SBFC - SBFC Finance Limited Share Price

The management of SBFC Finance Limited provided an optimistic outlook with several forward-looking points during the Q4 FY25 earnings conference call. Here are the key takeaways:

1. Growth Expectations: The management is targeting a quarter-on-quarter growth of 5% to 7%. This continuous growth indicates confidence in performance despite a slightly subdued economic environment.

2. Operating Costs: The management aims for a 50 basis point reduction in operating costs year-on-year, building on a previous achievement of a 69 basis point reduction. They report that cost efficiencies will enhance as they benefit from scale.

3. Branch Expansion: SBFC plans to open 20 to 25 new branches within the year, signaling a commitment to increasing its footprint and market reach.

4. Stable Borrowing Cost: There is no expectation of a reduction in the cost of funds for the upcoming financial year, although any reductions will be seen as a bonus.

5. Gold Loans: The gold loan portfolio is expected to remain steady at 15% to 17% of the total AUM, notwithstanding changes in market conditions.

6. Credit Costs: The management anticipates that credit costs will remain around 1% with a margin of +/- 10 basis points, indicating a cautious but stable credit quality outlook.

7. AUM Milestone: The firm is optimistic about crossing INR 10,000 crores in Assets Under Management (AUM) this year, highlighting a significant growth target.

8. Technology Integration: Launching a paperless gold loan process and developing generative AI-assisted credit assessments exemplifies their focus on tech-driven efficiency and customer service enhancement.

Overall, SBFC Finance Limited is positioning itself for robust growth while prioritizing cost management, branch expansion, and technology integration to navigate a cautious economic landscape effectively.

Questions and Answers from Q&A Section of SBFC Earnings Call Transcript

1. Question: "Aseem you mentioned that we are a little bit more cautious in the current environment. Now is it just kind of a fear of unknown, unknown? Or is it something that you're tangibly able to see at the ground?"

   Answer: "Nischint, we are indeed cautious due to the volatility we've experienced in recent years, driven by various factors like liquidity issues and regulatory pressures. It's crucial to remain watchful given our focus on riskier customer segments."

2. Question: "On the asset side, with rates coming down, how fast do you think you need to transmit? And any specific reason why you said that you don't want to pen down any cost of benefit this year?"

   Answer: "Transmission takes time. Rate cuts might lead to gradual reductions in borrowing costs later in the year, but no immediate reductions are anticipated for customers. We are cautious about penciling in benefits this financial year."

3. Question: "Any change in outlook for gold business after the draft regulation from RBI?"

   Answer: "There are no material changes for us post-draft circular. We welcome regulatory clarity and continue to see growth in our gold business due to both volume and price increases."

4. Question: "With the increase in 1+ DPD, have we put in some incremental credit filters? And what are we doing extra in terms of improving our collection efficiencies?"

   Answer: "The increase in 1+ DPD relates mainly to the Karnataka portfolio. We're actively enhancing our collection processes and don't expect a significant impact on our guidance for the full year."

5. Question: "On disbursement, we saw our disbursement in secured SME is actually down. Can we maintain our 5% to 10% sequential growth rate?"

   Answer: "Yes, the disbursal trend has improved. Despite some earlier fluctuation, we are confident of sustaining the growth trajectory, with expectations of achieving over INR 300 crores in monthly disbursals by the end of the year."

6. Question: "What would be our Tamil Nadu exposure given the evolving regulations?"

   Answer: "Our Tamil Nadu exposure stands at 3% of AUM. We remain watchful about market conditions before deciding on further expansion in that region."

7. Question: "Can you explain how you decide which geographies to expand into for new branches?"

   Answer: "We focus on deepening our presence in states where we already operate, moving district by district based on our origination and profitability experiences."

8. Question: "How do you see the bounce rate evolving, particularly with elevated risk in certain states?"

   Answer: "The bounce rate has remained stable. While we have observed some challenges in Karnataka, we anticipate stabilization in upcoming quarters without significant impacts on our forecasts."

9. Question: "What is our overall LTV on the gold portfolio, and how does it align with the recent RBI draft regulations?"

   Answer: "Our overall LTV is approximately 60%. We are already compliant with existing regulatory guidelines, and the changes do not pose a significant problem for us."

10. Question: "Could you clarify the repayment structure of your gold loans amidst regulatory changes?"

    Answer: "Our structure involves monthly repayments rather than bullet repayments, which minimizes risk exposure in a fluctuating market. We expect minimal impact from regulatory shifts on our practices."