the credit rejects in my -- and that is obviously very quickly seen -- the Head of Business very quickly sees, what is happening credit rejects because the Head of Business has to deliver on disbursement, has to deliver on productivity. And when credit rejects increase, all these things start going down. And obviously, business and risk both starts taking notice. And that is where what is the automatic mechanism, then we start taking subjective notice also what keeps happening.

And then based on that, we either put a particular meeting center on rundown, et cetera, et cetera, et cetera. So that is number one. Number two, the point, as you raised, this business is a monetizing business. And when, say, for example, a regular -- I'll just give you some number, right? If let us say a regular collection efficiency is, say, 93% for a month, that means 7% is 31% -- 31 day and up, it is not. You get?

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Karthik Chellappa, Buena Vista Fund Management, LLC - Investment Analyst [34]

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Yes.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [35]

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It is simple, right? And these 2 things will have to be matched when you see market data. So it is as simple as that. It is -- that's why we take 31 days and up standard as a provisions. And by the way, I must make some this thing, where -- why these provisions are a part of my P&L, they are not a part of my provision coverage. They are standard as provisions. They are coming in Stage 1 and Stage 2, okay, these additional provisions that we have taken. So that is just a number. So very clearly, as we maintain collection efficiency, collection efficiency in Assam overall is around that number, early 90s. And obviously, 7% of that approximately will get every month into this till it reaches the 90 days, and that is what has happened. 120 days is 31 DPD now.

Largely, we believe that the affected area have reached there. Whatever is less than 30, we believe, is in ball in play, we can collect and things like that. And of course, the large part of the portfolio still remains 0 DPD, the majority of the portfolio, right? So that about explains it. It does not mean that it is a write-off. It does not mean that this INR 120 crores is gone forever. That is why I gave you Orissa example. That Orissa also we took very conservative provisions of INR 150 crores in 1 quarter. After that, we didn't have to take any more quarter -- any more provisions for Orissa. And on top of it, we have recovered money, right? What we are doing is we have acknowledged that this is an issue. How we are dealing with it is very active engagement with customers and all relevant stakeholders.

We have increased meeting coverages by appointing additional manpower there, we are -- and very clearly clarifying the issues by all over explaining our practices, removing misinformation, et cetera, we can confirm that we enjoy, LTFH enjoys even today unfettered access to customer, even today. That doesn't mean that all the customers are paying, but we are not facing any (foreign language) or anything like that. We believe it is a certificate to our practices.

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Operator [36]

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Next question is from the line of Aditya Jain from Citigroup.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [37]

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Really good to see the steady asset quality in the quarter. I was wondering if you could elaborate on a couple of things. One, the Supertech reduction and exposure to that account that you talked about in the last quarter, how is that progressing? And secondly, the defocused book rundown. If you could give us some color on what is the market demand? Is the sell-down happening below or above book value?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [38]

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Okay. So the first one, Supertech, I wouldn't go into absolute details right now because a lot of it is work in progress. I can only confirm that things are going well on plan. We have 4 or 5 plans. So maybe one is going a little late, 2 are going a little earlier than planned. Largely, it involves the following. It involves doing [DM] arrangements for some of the -- [old] projects and sale of the additional property, hotels, malls, et cetera, we have. A couple of them, the term sheets are already signed. One, the money has been received and our money has come back actually, and a few more are under discussion. So as we had said, we should be able to report a decent amount of reduction by March, and then we will give update at that time that how do we see it going right? So that is as far as Supertech is concerned.

As far as the defocus is concerned, the numbers are there. I will also say how we are achieving it. So the numbers are quite good. We had indicated about INR 5,000 crores by end of the year, and you would say that we are already very close to that number, and the reduction has been impressive.

It has been achieved with 2 ways, the DCM book, obviously, with the exception of [D1], okay? We are selling down pretty rapidly. If we make a particular loss on some, we also make profits on some others. So obviously, the hit to balance sheet and P&L is not at all there. I mean, this quarter, it is not at all there, forget negligible, et cetera. So the DCM book is coming down very smartly based on that. Obviously, we wait for opportunities. It is no panic sale. We are ready to hold but we look at opportunities and sell down pretty aggressively.

