ESAFSFB - ESAF Small Finance Bank Ltd Share Price

During the Q4 FY26 earnings conference call for ESAF Small Finance Bank, management provided an optimistic outlook, focusing on their strategic initiatives and financial health. The key points highlighted by management included:

1. Business Growth: Total business reached INR 48,276 crore, up 15% year-on-year. Gross advances increased by 19%, while deposits grew by 11%, demonstrating balanced growth.

2. Secured Lending: The bank is transitioning toward a portfolio with 70% secured assets by March 2027, currently at 61%. In FY26, disbursements totaled INR 42,530 crore, up 103% from the previous year, with 82% of disbursements directed toward secured assets.

3. Asset Quality Improvements: Gross NPA and Net NPA ratios improved significantly, declining to 5.4% and 1.8%, respectively, from 6.9% and 3.0% a year prior. Fresh slippages fell to INR 106 crore from INR 427 crore, reflecting a stable portfolio.

4. Profitability Metrics: For Q4 FY26, net interest income was INR 518 crore, up from INR 432 crore, with a net interest margin improving to 7.3%. Profit after tax increased to INR 24 crore from INR 7 crore in the previous quarter.

5. Future Growth Targets: Management forecasts steady growth in loan advances of 20-25% going forward and aims for a return on assets (ROA) of 2% by FY28. They expect continued improvements in asset quality, margins, and return ratios.

6. Technology Investments: The implementation of the ESAF 2.0 "“ StratoNeXt initiative aims to enhance operational efficiency and customer experience, with completion expected by Q3 FY27.

Overall, management expressed confidence in capturing growth opportunities, leveraging their extensive network, and improving the financial fundamentals of the bank.

1. Question: "Given the portfolio mix is more towards secured, currently at 60%, and we're targeting 80%. What sort of normalized credit cost are we expecting with this kind of portfolio and by when?"
   Answer: A small correction on the unsecured book; we're aiming for a 30% share eventually. The current quarter's credit cost is at 1.08%, which includes some backlog in NPA provisioning. On a steady state, we expect a credit cost of about 2% moving forward, and we aim to achieve this by FY 28.

2. Question: "What is the growth outlook and ROA for FY 27?"
   Answer: While it's challenging to provide specifics, I can say that growth is returning and asset quality issues are nearly resolved. Thus, we expect to maintain steady growth going forward and constructive performance overall.

3. Question: "With the portfolio more focused on secured lending, what steady-state ROA are we targeting?"
   Answer: We're aiming for an ROA of 2%, which we anticipate achieving by FY 28. You should start seeing traction in the next few quarters as we continue this trajectory.

4. Question: "Can we expect continued healthy loan book growth, considering past challenges?"
   Answer: Yes, we've targeted growth of 20% to 25% going forward, especially since we've offloaded some loans via IBPC, which doesn't factor into the growth numbers.

5. Question: "Any guidance on the cost-to-income ratio going forward?"
   Answer: We expect the cost-to-income ratio to be around 55%, plus or minus 2%. This is part of our disciplined approach to maintaining operational efficiency.

6. Question: "Now that the secured book is growing faster than the unsecured book, will NII grow in tandem?"
   Answer: Yes, our NII has reached a steady state, and we anticipate an NIM of about 7%, plus or minus half a percentage. This should align with our loan book growth moving forward.