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Edited Transcript of MAGMA.NSE earnings conference call or presentation 8-Nov-19 10:30am GMT

Q2 2020 Magma Fincorp Ltd Earnings Call

Nov 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Magma Fincorp Ltd earnings conference call or presentation Friday, November 8, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kamal Kishore Kailash Baheti

Magma Fincorp Limited - President & Group CFO

* Kaushik Banerjee

Magma Fincorp Limited - Adviser of Asset Finance

* Mahender Bagrodia

Magma Fincorp Limited - Chief Credit Officer of Asset Backed Finance

* Manish Jaiswal

Magma Housing Finance Limited - MD, CEO & Executive Director

* Sanjay Chamria

Magma Fincorp Limited - Vice Chairman & MD

* Udit Kariwala

AMBIT Capital Private Limited, Research Division - Research Analyst

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Conference Call Participants

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* Kunal Shah

Edelweiss Securities Ltd., Research Division - Associate Director

* Nischint Chawathe

Kotak Securities (Institutional Equities) - Senior Analyst

* Praful Kumar

Pinpoint Asset Management Limited - Portfolio Manager

* Sumit Agrawal

IDFC Asset Management Company Limited - VP of Fund Management

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Presentation

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Operator [1]

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Ladies and gentlemen, good day and welcome to the Magma Fincorp Limited Q2 FY '20 Earnings Conference Call hosted by Ambit Capital Private Limited. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Udit Kariwala from Ambit Capital. Thank you, and over to you, sir.

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Udit Kariwala, AMBIT Capital Private Limited, Research Division - Research Analyst [2]

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Thank you, and hello, everybody. I welcome you to the 2Q FY '20 Earnings Call of Magma Fincorp Limited. I have with me Mr. Sanjay Chamria, Vice Chairman and Managing Director; Mr. Manish Jaiswal, MD and CEO, Magma Housing Finance; Mr. Kaushik Banerjee, Adviser; Mr. Rajive Kumaraswami, MD and CEO, Magma HDI General Insurance; and Mr. Kailash Baheti, Group CFO. I'll now hand over the call to the management to take us through the performance for the quarter. Over to you.

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [3]

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Thank you, Udit. Good evening, friends, we are happy to share that the unprecedented liquidity crisis has largely been addressed, and Magma has entered this quarter with a liquidity surplus of INR 1,900 crores after retiring all the short-term liabilities. As you are aware, NBFC industry has been dealing with unprecedented risk aversion from banks, which was triggered by failure of a few large NBFCs and HFCs over the last 1 year. This has resulted in scarce liquidity for NBFCs for the longest period of time in Magma's (inaudible) association with financing rural India. In this uncertain environment and with the overall economy going through a significant slowdown, we at Magma, have set the following priorities: first, continue to remain liquid and enhance asset liability matching. Under current uncertain and this covers economic environment, our primary focus is to maintain liquidity evolvement and protect the interest of all the stakeholders, especially the lenders who have (inaudible) even though the same may be at the cost of near term profitability. We've been successful in liquidity management as will be evident from the following facts. First, we raised INR 3,750 crores of long-term borrowings in the first half of the year, of which INR 2,130-odd crores were in Q2. Second, we repaid all the short-term borrowings, especially in the (inaudible) commission paper. The lenders have appreciated the difference between the wholesale and the retail NBFC leading to some ease for retail NBFC with general portfolio like ours to range 1 year regular intervals. We had closed FY '19 with a surplus of INR 2,000 crores. During July and August 2019, we had rescheduled repayments falling due of short term liabilities, and we therefore raised long-term resources and slowed down our disbursals to deliver liquidity. We now have very comfortable ALM across all buckets. And well within the regulatory norms. We also have been concentrating on adding lenders, and I'm happy to share that we have added 6 new lenders, some very large and respected private and foreign banks during the quarter. The company has built a strong pipeline of term loans, PTC and securitization direct assignment partial credit guarantee scheme with the government of India and the long-term funding from the multilateral ANCs. This ensures more than adequate liquidity for the remainder of the current fiscal and beyond. Subscription of the short-term by the long-term liabilities until tight liquidity scenario has caused our overall cost of funds to spike significantly during Q2 while it has gone up by 117 basis points compared to Q2 of last year. I will now make the objective of building robust liquidity of zero short-term borrowings and a healthy pipeline of new facilities at comparatively lower cost of funds. We expect our incremental cost of funds to be lower by 50 to 75 basis points. And the overall cost of funds to start declining from April 2020. The second priority is protecting the asset quality and keeping credit costs under check. As highlighted earlier, the economy is going through a period of senior economic slowdown. The strength in the external environment is reflected in the performance of our portfolio in the select asset class, particularly in ABS, which is largely rural and mainly comprised of a small (inaudible) vehicle operators and farmers. Q2, our collection efficiency was at 97.5%, though better than to Q1 at 96.1%, still has been significantly lower than our expectations. This was largely contributed by our below par September performance at 94.2%. We have witnessed strengthened the CV and the CE portfolio which contributes to 25% AUM. These products have contributed 70% of the incremental [stake-free] assets Y-o-Y. However, the stress is not universal and is largely restricted to the states of UP behind [AP] in West Bengal which comprise 30% of our AUM. To ensure even stricter customer selection under the current challenging circumstances, we have undertaken policy actions as follows: branch under dealer trading tightened, reduced activities, credit engine low score bank filtered up and working with a select OEMs. We also experienced some stress in the SME portfolio. We feel this is an industry phenomenon. The dealer data in this product indicates strength. And therefore, we will be cautious in new underwriting. To improve our new origination, we have tightened the screens and (inaudible) UP segments.