As far as the structured finance book is concerned, there are some normal repayments happening. There are some difficult account resolution happened. You have one example where one media group sold its equity in 2 phases and we got a majority of the money back there. So that is the second method. And also any nonfinancial defaults. That is a trick that you do that to ask for money back. There are a number of covenants. Majority of the covenants are nonfinancial. And using that, convincing the company to repay early pay some of the amount. These are not benefits. It's okay if it continues. It yields -- use good yields, but we have promised the investors that we will reduce to INR 5,000 crores by March 31, and we will.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [39]

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Got it. And on the margin side, so you've already given us some details, but could you just clarify, so there were -- you mentioned there were a couple of recoveries and one-offs, which helped the margin in this quarter. How many basis points, how much impact would that have had?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [40]

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I wouldn't go into those details. I can only say that we guide conservatively between 6.8% to 7%, 7.1%. We are confident of maintaining that, and we are confident at maintaining our PPOP levels and credit cost levels to deliver the final ROA that we lead to. There can be place in some of these areas quarter-on-quarter. But on the annual basis, we would like to maintain it steady. That's the only thing I will say.

On margins, there is another fact. You also have to take the change in product mix. So as we do rural more, margins will go up. On the other hand, as real estate is reduced, margin will come down, so -- and we give business-wise margins also. So you can do your calculations based on that.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [41]

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Got it. One thing, if you could clarify, sir, you mentioned early signs of stress in some sections in microfinance. Which particular state, if you could go into the detail...

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [42]

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No, no, there is no stress. There is no stress as it is understood as reduction in collection efficiency, no. But we see -- that's what I'm saying. When I speak stress, maybe sometimes I'm misunderstood because I normally start indicating 1 year in advance and hope that nothing bad will happen. Assam also. I mean, Assam, the situation -- please understand. If the situation would not have come to a political unrest, right, the industry would have managed. So the final problem is of political unrest, okay? Let us not blame it on many other things. But early warning signals and actions happen on many other things and not political unrest because by the time the political unrest happens, it's too late, right?

So as I said, certain areas of certain states in east, maybe in south, certain districts are seeing crowding, are seeing increase beyond comfortable levels in total indebtedness and number of associations. And those areas, we have already started reducing. So this is the explanation I was giving for not promising any growth in microfinance because it's -- microfinance, there is so much demand and so much underpenetration and so much scope for financial inclusion, why growth is not possible, it is because of this. That growth if microfinance is done as normal financing business, which it is (foreign language) and then you have to collect it back. I don't see any difference between that and any other retail loan product. And hence, all the principles of a normal retail loan product has to be applied to microfinance, that we believe. And that's what I was talking. I was not talking about any obvious stress.

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Operator [43]

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We take the next question from the line of Renish Bhuva from ICICI Securities.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [44]

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Congrats for the good set of numbers. Sir, a couple of questions. One is on the write-off. So if you can just tell us the total write-off in this quarter versus last quarter?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [45]

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I -- there is nothing significant, at least, but I don't -- no, in any case, we don't give that number. But I can tell you (foreign language) significant (foreign language).

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [46]

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Okay. Okay. And sir, just one sort of accounting clarification. So on the press release, there is a one line item, which is most probably to the selling down of assets, where our loss on it has actually increased to INR 108 crore from INR 30 crore last quarter. So if you can just explain that INR 70 crore difference? So [in press release, if] this has net loss on the recognition of financial instrument and the amortized cost category.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [47]

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No, I'm not getting it. He's asking about...

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [48]

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Okay, sir. We will take it offline.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [49]

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Actually, the line that you are seeing, the 2 lines, one above that are to be seen together. So the previous quarter, it is INR 67 crores plus INR 30 crores. This quarter, it is INR 107 crores plus INR 2 crores. Okay. So I will give you the detailed explanation. I mean, my CFO will give you. (foreign language). Okay. But...

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [50]

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Okay. We will take it offline, sir. No worries.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [51]

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Take it offline with my IR or CFO, and they will give you a very detailed clarification. But (foreign language).

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [52]

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Okay. Okay, sir. And sir, just more on the strategic question on the rural finance side. So sir, from last 3, 4 quarters, actually, there has been a consistent decline on the net interest margin. Of course, I think one of the reason might be, we are degrowing sort of our microfinance book with high yielding book. So going forward, let's say, next couple of years, what could be the steady state or, I would say, sort of, margin you expect on the rural side, sir, depending upon your loan mix strategy, et cetera, et cetera?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [53]

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Okay. It's -- my God (foreign language) you are asking for all projections, naturally. But very, very difficult to answer that question, buddy, because as I said, I don't decide my product-wise growth at the beginning of the year, okay? There are internal budgets, but those are largely taken as very directional. We decide quarter-wise based on early warning signals with small PIN code that we will grow which product. So that way, it will be very difficult to answer your question. I can confirm 2 things. That product-wise, product by product, we don't see margins either reducing drastically or increasing drastically. If there is a reduction in cost of funds, we will be competitive and pass it on. If there is an increase in cost of funds, which looks very, very unlikely, we have shown the capability of passing it on. So as you rightly said, it is -- the margin will really depends upon the product mix going. And also, this is increase or reduction?

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Unidentified Company Representative, [54]

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It is increase.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [55]

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Increase. So actually, you see Q3 FY '20, the margin is 11.9% in rural overall, vis-à-vis Q3 FY '19 11.64% and Q2 was 11.47%. That is why I got confused. The rural margins have actually increased, okay? And this is in line with just totally reduced cost of funds frankly. But my answer will be this, that this increase or decrease will be, (foreign language). Rural is -- we are near leaders in this business, and hence, we can't be totally out of the market. In fact, we are very important part of the market. So margins, there is not much to read in rural margins.

Just in microfinance (foreign language) compared to everything, margins will go up. Tractor (foreign language), the margins will slightly come down. And I can only say that over the next few quarters, at least I have a visibility on tractors being very good. So margins will be a little down, but there are so many other parameters in the P&L, which also improve tractors going up, like NPAs and other things, expenses, everything.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [56]

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Yes, sir. So just last question on the microfinance side at the industry level. So sir, what's your team is suggesting? I mean, which are the states which are showing sort of, let's say, high rejection rate at the industry level, not specific to L&T Finance?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [57]

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I told you, east -- some states in east and one -- a couple of states in south. I wouldn't like to be more specific than that.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [58]

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Okay, sir. So would you like to comment on the rejection rate increase? Or I mean, what sort of increase -- I mean, it's a marginal increase or you guys see there is a lot of [over rating]...

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [59]

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Our overall -- I can tell you one thing. Our overall rejection rate is --

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Unidentified Company Representative, [60]

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48%, 48%.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [61]

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48% is our overall rejection rate.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [62]

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Pan India level?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [63]

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Pan India level. And my renewals, that is my own customer, and this is a very important data. My own customers' renewal acceptance for the second cycle is in the early 30s. So my own customers, they end up rejecting around 73%, 74% -- around 68% or 69%. Because they are already in the period that they are with me, they have gone and borrowed somewhere else.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [64]

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Right. So sir, what could be this data for the states where you are seeing like little stress for you also?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [65]

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It will be natural. There will be a little above this weighted average.

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Operator [66]

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Next question is from the line of Viral Shah from Crédit Suisse.

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Viral Shah, Crédit Suisse AG, Research Division - Research Analyst [67]

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I have one question.

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Operator [68]

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Excuse me, Mr. Shah, I'm so sorry to interrupt, requesting you to please speak a bit louder and use the handset mode, sir. We are unable to hear you.