On the other hand, our housing finance strategy of building a granular affordable housing portfolio through direct sourcing continues to deliver strong performance. We expect our credit cost to soften in H2 of FY '20. However, given the performance in H1, we are increasing the credit cost guidance from 1.5%, 1.75% range to 2.25% to 2.5% range. We are confident that our asset quality ratios had so good improvement in the second half (inaudible) stronger half for collections. We shall strive to end the year with good reduction in the NPA ratio as compared to September '19. Our third priority is to regain interest paid lost due to increase in the cost of funds. Our NIS on the overall loan book has been compressed by 130 bps in Q4 on a Y-o-Y basis since 80% of our loan book is fixed rate in region and substantial product liability book is floating rate. While we have increased the gross rate from incremental disbursal by 70 bps during Q2 on a Y-o-Y basis, the impact of the existing book will take a few quarters to be enough. We expect to normalize our expected NIS through the following measures: a, the share of the used assets in our ABF book sudden increase in line with the existing strategy resulting in higher than the higher ROA; b, the cost of new borrowings are expected to be [50] to 75 basis points lower than the borrowings in Q1 and Q2; and the fourth priority has been to achieve profitable growth. As we rated short-term borrowings and built adequate liquidity buffer in Q2, we chose to dial down this business. With liquidity issues behind us and expected improvement in the demand driven by both and government intervention, we expect growth in disbursal to bounce back in Q3. We've been focusing on growing our used assets for a couple of years now and that the used assets is the least impacted in the current slowdown. We were cautious and selective in growing the products like medium and heavy commercial vehicles and the construction equipments, which are facing a stress currently. We have tied up with one of the largest private banks for co-origination in our asset-backed business. This is asset-light, low leverage model which should be ROE accretive. We've been cautious in building the SME business due to challenging external environment. The SMEs are facing [key] challenges of liquidity and economic slowdown, and therefore, cash flows are stressed. Our affordable housing finance company, Magma Housing, is doing well, and we expect the business to grow in high double digits in the current financial year. Our insurance, generally, Magma HDI is also growing the business in high double digits, and we expect to grow as well our stated plans. We have undertaken concrete steps for OpEx reduction through efficiency enhancements. We've decided that we shall end the year with absolute OpEx [beginning] nearly the same as last year.

Now I go to business lines. So first would be asset-backed finance. Over the past few quarters, we have taken significant steps to strengthen the ABF business, which was adverse through this difficult external environment. We have aligned our ABF business towards desired product mix with high contribution from the used assets. This has insulated the business to a certain extent from the impact of slowdown in the new assets. In Q2, 63% of our disbursals was contributed by the used assets and used assets now contribute 31% of our ABF AUM. Increased focus on the used assets also helps boost our total nets, including share and other income due to significant opportunity of cross-selling other products. The changes that we have and our undertaking of the digital front will enable us to rank amongst the fastest lenders with full tech-enabled processes addressing customers and channels. This will help us increase productivity and profitability by Q4 of FY '20.

Housing. The affordable housing finance business had a robust quarter with loan disbursals going to INR 308 crores, thus showing a Y-o-Y growth of 37%. AUM grew 35%. In line with the business strategy of Go HL and Go Direct, 70% of the incremental disbursals were home loans and 83% of the business were sourced by our proprietary sales force. The ED and the ID are trading at their best ever and they reflect the superior quality of loan being sourced over the last 12 months. We have closed 11,956 new customers and only 54 customers have a 0 plus delinquency, reflecting collection efficiency of 99.8% for the 12 months on [gold] loans. We are also pleased to inform that Magma Housing has the first sanction from National Housing Bank, and we've also been able to obtain a large sanction from a large institutional land bank. The share of the housing business is both from the strength enhanced from 8% about 2 years ago to 30% in Q2 of (inaudible) We expect the adjusted business engine to build quality and [tech side] evidence in the growth trajectory over the last 2 years. The MHFL franchise has evolved to a national scale as it has deepened its presence establishing direct connect with its customers and 11 key states of the (inaudible) footprint. This makes it a differentiated affordable housing industry, finance plan and of business origination of 34% from West 38% from North, 22% from South and 6% from East, respectively, and positions us well, thus defraying us from geographical concentration risk.

SME. Given the tough macro conditions or stress working capital cycles and the economic slowdown, we have adopted prudent and taken product policy measures to improve sourcing quality. The accent for the future will be on prudent portfolio quality over growth and primary focus on profitable growth through a combination of quality origination and underwriting them. So we see what proprietary scoring model, the SME portfolio's 0 bucket collection efficiency is amidst in our stressed top quartile at 98.6%. The infant delinquency stands at 0.51% which is in line. However, there has been a minor increase on the early delinquency at 1.73%, respectively.

Coming to insurance, the business has been continuing to restore robust growth (inaudible) to deliver industry growth rates and Magma HDI reached a growth of 42 -- 45.2% in gross premium in second quarter on a Y-o-Y basis and 49.6% in the first half on Y-o-Y basis. The growth is shown by strong momentum, both in the retail and the commercial business vertical. The company continues to focus on building the retail franchise, but the retail business comprising 84% of the GWP in the company for the first time. [Magma] continues to build dominant portfolio for the company with the contribution being 80% of the portfolio for the first half versus 78% in the first half of last year. The company continues to enjoy one of the lowest [OD] ratios [over] loss ratios in the industry. During the quarter, the company was (inaudible) by Maruti on its OEM program. The business is likely to start with [Maruti] during Q3 in the current fiscal. The commercial portfolio registered a growth of 27.6% in the first half driven by rate increases as well as continued acquisition of new customers. So I think that the entire management team will take any questions that you all may have. 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 Praful Kumar from Pinpoint Asset Management Company.

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Praful Kumar, Pinpoint Asset Management Limited - Portfolio Manager [2]

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Just a few questions. Sir, is there any update on the new CEO for the vehicle business in terms of hiring?

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [3]

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So we are continuing the process (inaudible) and we are in the midst of the process. As I stated earlier, we propose to finalize the sale in a manner that the CEO comes on board by March 31. And I shared with you all, Kaushik continues as an adviser, and his contract is valid until March 31, 2020.

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Praful Kumar, Pinpoint Asset Management Limited - Portfolio Manager [4]

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Secondly, sir, now given that RBI has allowed on top licenses of small finance banks, where is the final guidelines from? Is there any (inaudible) internally given the liquidity episode we saw to look at that business model?

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [5]

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Right now, the kind of issues that the industry is facing and we are dealing within Magma, our focus is first 2 parts of the current period in terms of the liquidity and the heightened credit cost given the macroeconomic environment. And once it settles down and the business model is firmly well in place, I think that is when we will look at these kind of strategic initiatives. But right now, our entire bandwidth, that is me and my entire management team, is devoted actually on ensuring that we are able to pass-through this difficult period and stay on track.

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Praful Kumar, Pinpoint Asset Management Limited - Portfolio Manager [6]

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And finally, on collection efficiency. So how is that trend lately? So September was bad. So October and start of November, are things looking equally grim or is there some ray of hope in the last month, 40 days?

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [7]

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So this has actually been a bit volatile. So July was better than June, and August was exceedingly good. Before August, we crossed 100% collection efficiency. But September then was extremely soft, and this was occasioned by the floods and rainfall in the last week in certain key states as I was telling that UP and Bihar and [MP] where in fact in the last few days of the month, even our guys are were not able to even reach out to the customer, not that the customers would have had money because even they were finding it difficult to deploy their asset in the last few days of the month. And therefore, industry-wide, there has been a very, very soft September collection. In fact, compared to that, October month has reported better performance even though we were apprehensive because in the month of October, we have had both the Durga Puja and Diwali, and the 2 big festivals that is a number of working days are lot lesser. But despite that, we have improved the collection performance in October. But actually, November and December are clean months with no rainfall issues, no holidays. And therefore, we have all the entire month full of working days. And typically, the second half of the year, the cash flows are a lot better because beginning of this month, you also have the [cross] hitting the [Monday] and the government [buying] and therefore, the rural customers getting money. And typically, we have seen over the last many, many years, that second half usually produces a much more robust performance. And the NPAs that increased in the first half of the year, we are able to claw back a good part of it in the second half of the year. So we would remain optimistic for the second half of the year.

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Praful Kumar, Pinpoint Asset Management Limited - Portfolio Manager [8]

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So we have seen some unseasonal rains in Maharashtra lately. Does that affect you or collection efficiency? And secondly, if you can just comment on this co-origination lending model that you have started housing going. And in terms of the next 3, 6 months, 1 to 2 years, how do you (inaudible) for Magma?

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [9]

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So I'll take up the issue on the core origination and request my colleagues to deal on the collection efficiency with regard to the unseasonal rains in March and how it has impacted in the last couple of weeks. So on the core origination, you see we have had a history, even between 2001 to 2008. And when our business model was on co-origination, and we have used to do it with 2, 3 banks. And in fact, with 1 of them, we have continued now, one of the largest banks in the country. And therefore, there's a comfort on both the sites, and we have started bringing it on 3 products, which is the passenger vehicles, commercial vehicles and construction equipment. And we have just started in the month of October. And it will take a little bit to settle down, but then both these sites have the experience of dealing with each other. So I think we'll see it over a period of time. The obvious advantages in case of co-origination that it is an asset-light and low capital-intensive model. And under the current circumstances there, the rating agencies and the lenders are looking at a lower leverage. It allows companies like Magma to continue to feed it's engine of generating business without taking the assets on its balance sheet, but being able to route the revenue through mix of 70%, 30%, where 70% is lent by the bank and 30% is lent by us. It also brings in certain extra asset quality filtering majors. So there is 4 items, we think, that is applied. Having said all of this, I think it will just take some time to settle down, and you need to (inaudible) the initial telling issues. Now I'll request Mahender and Manish to follow-up, give their feedback with regard to the impact of unseasonal rains in Maharashtra in the last 1 week of the collections in their respective businesses.