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Viral Shah, Crédit Suisse AG, Research Division - Research Analyst [69]

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Yes. Am I better?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [70]

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Yes, yes, better. Go ahead.

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Viral Shah, Crédit Suisse AG, Research Division - Research Analyst [71]

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Yes. So I had one question on your AMC business. So given where the valuations for many of the standalone AMC businesses like ours, is there any medium to longer-term strategy over there like we've had for IIFL Wealth?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [72]

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You don't seriously expect me to answer that question, right? But even if we had, we wouldn't be telling it on a call, right?

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Operator [73]

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Next question is from the line of Nischint Chawathe from Kotak Securities.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [74]

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Sorry about that. Okay. I have to apologize. But obviously, I can't answer such questions, no? Okay.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [75]

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This is Nischint here. Just one question pending from my side, and that is essentially on the defocused book. Now I was just trying to understand what -- any guidance out there, first thing? And the second is that there is a sharp reduction in the net worth of the refocused book this quarter, which is in addition to the loss that you would have reported in this segment. So just trying to understand what are we looking at in this segment from your own?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [76]

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Okay. Yes, I mean, for net worth (foreign language). I'm not prepared for that question, I will get back. But the guidance, we have always maintained INR 5,000 crore by March. We hope to beat that guidance a little bit, that's it.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [77]

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Okay. And any guidance for next year or any estimated loss or anything of that sorts?

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [78]

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The estimated loss, nothing unusual. We will try and not give shocks in that. Yes, we have taken -- as you said, we have taken provisions this quarter about -- we have taken provisions this quarter. We will make, as I said, once the wealth transaction is closed, and it should be closed very soon, it is waiting some D.A. approvals, the profit from that also, we will sort of allocate as provisions for any future sales, et cetera, for this business, which will strengthen our hands to reduce this portfolio much faster.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [79]

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Sure. I'll take the reconciliation offline.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [80]

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Sure. Yes, please.

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Operator [81]

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Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.

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Dinanath Mohandas Dubhashi, L&T Finance Holdings Limited - CEO, MD & Whole-Time Director [82]

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Thank you. I think very, very good questions. It helps me to clarify a lot of things. I'm very happy. Thank you all of you for your patient listening. I will once again only end with giving a promise that -- so one thing, I think the big difficulty of the sector for the last year was liquidity. I think good company, not only LTFH, admittedly all highly rated companies with strong parentage, we believe are out of it. We can [raise funds]. There are 2 indicators of that. One is we have started, again, negotiating and troubling our lenders for best rates. Till now, we were happy raising the money. We have started troubling them.

Second indicator is the attention paid by MD on the particular area has -- was high. It is now come back to normal. And of course, the CFO keeps a very close watch on it and the treasury. But my own attention is back to strategy and charting your route for the company over the next 2 to 3 years rather than liquidity for that quarter. So that thing is behind us. As far as growth is concerned, I will once again say, yes, a lot can be read into minus 20% disbursement growth or a 15% growth in book on focused businesses. I can only say that we believe that we are in financing business. Whatever we grow is for 3 to 5 years, it can come and hit you. And hence, runaway growth in times like this will always be toxic. We will continue to concentrate on asset quality, profitability and liquidity first.

And at this point of time, growth will be a result of effectively managing all other 3. At the same time, our complete confidence to you that we will keep investing smartly and efficiently based on our data analytics on things which are required, the building blocks for growth, and I'm very confident that when growth returns to each of the segments, we will be able to grow better than market. In any case, in some of the areas like real estate, there is big scope for growth, but we are moderating, obviously, as we have promised for completing our projects and only concentrating on top quality builders.

So I would read less in this quarter's growth and more into our capability of our growth strengths, business strength and ability and what's shown track record of maintaining steady results. Hoping -- thank you for all your confidence and support and hoping for the same as we go ahead. We always need your good wishes. Thank you. Keep it coming.

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Operator [83]

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Thank you very much. On behalf of L&T Finance, that concludes this conference. Thank you all for joining. You may disconnect your lines now.