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Manish Jaiswal, Magma Housing Finance Limited - MD, CEO & Executive Director [10]

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So I can say that for SME and housing, both -- in fact, both businesses recorded a much better collection efficiency overall in the month of October. In fact, it has a share shy of 99%, which is about 1% or more higher than the month of September. And so -- and we are quite sanguine that the efficiencies, even in the next 2 months, is my expectation should be around the same levels. And I think that should be kind of stabilizing at the current level, at least for housing and actually, (inaudible) Mahender would like to chip in about it. Yes?

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Mahender Bagrodia, Magma Fincorp Limited - Chief Credit Officer of Asset Backed Finance [11]

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Yes. In ABF also, October actually has been a good month for Maharashtra, and our collection efficiency was more than 99% in Maharashtra. It actually depends on the portfolio mix, actually, which we have in Maharashtra. And we have not seen the impact. November still now actually is going good for Maharashtra, so I don't see a split in Maharashtra in terms of the portfolio which we have in Maharashtra.

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Operator [12]

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(Operator Instructions) The next question is from the line of Kunal Shah from Edelweiss.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [13]

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Yes. Firstly, in terms of deferred tax assets, so what is the treatment, which has been given in this quarter?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited - President & Group CFO [14]

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We have not given any treatment in deferred tax effect changes, we are evaluating the impact and whatever the change is required, we will take a decision towards the end of the year.

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

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Okay. So markdown or deferred tax would be towards the end of the fiscal?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited - President & Group CFO [16]

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[Exactly], yes.

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

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Okay. And any estimated quantum based on deferred tax assets which we are getting as of now?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited - President & Group CFO [18]

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The -- we have yet to evaluate, but maybe around INR 21 crores in the last quarter if we comp for it.

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

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Okay. Okay, and secondly, in terms of the overall Stage 3 assets, definitely, you have highlighted in terms of the collection efficiency and the issues which have been there in the product segments and the geographies. But given that over the last 2 years, the way we have, I think, entire business model and it has undergone a change. And there was, at the branch level, the way we were doing the disbursements, what should be the steady state of NPL looking at the disbursements over the last 2, 3 years? And how do we see it panning out now that you have you highlighted things have been better in November and December, but where should we finally see the growth rates (inaudible) because it has gone up quite a bit in this quarter?

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [20]

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I think (inaudible) NPAs as a complete (inaudible) we would be quite happy If we are at around -- between 4% to 5% (inaudible) That is one. Those (inaudible) come to individual business lines, since we have a high (inaudible) composition in the (inaudible) business, it should be around 5% to 6%. In SME, it should be close to 3%. And in housing, of course, it should be closer to 1%. So that's how I would put (inaudible) number. With (inaudible) it would be normal. If you go beyond the (inaudible) numbers, then (inaudible)

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

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Okay. And lastly, in terms of the disbursements. And so obviously, in terms of managing the liquidity and the ALM. We have been pretty much slow. It's almost half of what we did in Q1. But now maybe having gone through this phase, how do we look at the overall disbursements panning out in the second half?

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [22]

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Yes. So as you rightly mentioned, and I was sharing that in August and September. We slowed down to preserve the liquidity and to change the liability profile from short term to long term. But in the month of October, we commenced because we started with a liquidity of about INR 1,900 crores. But then it does take some time. So in the month of October, at an overall level, we are already at about 70% of the monthly volumes and the discussions with all the business teams is that in November and December, it will be pretty much normal. So we expect that Q3 would be a normal quarter in terms of the disbursals across the business lines. Subject, of course, that as we mentioned that in SME business, where we see some level of strength, so we will calibrate this. Whereas in housing, we are doing much better, and we are getting a lot of traction given the franchising is established. So we will see a higher share coming from housing. Similarly, on the used assets, we are seeing a much better traction. So the share may grow. And whereas in case of heavy commercial and vehicle center construction equipment, we want to dial down because we are seeing that the asset quality of stress in there and still there is a deployment issue. So while in between the asset class, there may be some structural adjustments. But on an overall basis, I would expect that Q3 would be a normal quarter in terms of business disbursals.

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

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So normalized would be INR 2,000 crores to INR 2,500 crores?

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [24]

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Yes. Surely, we are looking at INR 2,000 crores plus because October, as I said, it was about 70% of the normal one. And that gives us hope that November and December, the engine is quite (inaudible) and hot and people are in the field, and we are getting traction.

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Operator [25]

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(Operator Instructions) The next question is from the line of Sumit Agrawal From ICICI Mutual Fund (sic) [IDFC Mutal Fund]

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [26]

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This is Sumit from IDFC Mutal Fund. So few questions. First of all, on your Gross Stage 3 assets. If we look at from a period of Q2 FY '19 and Q3 FY '19, sequentially, (inaudible) massive reduction of about INR 300 crores to INR 400-odd crores last year. Do you expect this thing to occur this year as well? Or in other words, what was the reason of decline in the Gross Stage 3 assets?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited - President & Group CFO [27]

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So maybe the last year, we had a return of 730 (inaudible) So that's how we (inaudible) that was a one-time event. Now we have a new policy (inaudible) 730 plus (inaudible) immediately. (inaudible) And therefore, that kind of sales did not happen now. Of course, the second half is usually better. And (inaudible) look, we should see a significant reduction in our GNPA and NPA numbers.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [28]

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So can you guide to a number on it? Because it's difficult for us to actually model if there was a one-off INR 700-odd crores kind of a write-off.

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Kaushik Banerjee, Magma Fincorp Limited - Adviser of Asset Finance [29]

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So we would -- internally, we target that we should be ending the year closer to where we had started the year. Given that there has been some slippage in the first 2 quarters.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [30]

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This, you were talking in terms of the absolute Gross Stage 3 assets or...

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Kaushik Banerjee, Magma Fincorp Limited - Adviser of Asset Finance [31]

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I'm talking of the OpEx ratios -- the NPA ratios.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [32]

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Just 4.8% to 5% roughly?

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Kaushik Banerjee, Magma Fincorp Limited - Adviser of Asset Finance [33]

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Yes.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [34]

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Okay. And secondly, if we look at the stand-alone numbers. The credit cost for the first 2 quarters is roughly INR 246-odd crores. And whereas, as we know, last year itself was a pretty low number. So can you guide us about the full year credit cost?

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Manish Jaiswal, Magma Housing Finance Limited - MD, CEO & Executive Director [35]

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So that guidance I'd given that we expect given what has happened in the first half of the year, and as a percentage, it comes to close to about 2.8% to 2.85%. That for the year, it should be between 2.25% to 2.5% because the second half of the year, the NPLs is much lesser than the first half of the year.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [36]

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I understand, sir. But can you guide in terms of absolute rupees crores, please?

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Manish Jaiswal, Magma Housing Finance Limited - MD, CEO & Executive Director [37]

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That number, we don't have right now. Maybe separately, Jinesh can coordinate with you and provide it to you.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [38]

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Okay. Because this was the expectation after Q1 results as well, and -- but unfortunately, even in Q2, the number is high. So it's slightly difficult for us to estimate.

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Kaushik Banerjee, Magma Fincorp Limited - Adviser of Asset Finance [39]

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You are right. In fact, the guidance that we have given at the end of Q1 was about 1.5% to 1.75%. And at that time, I said also that if there's no further deterioration in the macroeconomic, and this is what we expect to claw back. But however, the scenario in the second quarter, and particularly in the September, was quite challenging and that resulted in a high credit losses. So therefore, given that's the way October has gone, and if there are no negative suppliers that happened in the macroeconomics, then the guidance that we are giving now would be in the range of 2.25% to 2.5% on our consolidation.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [40]

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Okay. Just one more thing. How do we read this trend in improvement in collection efficiency quarter-on-quarter from 96% or 97.5%? But if I look at your Stage 3 assets, actually, they have deteriorated on a quarter-on-quarter basis. So how is the links of collection efficiency when you measure it? Does it refer only to the gross -- I mean, the stage which is earlier than the Stage 3? Or what is a way to understand this metric basically?

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Kaushik Banerjee, Magma Fincorp Limited - Adviser of Asset Finance [41]

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So typically, (inaudible) correction efficiency is calculated on the billing, which happens during a month on contracts, which are in the -- all the stages, right, from Stage 1 to Stage 3. And then whatever amount that we collect from all the customers, it's taken as a percentage of that business. So therefore, there is no distinction and there is no exclusion in terms of the billing from the -- all the customers who are like. And similarly, there is no exclusion or distinction in the amount which is collected during the quarter from all the customers of the company. Now then the question comes back, if there is a 1.4% improvement in the collection efficiency, then how does Stage 3 assets have gone up by INR 114 crores? So there, if you refer to the slide that we have shared, slide '16. And if you look at the third bullet on a Y-o-Y basis, there we explained that due to the higher collection efficiency compared to Q1, we have had less roll forward in Stage 3 than Stage 2. But the customers, which were already sitting in the Stage 3, that means the customers were more than 3 installments, 6 installments, or 8 installments overdue, the recovery from those customers was much, much lesser. So therefore, the rollback from NPA to the standard asset was much lesser. So at one level, it increased the overall GNPA, and at another level, the collection efficiencies got improved because there were lesser roll forward from the customers who were regular until Q1, so more number of customers paid in Q2 compared to Q1.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [42]

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Okay. And there is a mention of the higher direct assignment in September 19. So what was that amount, if you can share?

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Kaushik Banerjee, Magma Fincorp Limited - Adviser of Asset Finance [43]

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This is the total, I think we did INR 839.5 crores in the second quarter.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [44]

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In the second quarter of last year?

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Kaushik Banerjee, Magma Fincorp Limited - Adviser of Asset Finance [45]

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This year.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [46]

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Yes. What was the number in the second quarter of last year, if you have it?

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Kaushik Banerjee, Magma Fincorp Limited - Adviser of Asset Finance [47]

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Last year was, if I remember correctly, around INR 450 (inaudible) crores.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [48]

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Lastly, one thing. Kaushik, we have been discussing on this portfolio quality indicators that in terms of early volume indicators. I just want to understand if the company had been faring well on those parameters, which is just straight from the data point in your presentation?

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Kaushik Banerjee, Magma Fincorp Limited - Adviser of Asset Finance [49]

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Yes. Actually, I'll have Mahender answer your question.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [50]

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Let me just complete my...

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Kaushik Banerjee, Magma Fincorp Limited - Adviser of Asset Finance [51]

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IQuestions. Yes, yes.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [52]

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So why the bank note getting reflected in the gross Stage 3 kind of level of assets? I mean, is it because the book we have, the growth in the book has been not very strong in the last 2, 3 years? Or ideally, all these things should not lead into deterioration, even in the Stage 3 kind of an asset, right? Otherwise, this does not lead us to anywhere because this doesn't [need] confidence that the portfolio, that when it matures -- actually, it's actually slipping into an NPA or in that kind of a space.

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited - President & Group CFO [53]

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So well, Mahender has actually handled the data part of it. The response to the point you have raised just now is that given the fact that what we are witnessing right now in terms of stress in the market cannot be captured from a predictive perspective, especially in the segment that ABF operated. So the point I was trying to make a bit earlier that when we moved (inaudible) 96.1% and 97.5% actually reflects the collection efficiency of the peak. Okay. The challenge has increased and the fact that [value has] moving forward, there's inadequate (inaudible) weakening. And I wouldn't say it's to Magma alone. It's the fact that the percentage looks higher because of the continued decline in the AUM (inaudible) So if I look at the indicators, there isn't a significant delta change, even the EWI parameters or in the CPMI parameters. Mahender?

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Mahender Bagrodia, Magma Fincorp Limited - Chief Credit Officer of Asset Backed Finance [54]

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Yes. Actually, that facility faced a challenge in the commercial vehicle because of this actually we see incremental into CPMI parameter from 4.7% to 5.2%. And it is largely because of the one product. Otherwise, if you look at our portfolio, all of the products are holding well. And commercial vehicle also at the moment because that market is going through a tough time. And the customers are [nonvehicle] customers. If their (inaudible) have been impacted, this payment actually has been delayed.

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited - President & Group CFO [55]

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And also, can I add with the closing data from (inaudible) numbers of March FY '19. This phenomenon is actually Q1 and Q2, and it is largely driven by the market volatility situation rather than sourcing and the collection sensitivity. We've all seen a steady (inaudible) portfolio quality, which is reflected over a 4 or a 5- year quarter situation -- It's a two quarter situation.

Yes. So very difficult to capture that on any real indicator in terms (inaudible) performance. So CPMI was (inaudible) indicated, do not show a level of deviation from [loan] that you're actually seeing in terms of the Stage 3 assets.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [56]

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And sir, on a credit rating, I see that the short-term debt is actually 1 plus -- (inaudible) the rate today, 3 plus. And the first half profitability of the stand-alone, I mean, this is quite subdued. So do you think it can have some impact on the ratings? Or what are your comment on that?

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [57]

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So what I would think that the #1 short-term (inaudible) there should not be any impact for (inaudible) because, of course, [there has been a little bit of less] profitability. But there are several parameters which [I think is important to] look at. And we are very -- for example, we have extremely healthy capital liquidity. We are seeing the healthy capital liquidity. Our (inaudible) cannot give an update (inaudible) so I would -- it is a fact that the cost of funds -- there are 2 factors which are impacting us (inaudible) forecast. We don't know the cost of funding and we have a (inaudible) against the fixed price either, (inaudible)fixed price. But the total cost has shot up by almost about INR 120 crores (inaudible) so there has been multiple factors that has significant impact. 120 basis points on the (inaudible) INR 13,000 crores, you can calculate the amounts. And next factor is the credit cost, which has been higher. And we have been stating this (inaudible) The impact is here and now. And then we applied the (inaudible) you used to have 2.4% from 0 to 90 buckets, but it is (inaudible) You (inaudible) one bucket and they have to take a little amount of [CapEx] September, as we have clearly said, was a very unusual month for us from collection efficiency as we (inaudible) consideration that we have done, maybe better in terms of collection efficiency. But the (inaudible)

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited - President & Group CFO [58]

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I think I would like to -- just to add. I would like to refer you to Slide number [29] (inaudible) CPMI data. And (inaudible) your question because we (inaudible) September 14 to September 19 (inaudible) CPMI and (inaudible)

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Manish Jaiswal, Magma Housing Finance Limited - MD, CEO & Executive Director [59]

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I think I'd just like to add on about your question on rating agency point of view. Extremely important to note that the current phase of both NBFCs is triggered by the liquidity crisis. And these movements, they are very far and few liquid NBFCs and with good quality of structural liquidity. So I think liquidity will separate men from the boys.

So that being said, there's a price to pay for liquidity, which we have paid in this quarter. And certainly, this is something which we are addressing in subsequent quarters. And the rising NPL is very clearly shown in some of the product lines, not all. And our belief is that from what we cite and see, our trends are quite encouraging over the next 2 quarters. We will see probably the worst (inaudible) So I don't think a rating agency takes a decision in a hurry. So from organization (inaudible) respected, we've been in business for 3 decades, and we have largely overcome most crises. We have kind of set a lot of such issues back. So yes, it's time to recoup and move up from here. And I think the (inaudible) looks positive. I think we've quite pride ourselves in the way the organization has battled with the current situation.

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Operator [60]

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(Operator Instructions) The next question is from the line of Nischint C. from Kotak.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [61]

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Yes. Just one question. Can you kind of explain the provisions of INR 122 crores for the quarter? If you see your loan balance sheet as I see, it's actually down by around INR 246 crores. So does it mean that you made a large write-off of something like around INR 370 crores.

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited - President & Group CFO [62]

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Well, (inaudible) based from what we are finding (inaudible) not able to (inaudible) through the numbers. Can you please explain?

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [63]

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See the provisioning for the quarter is INR 122 crores, yes? If I look at the ECL, the outstanding ECL, on Stage 3, it has gone down from 5 -- I'm looking at quarter-on-quarter data , right. Stage 3, it has gone down from INR 561 crores to INR 329 crores. And for Stage 1 and 2, it has gone down from INR 300 crores to INR 286 crores. So net-net, your ECL has gone down to something like around INR 250-odd crores, INR 246 crores. And despite that, you have such a large provisioning cost.

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [64]

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I think, Nischint, there is some misreading of the data. What (inaudible) if you can just go to the past slide. Yes, if you go to Slide 16, where we have given the breakup of INR 122 crores of total NPLs, which actually has 3 components. One is the INR 72 crores, which is a provision, which includes INR 47 crores on account of 100% provisioning which has triggered the item as we explained in the first quarter also. And as Kailash was explaining, that (inaudible) is going to INR 730-plus crores we write off. So INR 72 crores minus INR 47 crores is at INR 25 crores additional provisioning in the Stage 3. And the second element is INR 50 crores, which is on account of loss on settlement or loss on sale of the purchased stock which was INR 42.8 crores in the first quarter and INR 50.5 crores in the second quarter. Whereas the other figures, which is INR 72 crores in the second quarter was INR 85.9 crores in the first quarter. So that is what actually explains the breakup of INR 122 crores in the second quarter versus INR 128 crores in the first quarter.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [65]

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So loss on settlement, our imposition would have been otherwise added to GNPLs, right? It would have been...

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [66]

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Yes. So this (inaudible) this is not GNPL. This is a loss, which has gone straight to the P&L vis-a-vis Stage 3 assets, which every quarter what you do is that if an asset becomes GNPA, then you repurchase the asset or you recover from the party. And if the asset is not plausible, then you use legal needs to settle with the party. And in other situation where you settle with the party and collect cash or you repurchase the stock and you sell, there is a lot that you (inaudible) So these are obviously more than 95% of the (inaudible) [GNPL], which goes straight to the assets. So it's INR 42.8 crores or INR 50.5 crores is the loss, then obviously, the GNPL would be much higher than that which has not settled. But then we got INR 50 crores less, and therefore, it has been written off, even though we continue to pursue the legal efforts against the party in the case of loss on account of repo and sales.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [67]

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So how do you not -- I mean, a simple question is that have you not done this particular reprocess from [early] revenue position? Then possibly, one way to think about it is that your [GNPL] would have been higher by INR 50 crores?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited - President & Group CFO [68]

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No, then it would have been higher by even more because this is only the loss. There is also a recovery that we have made. So if you add up the loss plus the recovery that we made, that sum total of that is what will be added to the GNPA. But this is what the industry norm is that every quarter, how do you bring down your GNPA? There's a fresh acquisition and then there is a resolution that happens in the existing GNPA. And mostly, the resolution that happens is by way of sale or settlement, very small percentage of the customer will pay you all the overdue installments. And we'll go to the standard as that typically happens in the fresh GNPA, which is 90 to 180. But the moment it costs us 180 DPD, then mostly, it is through the reposition of settlement.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [69]

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Sure. And net ECL provisions should actually increase your ECLs, right? But if I look at it, actually, ECLs have gone down on a quarter-on-quarter basis?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited - President & Group CFO [70]

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Let's just go to the next slide. Q1, the ECL was 300 plus 523, which is 823. Clear? Next, Q2, it is 286 plus 599, which is 800 -- (inaudible)

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Unidentified Company Representative, [71]

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(inaudible) not provisioning.

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited - President & Group CFO [72]

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This is [net debt provisioning] So it would be (inaudible) little bit of calculation, but we only -- this is during (inaudible) significantly.

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [73]

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And I'll just clarify the thing (inaudible) in Stage 3, there is an increase in that provisioning. Whereas in Stage 1 and 2, there was a reduction of INR 14 crores. The INR 300 crores has gone down to INR 286 crores. So there is a INR 14 crores reduction. But in Stage 3, there is the increase in that provisioning. Can you again go back to Slide 16? That explains. So if you look at INR 72 crores minus INR 47 crores, so INR 24 crores plus INR 14 crores (inaudible) So almost about INR 38 crores is the increase in the provisioning in the Stage 3, and INR 13 crores is the reduction in the Stage 1 and 2. And net-net, there is a INR 34 crores increase in the overall ECL provisioning (inaudible)

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Operator [74]

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The next question is from the line of (inaudible) from (inaudible)

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Unidentified Analyst, [75]

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Yes. Two questions from my side. Sir, in terms of month-on-month sales data that we (inaudible) that is the wholesale dispatch data that we get. We're seeing a minimum 20% while in either CVs or EVs or 2 wheelers or 3 wheelers. So in fact the situation in terms of the retail sales that are happening in terms as well, which can be seen directly from the disbursement that might be happening in terms of financing?

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [76]

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So of course, there is a slowdown in the primary sale of these vehicles. And if you look at the data released by (inaudible) or by (inaudible) then we see that there is a 24% to 25% decrease in the primary sales data. And obviously, this will have an impact on the financing also of the new assets. Having said that, as I was talking sometime back that in the second quarter, we have 63% of the total disbursal coming in from the used assets. And in the used assets also, whenever there is a slowdown, given that the reverse will go down. But then, the sensitivity of the market for the huge assets going down is not directly proportional to the reduction in the primary sale of new vehicles. So therefore, if you have a higher weightage on financing of the new vehicles, the disbursement will be a lot more impacted compared to the used assets. And we have also witnessed the same trend that our financing of the new vehicles has gone down much more compared to the financing of the used assets.

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Unidentified Analyst, [77]

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Okay. Sir, second question was with respect to the profitability for transport operators. Sir, the economic slowdown, I think, in few reports have come out in the market saying that profitability is reducing drastically. So is that also to do with how the CV market and the financing has been progressing over the last 2 to 3 quarters?

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Manish Jaiswal, Magma Housing Finance Limited - MD, CEO & Executive Director [78]

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Yes. So one actually (inaudible) financial viability of the CV operators today actually -- have actually (inaudible) impacted. And CV is largely into retail, and retail category also, we are dealing with the customers who are the first-time buyers. And when you interact with these customers, so they are mentioning that their deployment actually today is around 50% and it is impacting their cash flow liabilities. But the single line is actually when you deal with the customers of a new vehicle and when you deal with the customers of a used vehicle, the (inaudible) the EMI component comes down around 30 to 35% to the (inaudible) which we see for the new asset category is much higher than the used assets category.

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Operator [79]

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The next question is from the line of Sumit Agrawal from IDFC Mutual Funds.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [80]

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Just one question, this loss on settlement or reposition is roughly INR 50 crores for the quarter. What is the gross value of assets here?

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Kaushik Banerjee, Magma Fincorp Limited - Adviser of Asset Finance [81]

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So we don't have this number, right. And then maybe Jinesh can provide you subsequently. But typically, the losses can be anywhere between 35% to 42%, 43%. But then, that's more like rule of thumb, but the exact details, we can provide later on.

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Sumit Agrawal, IDFC Asset Management Company Limited - VP of Fund Management [82]

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The trend (inaudible) this number deteriorated, let's say, quarter-on-quarter?

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Kaushik Banerjee, Magma Fincorp Limited - Adviser of Asset Finance [83]

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Yes. So whenever there is stress in the market, the loss on sale of repo will be higher. And also, don't we see that the repo and release, so why this is in the markets when the deployment is good and the operators are earning good money? Even when you repurchase the vehicle, we have seen typically 70% of the cases, they will come and pay the overdue installment and release the vehicle. Similarly, when the markets are tough like the current times, then we see that the niche percentage goes down to as much as 45% to 50%, and which is what we have witnessed even in the second quarter. So it is a direct and lead indicator of what is the deployment in the market and what is the cash flow of the operators.

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Operator [84]

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That was the last question in queue. I would now like to hand the conference back to Mr. Udit Kariwala from Ambit Capital for closing comments.

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Udit Kariwala, AMBIT Capital Private Limited, Research Division - Research Analyst [85]

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I would like to thank management who gave us the opportunity to host this call. I would also like to thank all participants for attending. Thank you very much, and have a good day.

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Kaushik Banerjee, Magma Fincorp Limited - Adviser of Asset Finance [86]

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Thank you.

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Sanjay Chamria, Magma Fincorp Limited - Vice Chairman & MD [87]

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Thank you.

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Operator [88]

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Thank you very much. On behalf of Ambit Capital Private Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.